To understand how valuations have climbed and the S&P 500 SPX market has climbed 9% from its bear market low, first there needs to be a little history. In a presentation on TINA and the Everything Bubble — a reference to the acronym There is No Alternative — Longview Economics CEO and Chief Market Strategist Chris Watling pointed out that the post-Bretton Woods financial system lacks anchor.
If you look back several hundred years, even thousands of years, you will see that almost all the time except during world wars, the International monetary system has an anchor. And the reason that matters is because an anchor restricts the ability to add liquidity in the system and restricts the ability to create debt, he said. Citing the biography of former Federal Reserve Chair Paul Volcker, Watling said that lack of anchor was an accident in history but one that authorities couldn t repair.
Central banks moved from targeting the money supply to targeting consumer-price inflation in the 1990 s. That s condition number two, because when you re targeting CPI, you are not worried about how much debt be created, which is effectively what the monetary targets are in part telling you, said Watling. Deregulation of mortgage lending — banks are required to charge an eighth of the capital for mortgages as for corporate loans — further set aside the debt supercycle.
As central banks healed from the global financial crisis, commercial banks adopted zero or negative interest rates and then quantitative easing to offset the absence of lending and money creation. That in turn has pushed private-sector holding of private-sector listed assets out and pulled industry participants up the risk curve.
That has put global markets in a place where not only the U.S., but many global stock markets are highly valued at price-to-entitled ratios (I.E.) And in response, investors are all in — the U.S. household equity allocation as percent of total financial assets has climbed to new highs. Corporations increasing stock buybacks and Swiss central banks such as the Bank of Japan and Swiss National Bank are also buying equities aggressively.
Watling agrees with Jeremy Grantham, GMO co-founder and market historian, that markets are in a bubble. But far from recommending investors get out, he said now is a good tactical opportunity. It ends when central bankers change their behavior, and therefore the question is when do they change their behaviour and I think the answer is they change it when inflation becomes something of concern to them, he said. For now, Federal Reserve Chair Jerome Powell can say inflation is a temporary phenomenon, driven by the impact of COVID - 19 pandemic on supply chains. That eventually change as commercial banks starting lending into the recovery and the jobs market heals.
What we re going to get over the next six to nine months is a backup in bond yields, because the economy s accelerating as the pandemic turns into an epidemic, and therefore money is coming out from bonds which go up in equity markets in the first phase for the middle of next year, maybe a bit longer, said Watling.
On a tactical basis, he said it s a very good buying opportunity and on a six month-plus portfolio, Longview is underweight safe risky assets and overweight risky assets. Longview increased its risky U.S. equities weighting by 5 percentage points and its operational allocation to tactical assets by 15 percentage points this week.
Retail sales data highlight a slate of economic releases. The Chicago Fed projection is for a 0.9% increase excluding autos, which is stronger than the 0.5% gain forecast by The Wall Street Journal.
Goldman Sachs GS, is among a host of banks since they report results. Alcoa AA shares rose after the aluminum producer announced it would pay its first dividend since 2016 and declared a $500 million stock buyback as it reported stronger-than-expected results.
A former pilot was indicted on a charge of deceiving regulators about the flight control system that is blamed for two fatal Boeing BA - 737 Max crashes.
Virgin Galactic SPCE, shares tumbled in premarket trade after it pushed back its next test flight and the start of its space tourism business.
U.S. stock futures ES 00, NQ 00, were tending higher after the best gain for the Dow Jones Industrial Average DJIA, is nearly three months better than average
The yield was on the 10 - year Treasury TMUBMUSD 10 Y was 1.55%.
Bitcoin BTCUSD, was rising in anticipation the Securities and Exchange Commission will approve two exchange-traded funds with investment in bitcoin futures.
The Queen Elizabeth II was caught on tape saying she didn t know who was in Scotland for a United Nations climate change conference. The paper reported that Chinese president Xi Jinping won t attend the event.
The emailed version will be sent out at about 7: 30 a.m. Eastern.