Sunday, December 1, 2013

Diverse Market Views for Uncertain Times

The comments below are among the diverse views for investors to consider. 
  • Howard Marks – Chairman for Oaktree Capital (letter to clients) -  “Over the last 2-3 years, my motto for Oaktree has been consistent: "move forward, but with caution." I feel the outlook is not so bad, and asset prices are not so high, that it's time to apply maximum caution (or, as they said in The Godfather, "go to the mattresses"). But by the same token, the outlook is not so good, and asset prices are not so low, that we should be aggressive. That's the reason for my middling stance.  Having said that, however, there's no doubt in my mind that the trend is in the direction of increased risk, and I see no reason to think that trend will be arrested anytime soon. Risk is likely to reach extreme levels someday, it always does, eventually – and great caution will be called for. Just not yet.”
  • Alan Greenspan - Former Federal Reserve Chairman (Bloomberg interview) - “This does not have the characteristics, as far as I’m concerned, of a stock market bubble... It could come out that way but I don’t see it at this stage.”
  • David Stockman - Former Director of the U.S. Office of Management and Budget (CNBC interview) - "Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere…It's only a question of time before the central banks lose control, and a panic sets in when people realize that these values are massively overstated" 
  • Albert Edwards – Investment Strategist Societe Generale (research report) - "U.S. profits are now beginning to struggle. Once the profits cycle turns downwards, it tends not to recover. The die is cast … A full-blown profits and investment downturn is most likely to be triggered by Asian and EM (emerging market) devaluations releasing surplus capacity onto the West and crushing pricing power even further."
MY TAKE

Equity prices have increased in several markets, but business revenue growth trends remains weak.
Drivers of these price moves include:

  • stimulus by central bankers
  • cost-cutting that increases corporate profits and 
  • corporate stock buybacks that reduce the share count in earnings calculations.  
Improving economic fundamentals will likely require increased investment spending by both businesses and governments.  Until this occurs, deflation remains a risk.

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