That's the opinion of at least one analyst who points out that if stocks reach the same valuation level they reached during the two greatest stock market bubbles in U.S. history, the Dow could hit 30,000. I don't know if that should make one optimistic or frightened. MarketWatch has the story. In a note to clients, McMillan asks the obvious: Where does the Dow go from here, after cracking that 21,000 ceiling? Given stocks are in uncharted waters, he looks for a steer in the Shiller’s CAPE ratio, which compares equity prices with earnings over the past 10 years to gauge frothiness in the … [Read more...]
Japan Stuck in Unparalleled Years Long Low Rate Trap
The Federal Reserve and other global central banks should pay close attention to the low rate trap Japan has created for itself. John Lyons and Miho Inada write for The Wall Street Journal: The U.S. appears to be leading other parts of the globe out of an extended era where central banks relied heavily on low and negative interest rates and stimulus to jump-start growth and keep prices from falling. The Federal Reserve has raised U.S. interest rates, and the European Central Bank is considering easing its stimulus. Japan remains definitively stuck, despite a long and aggressive experiment … [Read more...]
This Has Only Happened Three Other Times in the Last 117 Years
The Dow has now increased for the twelfth day in a row. Since 1900, the Dow has achieved this feat on only three other occasions—once in July of 1929, again in December of 1970, and then finally in January of 1987. The good news is that on all three occasions, the Dow went on to rally double-digits. The bad news: those gains didn’t last. Stocks crashed hard in 1929 and in 1987. The best year out of the bunch was 1970 when over the subsequent 12 months, stocks rallied and then corrected, but never fell far below their December 1970 level. A sample size of three doesn't provide a … [Read more...]
What happens when the low-cost producer loses its edge?
China has gained massive market share in manufacturing over the last 15 years. Cheap labor and a managed currency helped China become the world’s go-to factory. But as the FT reports, China has now lost its edge in labor. Wages in China are now higher than they are in Brazil, Argentina, and Mexico. What happens to the low-cost producer when it loses its edge on cost? China could either try to regain competitiveness by devaluing the yuan (a bad choice) or attempt to move up the value chain (a better choice). Whichever direction the country takes, the global economic landscape is likely to … [Read more...]
What is Gold Saying about the Market Now?
After selling-off as interest rates spiked following the election, gold has made something of a comeback in 2017. Gold is up over 9% YTD compared to about a 6% gain in the S&P 500. The rally in gold seems at odds with the prevailing sentiment in the stock market. Stock market investors are bullish. The Dow has been up for ten consecutive days. Gold and stocks don't often rise in tandem like they have over the last two months. Is gold trying to tell us something? Is calamity on the horizon? Are rising gold prices a signal that goods inflation is about the rear its ugly head? Is the … [Read more...]
The Stunning Collapse of the Economy in China’s Liaoning Province
Analysts who have followed China closely over the years have always had a difficult time believing the official numbers that come out of the country. To many, China's growth always seemed too smooth and too close to government targets to be believable. But there was never hard evidence that the data was being manipulated. Now there is. The FT reports that growth in Liaoning Province shrank 23% last year partly as a result of officials' attempts to undo the effects of previous over-reporting. Economic output in China’s northeastern industrial province of Liaoning shrank by 23 per cent in … [Read more...]
You Don’t Want to Ignore the Risk of a Euro Collapse
The melt-up in U.S. stock prices in February has been nothing short of spectacular. Of the 14 trading days this month, stocks have increased on twelve. The average increase in the S&P 500 on up-days in February has been 0.33%. A third of a percent may not sound like a big number, but if you compound that out over just 60 trading days, you are looking at a return of more than 20%. For novice investors, the relentless rise in stock prices may have led some to believe there is little risk in the market today. That would of course, be a mistake. Because while U.S. shares show few signs … [Read more...]
Have we reached peak Amazon?
There was a time not too long ago when it seemed that Wal-Mart was going to dominate the retail landscape for the foreseeable future. Wal-Mart had the scale, the infrastructure, the buying power, and a dominant brand. CNBC even produced a 90-minute documentary on the company. Today, it seems Amazon has dislodged Wal-Mart as most-admired in the retail space. Amazon is dominant in online retail. It has the infrastructure, the scale, and the buying power to succeed. Nobody can catch Amazon in online retail, right? Maybe, but that isn’t stopping Wal-Mart from trying. The traditionally … [Read more...]
How to Invest at Peak Investor Complacency
If you follow the markets closely, you know that investor complacency has been heightened. Volatility is low, up days are bigger and more frequent than down days, and the few down days the market experiences have closed off of their lows. Bloomberg reports that investor complacency is near a two-decade high and reminiscent of past major market tops. Is that a reason to panic? No, but it is a faint voice among the cacophony coming from the bulls to approach the markets with caution. If you're an equity investor and feel like things can't be this good, you're probably right. On Thursday, the … [Read more...]
China’s Latest Move to Prevent a Currency Crisis
The FT explains here that China has managed to stem the flight of capital from the country with tighter capital controls, but this is likely more of a Band-Aid than a solution. Capital that wants to leave China will eventually find its way around tighter controls. Look for China's currency, the yuan to continue to weaken as a result. Foreign property investment by Chinese companies plunged by 84 per cent last month, as Beijing’s capital controls choked off the flow of foreign acquisitions. In an effort to curb capital outflows and ease downward pressure on the renminbi, Chinese regulators … [Read more...]
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