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Welcome. The content below is free to the public. It might be worth what you are paying for it. Having studied economics and being in finance for over two decades, I have learned that only one thing is certain - that almost nothing is certain. As we endeavor to come up with our best analysis of the world around us, the opportunities and risks, we have to try to overcome a myriad of issues including our own ignorance, biases and emotions. What follows are my attempts to overcome those obstacles. Welcome to my view - publishing Monday and Friday afternoons.
With the S&P 500 finally setting new record highs after over a year of trying I wonder if people who are light on stocks are feeling like they're "missing it?" Are those folks more likely to buy into the stock market now that it's at new highs? Or do they have the discipline to wait for better opportunities?
I have one Millennial friend with a $17k rollover sitting in cash burning a hole in his IRA. He's anxious to invest. I told him this spring the S&P 500 would likely get a correction and that he should pick his spots. He's already saying things like "it never came" with regards to a correction.
Despite 4 consecutive quarters of falling corporate earnings, U.S. stock markets finally set new highs after 15 months of trading in a narrow range. What will it take to keep the rally going? Most believe that earnings will need to at least level off and show signs of improving in the not too distant future to support continued stock market strength.
For the past two years now that stock market has traded up and down within a range. Bulls keep talking about an impending breakout and bears keep talking about an impending breakdown. So far, we've gotten neither. What's next is anybody's guess.
What we do know is that economic fundamentals are not meaningfully improving and that asset prices are relatively high when put aside growth rates. Eventually, something has to give. Either the world economy gets meaningfully better or many asset prices fall.
For the past 70 years, America's fortunes and freedom have coincided with the wave of Baby Boomers who have dominated the global economic and political landscape. That era is coming to an end. It will be a slow, and hopefully happy ending, but regardless of happy or not, the Baby Boomer era is in its final innings.
I hate to be overtly negative, however, given the vast wave of anger, frustration and extremism that is accelerating around the globe, I am extremely cautious going into summer as an investor. In the wake of another terror attack, this time in Turkey, talking investment strategy seems small, however, that's what this website is for. Before I continue, my heartfelt condolences to everybody affected by the senseless violence that seems to be on the rise.
In recent post "Brexit was a Reaction to "Slow Growth Forever" I said that "The dramatic impacts of the emotional nature of surges in populism cannot be underestimated." While a populist ethic is healthy and desired for the survival of civilization, when emotions exceed pragmatism, we get a range of consequences, mostly bad. I am afraid we are closing in on something far more bad than what we have seen so far.
Larry Summers isn't the only one starting to recognize the "slow growth forever" scenario I have been describing the past couple years. Today on Bloomberg, HSBC bond manager Steven Major cited demographics, debt and the income gap saying that "I sincerely believe we have low rates for a very long time. Structural problems are outweighing any kind of cyclical bounce." For investors waiting for a resumption of the central bank induced bull market, that is bad news.
Today, we are seeing stock markets around the world continue to fall, albeit not as badly as Friday, but with more of a tone of recognition that Brexit might just have been a reaction to other negative economic factors, as I described in my last piece. The next reaction could be worse.
For new readers, we have been talking about a concept I have dubbed "slow growth forever" on MarketWatch and here at Fundamental Trends. The very simple premise is that perpetually low economic growth relative to the post WWII to 2007 period is not just possible, but is truly unavoidable in coming decades due to massive accumulated global debt and the dramatic aging demographics faced by most of the world.
Because most people don't understand or accept the notion that slow economic growth is a structural issue that cannot be "fixed" they seek to blame somebody. "Brexit" is a manifestation of the frustration over slow growth and the psychological impact of economic change. Those in the United Kingdom who voted to leave the European Union have now chosen who to assign blame to for their frustration and fear.
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