I just returned from a speaking engagement in Tennessee where I decided to do a “low tech” presentation on the current state of the financial markets. Low tech means no PowerPoint slides… just good old-fashioned notes on a yellow pad.
I thought I would share what I wrote down on the way to Nashville:
- S&P earnings slowing – 2nd QTR +3.7%, Negative w/o financials
- S&P revenues slowing – +3.4%
- S&P operating profits at record highs – 9.6%
- Forward VALUATION up to 14.5X – highest for cycle and up from 10 at market bottom
- JULY new home sales SHARPLY lower
- Mortgage applications down 15% since June
- We will hit debt ceiling limit in October
- Deficit falling sharply – now $680 billion down from $1.2 trillion one year ago….will slow GDP growth
- **TAPERING – Gorilla in the room! – Small taper in October? Later this year?
- Emerging markets – MAYHEM since tapering news. – Capital flight = dramatic drop in currencies = inflation fears = higher interest rates = DRAMATIC lower stock prices. – India, Thailand, Turkey, Indonesia
- Japan- Passed sales tax after PM Abe and Central Bank try to stimulate economy with QE. Markets won’t like it. Corporate tax cut to OFFSET?
- Europe – Angela Merkel reelected but legal challenge coming to OMT in October?
- Seasonality – Bad month on average to be invested.
- Market Cyle- 4+ years into bull market. Do you really want to get bullish NOW?
- QE3 to continue – CASE CLOSED
- Janet Yellen to replace Bernanke? Can it get even better for investors? She thinks unemployment is still too high.
- Auto sales +11% YOY in August. Looks like consumers are still hanging in there.
- No recession
- No inflation
- GDP in Goldilocks range – 2-3%. Just right.
- Valuations look reasonable. Anything based on earnings yields versus bonds look “back up the truck” cheap.
- Global growth remains +
- Japan PM and Central Bank likely to provide additional stimulus?
- Syria – What happened to all of the geopolitical risk? Looks much better in Iran too.
- Energy prices come down like clockwork – down to $102. PERFECT for bulls.
- ECB says it will provide additional stimulus if OMT is found to be illegal in German courts.
- Lots of chatter about a new secular bull. Stocks certain to outperform bonds even if less than expected returns going forward?
Bearish Point to Ponder
12 million U.S. full-time employed. 8 million working part-time because they can’t find full-time employment. 800,000 stopped looking. U6 unemployment rate is still 14.4% versus 7.9% in official figures. NOTE: Maybe this is bullish with Yellen?
Bullish Point to Ponder
Looks like we have a legitimate shot of becoming energy independent in U.S. in the next five years. How bullish is that?
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