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July 14, 2016 at 12:05 PM
The big rally in stocks and bonds has some of the world’s top money managers putting up warning signs.
Laurence D. Fink and Howard Marks joined the likes of Bill Gross and Jeffrey Gundlach cautioning that buyers may be ignoring sluggish economic growth and Britain’s departure from the European Union as they look to put their money somewhere, anywhere, amid low interest rates.
“If we don’t see better than anticipated corporate earnings I think the rally will be short-lived,” Fink, 63, said in an interview Thursday.
A run-up in global stocks has added more than $4 trillion to the value of equities worldwide since June 27 on speculation central banks in major economies will boost stimulus. It’s been a swift turnaround from the doom-and-gloom surrounding global equities on June 24, the day after the British vote, when stocks lost $2.5 trillion in market value.
Bond Rally
On the fixed-income side, the speculative-grade bond market that was accompanied by bearish calls coming into 2016 has been on a tear, with gains at 12% for the year. But the global market rally, underpinned by low interest rates around the world, carries dangers, Marks, co-chairman of Oaktree Capital Group LLC, said in a telephone interview.
“We are living in a difficult, low-return world that has been ignoring risk incidents,” Marks said. “When the market shrugs off its problems, it is not a plus, as that permits problems to accumulate. Up-cycles don’t go on forever.”
Marks said investors who insist on jumping into less-liquid assets need to be willing to ride out the rough times.
Heartburn
“When you go into risk assets and they go through a tough period, there will be heartburn and price declines,” he said. “If you are going to need the money in the short term, you shouldn’t put it into potentially illiquid assets.”
