Global Investment Strategy

GIS June 6 (Three Known Unknowns)

Date: 2016-06-05 - Prepared by: The GISI

Alan Greenspan has recently argued—just like he did in December 2015—that (a)it will be very difficult for the Fed to normalize rates without causing a turmoil in stocks; (b) long-term real bond yields are at unsustainably low levels, and should be around 2% (i.e. nominal 10-Y Treasury yield of around 4%); (c) when real yields rise, stock prices will most probably plummet, and (d) Eurozone doesn’t have much of a future in its current shape.

Term premiums on U.S. Treasury bond yields have fallen to around zero, which means investors are not hesitant to extend duration risk—this is an important leading indicator. Stocks with a consistent and reliable dividend payout ratio should continue to outperform.

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