Who has been buying stock and driving equities higher? The answer may surprise you. According to Credit Suisse strategist Andrew Garthwaite “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of total market cap, while institutions have sold 7% of market cap.”
In January, 2015 heavy snowfall and cold weather across the country had everyone expecting a disastrous estimate of Q1 GDP. I’m sure you remember the vicious “polar vortex” that was endlessly reported at the time. And as predicted, in its April 29, 2015 first estimate of Q1 GDP, the Bureau of Economic Analysis (BEA) said the US economy grew by only 0.2%. The number was so bad the BEA decided to increase its seasonal adjustment provisions because they were obviously not adequately reflecting the impact of winter weather during the winter season.
To answer the question you need to know what you are measuring it against. Cheap compared to what? Let’s compare it to the world’s current favourite asset…stocks.
The VIX, the yardstick for measuring volatility in US stocks, is once again trading below 10. Here are some statistics from Kyle Beard of Bloomsbury Advisory: “The VIX has only traded below 10 41 times since 1993 (intra-day). 21 of those occurrences have taken place since May 1, 2017. When you consider there have been 6,179 trading days since 1993, you realize how incredible this is.”
What brings an end to a bull market, I am often asked, since I am known to be bearish at this time. Usually, it’s just exhaustion. But money flows are always involved in one way or another. So here is a scenario almost no one is thinking about.
As my friends will tell you, I like walking through malls, looking at the traffic and trying to figure out who’s going to stay in business. I marvel that here I am in another Home Depot with another just down the street and a Lowe’s around the corner. How do they do it, I used to ask? Now I ask an even better question: why?
Do you remember what caused the financial meltdown of 2008? Boston Fed President Eric Rosengren said it last week with elegant simplicity: the “significant decline in collateral values” of both commercial and residential real estate was “the root cause of the financial crisis,” he said. When real estate values fell below the value of the debt pledged against them, the shortfall blew a huge hole in bank balance sheets. As the banks struggled to cope, they stopped lending to their customers and themselves and the system crashed due to a liquidity crisis.
Here we are on July 4, fire cracker day, when we get to celebrate America’s beginnings…a good time to go back to basics.
The market-leading Nasdaq stocks have had a hard week. The FAANG stocks fell again on Friday and once again failed to top the highs of early June before the epic smash of June 9. Have we seen the top?
Since last year, I have been telling my readers that a resolution of Europe’s banking woes was coming and that it would be one set of rules for Italy and another set of rules for the rest of the EU. Now, finally, we hear it is.