The Fed finds itself in a tricky place. Next week will likely be rate hike number three. “Three steps and a stumble?” We’ll see. My dad used to always say, “Stuck between a rock and a hard place.” I’ll try my best to explain what I see.
At the beginning of each month I like to take a look at the most recent published equity market valuations. So let’s do that today. As you review the charts, keep in the back of your mind that valuation metrics are pretty much useless in identifying market peaks but they are outstanding at helping us zero in on what the forward 10-year returns are likely to be.
Citing an improving economy and the possibility of more spending and lower taxes from the Trump administration, Fed officials are signaling rising rates immediately ahead.
We sipped the QE juice and loved the taste. Now we’re full… the game has changed. The Fed had assets worth $858 billion on its books in the week ended August 1, 2007 just before the start of the financial crisis, and the same stood at $2.24 trillion at the end of 2009.
Andrew Ross Sorkin of CNBC and The New York Times wrote an article this week entitled, “A Quiet Giant of Investing Weighs In on Trump.” It’s about the recent investor letter penned by one of the all-time great investors, Seth Klarman. Many hedge fund managers write privately to their clients yet these letters often find a way on to the internet.
Last week I shared a chart with you that’s done a good job at signaling inflation. We tend to react slowly to news and, over time, we wake up. Then we herd in and out. In the “waking up” category, we better keep rising inflation on our radar.
One of the charts I like to keep an eye on looks at inflation and its impact on stock prices. In rising inflationary periods, stocks tend to struggle. When inflation is falling, stocks tend to perform well.
Donald J. Trump was sworn in as the 45th President of the United States. President Trump steps to center stage. Bring us jobs, bring us tax reform and bring us a grand fiscal infrastructure spend. That would be positive.
I hate making predictions. I got the tech wreak and sub-prime right, but was far too early on those predictions.
Today, let’s take a look at the most current equity market valuations for they can tell us a great deal about future 7-year and 10-year annualized returns. We’ll also look at the bond market. Total U.S. credit market debt-to-GDP is nearly 355%. Global debt-to-GDP is 325%.
Included in this week’s On My Radar: -Pension Fund Red Ink – Check Out Your State (Chart) -Foreigners are Dumping Treasury Bonds at Record Rate -The Year in Review -Trade Signals – Strong Dollar, Weak Gold, Equity Trend Up, Bond Trend Down, Sentiment Remains Far Too Optimistic
I’ve fielded a large number of investor questions recently around tax cuts and earnings. The idea is that tax cuts, for both corporations and individuals, will significantly improve corporate earnings and thus propel the market higher.
“If you’re not getting better, you’re getting worse.” – Walter Bahr
While on the surface the Italian Referendum appears to be only about the structure of government power and Prime Minister Matteo Renzi’s desire to pass economic reforms, beneath the surface is a serious financial issue that has the potential to impact not just Italy, but Europe and beyond. This may sound small and meaningless to you and me but it is not.
What are the most important investment implications that you and I and your clients might consider post last week’s election?
The last two OMR’s have talked about the long-term debt. I believe it is the significant headwind we face. As CMG’s Brian Schreiner said to me this week, “The math doesn’t allow for a soft landing.” Read on and please let me know what you think.
I’ve written a great deal about debt. In last week’s piece, I showed the enormity of the problem. Growth is slow and I believe will remain in the 1.5% range. Not good enough.
Arnold Palmer! Well done our wonderful friend, well done. And welcome home!
Today, let’s take a look at the most recent market valuations. Hint and not a surprise: both stocks and bonds remain expensively priced. Value? Not today. Especially in the bond market.
