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In a strong wind, even turkeys can fly

Investors are in pain. The news flow is worrisome indeed. Bitcoin is trading north of USD 60,000, an American online payment start-up is valued at USD95bn, and a crypto art piece was auctioned at USD69m last week. This feels as if the investment world is falling apart at the seams as asset inflation shoots through the roof.

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Key takeaways:

  • Tax hikes and money tightening are concerns for later this year, if not 2022. Yet until late summer, bond yields will likely continue to rise, albeit at a slower pace.

  • Tailwinds are so strong that even European turkeys are taking off. Lovers of quality buy healthcare instead. Plus, thematic investing is tactical investing indeed.

Then there is the constant fear of inflation spilling over from the financial world to the real world, especially as bond yields have more than doubled in a matter of weeks due to rising inflation prospects. And as if that were not enough, the new US administration is considering tax increases to finance its recent spending spree, which could end up choking off the recovery.

How should one navigate against this wall of noise that keeps investors from enjoying the ride?
Acknowledging that this is a lot of noise and distraction is a good starting point. Then gauging the economic recovery is key. We see a continuous broadening and deepening of the recovery into late summer 2021. That does not mean that the economy will be shrinking after that, but rather that we will likely state ‘the best is behind us’ in terms of the speed of the expansion. Against this backdrop, the rise in bond yields should continue.

Yet the pace should slow, as the most recent rise has started to factor in a lot of good news. Then it will be all about the prospects for 2022. As much as investors would like to get a glimpse of what is ahead for next year, this is notoriously unreliable from what we know today. What we can say is that tax hikes would add to the risks of a ‘boom/bust’ scenario emerging in 2022, especially for the US.

Until then, we suggest enjoying the ride, particularly the tailwinds that allow even turkeys to fly. You can find many of these in Europe, especially in Germany. Those who prefer quality need patience, probably more so with shares in the healthcare sector.

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