Trying to avoid a repeat of the last market disaster sows the seeds for the next one.
The collapse of large growth companies after the tech bubble burst in 2000 led to strong leadership by small-cap value stocks for many years. And the market plunge in 2008 has led to investors’ crowding into a number of “safe” trades, such as high-dividend stocks, Treasury bonds and passive equity strategies.
These are not unreasonable strategies, given today’s economic and political uncertainties. But with most investors on the same side, today’s “safe” trades have become very, very expensive. (more…)
Hardly a day has gone by in 2011 without fresh headlines about the sovereign-debt woes of Greece and other developed countries. It’s still unclear which path governments will take to resolve their growing debt burdens, but one thing is clear: the path taken to fiscal rectitude will have great implications for fixed-income investors.
In our view, apart from default, there are three possible ways out of a government debt crisis: growth, inflation and austerity. (more…)
The equity market meltdown of the past two weeks has raised widespread fears that we’re headed for a repeat of the wealth destruction seen in 2008. There are certainly some close parallels, but I also see some very big differences in the root causes of the two crises. (more…)