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Beyond Market Turbulence
As a follow-up to my last comment, David Parkinson of the Globe & Mail reports, Despite the turbulence, strategists stay bullish:
The sight of slumping stock prices hasn’t shaken most market strategists’ confidence that the bull market still has further to fly. But they warn investors to buckle up – we could be in for plenty of turbulence.
In the wake of a selloff that has knocked the U.S. benchmark S&P 500 stock index into official “correction” territory (a drop of more than 10 per cent) in the space of a month while lopping 7 per cent off Canada’s S&P/TSX composite, strategists on Wall and Bay streets are reminding clients that the size of this correction is nothing out of the ordinary in a post-recession bull market. What’s more, they insist that the selling is being driven by fear rather than fundamentals – meaning that markets with solid growth prospects are merely getting cheaper and creating buying opportunities.
“It is difficult to be very bearish of corporate assets when growth is reasonably strong, inflation is low, margins are expanding, monetary policies are easy, and valuations are undemanding,” said economist Larry Hatheway of UBS Ltd. in London.
“In the first four months of this year, investors had become increasingly complacent to risk,” he said. “This was a market vulnerable to correction – all that was missing was a catalyst.”
However, that catalyst – a major sovereign-debt scare out of Europe – has re-awakened investors’ hyper-sensitivity to risk, a lingering effect of the credit crisis of 2008-09. The depth and speed of this risk adjustment does suggest that even if stocks can track generally higher in the coming months, they may do so in a very moody, volatile way.
“People are now a lot faster on the trigger in reducing risk. This increased volatility could be a byproduct of a new way of managing portfolios,” said Stéfane Marion, chief strategist at National Bank Financial in Montreal.
“But we have to keep things in perspective. We haven’t yet seen the collateral damage [from the European debt woes] that would upset global growth.
“In a world where credit markets remain functional, I don’t think the amount of selling we’ve seen can be justified,” he said. “The valuations we have right now are very reasonable.”
George Vasic, chief strategist for UBS Securities Canada Inc., noted in a research report that over the past 50 years, post-bear-market rallies on the Toronto Stock Exchange have all been met with corrections on the scale of what we’ve seen recently; the average pullback has been 13 per cent. Similarly, Pierre Lapointe, global macro strategist at Brockhouse & Cooper Inc. in Montreal, said the S&P 500 has routinely rallied in the year after the end of a recession, yet those rallies have all included a considerable correction within them, averaging 17 per cent.
“The next few months will remain volatile, but history tells us that the year that follows a recession is usually very profitable for equities,” said Mr. Lapointe, who reiterated his overweight recommendation on global equities.
David Bianco, chief U.S. equity strategist at Bank of America-Merrill Lynch in New York, is among several strategists who issued research notes in the past few days reiterating their earnings and stock-index targets over the next 12 to 18 months. His 12-month target for the S&P 500 remains at 1,350, a whopping 25 per cent above Tuesday’s closing levels.
He said the current S&P 500 levels imply a price-to-earnings multiple of about 12 times, far below the historical norm of 15 times. At normal P/Es, current levels are pricing in S&P 500 earnings of just $72 (U.S.) a share for 2011 – almost 20 per cent below Mr. Bianco’s “base-case” forecast, and toward the low end of his worst-case projections in the case of another global recession.
“Times like this make it clear that the risk equity premium is no free lunch, and volatility is gut-wrenching, even for the most long-term investors,” he said. “[But] we believe the best way to feel better during a correction is to buy some shares.”
I think volatility is here to stay. Itchy traders selling at the first sign of weakness, memories of 2008, and way too much risk management stifling the large portfolios, forcing managers to cut positions when the VIX rises, are all wreaking havoc on markets. Add to this market disinformation usually spread by large investment houses or their large hedge fund clients looking to capitalize on volatility, and you come away thinking that maybe the month of May was a harbinger of things to come.
But the reality is that US fundamentals have turned the corner. Allan Robinson of the Globe & Mail reports, U.S. consumers could give global stocks a lift:
The bull market needs some fuel and that will come once the U.S. jobs picture improves, incomes start to rise and consumer spending revives, strategists say.
“History tells us that a peak in the U.S. unemployment rate has the potential to sustain the equity rally – globally,” said Pierre Lapointe, a global macro strategist with Brockhouse Cooper. “We have calculated that every time the unemployment rate peaks after a business cycle, the post-recession global rally gets a second wind.”
Basically, investors bet on a recovery. “Investors realize if the jobs market gets better that means consumers will start spending again and that means profits down the road,” Mr. Lapointe said.
What is the market looking for now?
After three solid months of increased spending, economists are looking for consumers to take a breather and investors may need to be patient. Personal spending data scheduled for release Friday is forecast to have increased 0.3 per cent during April, compared with a lofty 0.6 per cent rise in March, according to a survey of economists by Bloomberg.
On the plus side, personal income is expected to have crept higher rising 0.4 per cent in April, compared with 0.3 per cent in March.
Another positive for U.S. consumers is that they have had no reason to be worried about rising prices. The personal consumption expenditures inflation data, known as the PCE deflator, measure price changes for a broad range of goods and services, excluding food and energy. The deflator also due out Friday is forecast to have declined to a 47-year low of 1.1 per cent in April, well below the U.S. Federal Reserve Board’s long-run forecast of 1.7 per cent to 2 per cent, according to BMO Nesbitt Burns Inc.
“The sharp turnaround in the labour market in recent months suggests that incomes will soon start to rise more significantly,” said Paul Dales, the U.S. economist for Capital Economics Ltd. “This will allow households to raise their savings rate without too much of a slowdown in consumption growth,” he said.
How will the market react?
So far stock markets have not reflected that bullish scenario. Investors have been preoccupied with sovereign risks concerns, which has driven stock markets lower. Last week the VIX, a measure of equity volatility, soared to 45.79 but this week it plunged to about 30.
“Only on five occasions in the past 25 years has the VIX reached such heights,” said Carmine Grigoli, chief investment strategist with Mizuho Securities USA Inc. Such elevated readings suggest emotional selling and on average the stock market has jumped 26 per cent in the following year.
And Brockhouse Cooper’s Mr. Lapointe said that on average six months after U.S. unemployment levels peak (in October, 2009) global markets increased 9.4 per cent, compared with the recent 1.1-per-cent decline. “One year after the unemployment rate peak, global equities were up 17 per cent on average,” he said.
It's easy to get all flustered in these markets. With volatility on the rise, more uncertainty over Europe's future, stocks coming off one of the worst months, it's no wonder everyone is pessimistic and bearish.
But if you look beyond the turbulence, and focus on the improving fundamentals, then a different picture emerges. To be sure, the big beta moves of 2009 are over, but going forward, there will be money to be made if you pick your stocks and sectors right. That much I'm sure of.
Below, William Greiner, chief investment officer at Scout Investment Advisors, talks with Bloomberg's Matt Miller and Carol Massar about the outlook for U.S. inflation. Greiner also discusses the outlook for U.S. stocks, corporate earnings and Europe's financial crisis.
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bearish in 06? Schiff was.
his mortgage bankers speech is one of my favourites.
http://www.youtube.com/watch?v=jj8rMwdQf6k
Thank you Schiff!! Got out just in time.
Bearish in '07? Stiglitz, Dean Baker, and Prechter.
There's quite a difference between being bullish in the market, and being bullish in the country. The stock market neither reflects the health, wisdom nor wealth of said country. The market is merely a rigged roulette wheel for the well-heeled, and a slot machine for the common man.
As long as Bernanke & Co. is willing to further indebt taxpayers, then yes, there is good reason to be bullish. How you equate that into something positive is beyond me.
Money talks; debt kills.
The thing is, Chanos has been dead right... Shanghai is down over 25% since he wrote that stuff about the 'ghost cities.'
I look at Einhorn's holdings from the 3/26 SEC filings... CIT group (pretty good winner, about 30% from its IPO), gold (asset class of the decade), Pfizer (he's taken a beating on that one), VOD (beaten like a gong) and I see a long/short manager that's doing OK.
I see from the 2009 filings that at least he beat the S&P in 2009, which means he's more earthly use than a dart-throwing monkey. I also see 22% annualized since 1996. Money talks, bullshit walks.
Sprott, physical gold, big whoop. One-trick ponies are going to either soar or bomb. Everyone should own some PMs, just don't go overboard. Personally, though, I do hope he squeezes JPM's balls off in the physical market until their eye sockets bleed.
My question for you: those managers who are long & strong, what was their record in 2008? Were they long and strong then, too? Have they outperformed an unmanaged index over their investing lifetime? If not, then they're just amusing themselves with OPM.
Sprott is no one trick pony. Visit Sprott Asset Management and you will see they have numerous offerings and one hell of a track record (minus 2009 rally) going back a very long time.
Too many gloom & doomers here are hopelessly bearish. You see only what you want to see. There will be pain here, lots of pain in the months ahead. Cheers.
Leo, I fart in your general direction.
Yep, that's right, a big ole Coon fart, just fer you!
Yeeehaw. This is more fun than a clown on fire.
Gotta love a burning clown.
The fuzzy wig goes first -- POOF!
LOL!
But I think your analogy strikes uncomfortably close to home ---- for Leo.
I just hope I don't shit myself in my zeal.
Any thread based on the wildly deluded pro-establishment babblings of Leo is already necessarily going to be so full of shit that any possible addition of yours would be like a drop in the ocean --- not even noticeable. In fact, it might even make an improvement. Anything that serves to dilute Leo's avalanches of bullshit could not be all bad.
"Too many gloom & doomers here are hopelessly bearish. You see only what you want to see".
A weak argument to discredit those with a bearish outlook. Leo is just the mirror image: Too many cheerleaders here who are hopelessly bullish. You see only what you want to see.
Like Tyler and Marla?
Leo I think perma bears and perma bulls have a great deal in common in that they allow their predisposition to color their analysis e.g. Rosenberg, Roubini etc. On the other hand economists such as Faber go both ways even if they hold to a longer term bearish outlook.
You have been quite bullish for as long as I have been reading you, have you been bearish? For example what were you saying post Bear Stearns, post Lehman and in January 2009?
Hi Internet Tough Guy,
You are allowing the Fed get away lightly when you hit them with a bag of oranges..
why not hose these guys with the costly gas!!
Leo -
The facts of our US economy , and the worlds economy , scream in the face of your pump the market philiosophy. What a bunch of broker drivel . I'm glad my "pension" is not with you.
It's a question of how one defines 'economic fundamentals'. There's an educated (mobile) laborforce on fairly low wages. There's a lot of potential credit waiting to be deployed. There are whole new industries, like bio-engineering, and huge nationwide projects, like micro-generation and the Supergrid, which have yet to become serious pillars of the economy.
The problem from the fundamentals p.o.v, is Who knows what's happeing with Chinese and European demand, plus wheher the QE activities will prove to be inflationary. As long as traditional accountig methods are suspended for a little while longer (sun-addled spainards didn't read the memo on that, huh!), it's just a wait and see if the market can swallow that the miraculous new bank deposits mandate the chutzpah for private banks to make the world the bright shiny vision of the future.
But, hey, if the market doesn't work out for private investment, and Obama has caused hyperinflation, then we all get Another New Deal - money markets get closed and every single invested person can kiss his interest goodbye... see, drink the kool aid and everyone wins.
Economic padded-walls-of the-mind. Political scrotum-squeeze more like. Yet fear not, the touch of the serpent and the harlot, it has been confined to the city, those who walk in the light of their faith will be victorious, even if there won't be all that many who remain, as the four horsemen bring strife to the world -thus it was written.
total bollocks. If i wanted fairy tales i'd be watching CNBC
the real scoop
th economy is firing on all 8 cylinders said Amy Goodfeel .. insert article here
The housing sector is showing surprising strength reports john house ... insert quote here
sales of prepaid phone card sets record ..insert Jose Manual's latest opinion piece... insert article
so we see from the very able watchers of things economic that we are on an upswing and the cumlative effect is nothing short of amazing, unknow author .. insert at end
this is a twice weekly publication bring you all the news fit to print . the editors
you really are a clueless blue pill f*ckwit if you think this.
I think he's a CNBC plant.
No, Leo is just a plant, period.
A vegetable, to be precise.
My guess is a mushroom --- they do after all live in the dark and thrive on crap.
"To be sure, the big beta moves of 2009 are over, but going forward, there will be money to be made if you pick your stocks and sectors right. That much I'm sure of."
Like you did with your solar stocks, most of which are down 40-50% ytd in an otherwise flat market?
Let me guess. It's just a dip, right?
Leo is obviously a troll, here, to stir the pot. No real trader or investment pro, who isn't a shill, uses the word "sure" to describe future stock price movements over which he has absolutely no control.
Brett, want to make a bet with me that solars will bounce back? Come back to me in a year so I can kindly remind you how stupid you are. Solars got whacked and I bought more, averaging down in my long-term portfolios. I am confident that solars will experience a long-term secular bull market.
Whether they do or don't isn't the point. I don't claim to be able to forecast future prices and I don't believe anyone can do so consistantly.
You arrogantly state the market will do this or that and when you turn out to be wrong, as in the case of Solars, you then claim to have averaged down or some other bullshit.
Typical stock market bs artist.
I've totally never gotten why you're trading a high-beta derivative of oil prices. I'm totally with you on peak oil and the need to develop alternatives. The way I see it playing out is that we'd first transition from oil to NG (about a 5:1 EROEI, which we have in such abundance that every nook and cranny of storage is full), then later to nuclear (about a 9:1 EROEI). That way, broke-ass governments won't have to subsidize jack-shit.
Put, say, KWT against the $XOI. Every bump and squiggle is the same, just higher amplitude for the KWT. I'd have to download the data but I'd be willing to bet their r^2 > 0.9.
And, Jesus, the solar index is down 40% year-over-year (-80% over two years!), versus +15% if you'd just bought and held SPY. To me, the first fact of investing is that you must avoid the big loss. A portfolio can come back from a 5% loss, but with a 40% loss, you're in a hole for years.
If that's a secular bull market, I would hate like hell to see what you'd consider a bear market.
Give that man a prize!
I agree completely. I fail to understand what TD sees in allowing this continued nonsense to sully what is otherwise an intelligent and REALISTIC website and forum.
Leo is like the microbes in the human gut. They are despicable, distasteful, gross, generally ugly, and putrid. But they do some good! They are necessary for proper digestion. I say Leo is needed for the proper mental digestion of data. Of course, the gas given off is totally unnecessary and flammable.
Leo is the ZH equivalent of Juan Williams sandwiched between Liz Cheney and Bill Kristol on Fox News Sunday.
You have to keep him around to show some attempt at balance, but nobody really listens to what he has to say.
Oh, btw.... Solar Bitchez!! Bwahh ha ha ha ha ha!!! Hope the fucking sun actually shines long enough for you to make out Leo, you poor schmuck.
China Real Estate Bubble Bursts in Bond Market: Credit MarketsMay 31 (Bloomberg) -- Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNpIquePE9IE&pos=2
Beyond market turbulance I wonder what the effect the oil spill is going to have on food production and the knock on effect on food prices notwithstanding volcanoes.
Kina,
Look at the brightside, your Tuna will already come with oil, and Sardines too!.
Seriously, for those who have families 3-5, you need to hit the Costco's, Sams, and stock up NOW on any beef/poultry needs you have, prices are going up this Summer a MIN of 25%...........
Also, and corn products, by products.
Kina -
If oil is not stopped . First off marine life disaster , all the way to the Newfoundland trench , the fishing capital of the world . Then, lets see , less evaporation from the seas covered in oil , less rain , less crops . Sparodic crop failures and droughts . Funny how the pictures of the spill in various areas , the color looks red to me .
"
And the second angel poured out his vial upon the sea; and it became as the blood of a dead [man]: and every living soul died in the sea. And the third angel poured out his vial upon the rivers and fountains of waters; and they became blood.i forgot to add this one to my list. http://www.dailymail.co.uk/news/worldnews/article-1282647/American-cage-...
Well, that made me feel a little better about things.
That's THE MOST INSANE thing I have ever read.
yet federal income taxes down y/y
wonder why people dont pay taxes..
might be income still down too and there's no recovery
alex
ps
see cbo.org
Seriously Leo, you're a pension expert, how do you see the affects of the baby-boomers ceasing participation in an economy leveraged to continued expansion?
I suppose that if enough pension funds are bankrupt there will be no retirement for anyone so the economy can continue its ceaseless expansion. That'd work right?
Do not expect a reasoned or substantive reply to your comment questioning Leo, Matto --- that would not be in his character of posting economic fantasy stinkbombs and then backing off to read (and presumably gloat over) the many indignant responses.
I increasingly believe that there is no "Leo" at all --- he is just a sockpuppet whose sole function is to generate heated responses and pointless controversy here.
akaka,
You are a a hopeless moron. The game plan is to reflate and inflate. You and your kind will be crushed. Crawl back under your rock.
Leo,
Is this why financial reform got clobbered to maintain system hierarchies (neoliberal bubble economics)? I agree that free market trinity (fed, treasury, and wall street) will prop up the legitimacy of policy with massaged data, status quo bailouts and the sky is not falling rhetoric, but how do you place the pension scams, dark pools, predatory business practices in context with the list of 25 events a previous post included: how do you reconcile this? While they have a lot of power to sell us any agenda, how you account for so much of the apocolyptic experiences we see in the data
How does this financial engineering of bubble economics and surface-level quick fixes moremake sense. The only idea that I gravitate towards seems paranoid: our world is unsustainable in terms of: debt, food production, climate, demographics, natural resources and a poignant history of warfare... Are these policies in place to accelerate a deterioration that everyone sees, but seems unable to change? Killing off marine, plant and human populations to change the dynamics of the problem? Without a clear narrative, people will fill in their own stories to fit the dissonance between what we are told and what we are experiencing...
If the world population is growning towards 9 Billion in the next decade, then I really could see world G-20 leaders constructing a system "to eliminate future threats"; especially as the demographics of America and the West are trending towards a more brown and educated female perspective... Any thoughts (inflate and deflate)
Cogent!
Profound!
Insightful!
Akak - I personally like the way leo jumps on other contributors reasoned and worked analysis with "nah-uh, cause fed got a printing press, booyah!". Leo's contributions are links to other people's opinion pieces and rumours of what some fundy said over lunch.
More garbage. Pure smut, except the video.
Who to short. Satan or God?
In the long-run or the short-run??
I am now fired up about this economy. I am gonna start me a company and hire me a bunch of people right now. By the time I get um all hired on, and get desks and hammers and stuff, the economy will be ablaze and I can then snag a big demand product line. You all are invited to apply as soon as I get me some applications printed up. Gonna be a grand time, and we all gonna be rich. All you need is a little hope—right?
it's overwhelming how the people aren't receiving the message. curiously frequent volcanic eruptions, freak softball size hailstorms, 500 year flood in nashville, katla giving her warmup performance, historic oil spill in gulf, wars and rumors of wars. i guess it will have to take yellowstone's caldera blowing to high heaven to get even a modicum of response. most are completely missing the much bigger picture here. good luck to all.
arnold,
I get it, all one has do is have eyes to see, and ears to hear, plus, we have the Boy King.
This is going to end very badly for 2/3rds of mankind.........sad is not the word.
People get Ready, there' a train a comin.