Don't Count on a Powell Put - OUTLOOK & TACTICAL UPDATE | April 2022 - Cougar Global Investments
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Don’t Count on a Powell Put
OUTLOOK & TACTICAL UPDATE | April 2022
Not FDIC Insured May Lose Value No Bank Guarantee
MANAGER Outlook
EFFECTIVE April 17, 2022
Uncertainty continues to linger as we close the book on a first quarter marked Consequently, as our global Outlook darkened, we trimmed both emerging
by war and volatility. Russia’s expected incursion of Ukraine became an market equities and developed international. The investment team also
all-out assault on the country and tragically its citizens. The end game is in returned equity weights to the conservative levels held at the beginning of the
no way clear. At best, the impact of a prolonged conflict will be continued year. Specifically, we unwound the tactical trades implemented late January
price pressures on several commodities and global food shortages. At worst, following the March equity rally. Within the equity mix, we added a sizable
a small mistake by any NATO member could send the world into World War position in U.S. large-cap healthcare for its defensive properties. All portfolios
III. Accordingly, Cougar Global Investments now judges the chance of Chaos continue to hold aerospace and defense stocks as a counterbalance to the
to be the highest in a decade. Despite the uncertain backdrop, central banks war occurring on Europe’s doorstep.
are in a bind after falling so far behind the tide of inflation. Consequently, in
March, several shorter-dated bonds drew greater yields than longer ones. Vague deterrents by global powers and U.S. President Joe Biden’s frequent
Many investors fear this inversion in the yield curve signals an impending statements that the United States would place no boots on the ground in
recession. Ukraine likely emboldened Russian President Vladimir Putin. As a result,
Putin pounced on the projected weakness of the West to reclaim lost
Even though stocks have sold off and financial conditions are tightening, territory. Putin had expected the takeback “operation” to be over in days. He
investors should not count on U.S. Federal Reserve (Fed) Chairman Jerome severely overestimated the strength of his military (blind to the siphoning of
Powell and his colleagues to save the day. Powell has little choice but to military budgets to generals’ bank accounts according to Strategic Economic
continue with tightening plans after mischaracterizing inflation as transitory. Decisions). Therefore, we continue to consider Putin rational, and currently
Any more hesitation would risk throwing doubt on the central bank’s discount the probability of a Russian-directed nuclear catastrophe. Meanwhile
commitment to inflation targeting and inflation expectations spiraling out of Iran continues to make progress on its nuclear program until it is granted
control. As it stands, Cougar Global’s macroeconomic scenario probability some sanctions relief. However, Russia’s involvement in the negotiations
for Inflation already rose to 55% in March. Similarly, business inflation framework has presented an obstacle. Russia’s role in several multilateral
expectations have steadily risen alongside current cost overruns. Worryingly, organizations should be questionable going forward. Already, Russian markets
these moves have not been confined to the near term. Nearly one in four are uninvestable under the weight of sanctions. Chinese authorities are
respondents to the Federal Reserve Bank of Atlanta’s Business Inflation watching the fallout closely as they weigh their options in Taiwan.
Expectations survey in March said they expected that unit costs could rise
more than 5% annually over the next five to 10 years. In the bigger picture, future trade between the East and West is threatened.
This could mark a return to the Cold War era, but messier. The high oil
Therefore, despite the current oil shock, the Fed still needs to drain liquidity prices that have resulted from the conflict risk accelerating the inflation
from the financial system. This means there is little monetary policy help fire. Removing Ukraine’s vast agriculture supply from global markets risks
available to fight the demand destruction usually generated from high energy sparking civil unrest. Similarly, supply chains had only just started to heal from
prices. Hence, Recession risks also have climbed to 6%. Usually the the pandemic when the most disruptive COVID wave yet hit China. Taken
cure for high prices is high prices themselves. However, in the case of oil together, the world is in a more tenuous place than it has been for some time.
and gas, consumers are limited in their ability to use substitutes in the short Fortunately, despite the market talk of impending doom, several economists,
term. In addition, some U.S. policy makers are attempting to throw sand including those at the Federal Reserve Bank of New York, believe the most
in the gears of free market adjustments. For example, the proposed excise reliable recession indicator is the yield spread between the 10-year Treasury
tax bill on energy producers’ “windfall profits” could destroy the incentive to note and the 3-month Treasury bill. This spread is still firmly positive.
increase supply: producers would no longer reap the benefits of high prices
but still would take on all the risk of a downward adjustment in prices. At a Nevertheless, the current lack of a Fed backstop makes stocks riskier than
time when labor is scarce, costs are rising, and a longer-term shift away from they were just one year ago. Unfortunately, there is little solace in traditional
conventional oil is already happening, I really cannot think of anything worse bonds allocations. For example, the Bloomberg U.S. Treasury Aggregate Index
one could do to exacerbate the situation. recently had the worst drawdown in its history. Moreover, the carnage might
not be over just yet. As the saying goes: past performance is no guarantee of
Thankfully, excess savings from prior government programs will cushion future success. The benchmarks that served investors well over the last 30
the impact on consumer spending in the near term. In addition, moderate years are unlikely to do so for the next. We believe the time for unconstrained
inflation actually helps governments pay off their debts. Note that even after managers to shine is now. In the case of Cougar Global, long-held gold
accounting for the seven rate hikes this year in the Federal Reserve’s own positions payed off in the volatile quarter. In addition, the combination of
projections, monetary policy will not be tight in 2022. Therefore, the likelihood inflation-protected bonds with ultra-short fixed income and cash balances
of Growth, while falling, still stands at 18%. Housing will be an important provided a much better offset to equity risk than the broad aggregate bond
indicator to watch, because it is unlikely to continue its large contributions to index.
growth. The reason for a potential slump is that affordability is being called
into question as 30-year U.S. mortgage rates have risen more than 2% from
the depth of the crisis.
China’s housing market is still in the danger zone despite some easing of
government pressure. Official home price data is likely painting too rosy of a Amy Steciuk, CFA
picture in an attempt to generate a soft landing for the industry. Government Portfolio Manager
stimulus can only go so far when the overleveraged property developers
were previously so dependent on pre-sales to drive growth. Current rampant
COVID-19 infections have broader implications given their strict handling.
Chinese areas subject to recent outbreaks and lockdowns cover about half of
export good production and three quarters of export shipping.MACRO ECONOMIC Scenario Analysis
On a monthly basis, the Cougar Global investment team establishes the probabilities of the future path of the U.S. economy over the next 12 months
and quantifies its independent global research into the following five scenarios:
GROWTH INFLATION STAGNATION CHAOS RECESSION
27% 18% 47% 55% 8% 6% 14% 15% 4% 6%
-9% 8% -2% 1% 2%
FEBRUARY CURRENT FEBRUARY CURRENT FEBRUARY CURRENT FEBRUARY CURRENT FEBRUARY CURRENT
Current MES as of March 2022
ASSET ALLOCATION Shifts
Global Tactical Strategy Global Tactical Strategy Global Tactical Strategy Global Tactical Strategy
Conservative Conservative Growth Moderate Growth Growth
2% 12% 3% 5%
6%
8% 10%
18% 13%
37% 25%
25% 10% 8% 53% 19%
3%
55% 18% 55% 60%
42%
11%
Previous Current Previous Current Previous Current Previous Current
Asset Class Symbol
Month Month
Change
Month Month
Change
Month Month
Change
Month Month
Change
S&P 500 IVV 13 9 -4 18 15 -3 25 21 -4 21 18 -3
S&P 400 IJH 7 7 0 8 8 0 11 11 0 14 14 0
S&P 600 IJR 4 4 0 9 9 0 13 13 0 13 13 0
MSCI IEFA IEFA 3 2 -1 4 3 -1 5 4 -1 12 10 -2
U.S. Health Care XLV 0 3 3 0 3 3 0 4 4 0 5 5
Nasdaq 100 QQQ 0 0 0 0 0 0 0 0 0 5 5 0
S&P Aerospace & Defense XAR 2 2 0 2 2 0 4 4 0 5 5 0
MSCI United Kingdom EWU 0 0 0 0 0 0 2 2 0 2 2 0
Small cap Europe IEUS 0 0 0 0 0 0 3 3 0 4 4 0
Emerging Markets IEMG 0 0 0 2 0 -2 4 2 -2 5 3 -2
TOTAL EQUITIES 29 27 -2 43 40 -3 67 64 -3 81 79 -2
U.S. BB-Rated Corporates HYBB 0 0 0 0 0 0 0 0 0 0 0 0
U.S. Floating Rate Bonds FLOT 7 7 0 6 6 0 0 0 0 0 0 0
Treasury Inflation-Protected Securities SCHP 5 5 0 4 4 0 0 0 0 0 0 0
Short-Term TIPS STIP 20 20 0 17 17 0 15 15 0 3 3 0
U.S. Aggregate Bonds AGG 6 5 -1 5 4 -1 0 0 0 0 0 0
U.S. 1-3 Year Treasury Bonds SHY 4 4 0 0 0 0 0 0 0 0 0 0
Treasury Floating TFLO 13 14 1 10 11 1 3 3 0 0 0 0
TOTAL FIXED INCOME 55 55 0 42 42 0 18 18 0 3 3 0
Gold IAU 6 6 0 8 8 0 10 10 0 13 13 0
Cash CASH 10 12 2 7 10 3 5 8 3 3 5 2
Total US Equity Total Fixed Income Total Int'l Equity Cash Gold
The portfolios reflect the inherent risks of fluctuating prices and uncertainty of rates of returns. The cash portion of this portfolio is represented by money market instruments.
1
As of Feb. 28, 2022, KXI has a 55% United States country allocation and a 45% Non-US Allocation.ABOUT COUGAR GLOBAL Investments
Cougar Global Investments is a global macroeconomic asset allocation manager that believes the goal of investing is to achieve compound
annualized returns for clients. We use a disciplined portfolio construction methodology combining post-modern portfolio theory and risk
management to pursue our clients’ objectives.
ABOUT CARILLON TOWER Advisers
Carillon Tower Advisers is a global asset-management company that combines the exceptional insight and agility of individual investment
teams with the strength and stability of a full-service firm. Carillon Tower Advisers and partner affiliates – ClariVest Asset Management,
Cougar Global Investments, Eagle Asset Management, Reams Asset Management (a division of Scout Investments) and Scout Investments –
offer a range of investment strategies through multiple vehicles in order to help investors meet their long-term business and financial goals.
DISCLOSURES
An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An
investment in ETFs involves additional risks: non-diversified, the risks of price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking error. All investments are
subject to risk. Asset allocation and diversification do not ensure a profit or protect against a loss. There is no assurance that any investment strategy will be successful or that any securities transaction, holdings, sectors or allocations
discussed will be profitable.
Cougar Global Investments calculates the Macro Economic Scenario (MES) analysis by assigning probabilities to each of the five economic scenarios (Growth, Stagnation, Inflation, Chaos and Recession) over the next 12 months.
Macroeconomic scenarios are based on quantitative data sourced from various firms and then weighted and may be adjusted based upon Cougar Global Investments thought capital. MES are subject to change. These are hypothetical
examples and are not representative of any specific situation. Actual economic results may vary. Economic forecasts set forth may not develop as Cougar MES indicates and there can be no guarantee that these strategies promoted will
be successful. Past performance is no guarantee of future results. Macro Economic Scenarios: Growth – U.S. economy is growing at or above its potential growth rate, Recession – U.S. economy is shrinking (negative quarter over quarter
growth rate), Stagnation – U.S. economy is growing at lower than its potential growth rate, Inflation – Consumer Price Index (CPI) inflation rate is higher than U.S. economy’s potential growth rate, Chaos – a high impact, low probability
event (“Black Swans”).
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Small-capitalization companies are subject to higher volatility than those of large-capitalized
companies. International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be appropriate for all investors. Stock investing involves risk, including the risk of loss.
Investments in emerging market issuers are subject to a greater risk of loss than investments in issuers located or operating in more developed markets. This is due to, among other things, the potential for greater market volatility,
lower trading volume, higher levels of inflation, political and economic instability, greater risk of a market shutdown and more governmental limitations on foreign investments in emerging market countries. High Yield/Junk Bonds
are not investment grade securities, involve substantial risks and generally should be part of the diversified portfolio of sophisticated investors. Corporate bonds are considered higher risk than government bonds but normally offer a
higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity and redemption features. Bonds are subject to market and interest rate risk
if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Mortgage-Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk when
you get your principal back sooner than the stated maturity, extensions risk, the opposite of prepayment risk, and interest rate risk. Investing in IAU involves additional risks. The market price of the Shares will be as unpredictable as
the price of gold has historically been and the price received upon the sale of Shares may be less than the value of the gold represented by them. Government bonds and Treasury bills are guaranteed by the U.S. Government as to
the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. The fund’s concentrated holding will subject it to greater volatility than a fund that invests more broadly. The fast
price swings of commodities will result in significant volatility in an investor’s holdings. Precious metal investing is subject to substantial fluctuation and potential for loss. All indexes mentioned are unmanaged and cannot be invested
into directly. Past performance is no guarantee of future results. The indexes don’t reflect charges, expenses, fees and is not indicative of any particular investment. Commodity-linked investments may be more volatile and less liquid
than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. The Bloomberg U.S. Aggregate Bond
Index is composed of the total U.S. investment-grade bond market. The market-weighted index includes Treasuries, agencies, CMBS, ABS and investment grade corporates. The MSCI ACWI® (All Country World Index) measures
the performance of large and mid-cap stocks across 23 developed markets (DM) and 24 emerging markets (EM) countries. The S&P 500 or Standard & Poor's 500 Index (IVV) is a market-capitalization-weighted index of the 500
largest U.S. publicly traded companies. The iShares Core U.S. Aggregate Bond ETF (IJH) seeks to track the investment results of an index composed of the total U.S. investment-grade bond market. The iShares Core S&P Small-
Cap ETF (IJR) seeks to track the investment results of an index composed of small-capitalization U.S. equities. The iShares Global Consumer Staples ETF (KXI) seeks to track the investment results of an index composed of global
equities in the consumer staples sector. The iShares Core MSCI EAFE ETF (IEFA) seeks to track the investment results of an index composed of large-, mid- and small-capitalization developed market equities, excluding the U.S. and
Canada. The Nasdaq-100® (QQQ) is one of the world’s preeminent large-cap growth indexes. It includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market
capitalization. The S&P Aerospace & Defense Select Industry® Index (XAR) represents the aerospace & defense segment of the S&P Total Stock Market IndexTM. The iShares MSCI Germany ETF (EWG) seeks to track the investment
results of an index composed of German equities. The iShares MSCI United Kingdom ETF (EWU) seeks to track the investment results of an index composed of U.K. equities. The iShares MSCI Europe Small-Cap ETF (IEUS) seeks
to track the investment results of an index composed of small-capitalization developed market equities in Europe. The iShares Core MSCI Emerging Markets ETF (IEMG) seeks to track the investment results of an index composed of
large-, mid- and small-capitalization emerging market equities. The iShares BB Rated Corporate Bond ETF (HYBB) seeks to track the investment results of an index composed of BB (or its equivalent) fixed rate U.S. dollar-denominated
bonds issued by U.S. and non-U.S. corporate issuers. The iShares Floating Rate Bond ETF (FLOT) seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade floating rate bonds with
remaining maturities between one month and five years. The Schwab U.S. TIPS ETF (SCHP) seeks to track the Bloomberg U.S. Treasury Inflation-Linked Bond Index, which includes U.S. TIPS with at least one year until maturity.. The
iShares 0-5 Year TIPS Bond ETF (STIP) seeks to track the investment results of an index composed of inflation-protected U.S. Treasury bonds with remaining maturities of less than five years. The iShares Core U.S. Aggregate Bond
ETF (AGG) seeks to track the investment results of an index composed of the total U.S. investment-grade bond market. The iShares Short-Term Corporate Bond ETF (IGSB) seeks to track the investment results of an index composed
of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities between one and five years. The iShares 1-3 Year Treasury Bond ETF (SHY) seeks to track the investment results of an index composed of
U.S. Treasury bonds with remaining maturities between one and three years. The iShares Treasury Floating Rate Bond ETF (TFLO) seeks to track the investment results of an index composed of U.S. Treasury floating rate bonds.
Credit Spread is the difference in yield between a U.S. Treasury bond and another debt security of the same maturity but different credit quality.
Cougar Global optimizes portfolios in US dollars for four risk categories. GTS – Conservative may be appropriate for clients who have accumulated sufficient wealth to begin making regular withdrawals for income requirements while
potentially achieving investment returns sufficient to preserve capital over a full investment cycle. GTS – Conservative Growth may be appropriate for clients who may have occasional income needs and are willing to take moderate downside
risk to achieve investment returns GTS – Moderate Growth may be appropriate for clients who have a long term investment horizon and can tolerate downside volatility in the course of a market cycle. GTS – Growth may be appropriate for
clients who have a long term investment horizon and can tolerate higher downside volatility in the course of a market cycle. The conversion dates from sub-advisors to ETFs are April 30, 2008, for GTS – Conservative; February 29, 2008
for GTS – Moderate Growth; and October 31, 2007 for GTS – Conservative Growth. As of December 31, 2008, Cougar Global stopped using sub-advisors.
This research material has been prepared by Cougar Global Investments. Opinions and estimates offered constitute Cougar Global’s judgment and are subject to change without notice, as are statements of financial market trends, which
are based on current market conditions. Under no circumstances does the information contained within represent a recommendation to buy, hold or sell any security and it should not be assumed that the securities transactions or holdings
discussed were or will prove to be profitable. All holdings are subject to change daily.
Cougar Global Investments Limited (Cougar Global) is an investment manager that utilizes tactical asset allocation to construct globally diversified portfolios. Effective 4/30/15, Cougar Global Investments is a wholly owned subsidiary of
Raymond James International Canada which is a wholly owned subsidiary of Raymond James International Holdings. Raymond James International Holdings is a wholly owned subsidiary of Raymond James Financial as is Carillon Tower
Advisers. Prior to 4/30/15, Cougar Global was an independent investment management firm not affiliated with any parent organization. Cougar Global is registered as a Portfolio Manager with the Ontario Securities Commission (OSC) and
with the United States Securities and Exchange Commission (SEC) as a Non-Resident Investment Advisor. Prior to 01/02/2013, the firm was named Cougar Global Investments LP.
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Limited, the administrator of the Indices (collectively, “Bloomberg”) or Bloomberg’s licensors own all proprietary rights in the Indices. Bloomberg does not guarantee the timeliness, accuracy or completeness of any data or information
relating to the Indices.
To learn more about Cougar Global’s strategies, philosophy and capabilities
visit cougarglobal.com or call 1.800.521.1195.
AN AFFILIATE OF CARILLON TOWER ADVISERS
200 King Street W, Suite 1901 | Toronto, Ontario, Canada M5H 3T4 | 1.800.521.1195 | cougarglobal.com
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