Bank of America Merrill Lynch summed up this disjuncture well in its latest Thundering Word note, stating it remains “cynically bullish” on financial asset prices.
Explaining its stance further, it said: “Tactically, the 3P’s (Positioning, Policy, Profits) still argue for upside; but with risk assets up 15-20% since February, and September a big “policy month” we once again recommend buying volatility.
Pointing out it believes a “bond shock” remains the key autumn risk for markets, it added: “Excess monetary abundance has been the primary support for asset prices. Risk assets are now further underpinned by the new “Keynsian Put”, the expectation that fiscal measures will be deployed to combat any renewed weakness in the economy/markets.”
James Clunie, manager of the Jupiter Absolute Return Fund espouses a similar view. Confidence in central banks and the reach for yield within markets that has accompanied this confidence has been the key driver of the distortion of asset prices, he said.
"it is not sufficient to be an entirely logical manager, because fundamentals are not the only thing at work."
Such a philosophy is fine as long as everyone buys into it, but as Portfolio Adviser has pointed out before there is a growing sense that it cannot continue in perpetuity. So, where does this leave the cautious investor?
For Clunie the answer lies in a move slightly away from logic.