Connect with us


Asset allocation – A fat (real) tail in 2022

2021 was an awkward ’steady state’ year for financial markets: bonds delivered the worst returns in a quarter of a century except for one year (1999), while equities secured top-quartile (or better) returns over the same period.[1]  Looking under…



2021 was an awkward ’steady state’ year for financial markets: bonds delivered the worst returns in a quarter of a century except for one year (1999), while equities secured top-quartile (or better) returns over the same period.[1] 

Looking under the bonnet, this makes perfect sense. Government bonds last year were driven by both higher inflation breakevens and lower real rates in contrast to recent years where they have tended to move in the same direction.[2]

Breakevens, or inflation discounted by bond markets, link closely to equity cash flows, which have rarely looked better: global profits expanded by an eye-watering 53% in 2021, broadly in keeping with the historical ‘beta’ to moves in anticipated inflation.   At the same time, real yields, or the rate of discount applied to future cash flows, have rarely been so supportive. Real yields as low as -120bp at 10 years and -60bp out to 30 years have been a panacea for equities, as exhibit 1 shows.

Setting out the base case

We, in line with the consensus, expect above-trend growth in the G10 economies in 2022, with inflation peaking around the summer and monetary policy broadly on the back foot. We expect the Federal Reserve to raise US interest rates three times in 2022, the ECB to hold rates low for longer and the Bank of England to be behind the curve.

Better nominal growth rates should support fair corporate earnings growth, and with company balance sheets broadly in good shape, holders of assets across the capital structure should do relatively well. The consensus forecast is for profit growth of around 8% compounded in the next two years.

The broad base case set-up would favour both equities and corporate bonds.

What are the risks?

The left tail to this base case is fattening, indicating risks to the underlying assumptions.

We enter 2022 cautiously ‘neutral’ in our risk taking[3] from an asset allocation perspective – that is to say, a bit below the mid-point of tracking error or volatility ranges across portfolios.

Within broad risk neutrality, our exposures are pointed towards being short duration, long selected equity markets and, more tactically, long commodities.

One particular risk that is preoccupying us is reflected in this positioning: a prospective un-anchoring of bond yields, and real yields in particular, at a time when asset valuations across the board are full.

The case for higher bond yields and higher neutral rates is not difficult to make, especially at current valuations. 

  • The last two years have seen global monetary and fiscal stimulus on a scale not witnessed outside of times of war. This is now being unwound.
  • Labour markets are increasingly tight in many developed countries, with a return of labour bargaining power for the first time in three and a half decades.
  • Globalisation, which has been an important underpinning for the steady downtrend in bond yields since the mid-1980s, is in reverse.
  • And the inflation shock delivered by COVID-19 has been both significant and more persistent than hoped, yet financial conditions are extremely easy. 

A move up in bond yields will likely be spurred by ultra-low real yields moving higher as central banks tighten their policies, rather than by breakevens.

At the same time, the abrupt rate rise cycle priced in by markets seems curious to us; we would sooner see a steepening of the curve, notably in the US, than further flattening as the Fed removes the punchbowl. Today, roughly a quarter of our risk budget in an unconstrained multi-asset portfolio would be directed at being short US and European government bonds.

As higher bond yields raise the discount rate for equities, multiples may be challenged (see exhibit 1).

A look at our positioning

The price/earnings ratio on the US equity market is as high as any time since late 1990s and dividend yield is a whisker away from the lows. Still, we continue to favour equities: they take up the bulk of our overall risk.

However, we are increasingly focused on regions that we believe are both less sensitive to real yield moves at current valuations, and where strong cash flows are expected in 2022 and 2023 in both absolute and relative terms. Europe ex-UK, US small caps (vs. large caps), Japan and – to a degree – emerging markets all display this combination (see exhibit 2). Notably, domestic monetary policy in Europe, Japan and China are staying easy or are turning easier at the fringes, offering some counterweight to higher US real rates.

Japanese equities, for instance, have consistently tended to outperform global equities in periods of rising US real rates.

On the one hand, this reflects the long operational leverage of Japanese companies (with high fixed to variable costs offering nice gearing to the cycle). On the other hand, in aggregate corporates have short financial leverage (with the highest cash balance of any major market).

Valuations in Japan today are cheap, earnings expectations are punchy and policy is staying easy (monetary) or turning easier still (fiscal).

More tactically, we also favour commodities that should find support from the turn in China’s policy tone, meaningful supply shortfalls, and broader insensitivity to moves in either cash flows or discount rates.

[1] As measured by the Global Aggregate unhedged bond index in USD and the S&P 500 and MSCI ACWI equity indices respectively. Q1 2021 was torrid for government bonds: they had their worst performance in 40 years.  

[2] 2018-2020, for example, where breakevens and real yields fell similarly  

[3] This can be thought of the steepness of the line of best fit between expected risk and expected return across asset classes. The steeper the line, or greater expected return per unit of risk, the larger risk appetite. Neutral sits in the middle quintile (20%) of a tracking error or permitted volatility.

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Maya Bhandari. The post Asset allocation – A fat (real) tail in 2022 appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

Read More

Continue Reading


Repeated COVID-19 Vaccination Weakens Immune System: Study

Repeated COVID-19 Vaccination Weakens Immune System: Study

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Repeated COVID-19…



Repeated COVID-19 Vaccination Weakens Immune System: Study

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Repeated COVID-19 vaccination weakens the immune system, potentially making people susceptible to life-threatening conditions such as cancer, according to a new study.

A man is given a COVID-19 vaccine in Chelsea, Mass., on Feb. 16, 2021. (Joseph Prezioso/AFP via Getty Images)

Multiple doses of the Pfizer or Moderna COVID-19 vaccines lead to higher levels of antibodies called IgG4, which can provide a protective effect. But a growing body of evidence indicates that the “abnormally high levels” of the immunoglobulin subclass actually make the immune system more susceptible to the COVID-19 spike protein in the vaccines, researchers said in the paper.

They pointed to experiments performed on mice that found multiple boosters on top of the initial COVID-19 vaccination “significantly decreased” protection against both the Delta and Omicron virus variants and testing that found a spike in IgG4 levels after repeat Pfizer vaccination, suggesting immune exhaustion.

Studies have detected higher levels of IgG4 in people who died with COVID-19 when compared to those who recovered and linked the levels with another known determinant of COVID-19-related mortality, the researchers also noted.

A review of the literature also showed that vaccines against HIV, malaria, and pertussis also induce the production of IgG4.

“In sum, COVID-19 epidemiological studies cited in our work plus the failure of HIV, Malaria, and Pertussis vaccines constitute irrefutable evidence demonstrating that an increase in IgG4 levels impairs immune responses,” Alberto Rubio Casillas, a researcher with the biology laboratory at the University of Guadalajara in Mexico and one of the authors of the new paper, told The Epoch Times via email.

The paper was published by the journal Vaccines in May.

Pfizer and Moderna officials didn’t respond to requests for comment.

Both companies utilize messenger RNA (mRNA) technology in their vaccines.

Dr. Robert Malone, who helped invent the technology, said the paper illustrates why he’s been warning about the negative effects of repeated vaccination.

“I warned that more jabs can result in what’s called high zone tolerance, of which the switch to IgG4 is one of the mechanisms. And now we have data that clearly demonstrate that’s occurring in the case of this as well as some other vaccines,” Malone, who wasn’t involved with the study, told The Epoch Times.

So it’s basically validating that this rush to administer and re-administer without having solid data to back those decisions was highly counterproductive and appears to have resulted in a cohort of people that are actually more susceptible to the disease.”

Possible Problems

The weakened immune systems brought about by repeated vaccination could lead to serious problems, including cancer, the researchers said.

Read more here...

Tyler Durden Sat, 06/03/2023 - 22:30

Read More

Continue Reading


Study Falsely Linking Hydroxychloroquine To Increased Deaths Frequently Cited Even After Retraction

Study Falsely Linking Hydroxychloroquine To Increased Deaths Frequently Cited Even After Retraction

Authored by Jessie Zhang via Thje Epoch…



Study Falsely Linking Hydroxychloroquine To Increased Deaths Frequently Cited Even After Retraction

Authored by Jessie Zhang via Thje Epoch Times (emphasis ours),

An Australian and Swedish investigation has found that among the hundreds of COVID-19 research papers that have been withdrawn, a retracted study linking the drug hydroxychloroquine to increased mortality was the most cited paper.

Hydroxychloroquine sulphate tablets. (Memories Over Mocha/Shutterstock)

With 1,360 citations at the time of data extraction, researchers in the field were still referring to the paper “Hydroxychloroquine or chloroquine with or without a macrolide for treatment of COVID-19: a multinational registry analysis” long after it was retracted.

Authors of the analysis involving the University of Wollongong, Linköping University, and Western Sydney Local Health District wrote (pdf) that “most researchers who cite retracted research do not identify that the paper is retracted, even when submitting long after the paper has been withdrawn.”

“This has serious implications for the reliability of published research and the academic literature, which need to be addressed,” they said.

Retraction is the final safeguard against academic error and misconduct, and thus a cornerstone of the entire process of knowledge generation.”

Scientists Question Findings

Over 100 medical professionals wrote an open letter, raising ten major issues with the paper.

These included the fact that there was “no ethics review” and “unusually small reported variances in baseline variables, interventions and outcomes,” as well as “no mention of the countries or hospitals that contributed to the data source and no acknowledgments to their contributions.”

A bottle of Hydroxychloroquine at the Medicine Shoppe in Wilkes-Barre, Pa on March 31, 2020. Some politicians and doctors were sparring over whether to use hydroxychloroquine against the new coronavirus, with many scientists saying the evidence is too thin to recommend it yet. (Mark Moran/The Citizens’ Voice via AP)

Other concerns were that the average daily doses of hydroxychloroquine were higher than the FDA-recommended amounts, which would present skewed results.

They also found that the data that was reportedly from Australian patients did not seem to match data from the Australian government.

Eventually, the study led the World Health Organization to temporarily suspend the trial of hydroxychloroquine on COVID-19 patients and to the UK regulatory body, MHRA, requesting the temporary pause of recruitment into all hydroxychloroquine trials in the UK.

France also changed its national recommendation of the drug in COVID-19 treatments and halted all trials.

Currently, a total of 337 research papers on COVID-19 have been retracted, according to Retraction Watch.

Further retractions are expected as the investigation of proceeds.

Tyler Durden Sat, 06/03/2023 - 17:30

Read More

Continue Reading


Complying, Not Defying: Twitter And The EU Censorship Code

Complying, Not Defying: Twitter And The EU Censorship Code

Authored by ‘Robert Kogon’ via The Brownstone Institute,

So, word has it that…



Complying, Not Defying: Twitter And The EU Censorship Code

Authored by 'Robert Kogon' via The Brownstone Institute,

So, word has it that Twitter has withdrawn from the EU’s Code of Practice on Disinformation, a fact that appears only to be known thanks to a couple of pissy tweets from EU officials. I cannot help but wonder if this is not finally Elon Musk’s response to the question I asked in my article here several weeks ago: namely, how can a self-styled “free-speech absolutist” be part of a “Permanent Task-Force on Disinformation” that is precisely a creation of the EU’s Code?

But does it matter? The answer is no. The withdrawal of Twitter’s signature from the Code is a highly theatrical, but essentially empty gesture, which will undoubtedly serve to shore up Musk’s free speech bad-boy bona fides, but has virtually no practical consequences. 

This is because: (1) as I have discussed in various articles (for instance, here and here), the effect of the EU’s Digital Services Act (DSA) is to render the hitherto ostensibly voluntary commitments undertaken in the Code obligatory for all so-called Very Large Online Platforms (VLOPs) and (2) as discussed here, the European Commission just designated a whole series of entities as VLOPs that were never signatories of the Code.

Twitter is thus in no different a position than Amazon, Apple and Wikipedia, none of which were ever signatories of the Code, but all of which will be expected by the EU to comply with its censorship requirements on the pain of ruinous fines. 

As EU officials like to put it, the DSA transformed the “code of practice” into a code of conduct: i.e. you had better do it or else.

Compliance is thus not a matter of a signature. The proof of the pudding is in the eating. And the fact of the matter is that Musk and Twitter are complying with the EU’s censorship requirements. Much of the programming that has gone into the Twitter algorithm is obviously designed for this very purpose.

What, for instance, are the below lines of code?

They are “safety labels” that have been included in the algorithm to restrict the visibility of alleged “misinformation.” Furthermore – leaving aside the handy “generic misinfo” catch-all – the general categories of “misinformation” used exactly mirror the main areas of concern targeted by the EU in its efforts to “regulate” online speech: “medical misinfo” in the context of the COVID-19 pandemic, “civic misinfo” in the context of issues of electoral integrity, and “crisis misinfo” in the context of the war in Ukraine.

Indeed, as Elon Musk and his lawyers certainly know, the final version of the DSA includes a “crisis response mechanism,” (Art. 36) which is clearly modeled on the European Commission’s initially ad hoc response to the Ukraine crisis and which requires platforms to take special measures to mitigate crisis-related “misinformation.” 

In its January submission to the EU (see reports archive here), in the section devoted precisely to its efforts to combat Ukraine-war-related “misinformation,” Twitter writes (pp. 70-71): 

“We … use a combination of technology and human review to proactively identify misleading information. More than 65% of violative content is surfaced by our automated systems, and the majority of remaining content we enforce on is surfaced through regular monitoring by our internal teams and our work with trusted partners.”

How is this not compliance? Or at least a very vigorous effort to achieve it? And the methodology outlined is presumably used to “enforce on” other types of “mis-“ or “disinformation” as well.

Finally, what is the below notice, which many Twitter users recently received informing them that they are not eligible to participate in Twitter Ads because their account as such has been labeled “organic misinformation?”

Why in the world would Twitter turn away advertising business? The answer is simple and straightforward: because none other than the EU’s Code of Practice on Disinformation requires it to do so in connection with the so-called “demonetization of disinformation.” 

Thus, section II(d-f) of the Code reads:

(d) The Signatories recognise the need to combat the dissemination of harmful Disinformation via advertising messages and services.

(e) Relevant Signatories recognise the need to take granular and tailored action to address Disinformation risks linked to the distribution of online advertising. Actions will be applicable to all online advertising.

(f) Relevant Signatories recognise the importance of implementing policies and processes not to accept remuneration from Disinformation actors, or otherwise promote such accounts and websites.

So, in short, vis-à-vis the EU and its Code, Twitter is complying, not defying. Removing Twitter’s signature from the Code when its signature is no longer required on the Code anyway is not defiance. Among other things, not labeling content and/or users as “misinformation,” not restricting the visibility of content and/or users so labeled, and accepting advertising from whomever has the money to pay would be defiance.

But the EU’s response to such defiance would undoubtedly be something more than tweets. It would be the mobilization of the entire punitive arsenal contained in the DSA and, in particular, the threat or application of the DSA fines of 6 percent of the company’s global turnover.

It is not enough to (symbolically) withdraw from the Code of Practice to defy the EU. Defying the EU would require Twitter to withdraw from the EU altogether.

Tyler Durden Sat, 06/03/2023 - 10:30

Read More

Continue Reading