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Consistent with this view, we believe that there are four major potentially secular changes that all investment professionals must consider: The good news is that many of our highest conviction investment themes forincluding the ongoing slowdown in global trade, had already begun to capture this sea change in macro and geopolitical trends.
We also believe that Real Assets, particularly those with yield and growth, can prosper in the macro backdrop that we envision. Meanwhile, we are now balanced in our outlook on Equities versus Credit, but in both asset classes, we continue to suggest selling Simplicity and buying Complexity.
Overall, though, we do not lose sight of the fact that we are undergoing a paradigm shift, and often these types of regime changes do not always transition smoothly.
As a result, we maintain our long-held approach of seeking to monetize aggressively the periodic dislocations that inevitably occur in a world of increasing geopolitical uncertainty and macro instability. But here we are.
As we look ahead intowe think that we are at a major inflection point across the global capital markets. Thereafter, central banks began to overcompensate for this structural downturn in wage inflation by inflating prices of financial assets, with the explosive surge in monetary stimulus that occurred in the aftermath of the Great Financial Crisis only exacerbating this trend Exhibit 4.
Data as at November 15, Many governments also promoted fiscal austerity, multilateral trade and aggressive monetary stimulus.
Brexit vote and U. Specifically, many nations are definitely now viewing trade and foreign investment from a more nationalist perspective, fiscal austerity is being replaced by stimulus via lower taxes and infrastructure spend, while key industries such as the Energy and Financial Services sectors are likely to be deregulated.
Somewhat ironically, both the U. However, in absolute terms, it has been subpar compared to history and it has been wildly lopsided in terms of income dispersion.
Not surprisingly, working citizens around the globe, particularly in the developed markets, are now tired of paying for a financial crisis that they feel they did not create and of the effects of extreme monetary policy i. They also want growth in real incomes and benefits for their families, including education, healthcare, and retirement savings.
All these influences have coalesced to create what we believe is a paradigm shift across the global capital markets. They are as follows: Fiscal policies are now favored over monetary ones to stimulate growth Deregulation over reregulation Domestic agendas take precedence over global ones Heightened volatility spills over from the currency markets to the interest rate markets Consistent with this view, we think that the macroeconomic backdrop will likely be shifting from a disinflationary, slower growth environment towards a reflationary-directed one with less onerous near-term banking regulation and fiscal targets.
We note that the Producer Price Index PPI in China — which will account for one-third of total global growth in — has turned positive after 54 months of being negative.
In our view, this shift towards more reflationary policies by many growth-starved countries around the world is still largely an aspirational one, offset in many instances by slowing trade, poor demographics, weak productivity, and heavy debt burdens.
As such, we think that the cross-currents of near-term reflationary stimulus juxtaposed against the aforementioned structural macro headwinds likely mean more volatility lies ahead for investors again in In particular, we expect to see elevated and sustained volatility extend beyond the currency markets to include — among other things — global interest rates markets in Exhibit 5 Data as at December 31, While we did not explicitly forecast either Brexit or a Trump presidency, we do take some comfort in our investment process, as many of our highest conviction investment themes in the second half of had already begun to capture this sea change in macro and geopolitical sentiment.
See Section II for full details, but we now actually have higher conviction about the following six macro themes that we have been espousing for some time: We still strongly believe that long-term rates achieved their lows immediately after Brexit, suggesting that stocks and bonds may not be as positively correlated in the future The gap between Simplicity and Complexity is too wide and will likely reverse in the coming quarters We remain cautious on global trade, favoring instead more domestic-oriented stories, particularly in EM The U.
Indeed, we would be remiss in this outlook if we did not also spend time on areas where our original investment thesis may need to be revisited at some point in — or at least tweaked to better accommodate the new world reality that we now live in.
See Section III for full details, but we acknowledge the following areas where our macro outlook has evolved of late: What has not changed, however, is our desire to again seek to aggressively monetize the inevitable periodic dislocations that occur in a world of heightened political uncertainty and macro instability.
See the full paper for details of how we are translating our macro views into specific asset allocation suggestions, but our key action-items for are as follows: Our target for the year Treasury at year-end is now 2. As such, they are now actually not that far from what we view as near-term fair value.
We also believe that current real year rates of around basis points are at the top end of their near-term range, and they could actually decline in the first half of If we are wrong and global bond yields do surge higher in the near-term, then German bunds, not U. Treasuries, appear most at risk, especially on a local currency basis, in our opinion.
Consistent with this view, we believe that we recently entered an important regime change, with many governments now targeting reflation via fiscal impulses versus simply more monetary stimulus.
In our view, this shift in focus is a big deal because it means that stocks and bonds may no longer be as positively correlated in the future.
Relative to JanuaryLiquid Credit no longer appears like a bargain. Just consider that our measure of the market-implied default rate for High Yield has dipped all the way to 0.
Subordination risk across High Yield is also a concern. Meanwhile, spreads within the High Grade segment of the market appear rich in both absolute and relative terms.
As such, a high conviction call for us remains our overweight position in Opportunistic [email protected] am - Paradigm Shift Vol. 4 is complete!. While there’s still a couple of scenes left to post here on website, I just put the finishing touches on the last page of Paradigm Shift Vol.
4 a couple of weeks ago, and Issue #5 debuted at M.I.C.E. this past weekend. I’ll be collecting the whole thing into a trade paperback for release in Paradigm shift definition is - an important change that happens when the usual way of thinking about or doing something is replaced by a new and different way.
How to use paradigm shift in a sentence. A paradigm shift, a concept identified by the American physicist and philosopher Thomas Kuhn, is a fundamental change in the basic concepts and experimental practices of a scientific leslutinsduphoenix.com contrasts paradigm shifts, which characterize a scientific revolution, to the activity of normal science, which he describes as scientific work done within a prevailing framework (or paradigm).
Nov 12, · Among many factors driving the shift is the realization that the new paradigm not only makes more money for the firm than shareholder capitalism: when correctly executed, it .
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Our authors are pioneers in consciousness, people with the profound knowledge that there is more to life than meets the eye - find out what they have to say buy your copy here.>. A paradigm shift (also radical theory change), a concept identified by the American physicist and philosopher Thomas Kuhn (–), is a fundamental change in the basic concepts and experimental practices of a scientific discipline.