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“There are decades where nothing happens, and there are weeks where decades happen”
– V. I. Lenin
Financial markets are at a crossroads.
On the one hand, a deep economic blackout threatens to turn into a recession, permanently damaging economies with defaults and job losses. On the other hand, governments are taking action with large-scale and targeted fiscal stimulus, while central banks have broken their taboos on balance sheet expansion and asset purchases: the Federal Reserve recently announced an additional $2.3tn in asset purchases and loans to support the economy, including to high yield borrowers.
Investors are navigating between ice and fire. We believe the economic normalization will be slow, with a long-lasting change in economic behavior following the Covid-19 shock.
These new market and policy shifts bring us a number takeaways:
1. Central banks will be locked into QE infinity extraordinary economic support for the foreseeable future
2. Government debt will become riskier and expose investors to negative real returns
3. Fiscal stimulus to the real economy in the form of universal basic income, coupled with aggressive monetary policy may produce a higher rate of inflation than in the last decade
4. Governments will exert influence on the allocation of capital as well as on shareholder returns
5. Strategic firms and sectors, large employers may benefit from additional government help
In this context, we believe credit offers the best opportunity across assets, on a risk-adjusted basis.
In our previous Silver Bullet | Nothing Left to Sell last month, we drew a line, highlighting value in credit assets. Since then, we have been deploying some of the available liquidity in our funds, focusing on large firms in the telecom, utilities and financial sectors.
Today, we discuss this in our Silver Bullet podcast: Alex Lasagna, Algebris Deputy CEO interviews the PMs Alberto Gallo, Algebris Macro Credit Fund and Sebastiano Pirro, Algebris Financial Credit Fund.
This is an extract from The Silver Bullet, Algebris Investments' macro letter.
Alberto Gallo is Head of Macro Strategies at Algebris (UK) Limited, and is Portfolio
Manager for the Algebris Macro Credit Fund (UCITS), joined by portfolio managers/macro analysts Aditya Aney, Gabriele Foà and Jacopo Fioravanti.
For more information about Algebris and its products, or to be added to our Silver Bullet distribution list, please contact Investor Relations at algebrisIR@algebris.com. Visit Algebris Insights for past Silver Bullets.
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