Can we believe the Great Rotation?

Summary:

  • This week’s Podcast: The Check is in the Mail
  • Bonds become less boring
  • Bonds down, but stocks up
  • Banks (and life insurers) the beneficiaries
  • UK should benefit soon from re-opening

New Podcast: The Check’s in the Mail

This week’s podcast deals with the subject of President Biden’s latest USD1.9 trillion US fiscal stimulus package.

The Check is in the Mail

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The Event: On Wednesday March 10, The US House of Representatives passed the Biden Administration’s $1.9 trillion additional fiscal stimulus bill into law.

This latest package includes a new round of means-tested direct payments of up to USD1,400 for most American adults, a weekly top-up of up to USD300 in federal unemployment benefits, another USD350bn in aid to state and local governments and an expansion of tax credits for children.

  • How many stimulus packages have there been now?
  • What will the effects on US and global growth be?
  • Will this spur inflation?
  • What are the best investments to benefit from this latest stimulus?

Bonds become less boring

US bond yields continued their ascent, touching 1.64% on Friday.

US 10-Year Treasury Yield still rising

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Source: tradingview.com

This follows the passing of the latest US stimulus bill in Congress, stoking further fears of inflation in the pipe.

It is always instructive to put shorter-term moves in the context of history - in the chart below, you can see the course of the US 10-year bond yield (interest rate) since 1877.

The Long-Run History of US Bond Yields

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Source:Avondale Asset Management

As you can clearly see, 1.6% is still a very low long-term interest rate in the grand order of things…

Stock Markets not Bombed by Bonds

In spite of the continued rise in yields, stock markets nevertheless rebounded over last week, led by more cyclical indices such as the German DAX, the UK FTSE 100 and the Russian RTS index.

The Russian index is interesting, given its very high weighting to commodities - Oil, Natural Gas and Nickel in particular. In addition, the Russian rouble itself tends to be a petro-currency given the effect of oil and gas prices on its domestic budget, strengthening and weakening in concert with crude oil prices. it is also a high dividend yielding index, offering an annual yield in…

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