Of Cigars, Contrarians, Nerds and Herds
Comment of the Day

March 22 2021

Commentary by Eoin Treacy

Of Cigars, Contrarians, Nerds and Herds

Thanks to Iain Little for this edition of his Global Thematic Diary series. Here is a section:

Attitudes to risk have changed. In one month, investors have relegated Covid 19 and its mutant strains to the side[1]lines. They now obsess over inflation and a shaky bond market. Those who feared an equity bubble in February, spurred on by strident warnings from market opinion formers like Jeremy Grantham and Ray Dalio, have diminished in number and are keeping their heads down.

Anyone following 10 year USD bond prices will not be surprised. The move from 0.5% in August to 1.60% in March, a near tripling, has spooked bond buyers, with a consequent hit to gold, highly priced technology shares and other interest rate sensitive assets. But a more subtle and longer term conclusion may be drawn.

If sentiment is indeed registering such a confident attitude to growth and risk, it is reasonable to assume that investment positions are now largely in place to reflect that view. If so, the next concern of the market will be its nemesis: growth below expectations. Those investors who are now positioning investments excessively on the side of recovery, value or laggard stock sectors like banks may need to think twice before abandoning their long held commitment to healthcare, FMCG, e-commerce and technology. We are positioning client portfolios accordingly.

As Mark Twain once said: “if you find yourself on the side of the majority, it is time to pause and reflect”.

Eoin Treacy's view

A link to the full note is posted in the Subscriber's Area. The reflation trend is increasingly being priced in and only a robust recovery will satisfy expectations for what it will entail for company earnings. The challenge for markets is the majority of people making English language predictions are sitting in the places with the most advanced vaccination programs.

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