Restoring Reality Of Recession Into Rolling Rotation & Restructuring

The current environment remains full of politics, worsening economies and earnings as well as monetary policy. We believe next is restoration of the reality & lexicon of renewed respect for recession flowing into rolling rotation and restructuring, with for a quality overlay, last experienced during the 1980s. Older U.S. demographics, rising wealth in Asia alongside young populations probably mean future cycles are likely to be less traditional by being less primarily led by the U.S. consumer and instead have more balance, including capital investments.
More immediately, the proposed U.S. budget with its size and deficits is clearly a “shock and awe” stimulus plan that Europe and Japan seem unlikely to have the fortitude to match. However, recovery versus the yen and the euro is likely to maintain interest in the dollar as a key asset class, a positive signal of rolling rotation to reduced risk. Even as yields rise, government bonds could even find a place in more conservative financials balance sheets, raising standards for lower quality borrowers to more in line with historical risk spreads, thus accentuating favor for quality. Despite negative current news on global economies and equity market lows, we believe markets to have overcompensated. We would favor quality companies in financials, in information technology, in industrials and increasingly in energy as exercising sector market leadership. Despite fear about U.S. budget and healthcare implications, we favor them as restructuring stocks.

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