As the debt bubble steps forward, we search for signs of inflation and deflation. Some growth and inflation is apparent in the U.S. while it is deflation and recession pressures in Europe and Japan. Which way are interest rates headed? The year-to-date surprise is that they have declined.
I presented this morning at the Morningstar ETF Conference in Chicago. Leading my panel was David Sekera, head of fixed income research at Morningstar and Bob Smith from Sage Financial. We talked about the direction of rates and ideas around portfolio positioning. There were several other important issues noted in our discussion:
- The market making game has changed over the last few years. Large banks are no longer making markets in fixed income.This is largely attributed to increased regulation. There is very little capital allocated to the bond desks.
- Bond market liquidity will be challenged during the next disconnect.
- While the positives are transparent pricing and smaller spreads, one has to wonder who steps in during the next crisis
- We agreed that we expect a harder and faster disconnect when either interest rates spike and/or defaults surge.
All of this means that getting the rate direction correct is really important.
Steve Blumenthal
Founder & CEO CMG
Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.
Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.
