In this conversation Jeff Weniger, Head of Equity Strategy and Samuel Rines, Macro Strategists, Model Portfolios at WisdomTree Asset Management, join us to discuss various topics including the performance of the equity and bond markets, inflation, the labor market, and the real estate market. We explore the potential impact of rising yields on equities, the relationship between bonds and stocks, and the role of the US dollar as a hedge. We get into the challenges of navigating the current economic landscape and the reluctance of individuals and businesses to make changes in their financial strategies. Jeff and Sam unpack the impact of job mobility and housing on asset allocation. Jeff Weniger discusses the challenges of job relocation and the limitations it imposes on housing choices. He also highlights the rigidity of mortgage rates and the potential financial burden it creates for homeowners. Sam Rines adds that the lack of labor market dynamism and the preference for home remodeling contribute to the stagnation of the housing market. Then we shift to the changing dynamics of the US economy, with a focus on the transition from goods to services. Sam Rines emphasizes the normalization of the services sector and the potential lasting effect on the labor market. Our focus turns to a discussion about asset allocation and the push for domestic equity ownership in various countries. We explore the seismic shift in investment trends, with a focus on the changing dynamics of global markets. We dive into the history of investing in the early 2000s in emerging markets like Brazil, Russia, India, and China (BRIC), and how the focus has now shifted to investing in Japan, Korea and other markets where policy driving home bias is flourishing. We look at the role of China in the commodities market, particularly its insatiable appetite for base metals and gold. If anything, our entire conversation highlights the importance of diversifying portfolios and considering alternative asset classes like managed futures and commodities. They also touch on the impact of US-China relations and the potential risks and opportunities in the market.
Takeaways
The equity market has performed well despite the backup in yields, indicating resilience in the face of potential headwinds.
Bonds may provide a diversifying effect in a 60-40 portfolio, and there is an indication that bonds and equities may move in opposite directions this year.
There is a misconception about inflation, with people often misunderstanding the difference between the rate of inflation growth and inflation levels.
The labor market has been confounding, with indicators sometimes differing from what is happening on the ground.
There is friction and inertia when it comes to individuals and businesses making changes to their financial strategies, such as moving cash to higher-yielding investments.
The real estate market is slow-moving, and the effects of macro factors, such as the actions of the Fed, take time to materialize.
The current economic landscape presents challenges, but there is a sense of managed control and a slower pace of change compared to previous cycles. Job mobility and housing choices can significantly impact asset allocation decisions.
Rigid mortgage rates can create financial burdens for homeowners, limiting their job mobility.
The lack of labor market dynamism and the preference for home remodeling contribute to the stagnation of the housing market.
The transition from goods to services in the US economy is normalizing, potentially impacting the labor market.
There is concern about a push for domestic equity ownership in various countries, which may affect asset allocation strategies, and US equity performance.
Japan and Korea, and other countries (Canada) are at the centre of this push that is further bullish for them, and less so for the US where country allocations are concerned.
China's insatiable appetite for commodities, particularly base metals and gold, has significant implications for the market.
Diversification and considering alternative asset classes like managed futures and commodities are crucial for portfolio management.
US-China relations continue to be a significant factor impacting the market, with potential risks and opportunities.Chapters
00:00 Discussion about CTAs, market thresholds, portfolio diversification, and bond-equity relationship.
09:10 Labor market indicators are confounding due to COVID's impact on surveys - may not align with actual conditions. Sub-questions reveal differing responses.
15:38 Recent market issues addressed with intervention, BTFD easing bank assets.
17:10 Surprise at bank walk concept, advises money markets over savings accounts.
23:37 Macro moves slowly, taking 18 months to 2 years for major shifts. Real estate in the US takes longer to impact than expected.
29:48 Post-financial crisis house underwater issue slowed recovery, COVID impact on job mobility and quits.
34:29 Higher mortgage rates, bond market volatility, and housing market concerns persist.
42:38 Encouraging stock purchases through pension plans globally, with a focus on Japan and UK.
46:32 Concerns raised about potential totalitarian push for domestic equities by institutions with significant capital. Nationalistic push may impact relative performance of US equities.
53:44 The possibility of rising prices, impact on retail, potential for gold strength, and higher inflation and bear market probabilities. Cautions against putting all money in equities and bonds.
56:26 Gold's relationship to interest rates and the influence of a strong dollar on its value.
01:01:11 Under-the-radar aggregate companies outperformed in 2021.
01:08:23 Optimistic about US economy, pessimistic about US-China relations.
01:11:48 Many people don't plan for social security, but they should.
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