Just like now.
the impact of higher Fed rates will be far less predictable than normal, that historical comparisons may be less powerful, and that volatility across both credit & equity markets should continue to be owned.
- Central banks now own over $22 trillion of financial assets, a figure that exceeds the annual GDP of US & Japan
- Central banks have cut interest rates 577 times since Lehman, a rate cut once every three 3 trading days
- Central bank financial repression created $6 trillion of negatively-yielding global government bonds earlier this year
- 45% of all government bonds in the world currently yield <1% (that’s $17.4 trillion of bond issues outstanding)
- US corporate high grade bond issuance as a % of GDP has doubled to almost 30% since the introduction of ZIRP
- US small cap 5-year rolling returns hit 30-year highs (28%) in recent quarters
- The US equity bull market is now in the 3rd longest ever
- 83% of global equity markets are currently supported by zero rate policies
... in our opinion, inadequate attention is being paid to the risks of a downturn in which central bankers' abilities to ease are significantly impaired. Please understand that we are not sure of anything but, for the reasons explained, we do not want to have any concentrated bets, especially at this time.
Source: 1937 Redux