Richard "Crit" Thomas, CFA, CAIA, global market strategist, shared his perspective on the “new COVID economy” in a recent video roundtable with industry colleagues. The wide-ranging discussion examines challenges and opportunities in the credit markets.
Among his insights and observations:
- “If you think about long-term investing, historically it’s always paid to be optimistic. We're sitting here in a bear market and in a recession. This is typically a time when you want to take on some risk. I've been leaning that direction, but I haven't fully embraced risk because of the unusual nature of this downturn and the unknowns that it creates. Namely, it creates some tail risks that preclude me from wanting to truly embrace risk.”
- “What the Fed (Federal Reserve Board) has done has changed the price (of certain assets), but they haven’t changed the fundamentals. I have to recognize that and that is forcing me to step away.”
- “I have to admit that I was surprised at how much the Fed was able to come up with. They really have demonstrated that there are a lot more tools than I think anyone realized in terms of what the Fed can do. Again, right now, they've accomplished a lot of what they needed to do and that is to make sure that the markets are functioning and the plumbing works. It's hard to speculate as to what the next environment presents that the Fed would have to respond to. I think right now the puck is more on the fiscal side than on the monetary side.”
- “One risk out there is just, when we get to a point where we're back towards normal and we have a vaccine, the balance sheet of the Fed. I don't know how they ever unwind what they've done. They'll probably have $9-10 trillion on the balance sheet.”
- “One thing that I've been saying to clients is that the fixed income space is broken. What I mean by that is that I can give you fixed, but there’s no income that comes with it. Or, I can give you income, but it's not at all going to be fixed because the amount of risk that I have to take.”
- “You still have to be diversified. You have to be selective. I think that right now you want to focus on quality just because of the tail risks of the idea that some companies aren't going to make it through this crisis. But a well-diversified portfolio, I think, is still the most sensible way approach.”
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