📑 Research Notes for 2023-04-17
This week, we look at the potential large impact of BOJ yield curve control policies, a default cycle incoming, troubling times for banks, and gold rising with stock market deflation.
We conduct extensive investment research and share the most interesting content that we come across every week. Here is a curated list of this week’s top observations.
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Last Week’s Market Performance Heatmap
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Bank of Japan's Potential Shift in Monetary Policy Could Bring Trillions Back to Japan, Causing Global Market Volatility.
The Bank of Japan's potential shift in monetary policy could bring trillions of dollars back to Japan, potentially causing volatility in global markets. Japanese investors have invested virtually everywhere, from government bonds to risky loans in the US, and are the single biggest foreign holders of US treasuries. If the BOJ tightens monetary policy, bond yields from the US and Europe could rise, and governments may have to find new investors for their debt. The potential impact on the global economy is uncertain, but investors are nervous about the potential for volatility.
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BlackRock Predicts Slower Economic Growth and Uptick in Default Cycle.
Neeraj Seth, head of Asian Credit at BlackRock, believes that the US Federal Reserve has the option to hike interest rates one more time, but whether it will depend on data. He also notes that premature cuts will be a challenge and does not expect to see an aggressive cost-cutting cycle. The banking sector is experiencing interest rate risk, but it is not a broad-based credit issue. Seth recommends investing in the front end of the curve and investment-grade credit, as well as building towards quality in high yield. He believes this combination will provide a reasonable level of risk in a portfolio. Overall, he predicts slower economic growth and an uptick in the default cycle.
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Troubling Times May Lay Ahead for Banks.
Danny Moses, a well-known investor, warns that deposit losses may not be the biggest issue facing banks and that there may be bigger trouble ahead. He believes that there will be a shift from the debt obsession to what's going on in the economy and that banks will need to stabilize their margins to grow. Moses is concerned about the possibility of rate cuts being priced in September, which could lead to lower S&P earnings and overvalued markets. He also emphasizes the importance of credit and the ability of companies to get refinanced.
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Bloomberg Strategist Predicts Gold to Break $2,000 as Stock Market Risks Deflation.
Mike McClone of Bloomberg predicts that gold will continue to rise and break the $2,000 an ounce level due to the stock market potentially rolling over and deflationary trends. He believes that the Federal Reserve will pivot when the market makes them, and the number one thing that will make them pivot is the stock market going down. McClone also notes that crude oil is in an enduring bear market that is tilting back towards that bear market aggressively, and he predicts that it will go towards $40. He advises investors to buy gold through ETFs, as they are an easy way to express those views and investments.
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Curated by Joseph Lu, CFA®
Joseph is the founder and managing director of Conscious Capital Advisors, and a CFA® Charterholder.
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