Investment Commentary 4th Quarter 2015

by Christoph Barnett, MSc, CPA, CFA on Jan-22-2016

In December, the US Federal Reserve finally made the long anticipated decision to raise short term interest rates off of the zero bound where they had rested since December 2008. Developed market equities, while unable to fully recover their third quarter losses, did deliver good returns in the final quarter. In contrast, the bear market in emerging market equities continued as the commodity decline showed no sign of finding a bottom and the Fed move confirmed fears that the credit cycle may be entering a tightening phase. All eyes remain focused on the Fed as investors adjust their expectation to the expected pace of rate increases in 2016. In response to the Fed decision, short term bonds yields increased while longer term yield remain relatively unmoved exacerbating the flattening of the curve that we have discussed in previous commentaries.


In 2015, cash was truly king.  Price returns across all major asset classes were negative and only when dividends and interest are included in the returns were US stocks, bonds and real estate slightly positive for the year.  Strength in the US Dollar, which increased by 9.3% for the year, drove much of the underperformance in non-Dollar assets. The Fed has raised interest rates and is planning to raise again in 2006 in contrast to central banks in Europe, Japan, Switzerland, England, China and Canada who plan to lower rates, continue QE, or at the very least maintain low or negative rates for an extended time. This divergence in interest rate Currency War policy is forcing investors into the Dollar as they seek to escape negative yielding and depreciating currencies.


Equities markets in January 2016 had one of the worst starts of the year in history as non-US developed markets and emerging markets entered bear markets. The US market, while in a correction, has so far been spared bear market status with the exception of small-cap stocks which have fallen over 23% from their all-time high. The speed of the decline in January has certainly been jarring, but equity investor must maintain perspective. World stock markets have not made a new high since May of last year so we are now over 210 calendar days into this decline. Since 1900 we have had 35 bear markets with an average length of 403 days. For the 5 bear markets since 1990 only the 2000-2002 tech bubble burst and recession and 2007-2008 real bubble burst and global financial crisis produced bear markets significant lower and longer than our current bear market. Every bear market is unique, but this provides context regarding potential further decline and recovery in the coming months.


Many US investors may be surprised that world markets have declined for almost three quarters since peaking in May; this is because in some ways this has been a stealth bear markets. A small number of mega cap companies with strong returns have supported the overall market covering money smaller companies that have declined. If just the top five performers of the S&P 500: Amazon, Microsoft, General Electric, Alphabet (Google) and Facebook are removed, the index performance for 2015 would have dropped from 1.31% to -1.35%. In fact, for much of the year these companies represented most if not all of the gains of the benchmark.


 


 


In the US, the economy grew at a 2.9% annualized rate as of Q4 2015; this is the lowest level since the first quarter of 2013. Consumers spending, while less than the previous two quarter, again drove the economic growth rate, but business spending on equipment and structures were a drag. The Manufacturing Purchasing Managers’ Index (PMI) is has now been under 50 for four months signalling possible further strain on GDP in the coming quarters; the PMI had not dipped below 50 since December 2012. While concerns have emerged our view remains that that the US economy has the best growth prospects in the developed world as the Fed will remain stimulative in the face of any economic decline. Job growth had exceeded expectations for the three months before the recent January report, but we have not seen a month without job gains since October 2010. The unemployment rate continues to decline and is under the psychologically important 5% level standing at 4.9%, the lowest level in almost eight years. Oil and commodity markets as a whole have continued their decline, but the effect on annual inflation is beginning to work through the consumer price data. Inflation has ticked back up to 0.7% after hovering near zero for the whole of 2015.


In January, the Federal Reserve reconfirmed that interest rate hikes in 2016 will be gradual and data dependant. Inflation far below target, low labour market participation and market volatility will give the Fed Governors pause while the continued positive GDP growth should spur them forward. The Bank of Japan has set the deposit reserve negative for the first time ever. This signals that in spite of the Fed December move, central banks will continue to lower rates and increase quantitative easing. At the beginning of the year, Fed Fund futures implied a greater than not probability of a March rate hike, but with the market decline, slightly lower economic growth and the latest BOJ move the implied probabilities show that investors do not expect another rate hike until 2017.  The Fed forecasts for 2016 levels of interest rates still show four increases; however, we continue to expect short term rates to remain low in the near term as the eventual continued moves from the zero bound will be muted.


In a recent speech, the head of the European Central Bank Mario Draghi confirmed that he would not surrender to low inflation which stands at 0.4% for the Euro area, the highest level in over two years. The recent market volatility has driven investors back to European bonds driving yields back down across the continent. For maturities of five years or longer, government bonds issued by Germany, Switzerland, Sweden, Denmark, Austria, France and the Netherlands trade at negative yields. UK inflation remain positive but only just at 0.2%. These numbers will spur continued negative rates as central bankers continue to do “whatever it takes”. EU GDP growth in 2015 continued at the best levels seen in four years following the initiation of the ECB quantitative easing program.


Commodity prices took another leg down in the fourth quarter and continued to fall through the middle of January, but have bounced into the month end. Oil touched $26.19 but then recovered over 28% back to over $33 per barrel as rumours of production cuts came out of Russia and OPEC. New supply coming from Iran as sanctions are lifted and continued pumping in countries experiencing budgetary strains will have to be overcome to lead to further significant gains. It will also difficult for prices to break through the $60 as rigs will be brought back online to take advantage of again profitable wells. Emerging markets, in a bear market since August, have declined further in the last few months in sympathy with global equities; however, valuations are now indicating double digit real forward returns on average for a ten year time horizon. This is the highest expected return based on valuations among the global market regions. Gold, which has remained relatively resilient during the commodity bear market, fell in the fourth quarter but has gained in January as investors sought safety in a falling market.


For 2016, we expect central banks to continue with dovish policies in their attempts to fight deflation and promote growth. Negative nominal rates are no longer purely theoretical and are now seen as a viable option even for the Fed. While growth may slow, we do not expect a recession in the US. Recessions are occurring and will occur in the commodity producing countries in response to the slowing growth in China. The largest US stock decline of the last five years was a 19% decline in 2011 during the European debt crisis; this decline has so far peaked at over 15% down. While these market moves are definitely jarring, they are the price paid for the additional returns available in the equity market. Historically, a 10% decline has occurred in about two of every three years. With inflation rates so low, we expect central banks to provide further stimulus at any indication of a dreaded low growth/deflation combination. This will keep yields on safe assets very low but continue to provide support to the risk assets classes in diversified portfolio. 

Investment Commentary 3rd Quarter 2015

by Christoph Barnett, MSc, CPA, CFA on Sep-30-2015

The bull market has faltered in the US as the S&P 500 failed to achieve a quarterly gain, breaking its streak of ten straight positive quarters. Equity markets around the world likewise are experiencing corrections with emerging markets faring worst entering a bear market on continued financing concerns and the global commodity rout. Volatility spiked dramatically in August and has remained elevated since.  All eyes remain focused on the Fed as the Governors chose not to raise rates in the first three quarters of the year. In the US bond market, the yield curve continued to flatten as rates for maturities under one year increased and decreased for maturities in the medium term. This shows bond investors continuing to prepare for an eventual rate increase in spite of the Fed’s September decision not to make their first upward move in nine years.


After thirty-six correction-free months, the fifth longest streak on record, the S&P 500 experienced its first 10% decline on a closing basis in August. While the speed and volatility of the decline to the 10% mark may give concern, we should also reflect on the length of the correction free streak and the sense of complacency it has given us. Equity markets are volatile and even though they have consistently been proven to delivered the highest long term returns corrections and bear markets remain part of the equation. Philosophically, it must be so. If volatility and loss were somehow removed from the stock market and 7% annual returns achieved without variation and this fact became widely accepted investors would over time bid up the price of stock market until the expected return would be that of a bank account. It is the volatility which give rise to the greater returns.


Observing a long-term correlation between stocks and bonds of 7%, investors rightly expect bond holdings to offset declines in the equity holdings of their portfolios. However, this correlation has proved unstable throughout history swinging from positive to negative with extremes at -93% and +86%. August was one of those months when the correlation was positive with long-term government bonds declining 1%, contributing to instead of offsetting the equity declines. It is in these circumstance where the benefits of a disciplined investment approach is most critical. Where appropriate we have used the market volatility as an opportunity to rebalance client portfolios. A disciplined approach to rebalancing forces us to buy low and sell high setting up the portfolios best recover along with markets.


In the US, the economy grew at a 3.7% annualized rate; this is up from the 2.3% estimate reported by the Commerce Department in their previous GDP data release. Business and consumer spending drove the increase from the first quarter which saw only 0.6% growth. Our view remains that that the US economy has the best growth prospects in the developed world. Despite coming in below expectations, the employment report released earlier this month capped 60 straight months of employment gains with unemployment now at 5.1% the lowest level in seven years. As commodity markets struggle to find a bottom, inflation remains low at 0.2% for the last two months and has been near zero for the whole of 2015. Federal Reserve communiques continue to confirm that interest rate decisions will be data dependant. Inflation far below target, low labour market participation and market volatility will give the Fed Governors pause while the continued GDP growth should spur them forward. The Fed forecasts for the 2015 and 2016 levels of interest rates have fallen from the forecast in March and June this year. We expect short term rates to remain low in the near term as the eventual initial moves from the zero bound will be muted.


With Euro area deflation at -0.1% in September, the ECB’s bond buying program has so far failed to achieve its stated goals. The second quarter actually saw bond yields increase across the European countries in spite of the ECB purchases. These increases have certainly not been dramatic as negative yields persist in Germany, Switzerland, Sweden and the Netherlands. After printing negative in April, inflation in the UK again came in at -0.1% for September. Based on these indicators and market reactions we expect that the European QE program will continue for an extended period of time. On the positive side, EU GDP growth in 2015 is at the best levels seen in four years.


European and Japanese central banks continue their quantitative easing programs. The Fed continues to show their willingness to remain accommodative with one governor even predicting a negative fed funds rate in the US in the most recent interest rate forward looking dot plot. These policies will continue to provide support to asset prices across the risk spectrum. Market declines will slow the timing and magnitude of hawkish monetary policies decisions, and Equities markets will continue to be the beneficiaries of these policies.


Commodity prices in general and oil prices in particular appear to have found support in the quarter as oil touched $38.51 per barrel before rebounding and settling into a $43-$50 range for the month of September. Headlines showing the financial distress at Glencore, the commodity giant, and reports of Saudi Arabia delaying payments to government contractors as deficits continue give additional indications that commodity markets are bottoming. With the Iran nuclear deal moving into the implementation stage, it is difficult to see how a significant long term increase in oil prices can materialize absent geopolitical instability.  Emerging markets have taken the brunt of the equity market declines this year falling as much as 31.5% at the low point in August; however, valuations continue to show that these markets will produce the highest long term returns and demand a place in diversified portfolios. Gold and silver declined for the quarter, but strong moves in line with other commodities since the quarter end have offset those losses.

Investment Commentary 2nd Quarter 2015

by Neville Hicks on Aug-06-2015

The Greek debt crisis, Chinese stock market volatility, and uncertainty regarding central bank policy dominated the headlines for the second quarter. While steps still need to be taken to complete a third Greek bailout; the local parliament has passed legislation agreeing to the austerity measures demanded by the other European governments. Following a crash of over 34% from the high, the Chinese government has taken steps to support the local stock market including tightening regulation on leveraged accounts, banning certain entities from selling their positions, and supporting a fund to buy stocks outright. These measures are in addition to circuit breakers which have halted trading of many of the individual stock which crashed the fastest. The decline seems to have been abated for now. On the central bank issue, the world continues to watch and wait to see if the US Federal Reserve will indeed raise rates as they have indicated later this year as for the first time since 2006.



With a price return of less than 0.5%, the S&P 500 closed its tenth quarter of positive returns on June 30; this small gain came as the US market remains in the tightest trading range so far this year of at least two decades. While the tech heavy NASDAQ Composite had broken through to the upside in the first quarter, it too joined the S&P 500 and Dow Jones Industrial Average to share the same range bound fate in the second quarter. In the US bond market, the yield curve steepened for the first time since the last quarter of 2013 as all maturities showed an increase in rates. This reflects the expectation of bond investors on the timing and effect of a rate increase from the Fed.



US unemployment is now 5.3%, the lowest in seven years; average hourly earnings have also improved in the last year. This employment data is the latest in a series of generally good news for the US economy. In May, the Bureau of Economic analysis revised upward their estimate of first quarter GDP. Data on the second quarter will be released at the end of this month, but current forecasts indicated growth will be over a 2% annual rate. Increases in consumer spending and the housing market are driving this expected growth. The US Dollar has stabilized this year after its strong increase last year. While a strong Dollar remains a headwind for exports, the lack of further strengthening with reduce the pressure on the domestic economy for now. We expect that the decline in non-Dollar currencies will spur export led growth in global manufacturing countries, but our view remains that that the US economy will continue to push forward in the developed world. Janet Yellen has continued to indicate that a 2015 rate rise is likely. With the economic news mentioned above it will be difficult for the Fed to continue to delay the move. Inflation remains a sticking point; June inflation was 0.1% well below the 2.0% Fed target. This may not prevent the Governors from pulling the trigger on the rate hike, but it is definitely one of the reasons for hesitation. We do expect the Fed to start increasing rates in late 2015, but rates will be below their forecasts and future rate rises will be slow in coming as the economy and markets adjust.



When the Fed does make the first rate move higher, it will be quite significant as it will signal a turning point in the global momentum of interest rate moves. According to Bank of American Merrill Lynch, central banks have cut interest rates over 570 time since September 2008. This includes the Bank of Canada, who just lowered their benchmark rate by 0.25% to 0.50% on July 15. The benchmark Euro interest rates remain negative. The Greek debt crisis spurred sell offs in European bonds causing yields to turn back to positive over most maturities. The German 10 year yield spiked from 0.05% to over 1% in less than two months. This move represented an extreme percentage and volatility spike that cause some institutional managers to adjust their fixed income models. Euro area deflation seems to have been contained with a reading of 0.2% in June up from negative print for the first three months of the year. Economic growth in the region continues to be weak, increasing only 0.4% in the first quarter. The effects European QE program , which was launched on January 22, will be seen in the next few quarters as the ECB is hoping to stimulate a recovery like that seen in the US. The recent spike in bond yields will provide additional capacity in the bond market to invest the Euro 60 Billion that is being invested each month.


These accommodative policies predictably bolstered equity markets by forcing investors into the comparatively riskier asset classes and lowered foreign exchange rates thereby promoting growth in exporting economies. We have already seen this in the markets as European and Japanese equities have lead the developed world in returns beating the US markets year-to-date. This is line with our expectations as valuations are more attractive in those countries and their quantitative easing programs continue.


The support for oil prices held in the second quarter as prices remained in the $47-$63 range. The production rig count decline in the US appears to have stabilised, but production remains on course to set a new record for 2015. Saudi Arabia as well is continuing to maintain its high level of production. A historic nuclear deal with Iran was announced earlier this month. The deal remains to be ratified and sanctions lifted; however, the first supertanker filled with Iranian oil has set sail for Asia. If this new supply comes fully online we expect oil prices to remain capped for the near to medium term. Commodities prices in general remain suppressed as the China slowdown lowers worldwide demand. Volatility remains high in emerging markets which ended flat for the quarter; valuations remain attractive in these markets. Last month, Gold gave up the $1,200 price support and is now back to the November price lows.


 

Investment Commentary 2nd Quarter 2014

by Scott Elphinstone on Jul-01-2014

​During the second quarter, global markets shrugged off the volatility of the first quarter and equity markets resumed their five year bull market runs with US market reaching new all-time highs. The Dow Jones Industrial Average crossed 17,000 for the first time last week and the S&P 500 closed over 1,985. In the US bond market, the yield curve flattened further in the second quarter as rates on two and three year maturities rose by 10bps and maturities ten years and beyond declined by 10bps. This reflects the expectation of bond investors on the timing and effect of a rate increase from the Fed. We expect that rates will move higher across the curve as we move through 2014. Equities should continue to perform well in this low rate environment but with the indices at all-time highs returns will be well below that of last year. 


In the US, the Commerce Department released the GDP estimate for the second quarter at 4.0% well above consensus estimates 3.0%. This appear to confirm that the weak first quarter (-2.1%) was influenced by bad winter weather.  Recent data is showing that consumer spending has rebounded as the long winter has ended. House prices have increased and economists are estimating a 3.0% growth rate for the year which seems achievable. On July 3rd, it was reported that US unemployment fell to 6.1%; this along with inflation approaching the Fed's target indicates the "tapering" will continue at the set pace. The current expected schedule is for quantitative easing to end in October and for the first interest rate rise to occur in the second quarter of next year. This is all in line with our view that that the US economy is continuing on its path of steady growth.


In the last quarter, Mario Draghi and the ECB followed through on his promise to do whatever it takes to support growth in Europe. The policy announced included a new record-low interest rate of 0.15%, targeted loans and a deposit rate of negative 0.1%. Banks now have to pay for the privilege of holding reserves on deposit at the ECB. Inflation and economic growth remain low so Europe may yet see its own quantitative easing program launched as the Fed ends theirs. Bond yields continued their decline and countries including Spain, Ireland and Greece had their credit ratings raised. Increasing stimulus should help support both equity and bond valuations.


Renewed violence in Iraq has effected higher oil prices; however, the main oil fields in the south of the country have not been impacted. The oil and gas production boom in North America in the last few years has also reduced the impact on markets of Middle East geopolitics. The crisis in Ukraine also appears to be contained following the annexation of Crimea and the election of the new Ukrainian President. Violence continues in the east of the country, but global markets seem to have insulated themselves from the situation. The investable emerging markets including Mexico performed very well in the second quarter and was one of the top performers in the equity portfolio.

Investment Commentary 1st Quarter 2014

by Scott Elphinstone on Apr-28-2014

During the first quarter, global markets adjusted to a Fed that is intent on reducing the level of monetary stimulus in the system. While unrest in the Ukraine amplified market movements the global equity markets responded to the onset of Fed "tapering" by selling off in January and recovering to levels slightly higher than year end by the end of the quarter. Bonds responded to these actions by curve flattening with short term rates increasing slightly and longer term rates coming down. This is not atypical. The investors in long term bonds felt that inflation risk has been reduced as the Fed is taking action and the investors in shorter term bonds were surprised by the March Fed statement that indicated rates are rising sooner than expected.


While economic data in the US was weaker than expected, the Fed is clearly attributing that to the severe winter weather in the northeast. Economic data this quarter should remove that uncertainty. We expect the US economy to continue on its path of slow steady growth as the impact of the debt crisis fades and households are able to increase their level of spending. Stable property prices will also be helpful to the economy. 


In Europe, the recovery is gaining momentum. Earlier in the month, Mario Draghi reaffirmed his statement that the ECB will take whatever steps necessary to support the economy as inflation remains well below the ECB's target. The creation of  European wide bank regulation continues to move forward. Full European financial integration is inevitable. A good indication of the rebound in Europe is the yield on Spanish 5 year bonds. After being almost 8% in 2012 they now have the same as US Treasuries in the same term. European markets have outperformed the US so far in 2014 and we expect this to continue


With the Ukraine crisis, the developing economies are now a very mixed bag. In our investment strategy, we are taking a much more country specific approach. This quarter, just before the Russian intervention, we sold 20% of our broad emerging market investment and invested in Mexico. We feel that with the opening up of the Mexican energy industry to private investment and the arrest of the head of the largest criminal drug cartel are indications of serious reform which should lead to good equity market results over the next few years. China will continue to be strong with GDP growth above 7% per annum as the government is making considerable investment to steer the economy into one that is less export dependent. Russia will be under pressure until the Ukraine crisis runs its course. Overall, emerging market equities are reasonable value and should outperform over the next few years.


Overall after a weak first quarter we think global equities will return 6-8% for the year and bond prices will be under pressure as the Fed continues to reduce monetary stimulus in response to stronger US economic growth. Any impact from an escalation in the conflict in the Ukraine will be severe but limited as the global economic impact will be small. Our strategy is unchanged. We will maintain our defensive bond strategy with a duration below 2 years and favour the shares of large global companies with strong brands and pricing power in the equity portfolio. We will add to our positions in European equities as we feel they represent better value after the large increase in US equities last year.

Cayman Economic Outlook

by Katherine Tathum on Jan-13-2014

Think:New Reinventing Our Future >

Investment Commentary 4th quarter 2013

by Scott Elphinstone on Jan-10-2014

During 2013, global markets moved on waves of speculation about the timing of when the US Federal Reserve will cut back on quantitative easing or QE. In December the Fed announced it would reduce its new bond purchases by $10 billion a month to $65 billion. The Fed is engaged in a very delicate balancing act. To date the Fed has offset the deflationary effect of the weaker deleveraging economy by creating inflation through increasing the money supply, purchasing government and mortgage bonds. As a result of these offsetting forces, net inflation is low, in the 1% range. This will work as long as economic growth is weak however, the recovery of the global economy seems to be gathering momentum. A combination of moderating post crisis deleveraging, a reduction in fiscal drag from government austerity and stable to lower energy costs due to new sources of energy, especially in the US, is driving faster growth.


The Fed needs to make a difficult call. If the Fed reduces money growth in the system by slowing down or stopping QE too soon, the economy may head back into recession. If they keep up QE too long the inflationary impact of printing money will no longer be offset by a declining level of deflation in the economy and inflation may be significantly higher. While they might be lucky and manage this transition to a stronger economy correctly by withdrawing QE and increasing rates at exactly the right time, we need to consider what their most likely error will be. Given the desire by the government to have stronger economic growth and the benefit to the US deficit that comes from lower interest expense, it is pretty clear that they will let inflation increase well beyond their target before reversing all of the QE and raising rates. With the risk mostly one sided we will maintain our strategy to minimize damage that might result from inflation by holding only short term fixed income securities and by being underweight financial and highly leveraged companies in the equity portfolio.


In Europe, the recovery is significantly behind that of the US. The European economy has only now exited recession. While political risks remain they have been reduced and the equity markets will likely catch up and close their underperformance to the US over the next few years. Japan is a similar story. It is finally emerging from its lost decade due to aggressive US style QE and major structural reforms. While all of the announced reforms have yet to be enacted, the Japanese equity market like Europe has the same potential to outperform.


In contrast the developing economies appear to be way ahead of the US economy and are now starting to recover from a slowdown that is a few years away for the US. China will perform the best, but probably at a growth level lower than that of the past 10 years, as the government is making considerable investment to steer the economy into one that is less export dependent and more driven by domestic consumption. In contrast India, Brazil and other developing countries with a high level of external financing requirements are likely to have protracted slowdowns. Emerging market equities are reasonable value and have the potential to recover from this year's weak performance.

Investment Commentary September 30, 2013

by Katherine Tathum on Oct-01-2012

Market volatility continues to be driving largely by government actions, especially speculation as when the US Fed will taper its purchases of bonds. Over the summer expectation built that the Fed would ease its money printing machine in September. This put pressure on both global equity and bond markets. US 10 year government bond yields moved up from 1.63% in May peaking at 3.0% in September, before the Fed meeting (a loss in value of over 10%). The Fed surprised the market in September by leaving the pace of bond purchases unchanged. The equity markets ignored the negative implication that the Fed thinks that growth will be slower and moved to new highs. Bonds took the opposite view and staged a modest rally. Fed speakers have reassured the markets that they don’t see an end to quantitative easing for some time, we are not sure that the Fed has the luxury of too much time before they have to start withdrawing stimulus. While it is likely they will wait until the US government settles its budget early next year, if they are too slow at reversing policy they might risk very damaging stagflation. On the other hand it is clear that Fed intends to keep interest rates at current levels until late 2015 a year longer then we had previously anticipated. This will allow us to extend term somewhat to take advantage of the slightly higher yields offered by the steep yield curve without much additional risk.


Emerging market equities have been further pressured by much weaker than expected growth in China, Brazil and India. It now looks like these economies will not recover to their previous very high levels of growth as quickly as we expected. Some encouraging signs that growth rates have bottomed moved the oversold broader emerging market equity indices up by about 8% in September reversing some of the declines. At this point we see not enough evidence to add to our emerging market position.


While Europe remains a slow moving situation, equity markets have reacted positively to better economic data overall and in the hard hit peripheral nations of Italy, Spain and Ireland. The recession is Europe appears to have ended and the risk of any sovereign default has receded. The re-election of German Chancellor, Angela Merkel and the survival of the Italian government coalition in a vote of non- confidence supports our confidence in the stability of Europe. Mario Draghi, the head of the ECB continues to speak of a potential US style stimulus package that will be put in place to support the European economy if required. Japan is a similar story to Europe. Economic growth has lagged the US and is starting to catch up largely on the promise of more aggressive fiscal and monetary actions by the Abe government. With the US at all-time highs we think that Europe and Asia are more attractive markets for investment.


With the start of tapering in the first quarter of 2014 at the latest, we remain cautious as we have seen the scale of the negative market impact the start of tapering might bring. We think that the risk of a large negative development in the markets, like in 2008, is much higher than normal due to the sheer size of the amount of monetary stimulus in the global system.

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