Investment Insights Podcast – Markets Rally in Anticipation of G20 Summit

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded February 26, 2016), Bill discusses the recent string of positive news, the hopeful outcome following the G20 Summit, and what still remains as cause for concern:

What we like: G20 Summit underway to discuss new policies intended to help support economic growth around the world; Communist party in China soon to meet to discuss five-year plan; stock markets have rallied a bit recently

What we don’t like: Economic data continues to be mixed; need a steadier drumbeat of good data to gain more confidence

What we’re doing about it: Tactically speaking, we are leaning towards a more bullish stance; monitoring the stabilization of oil prices

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Decoding the G7 Statement

Andy RosenbergerAndy Rosenberger, CFA, Senior Investment Manager

Earlier this week, members of the seven richest countries met for the official G7 conference. Center to the assembly were discussions surrounding the recent actions by Japan to stimulate their economy through currency devaluation and higher inflation targets. Investors, hungry for a green light by the G7 that Japanese policies are warranted, were disappointed and confused as conflicting statements were issued. The official statement read:

“We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.”

Confused by the statement? You weren’t alone. The statement, although obscure, was initially seen by the market as a green light. Specifically, market participants focused on the following sentence:

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments…”

However, only hours later, an unnamed “official” was quoted in a Reuters article as saying:

“The G7 statement signaled concern about excess moves in the yen.” and “The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend.”

G7

The unnamed “official” was enough to stop the yen’s depreciation; at least temporarily. Investors’ eyes will now turn to the G20 meeting this weekend for further clarification. However, the reality of all of this is that it’s more noise than news.

Japan has started down a path with which there’s no turning back. Too many failed stimulus attempts have been one of the major reasons as to why Japan hasn’t been able to escape its two-decade long deflationary spiral. Reversing course now would be disastrous for the Japanese economy, and more importantly, Japan’s newly elected Prime Minster Shinzo Abe. Prime Minster Abe has only months to establish his Liberal Democratic Party’s (LDP) credibility before another round of elections determine the party’s fate. Turning back now would surely cost the party its ruling power. Ultimately, it seems hard to believe that newly elected officials would side with six members from other countries over that of the voters and ultimately their political careers.