Made in the USA-Reflation

I have to put us in the dumbfounded camp when it comes to the recent action in Treasuries. Yields that are scraping along the bottom, actually negative real yields if you take the most recent CPI data and a sub 2.5% Ten Year Note, would not seem to jibe with the action in Global Equity Markets. It’s hard to imagine that  the equity markets and the fixed income markets both have it right. The explanation for the aforementioned Treasury rally has been laid at the feet of outright deflation, ostensibly exported from the newly submerging markets (China, Brazil, etc..). The geo-political backdrop to a global macro environment that is still based on “beggar thy neighbor” policies would argue that there is less to this deflationary argument than meets the eye. David Rosenberg of Gluskin Sheff deftly points out that the newfound global disharmony, both politically and economically, will have vast implications for forward thinking investors. Mr Rosenberg comments ” Tectonic shifts are taking place and this in turn requires a shift in strategy for anyone operating under the old paradigm of world harmony, political stability, central bank prudence and expanding global trade flows”.The tectonic shifts for which Mr Rosenberg refers are the anchors of inflation/deflation and his argument for a pre-emptive shift in portfolio composition, in our opinion (obviously), is spot on. Position yourself on the right side of the tectonic plate and Buy Stuff.