“For now, what politicians and central bankers seem to want, they get, in terms of currency and financial market moves,” Jane says in a new note.
Pointing out that the last quarter was, in many ways, “an exceptional one” for markets, he said: “It seems to have been a quarter where most things went up and, so long as you had the currency issues under control, you will have made a decent return.
Adding: “Meanwhile, all the worries of the latter part of last year faded against the background of benign economic data and the ever present powerful force of central bank supplied liquidity.”
However, while he expects many of the factors that led to this benign situation to continue, he does point to a number of issues that could disrupt it.
The first of these, he says, is simple mean reversion given that markets have moved a long way in a very short period.
The second possible disruptor, is an “out-of-the-blue shock”: an even greater deterioration in the politics of the Middle East, he suggests, or a failure of Greek negotiations.
“Such events have recently not been able to divert markets away from their basic focus on grinding higher but this can change,” he points out.
According to Jane, the possibility that something will go wrong is an ever present one and, importantly, one to which asset allocators should always be vigilent.
But, he says, for the moment, he will continue to take advantage of the opportunities presented by the current reality.
A reality wherein there is every possibility that an unexpected deterioration in the broad economic outcomes “would likely be accompanied by further support for markets from central bankers, so it all gets a bit circular- if things start to go wrong we get more free money and if things go well we still get the free money.”
