InvestIdeas

Jeff concludes with two questions.
1. Is the current relative performance pattern sustainable?
2. Should we now expect more fat-tail events?

His answers were simplistic:
1. Maybe not; and,
2. Definitely.

"When people take 'a little risk' and get rewarded for it, they are then encouraged to take 'a little more risk.'

As my colleague Victor Adair notes, 'People in the 'crowd' don't appreciate the risks they are taking because they're surrounded by people who believe the market will keep going up.'"

1. The Stock Market is in a Bubble
2. COVID-19 is getting worse, not better
3. The World Debt Crisis
4. Zero Interest Rate Policy (ZIRP)
5. The Economy is in A Shambles
6. A Great Wealth Divide is Causing Social Unrest
7. Nuclear Threats
8. Social Security and Medicare Will be Bankrupt Soon
9. Serious Inflation Has Occurred and More is on the Way
10. Target Date Funds do not Protect Those Near Retirement

He pointed to the Citi Panic/Euphoria Model, a contrarian indicator to bolster his bearish case.

“If you get a confirmed move above 1% in the 10-year, that would be the perfect catalyst to get a pullback in equity markets that would take out some of this froth and complacency.”

A key gauge of inflation expectations in the US over the next five years has come within a whisker of 2 per cent, up from 0.16 per cent in mid-March and the highest level since October 2018.

If current forecasts for growth and corporate earnings prove prescient, major central banks, in particular the Federal Reserve, may find it difficult to control longer-term yields.

An off-the-cuff remark from a policymaker could prove more destabilising for bond markets than an uptick in inflation.

1. Deleveraging in China
2. Fiscal fatigue and
3. Economic scarring from the pandemic-driven downturn.