June 19, 2015
Connecting the Dots
This week, the Federal Open Market Committee expressed a more dovish outlook for the long term, but one that clearly puts September in the crosshairs for an interest rate hike after six long years at the zero bound. In the meantime, we are becoming vulnerable to some sort of summer risk-off trade. At this stage, it would be prudent to prepare for a risk-off period by the opportunistic liquidation of lower-quality high yield and bank loans, which have appreciated in price this year, and selectively taking gains in stocks while increasing holdings in cash and Treasury securities, as a precaution in preparation of a potential looming summer dislocation.