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Goldilocks Is Now a Zombie: Analyst

With the Teflon market refusing the take fright from the wall of worry facing investors, one analyst told CNBC the world is beginning to look like a bad horror movie from the 1980s.

“While central banks would like us all to believe that growth is robust and inflationary pressures are transitory, a return to a 'Goldilocks' scenario appears unlikely,” Fredrik Nerbrand, the head of asset allocation at HSBC in London, told CNBC in an interview on Wednesday.

“Rather, we believe the economic cycle is moderating and the Goldilocks of today is a mere living dead version of her former self,” Nerbrand said.

Now Nerbrand is not suggesting it is time to hold up in the gun shop of your nearest mall but does believe taking some risk off the table would be prudent despite the chance of further gains for stocks.

“As any zombie movie buff will tell you, zombies tend to take some beating before they finally succumb,” he said. “Hence, we are merely trimming portfolio risk rather than taking risk completely off.”

This involves lowering exposure to stocks, corporate credit and adding some cash to his portfolio on a tactical six-month view. Gold represents a big question mark for Nerbrand who is worried that an asset he previously used as a hedge is now highly correlated with the S&P 500.

With 15 percent of his fund invested in gold on a strategic three-year view, Nerbrand has been cutting his exposure due to this correlation.

“I don’t believe price targets work but until gold’s correlation with the equity market falls I am reducing exposure, in order to reduce volatility I am getting into cash and short-dated bonds,” he said.

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