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Investment strategy
October 26, 2020
4 mins

The coming financial repression and why investors will not be paid to sit on the sidelines

October 26, 2020
4 mins
David Bailin
Chief Investment Officer
STEVEN WIETING
CHIEF INVESTMENT STRATEGIST AND CHIEF ECONOMIST
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SUMMARY

The Fed is likely to keep shorter-term interest rates atypically low for years to come. This financial repression has major implications for portfolios.


We think 2021-22 will be a period of strong economic growth and solid market performance. Markets will be driven by a recovery in depressed industries and a consolidation of gains for sectors that have already boomed.  The four reasons are 1) highly likely viable and available vaccines 2) a rebound in trade and industrial production 3) pent up demand for services and 4) fiscal stimulus globally.

The Fed is likely to keep shorter-term interest rates atypically low for years to come. This Financial Repression has major implications for portfolios.Higher equity allocations are recommended as bonds will provide fewer diversification benefits. Our most important observation is this: We think that investors who are waiting for attractive real interest rates and depressed equity valuations may spend a great deal of their investment lives waiting for a better time to invest.

Many investors assign greater anxiety to the fear that that their decision to invest today will be poorly timed and suffer immediate losses.Therefore, investors appear to believe that if they enter markets early and suffer initial losses, they will lose more than if they had just waited. Case in point: During 2020, when markets were in turmoil due to the largest exogenous shock in a century amid COVID-19, missing just the two best days would have reduced an investors return in US equities by 19.3%.

Global investors have always behaved tentatively before recent elections. Tentativeness fear of policy uncertainty  has abated only after the election uncertainty has lifted. Yet, when we look back, global equity fund inflows have followed each of the prior four US elections.

If you are a Citi Private Bank client you can check the value of your portfolio by reviewing your monthly statements or, if you use Citi Private Bank In View, by navigating to the Account Overview page via Portfolio → Overview. If you have any queries please contact your usual Citi Private Bank representative.
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