Cardinal Trading says investors believing central banks can make an orderly exit from their interventions in the markets are mistaken.
Tokyo, Japan -Cardinal Trading has told institutional clients that central banks will find it difficult to exit fully from their monetary experiment of quantitative easing.
Johannes Feinberg, chief economist at the Asian market-focused investment house laid out the Cardinal Trading viewpoint in a research note in response to an increasing number of inquiries centered on the immediate outlook for equities.
“Our clients aren’t necessarily concerned about high equity values since most are sitting on large unrealized gains at this juncture but many of them have expressed concerns about the remarkably low volumes being traded on the key indices like the Dow, the S&P and some European bourses; a dynamic that suggests many investors prefer to hold cash rather than commit further funds to a ‘toppy’ market,” said Feinberg.
“It is my view that central banks’ involvement in the markets are set to continue whether they like it or not. When the Fed ends its purchases and looks at raising rates, yields on benchmark bonds like the 10 and the 30 year will begin to rise and since the US can’t afford high interest rates, the Fed will be dragged right back in to buying bonds in order to keep rates low,” he added.
Cardinal Trading urged clients to ignore the current price trajectory of precious metals and the miners that produce them and to acquire holdings at the existing levels when liquidity permits. “In the view of our commodities analysts, precious metals are far from finished and investors would do well to remember that the central banks are not bigger than the market,” concluded Feinberg.
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