Capital Market Line: Regime Change and Its Investment Implications
In our view, 2016 will come to be seen as a key inflection point for global markets. It marked the end of private sector deleveraging, which was responsible for challenging growth conditions, unconventional monetary policy, and volatile politics. The end of private sector deleveraging enabled the post-crisis stall-speed regime to transition to a more balanced set of conditions that we call reflation. Some market participants choose to see reflation purely as a notch higher in pricing power that is also highly dependent on the Trump agenda. But we see several causes and turning points away from unhealthy to more balanced conditions in growth, confidence, leverage, investment cycles, and pricing power.