The Mosaic Global Fund had an estimated performance for the month of January of +0.84%.
The month was characterized by strong stock markets throughout the month. With stronger stock markets, we are seeing increased discussions about what are the key drivers for these returns. Improved economies, better earnings and similar are frequent suggestions.
Our view is that markets are anticipating a deflationary environment. Why do we think that? Well, if we look at the returns on inflation linked bonds (TIPS) we can see a very flat to negative return over the last 6-9 months. Should market participants really expect hyper-inflation or strong inflation from the various Quantitative Easing experiments around the world, TIPS would not be printing close to 7-month lows.
An economic environment with falling inflation would explains strong stock markets since lower inflation essentially means that costs for companies can be kept low or even decrease. And maintained price levels will ultimately result in more profits and most of the time higher stock prices.
We are frequently reading about investors that are flocking to the stock markets while giving up on their more conservative bond and money market holdings. Historically, this is not normally a good sign and signals caution. As some of you might remember, a couple of months ago, I wrote about the fact that the average bull market cycle is around 4.5-5 years. Counting from the lows in the beginning of 2009, it is most certainly important to keep this cyclical change in mind and to be ready for shifts in the current environment. Next time around what are governments going to do to turn a weaker economy around…print money…?
Please don’t get me wrong, I am not predicting a top here or there. Those of you who have read my publications know that I do not believe in forecasting. What I do believe in though, is following a strong and proven investment process with strong built-in risk management parameters. A coherent investment process keeps us level-headed and we do not get too excited one way or another if stocks make new highs or not. Or, for example, gold goes to $1,000 instead of $3,000, despite everyone’s predictions. We are approaching our market allocations and portfolio re-balancing in a considered methodical way.
We encourage everyone that is interested in having a conversation about your current allocation strategies and how to advise your client’s on investments, to give us a call or drop us an email and we would be more than happy to have a discussion with you. Email us at: firstname.lastname@example.org with the subject line, asset allocation.
To your investment success!
Per-Olov Jansson and the Cardea Investment Team – www.cardeainternational.com
Per Olov Jansson
CEO Cardea International