BERNSTEIN: DON’T BUY THE RISK-ON RALLY
Richard Bernstein was out with a piece in the FT today describing why he believes investors should focus on safer assets. He says the risk-on rally in beta names won’t last:
“Investors use the hackneyed term risk-on to refer to assets that have tended to outperform when investors are bullish. Commodities, real estate and emerging markets would be prime examples. Risk-off assets are perceived haven assets such as US Treasuries, German Bunds, the US dollar and even US stocks.”
Bernstein has long maintained that the better values in this environment are the high quality assets:
“Risk-off assets will likely be the secular investment theme of the 2010s. US-based assets (both stocks and bonds) continue as our favourites. In fact, this significant secular shift is already under way. Despite the recent attention-grabbing rally in risk-on assets, the S&P 500 has outperformed Bric equities for more than four years.”
Read the full piece here.
Richard Bernstein is saying something very similar to what Jeremy Grantham recommends: buy and hold the highest quality U.S. stocks. JG says 3/4 of the US equity market is overpriced, but the 1/4 that are Quality stocks are fairly valued and likely to overperform. The difference is that JG hates gov bonds. I suspect that Bernstein would prefer investment grade corporate bonds to Treasuries, although the FT article does not say so.
Question: what are the best ETF funds to play the QUALITY US stocks? Once Santoli in Barron’s said that VIG was a good way to play them.
I use HDV to invest in high quality US equities. This ETF tracks a morningstar index that is screened for quality stocks.
The global risk-on rally started the same day LTRO began, on December 22, 2011. I guess when you combine LTRO with the Fed’s Dollar Swap Lines, you get an international credit-infused rally.
See: http://contraryinvestor.com/2012archives/mofeb2012.htm
Makes me wonder what happens when central bank liquidity stops being doled out like candy.
This is perception and not reality. Central bank actions add to RESERVES. What will drive the economy in the long run is money creation through loans or lowering debt levels through write-offs. Central banks would like to think that increased reserves lead to increased loans, but I don’t think the evidence supports this. Corporations don’t need the cash and individuals are already tapped out.
The October rally began as Operation Twist started, which runs through June. Grantham’s fund from what can tell has only a handful of US equities, CL, JNJ,CSCO, EXP, MNST, SURW, USEG, WMT. I’m just putting it out there.
There really isn’t much of anything out there that I like at current prices high quality or not.It all looks overpriced to me due to scattergun pumping by central banks.
would love to hear feedback on this
http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt
Man, what a poorly written article. That guy writes like he hasn’t taken off the tin foil hat to let sun shine on his head in years.
Is it really inflation if traders are bidding up assets because they think that’s what the monetary policy implies? Self-fulfilling prophecy. Even when asset prices deflate, consummer prices are upwardly sticky, so we have a tangible net negative. Pretty messed up.