The world of finance never gets tired of clichéd maritime metaphors. Everybody and his sister now talk about a sea change for investments. This tidal wave has been rather well encapsulated by Howard Marks, Oaktree’s chairman, in his recent post.
The current situation is a reversal from the past 10 years or-so where liquidity was plentiful and risk-on was everywhere. This has been typically characterized by the incredible run of growth companies, no better incarnated by the US FAANGs. This was also accompanied by a period of relatively high global growth, certainly driven by the US and China. The latter was indeed coming out as a clear contender for the world-leading economic power.
From this perspective, today looks very different. The public coffers look bare. The economic outlook is tamer. Debt is expensive. In this change of paradigm, equities and bonds dropped in tandem in 2022.Too bad for everyone, really.
In short, a high correlation between all asset classes, and very few places to hide. As there is little time to lament on this anymore, and we’ve already written-off a good 30% of our kids’ Christmas list, what’s next?
A friend of mine, and a keen reader as it strangely happens, warmly recommended that I’d be more specific in allocations going forward. Under the humble disclaimer that we don’t read in tea leaves, we think that we should resolutely be allocating more than usual to bond-like returns in the months to come. For one, cash returns have become very decent at ~4%. Secondly, corporate bonds yield between 5% (for investment grade) to 8% for high-yield. These are equity-like return on a long-term average basis. Thirdly, high-dividend stocks should also be favoured for the same reasons.
Fare well my friends, ahoy !
360 Advisory LLC is a Boston-based RIA managing investments, including crypto