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Digital Subscriptions > The Hedge Fund Journal > Issue 142 – Aug 2019 > Man FRM Early View

Man FRM Early View

July 2019

Markets

Markets are dangerous when we all agree about what’s going on, and in these dog days – of Summer for those of us in the Northern hemisphere – we have built a lazy consensus of striking proportions. At the heart of this consensus is the idea that inflation is dead. Properly dead. Part of what lies behind the inflation story is the gloom about the manufacturing outlook, pretty much everywhere. People say that from the awful numbers out of Germany to the collapse in the cost of freight it all starts with China, where to compound their more observable problems there has been a contraction of the monetary base. Monetary contraction has been somewhat global too, but now the Central Banks it seems, are in widespread agreement that it is time to ease again.

Markets have been reading this writing all over all the walls, and drawn the obvious conclusion: everything that matters had to go up - a lot: lower rates lead to higher bond prices, clearly, which in turn encouraged expansion of PE multiples and contraction of risk premia. With a 60:40 portfolio you might be up 15% this year provided you didn’t try to do anything too clever. Better still, take a profit here and lock in the returns for the year. Go to the beach without a phone. Various measures of equity outflows show that this has been going on at a lively lick all year.

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