Central banks should focus on liquidity distress in markets: Allianz chief economic advisor (youtube.com)
For a long time debt was so cheap that the correct thing for a company was to change the capital structure by putting on more debt. ‘So we have a massive overlay of BBB- (lowest investment grade) that are hanging over the high yield market.’ Economic slowdown will cause downgrades, so they will be coming into the high yield category (junk). This disrupts primary issuance, refinancing debt, so there will be an opportunity there, in very focuessed refinancing.
El-Erian advised that the central banks don't just pump liquidity (blunt intstrument) but focus on where there is lack of liquidity distress.
Many years of narrowing stock choices, the Mag7, outperforming all hedgefunds, outperforming the market, teaches people to just but that, setting these stocks up to have high multiples and then at some point underperform (this year, they're underperforming market). Gundlach. Groupthink, Herding.
He also noted on groupthink that if a company cuts their dividend it's all kinds of headlines, first time in decades. But if everyone's doing it, no one thinks anything of the same company doing the same thing.
For decades, overseas investors have invested trillions in the US.
Now, Europe is outperforming. It had been a valuation trap, cheap but getting cheaper, relative to US.
Equal weight is outperforming marketcap weight.
Growth veruss value less convincing on the charts.
In 2020 2021 interest rates bottomed, and since it has been a secularly rising interest rate market.
Sometimes experience can be a hindrance, Gundlach said, because what you think you know is true only to a regime which might change. 4 years in the market, you buy all dips. 40 years in the market, recession means strengthening dollar.