As we’ve been saying for quite a while (years, actually) the markets will need additional fresh stimulus to move higher. And as we’ve all seen over the past month or so, the global economy has become so dependent on stimulus that its absence causes real problems (market downturns).
So last night’s announcement from the People’s Bank of China (PBOC) that they will inject $22 billion (in addition to lowering interest rates – again – and easing bank reserve requirement) is buoying the markets, at least in the early going today.
Our firm’s risk-managed portfolios continue to be flush with cash and and other defensive positions. We continue to adjust our clients’ holdings in an effort to limit downside risk, with the goal of limiting any losses to low single-digits should this market downturn continue. Should markets find their footing, we can easily re-adjust to take advantage of this recent volatility. Currently, all of our managed portfolios are handily beating the markets for the year, and while we’ve given up some ground over the past month our risk-managed strategies are performing as our portfolio management team has expected.
What happens next is important, because for markets to stabilize the Federal Reserve will not only have to hold off on any interest rate hikes (which they’ve given no indication they will do) but also indicate at least a willingness to begin yet another round of stimulus.
Quite a pickle, huh? Without more stimulus the economy will flounder, but adding stimulus only makes it harder to unwind down the road.
Which will they choose? Stay tuned…