Geopolitical risks have intensified since our last communiqué and will represent a material risk to the economic expansion should the trade war intensify. We still maintain that risks are likely to dissipate as President Trump is forced to focus on his reelection campaign.
Over the last year-and-a-half the dollar was bought as a risk-averse investment, despite its deteriorating fundamentals. Two catalysts may cause the dollar to depreciate: converging global growth and interest rates.
The yield curve has taken on a sinusoidal shape, indicating that growth is likely to slow over the next couple of years. We maintain that the steepening of the long-end may be forecasting a period of structural inflation. We believe that this inflation will be driven by a debasement of the dollar.
The Fed will begin purchasing Treasuries by yearend. Shoddy forecasting and poor policy decisions have significantly impaired the institution's credibility. It is increasingly likely that their policy tools will be ineffective at stimulating the real economy during the next recession and may only serve to inflate asset prices further.
The healthcare sector experienced a statistically significant selloff in 2Q19. We initiated a position in Allergan PLC(AGN) to take advantage of sector's weakness. The company is a restructuring play and represents a deep value investment.
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