From Plunger on my board on the FOOL.
Here is someone looking at the entire picture for what it is, not what he wants it to be IMO.
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Apologies to everyone already bored wih the themes in here ... but I think they're still the themes.
The general populace appears to hope and believe that all is well, though well paying jobs are frustratingly scarce. This is all priced in to stocks and bonds. However I really don't see, as Greenspan claims to, that the imbalances from the bubble have had time to subside. Since he's been keeping them topped up, the big trade from here seems to be to bet on deflation as that topping up becomes ever more difficult. Weak wage inflation and declining GDP deflators seem to confirm the story.
Right now the US has a huge output gap exerting deflationary pressure. Economists are looking for a slowdown in the second half of the year when the tax rebates cease. And surely in 2005 after the small business capex incentives dry up too, and with no political imperative to sustain them or indeed any special fiscal measures, 2005 must be expected to be extremely soft. Thus there is no way we are going to see rate hikes in the US – or Europe with its strong Euro - until 2006 – and indeed if the US private sector debtor runs out of willpower to load up on debt ever faster, the inevitable downturn could happen sooner rather than later, with rate cuts in prospect. Canada leads the way.
In fact, I find a contradiction in the concensus forecasting rate hikes in H2 yet also a gathering concensus that more fiscal stimulus may be needed to sustain growth in 2004 H2 … surely fiscal stimulus should be the policy tool that is eased before monetary accommodation recedes.
Translating this to markets, clearly US stocks are very vulnerable. Whilst I continue to see the wealthy looking to “invest” as a backdrop, it is largely a mindless allocation / momentum trade here with no intrinsic returns, and the market could head in either direction for a long time. But from now, perhaps down is more likely for a while, as the “up” trade must be getting a little crowded and uncomfortable.
Thus Treasuries, Eurodollars, Bunds, Aus 3 year bonds etc ... all look a screaming buy, because they price in rate hikes, just when everything must be expected to slow. Far from the rest of the world going on a bond buyers' strike and forcing up yields, I see the US private sector debtor, from lack of wage growth, going on a debt supply strike and yields falling.
The Dollar is still structurally and fundamentally awful, with both the Fed and the fiscal authorities making it undesirable, and there are many folks like me, not a US citizen, not living in the US, but who have over the years gently acquired many USD based assets. I think we would all rather repatriate, or at least redistribute our capital away from the USD, leaving lots of now unwanted US assets out there and so the price pressure on the currency has to be relentlessly downwards in the big picture.
I remain convinced that China has an incipient overcapacity problem, both internally and in goods for delivery into the world. A China capex reversal would be awful for Japan and might well cause recent speculation in commodity prices to unwind. However I' m holding gold and silver for the long haul and oil for the backwardation and because China's real economy is unlikely to go into recession.
Plunger. |
