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Ruffer: Markets are about to enter their "most dangerous" stage

As liquidity is drained from the financial system, Ruffer Investment Management has warned that markets are now entering a challenging phase.

The company stated in its monthly investment report for July that "this bear market is not over, and we believe that we are entering its most dangerous phase."

According to Ruffer, a company with €31 billion in AUM, interest rate futures currently predict that the US central bank will cut interest rates by the start of next year.

With an after-inflation policy rate that "never goes positive," the investment firm noted that it would be "truly unprecedented" to slow the economy down enough to reduce the highest inflation rate in 40 years.

The remarks were made in the Ruffer Investment Company Limited close-ended trust's monthly update for July.

The £983 million trust saw a return of 0.1 percent in July, compared to a 4.4 percent gain for the FTSE All-Share.

The company noted that this would require a much more severe economic slowdown than what the largely unchanged 2023 earnings estimates suggest.

According to the monthly report, all asset classes experienced a loss in June due to the possibility of further monetary tightening by the US Federal Reserve as a result of an increase in interest rates from 8.3 percent to 8.6 percent.

Nevertheless, the following month saw a rebound in investor interest despite an increase in inflation and additional increases in interest rates as investors flocked to the equity and bond markets.

"One of the pushbacks to the view that a move lower in equity markets was likely, was the already extremely bearish investor sentiment and positioning. A low-liquidity summer rally, sucking in those who can’t afford relative underperformance, should see this box ticked."

Ruffer claimed that in order to safeguard its portfolio from risks, steps had been taken to reduce direct equity exposure.



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