Seymour Equity have produced an outstanding report here. The attached document cuts to the core of the macro and cyclical issues facing the various asset classes. Its makes extensive use of the Kondratieff long wave theories and explains these for us. This is useful for those new to these theories.
(Its worthy of note that Dr Marc Faber is an advocate of this long wave explanation of economic cycles. Although he also makes very clear that he has never seen an effective method of timing these cycles accurately and therefore they are very dangerous to use to determine market timing issues).
For regular contributors to this site there is little truly new here but the report sums up very nicely and clearly some of the major themes and provides some Seymour in house recommendations to hedge the coming “inflationary deflation” storm.
To pay compliment to the report its concisely written. By definition, concise writing communicates in as few words as necessary and the author achieves this perfectly here.
I would highlight their view, reconfirming my own comments, that the approaching wave of inflation is far from a consensus view, at present. We can see evidence of this from fund flow data as well as the yield compression to negative nominal rates (let alone real rates) on fixed income securities.
Note, bullion particularly, continues to be shunned by many mainstream investors who are “heavily under weight” the asset class.
The report makes a compelling case, in my opinion and is a ‘must read’ document if you value my opinion.
I would only add, the report underplays this, that this is the first time in economic history that debt monetization has taken on a world wide flavor. Excess capital (mostly still in US$s) is in money market and or liquid fixed income securities. The inflationary deflation is being expressed in the fixed income markets at present as negative yields can be seen across the entire yield curve of these assets. Inevitably, as the report suggests, the “crunch” will be the ratcheting up of these negative yields. Capital returns will (and already have gone neutral) whilst yields are negative. In the medium term this will produce the said ‘crunch’. Holders of these securities will be squeezed as inflation increases. The fund flow reversals upon this occurring will be unimaginable. There are simply not enough listed equities to absorb those fund flows. Prices, in this scenario, will explode upwards.
I had been expecting this ‘crunch’ to come sooner but this matters not. Mathematically this moment has to occur. The variable determining the inception point are the vagaries of human actions which, given this is a global phenomena, makes this timing issue more complex and less predictable.
I maintain, get paid to wait if you, like me, are “risk” allocated. Be nimble with your leverage and asset allocations using price as your signal. An inflationary wave is coming at us quickly now as the squeeze is in motion. Japanese elections resulted in an LDP landslide win (which is hugely inflationary:http://www.bloomberg.com/news/2012-12-17/ldp-landslide-win-clears-pipes-for-japan-fiscal-spigot-economy.html) and the BOJ announcement follows Friday.
Onwards
Rich
Here the report: SP-Dec-2012
p.s. here today’s fund flow report from Wells high lighting the latest data point.
Foreigners are fleeing US fixed income securities. Price wise its less obvious as the Fed is a significant buyer via QE of course. This holds up price allowing foreigner holders of US treasuries to exist their positions. This creates excess liquidity in non US$ cash and therefore further yield compression across the world. It also significantly debases the US$ which is what the Fed desires as part of its reflationary and structural re-balancing global trade strategies. The game appears to be underway.
(8 votes, average: 4.63 out of 5)
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