Report Detail Summary

The LJE Asset Allocation Process: First Quarter Performance and Second Quarter 2020 Outlook

March 31, 2020

While we do not know the duration of the Corona Virus pandemic or the length of the economic slowdown. We do know that there will be a slowdown with a corresponding decline in earnings. The economic stimulus it will have a positive impact as it solves the cashflow issues confronted by both individuals and businesses. We also know that as a result of the crisis, the Fed and Treasury went back to the Great Recession playbook. The fed balance sheet will expand. The question is what will happen to all that cash added to the financial system? If we get a replay of the previous crisis, the balance sheet expansion will not lead to an increase in MZM or bank loans. If that is the case, there should be no inflation spike. Under a downturn, lower real GDP growth lower profits and no inflation, the investment implication is an obvious. Increase exposure to high quality fixed income, i.e. government bonds, and reduce exposure to lower quality fixed income and equities.

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The ValueTiming™ strategy is based on the assumption that politicians and policymakers have particular views of the world, and that they will in general adopt policy measures that are consistent with these views.


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