Adapt or die: The financial market mantra

 Adapt or die: The financial market mantra

Bloomberg had an interesting piece out this week on how the 60/40 stock-bond ratio mix that has been the bedrock of many investors portfolios could be dead. The reason is if we see a stagflationary environment where inflation is high, but growth is slow. See this helpful crib sheet from the folks over at Financial Source for help in seeing the different outcomes.

The concern is that rising inflation will see central banks around the world seek to slow down their economies by raising interest rates. This will hurt both bonds and stocks at the same time. The low growth era of the last 20 years or so have boosted the 60/40 strategy as it is built on the premise that rising stocks = falling bonds and vice versa. In September both bonds and stocks have fallen together.

Chart

Now the caveat with this of course is if inflation really is transitory. We know that central banks are dropping the ‘transitory’ word more…

Read full article…www.fxstreet.com