Radio Show Notes: The Economic Clock explains markets
Readers know that we have run the framework of The Economic Clock® for years. Robustly, it continues explaining market trends.
My overall observations re the Economic Clock®
- The Economic Time® is characterized by an
- Excess supply of money, and an
- Excess demand for goods.
- Excess supply of money. What we are seeing in markets is totally logical according to the framework of our common-sense Economic Clock®: the pronounced excess supply of money by definition must go into assets – into stocks, bonds, property, jewelry, art, etc….
- Herd effect. Wise investors caught the logic of this excess supply of money early on – about four years ago; now the stragglers are coming to the party.
- Excess demand for goods. These latecomers partially can justify their ebullience because there is still a little room for profits to rise: this is what happens where there is an excess demand for goods, as we are witnessing primarily a rise in turnover, with selective increases in margins, too.
Global stocks at record highs. US tech stocks today have now exceeded their last peak reached in March 2000 at the peak of the dotcom bubble. MSCI Asia ex Japan and emerging markets at highest since April 2015. But there are concerns;
- High Valuations
- Relevance. Not so sure that valuations as we know them are so relevant.
- PE ratios. Take the popular price to earnings ratio. It is based on history: however, earnings growth has been disturbed violently by Schumpeter’s “creative destruction” whereby the old has to make way for the new.
- Compass with a broken needle: Therefore, how can past earnings any guide to future ones when we are in the midst of an industrial revolution characterised by creative destruction?
- Low volatility
- Obviously this dents banks’ trading profits: no volatility no trading!
- Its been 30 years since major indices in US, Europe and Asia together haven’t seen a correction of 5% in a calendar year
- Correction looming. I think that the pullback will occur sometime between the fourth quarter of this year and the first of next year.
- Fed policy overshoot. The reason is that there is a distinct risk of Fed “overshoot”: relative to America’s brittle recovery/ shakey Economic Time®, real rates will be so high that they choke growth.
- Other correction motors. Rising real rates, along with an ineffectual Kaiser Trump when it comes to coaxing Congress to cut taxes or increase infrastructure spending, will knock the market six month ahead of the actual event: actual slowdown in quarters 2 or 3, 2018!
- The valuation risk in US equities is rising following delays in Trump’s legislative agenda and US-China trade tensions – both US and China cancelled today’s press conference following trade talks in Washington
- What agenda? Wasn’t aware that Kaiser Trump has any “legislative agenda”: he lives of dubious Executive Orders, at whose signings he insists on being adulated
- Stalled agenda. Now that his health care plans have crashed, it is unknown if he can muster the mojo to rally the troops – most of whom he has antagonised on both sides of the aisle. My guess is that he won’t get his infrastructure spending nor tax cuts through Congress, al the more with that debt ceiling hiatus rearing its ugly head.
- US-China trade tensions. In my years of working with Capitol Hill, I learned that “foreigners are for free”. Step in Kaiser Trump, beating-up on the Chinese very much for what ultimately are failings of the U.S. educational system…
- US financial conditions loosest in 3 years
- Economic Time®. Yes, this is exactly what our Economic Clock® suggests – namely, an excess supply of money.
- Logic. By definition, this excess supply of liquidity simply MUST go into asset markets!.
- .Expensive long bonds. But whether expensive long bonds are the right place to be in a period of rocky interest rates is questionable.
- Yields on short dated treasuries spiking on fears over debt ceiling
- Italian analogy. Congress is like Italy: both populations make things up as they go along.
- Non-resolution. Don’t expect this debt ceiling business to be resolved any time soon: like Kaiser Trump, Congress cannot get its act together.
- Long end of the curve. This is the most intriguing financial story around: will yields rise or fall? My guess is that they will fall, leading to a flattening yield curve
i. Investment implication: if the yield curve does flatten, then sell banks! How can they make money off their loan books when there is no margin to be had?
- Prices at new highs and new home transactions hit a record in first half
- Economic Time®. This is what happens when there is an excess supply of money: asset inflation hits.
- 300,000 empty flats. Anecdotally, I heard that we host 300,000 empty flats – courtesy of mainland speculation
- Surge in applications to take property agent exam!
- Compliance boom. Sounds analogous to the financial sector’s crying need for more compliance officers.
 The radio moderator’s thoughts are emboldened. Mine are italicized.
DISCLAIMER: THIS BLOG DOES NOT PROVIDE INVESTMENT ADVICE
The information, including but not limited to, text, graphics, images and other material contained on this blog are for informational purposes only and do not necessarily reflect the views or Enzio von Pfeil. The purpose of this blog is to promote broader understanding, knowledge and awareness of various financial and economic topics. It is not intended to be a substitute for regulated professional investment advice. Always seek the advice of your a regulated investment advisor with any questions you may have regarding your specific investment needs or concerns.
Enzio von Pfeil does not recommend or endorse any strategies or ideas mentioned in this blog. Reliance on any information appearing in this blog is solely at your own risk.
IT IS IMPORTANT THAT YOU READ, UNDERSTAND, AND AGREE TO BE BOUND BY THESE TERMS WHEN VIEWING, READING OR OBSERVING ANY INFORMATION, DATA OR ANY OTHER FORM OF COMMUNICATION ON THIS BLOG:
Any information provided to you by us, including any promotional material such as photographs, written descriptions, any plans or models, any income estimates or projections (“Information”) have been provided to us by other sources and although we aim to perform due diligence on all information we provide to our Blog subscribers, the Information is provided for general purposes only, we cannot guarantee the accuracy of the Information and we do not make any representations, either express or implied, as to the accuracy as to the Information. We recommend that our Blog subscribers undertake their own due diligence in relation to the asset they are considering purchasing, including seeking independent legal and financial advice in relation to their own financial objectives and personal circumstances, prior to signing any agreement or contract with any third parties.
No representation or warranty is given as to the accuracy, likelihood of achievement or reasonableness of any figures, forecasts, prospects or returns (if any) contained in the message. Such figures, forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies. The assumptions and parameters used by www.enziovonpfeil.com (evp.com) are not the only ones that might reasonably have been selected and therefore evp.com does not guarantee the sequence, accuracy, completeness or timeliness of the information provided herein. None of evp.com, its members or any of their employees or directors shall be held liable, in any way, for any claims, mistakes, errors or otherwise arising out of or in connection with the content of any form of communication, documentation included in the Blog, via e-mail or any other form of communication.
You are reminded that the content is for personal use and general information only. Under no circumstances is the content intended for and hence the content should not be regarded as an offer or solicitation or recommendation to dispose/sell, an offer or solicitation or recommendation to subscribe in, nor an offer or solicitation or recommendation to buy/acquire and under no circumstances should the content be constituted as provision of any recommendation or investment advice on any securities, investment products, investment arrangements and any other form of investments or legal, tax or other professional advice and therefore should not be relied upon in that regard for making any decision. Unless specifically stated, neither the information nor any opinion contained herein constitutes as an advertisement, an invitation, a solicitation, a recommendation or advice to buy or sell any products, services, securities, futures, options, other financial instruments or provide any investment advice or service by evp.com.
Unless stated otherwise, any opinions or views expressed in this communication may not represent those of evp.com. Opinions or views expressed in this communication may differ from those of other departments or third parties, including any opinions or views expressed in any research issued by evp.com.
Any e-mail and any accompanying attachments are not encrypted and cannot be guaranteed to be secure, complete or error-free as electronic communications may be intercepted, corrupted, lost, destroyed, delayed or incomplete, and/or may contain viruses. EvP.com, therefore, does not accept any liability for any interception, corruption, loss, destruction, incompleteness, viruses, errors, omissions or delays in relation to this electronic communication. If verification is required please request a hard-copy version. Electronic communications carried within the evp.com system may be monitored. Any communication or message in email form or otherwise may contain confidential information. Any use, dissemination, distribution or reproduction of the relevant information outside the original recipients of any messages is strictly prohibited. If you receive a message by mistake, please notify the sender by reply email immediately and permanently delete the emails and its contents. Unless otherwise stated, any communication provided is solely for information purposes only.