The bulls emphasise that the economic figures have improved significantly and that a recession has now become less likely, meaning investors have to abandon their defensive stance. The bears see the risk of more persistent inflation in the robust economic figures and thus continued restrictive central banks.
At the same time, a number of indicators that we continuously measure provide a sell signal:
- the euphoria among retail investors is dangerously high.
- Financial conditions are beginning to turn again after considerable easing. The money supply and balance sheets of the central banks are declining significantly.
- At only 2.4%, the risk premium of equities against bonds is very poor and in the last 20 years was only similarly low before the financial crisis.
We are therefore underweighting equities and are currently preferring to invest in attractively valued alternative investments such as commodities, real estate and catastrophe bonds. In terms of bonds, we continue to favour US and emerging market government bonds over corporate bonds and European government bonds.