Back to the Problem at Hand
Smart-portfolios, robo advisors etc: what other construct do you think they are using? They are all using a variation of the SAME THING. It explains how Schwab Intelligent Portfolios has recorded a 30% cash position at times: the grid was screwed up, the only solution of weighting was cash.
We are not there, clearly. But the problem remains: the presumed safe haven, bonds, isn’t safe. So now what? Very good question.
What I Am Observing
Germany. Leadership change and a move to fiscal spending. One very plausible explanation on why interest rates are not higher is the the ECB and BOJ have kept their interest rates low (now basically zero). This is a HUGE DIFFERENCE to a global pension fund manager at a government authority. The takeaway? US Bonds could still be viewed as cheap, so there could be very large buyers. If German interest rates reverse higher and the EUR/USD rate stays here, then EUR bonds will look cheap, creating selling pressure on US bonds.
If that happens, then look out, since NASDAQ, the clear obvious leader for two decades in a row, can give way. Reminder: the last time that the US 10-year note was here, at approximately 1.5%, the NASDAQ was 5% lower. Just sayin’ that this would mess up the grid even further.
Congress. For now, I think that the Congressional gridlock will be resolved, Congress cannot possibly be that stupid, right?
China. Yeah, this is a problem, but we can literally see nothing. This type of thing has happened in the past, during the Asian Currency Crisis, the Chinese banks were all but dead, didn’t matter, because the PBOC (People’s Bank of China) runs the show, there are no debates, the end. The long run there is not the next mid-term election: Confucian beliefs has the long-term meaning many decades, 50 years plus. As a person of Asian descent, being influenced and observing very different patterns of communication and beliefs I have shook my head in disbelief decades ago, that the Western hemisphere didn’t understand this. They do now: China isn’t gonna be pushed around, for any reason, by anyone, period. Remember the Chinese characters translate directly to the meaning: central (vital, important) nation. Literally, that is how it sees itself. If you have a horizon of their long run, 50 years, then yes, Alibaba is probably a buy. Between now and then, May the Force Be With You.