Financial markets in a state of confusion
Bonds are the traditional safe-haven asset, popular in a risk-off market. Shares are the popular risk-on asset, rising in times of market confidence. This is the basis for traditional diversification, and the principal underpins one of the central theories in finance. So why are bonds and shares rallying simultaneously? Both US 10-year Treasuries and the S&P 500 are at all-time highs. Likewise, the AUD (often seen as a risk-on currency) has rallied against the USD since January, while gold, the ultimate safe-haven, has rallied from under $1,100 to over $1,350 in the last six months. Anecdotally, there also seems to be increased capital flowing through private investments, with Australia VC funds raising at least $1.1b in new funds in the last 12 months. Could central bank policies be pushing all assets up, regardless of risk level? Let us know your thoughts in the comments - where (if anywhere) are you seeing value?
Patrick was one of Livewire’s first employees, joining in 2015 after nearly a decade working in insurance, superannuation, and retail banking. He is passionate about investing, with a particular interest in Australian small-caps.
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Comments
Jordan Eliseo
I agree with Patrick's sentiments - though the alternative way of looking at this is that Financial Markets are entirely unconfused. Market participants now fully expect further Monetary Policy Extremism - in that environment - it is somewhat logical to trade dollars/euros/yen/pound for anything more tangible - be that ownership of productive businesses or gold.........whilst it is true that there is minimal CPI in the developed world right now, why wait for the money to die - better to trade it for something more tangible now
Patrick Poke
Thanks for the comment Jordan. And good point about waiting for inflation. Macquarie Equities seem to be agreeing with us too, they issued a note with similar sentiments at lunchtime, going as far as to say economies in future would be "completely dominated by the state."