This month’s Perspective comes from Mohamed El-Erian. El-Erian is the former head of the Harvard Endowment and former CEO/CIO of PIMCO, the world’s largest bond investors. He is also credited with contributing the term “New Normal” to the financial lexicon just after the financial crises of 2008. El-Erian used the term to describe a structurally different world of slower growth moving forward. It turns out he was right.
The extraordinary monetary policy that has been in place for the last 7 years cannot continue forever. In fact, the Federal Reserve, e.g. Janet Yellen, is currently attempting to normalize monetary for the third time. Each of the prior attempts was unsuccessful and resulted in significant market volatility (if you are interested in the history, send me an email and I’ll send you a chart with a short description of what happened). So far, this time is no different.
Where does this path lead…? Click the link below to read how El-Erian uses the T Junction metaphor to describe the bi-modal outcomes he sees ahead of us.
All Weather Portfolios are built in anticipation of volatility:
“So far, 2016 has experienced a volatile start. The weakness in the Chinese markets has returned. Oil and other commodities have continued to weaken. Other challenges remain. The Fed has not made clear its intentions as to the number and speed of rate hikes. What is already a contentious election season could turn ugly and confrontational, as political matters often do. We will not just sit around and see what happens. All of these political and international issues are important. They are not, however, what is most important to you. What is most important to you is your security and your goals. All of our discussions and modeling have been for a reason. We build portfolios in anticipation of volatility, not in response to it. We remain dedicated to applying these principles and our knowledge of you whatever the market environment.”
– Tim Johnson (CIO, Lincoln Financial Advisors)