Recent capital market strength notwithstanding, we expect that portfolio strategies will need to factor in the certitude of change in a different environment upcoming over servitude to replication of the habits of recent cycles. The earnings and economic reporting season for this quarter appears maturing. Unusual pressures from credit collapse required unusual co-ordination but some urgency among countries and central banks can already be seen to be slipping but risks exist in the U.S. dollar. The clearest enunciation of change may have come from Reserve Bank of Australia Governor Glenn Stevens that.“ …There is more than just the cycle in the “real” economy of GDP, employment, consumer price inflation … but it is just as important to recognize the cycles in risk-taking behavior and finance … “. For global and for U.S. markets alike, for momentum and fundamentally driven investors alike, bifurcation of delivery is likely to be important through this cycle.
We see the financials as crucial to the markets. The global equity recapitalization cycle has started but support is mixed for transparency, underscoring fragility of finance and leadership potential for the strong. Separately while the corporate focus has been on cost cutting, we found instructive the McKinsey Quarterly of November 2009 article that, for a disguised company, changes to a more technology intensive and tiered program resulted in an enhanced profit experience. While prior cycles have been consumer dominant, for reasons of high OECD unemployment and Asian consumption growing but nascent, certitude of change over servitude to habit have us overweighting information technology and industrials over consumer discretionary and favoring healthcare over consumer staples for more acute restructuring delivery to come.