<<So much hinges on interest rates for the longer term trend. Which is why I disagree with the deflationary camp the most. A 4.5% 10 yr yield yield give you a risk free multiple of 22 for other asset classes to compete with while 7% reduces the multiple to near 14..We need much higher rates to see who was really swimming naked once the pool is empty. This noise of late is just setting us up for the next leg which IMHO is down.. Real estate has a ways to go in general. NYC is perhaps the biggest lagging indicator of all. Commercial real estate hs no become just as big a bubble with cap rates of 3-5% now common..>>
You're one of the few who get it, though we differ on the intermediate direction of the markets (but both agree that when rates adjust, we're f*cked), I respect your opinions.
My opinion is that this market enters "crazy phase" with retail participation and all once it appears bullet-proof. Weeks like this week only serve to validate J6P's opinion that stocks are "risky" (even though the VIX has hovered below 20 for several years now). They say bull markets "climb a wall of worry", and the reaction of the amateurs is typical.
Each and every downturn will be met with stiff buying from hedge funds and the cash on the sidelines - of which there is undisputably a lot of by definition since there hasn't been mass participation, bond market bubble, etc.
Also, rather than nominal bond rates, I prefer to use real interest rates. On a global basis, they stand at 1.75%, disgustingly low. It's not until inflation forces the hand of global central banks, will the liquidity situation change. While break-even inflation rates are slightly high in the Anglo-Saxon world (plus Europe), they still hover near deflationary levels in Japan. It's absurd to think the Japanese will raise rates significantly until this is rectified. Meanwhile, the housing deflation in the U.S. puts a cap on how high inflation will go in the medium term (my opinion not fact).
All this sets the stage for a massive repricing of equities. It has to happen, it's just a matter of when not if all else equal.
Remember, "What's bad for Main Street is good for Wall Street". |
