SUMMARY
In the normal recession, unemployment goes up, delinquencies go up, charge-offs go up, home prices go down, none of that’s true here…Savings are up, incomes are up, home prices are up…So it’s just very peculiar times.
– Jamie Dimon, JPMorgan Chase CEO, July 2020
Q2, 2020 Market Review
Market Outlook Summary
GROWTH, INFLATION & POLICY
It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago… I think it makes a difference that there are lenders of last resort, that monetary policy is proactively able to come in and ensure enough liquidity in markets, that fiscal policy is able to play a major role in supporting firms and households.
– Gita Gopinath, IMF Chief Economist, April 2020
Active Cases Remain Elevated in Many Countries
Surge in Cases & Hospitalizations Leading to Rollbacks
Tracking the Recovery
A “V” in Consumption, But Not in Activity
Growing Twin Deficit Will Be a Headwind for the Dollar
Global Fiscal Policy Response to COVID-19
Inflation Expectations are Low but Trending Higher
Who Will Win the 2020 U.S. Presidential Election
S&P 500 During Presidential Election Years
EQUITY
You know… they’re bolstering the stock market. Ok, there’s a floor to the stock market. Everybody knows it’s not going below a certain place.
– Nancy Pelosi, House Speaker, July 21, 2020
Equity Returns
Coronavirus Crisis vs. Major Bear Markets of History
Equity Internals: Decline & Rally
Winner Take All Markets May Be Around for a While
The Rise of Retail Traders
U.S. Corporate Earnings Expectations
Wall Street vs. Main Street
Central Bank “BS” and Global Stocks
Fed Can Provide More Stimulus Relative to Other Central Banks
Venture Activity Cut in Half From Peak
Buyout & Venture Secondaries Should Get Interesting
FIXED INCOME & CREDIT
Post-GFC experience shows that low interest rates don’t trickle down. They inflate financial assets primarily owned by the rich. The idea is to increase borrowing, but the last thing we need is more debt.
– Sheila Bair, Former Chair of the FDIC, June 12, 2020
Fixed Income & Credit Returns
Fixed Income & Credit Review
Fed Purchases of Corporate Bonds
Watch Credit to Lead Equities On the Way Out
A Record Year for U.S. Core Bonds
Short-Term Corporate Bond ETF Basket vs. U.S. Core Bonds
Treasury Issuance Has Been Concentrated in Shorter Duration Bills
Buyers Have Enabled U.S. Treasury to Build Enormous Cash Reserve
Negative Real Yields Across the Curve
U.S. Bank Provisions for Loan Losses Jump
REAL ASSETS
“Possibly without serious vetting and a conscious decision to adopt it, Modern Monetary Theory is here. Whether we like it or not, we’ll get to see its impact much quicker than I had thought. (And remember, 100% of the “top scholars” polled by The University of Chicago Booth School of Business disagreed with some of MMT’s claims).”
– Howard Marks, Oaktree Chairman, March 2020
“You can’t continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time.”
– Ray Dalio, Bridgewater Associates Co-Founder, July 2020
Real Asset Returns
Retail, Hotel & Resort and Office REITs Remain Challenged
Gold Increasingly Viewed as an Alternative Safe Haven
Gold Trying to Keep Up With Exploding Money Supply
Gold has Room to Run vs. Core Stocks & Bonds… & Miners Have Room to Run vs. Physical
The Next Bubble? Gold Miners vs. Technology Stocks
U.S. Crude Oil & Gasoline Inventories Remain Elevated
Commodities Back to Marginal Cost of Production
OPPORTUNISTIC
“In some respects it’s different because of the Fed and the liquidity they’ve introduced and the inflation for financial assets that comes with that. But on a bigger picture, it’s so similar [to the Tech Bubble]. Everybody is a genius in a bull market, everybody is making money right now because you’ve got the Fed put and that brings people in who otherwise wouldn’t participate.”
– Mark Cuban, Entrepreneur & Investor, July 2020
Opportunistic Strategy Returns
Closed-End Fund Discounts Got as Wide as the Financial Crisis
Expected Returns for a 60/40 Remain Low
ASSET ALLOCATION
“Over the last two centuries, the fraction of inflation’s long-run variation explained by long-run money growth has been very high, and relatively stable, in the United States, the United Kingdom and several other countries.”
– Luca Benati, European Central Bank, March 2009
Source: ECB working Paper No. 1027, March 2009: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1027.pdf
Diversification Still Works Over the Long-Term
60/40 Expected Returns
Asset Class Correlations
