When I met with the inimitable Jeffrey Gundlach in Berlin last autumn, little did I know that the Barron’s crowned ‘king of bonds’ was about to do a 180 degree turn and focus on the equity markets by launching a troika of US funds.
Of course, thinking back, the signs were there. He talked down expectations of growth in his bond funds and was generally bullish about the economy going forward.
So is this a marker for, what has become the catchphrase ‘du jour’ of the investment pundits, ‘the great rotation’?
What exactly is ‘The Great Rotation’?
Well, we have seen a huge bull market in bonds over the last two decades for many reasons too numerous to list here, whilst equity markets have underperformed essentially since the NASDAQ crash at the turn of the millennium.
However now it COULD be interpreted that much of the money which flowed into these bonds are now reallocating out and into equity markets. Thus ‘The Great Rotation’.
I have long been an advocate of the fact that over the last century bull and bear markets can be tracked so that each has a period of around 12-18 years. If we assume that our cyclical bear market commenced in 1999, then we are in the 14th year of the current bear market.
Hence a new bull market is only a few years at most away from kick starting an incredible upward move in global equity markets.
As a respected JP Morgan observer recently commented «I’m perhaps even more engaged than normal by the possibility that we are close to a multi-generational inflection point, the likes of which no-one in the markets today will have experienced.»
Wow.
Of course he goes on to say that he is not sure that THIS recent move upwards in the equity markets is this inflection point, but that it could be. Furthermore he also points out that equity markets are significantly up from their lows experienced in the aftermath of the credit crunch, in 2009.
Indeed as I write this the Dow Jones Index has just peaked at an all time high, and last month in the UK, investors pulled £85m from bond funds in February alone. We may not be at “The Great Rotation” but things are happening.
In the meantime, we believe there may be more turbulence to come, and to closely monitor short term movements in the market is still the best way to grow assets. Contact us on how we do this and for advice on what you should be doing.