TBX

"What will We the People wake up to on 11/4?" asks BTIG, in an election-themed note "in search of clarity" in a market overwhelmed by key themes, particularly the coronavirus

In response to the global COVID-19 recession, central banks across the world unleashed synchronized monetary stimulus to backstop the economy.With the lack of inflation pressure, and higher tolerance for inflation overshoots, central banks globally are likely to keep interest rates low for a long time.Today’s low-interest rate environment creates some challenges for investors looking for adequate returns through bonds, but great opportunities for borrowers and equity investors.

Examine the possibility that a "blue wave" is not necessarily "growth-friendly" and how fixed-income investors should plan for such an outcome.A "blue wave" results in a potentially higher tax, an increased regulatory environment and a less "business-friendly" setting, which could ultimately result in slower economic growth.If the UST market does embrace "the other side of the trade," investors should take a more "strategic" approach to fixed-income asset allocation and be mindful of the current and prospective shape of the yield curve (relatively flat now, potentially steeper later).

Global economic growth has underwhelmed versus expectations generally since 2011.Lower than expected growth versus expectations has caused investors to chase growth at almost any price, and duration in their bond investments almost at any price.This crowded investment landscape is about to experience a wholesale change, with global growth outperforming expectations led by China and the United States.

Over the last few weeks, we have discussed much of what happens to the stock market both pre- and post-presidential elections.With no stimulus currently on the horizon and a resurgence of economic weakness, there is more than a reasonable risk we may see more disappointment in economic data ahead.We currently have more equity exposure than we are comfortable with.However, technically, there is no reason to reduce exposure as trends remain positive sharply, the sentiment remains clearly bullish, and volatility remains suppressed.We are still hedging portfolios by holding slightly higher levels of cash and adjusting the duration of the bond portfolio to mitigate drawdown risk.

European bond prices have an unmistakable correlation to European COVID infections.The strategy of ensuring the banking system remains well capitalized - while letting market-based finance run wild - may have plausible theoretical underpinnings.The "penalty rate" issue is key to mitigating moral hazard.

Increasing inflation has implications for businesses and workers, but this article will focus on investors.The classic inflation hedges are gold, other commodities, real estate and, some argued, stocks.There are possibilities in all these categories, though investors should not expect any of these to work perfectly.There is no asset that is obviously a slam dunk for an inflation hedge, but gold, mining stocks and farmland should be considered.

We believe the overall credit health of the preferred market remains strong.Fixed income markets have seemingly come full circle thus far in 2020.Preferreds with exposure to commercial real estate, consumer spending, and energy all still offer above-average yield and total return potential.