A Long ‘Good Buy,’ or Market for Muppets?
During my 11 years working at CNBC, I have heard a number of analysts and fund managers predict that today is a once-in-a-generation opportunity to buy stocks, bonds, gold and property.
Some have been correct, like Charlie Morris, a fund manager from HSBC who, having arrived at CNBC offices in 2003 for an interview, saw an awful piece of U.S. consumer confidence data and immediately called the office and told his team to start buying.
Over the coming years, the Dow rallied nearly 6,000 points from its low of 8,235.
Others have not shown such foresight, and offered advice that has seriously damaged the wealth of their clients with big calls at the wrong time.
I spent my first few years at CNBC watching brokers talking up Vodafone’s stock in the UK as it fell from more than 4 pounds a share to just 80 pence at its low.
On Wednesday, Goldman Sachs’ chief global strategist, Peter Oppenheimer, said that “the prospects for future returns in equities relative to bonds are as good as they have been in a generation,” in a widely-read research note.
“Given current valuations, we think it’s time to say a ‘long good bye’ to bonds, and embrace the ‘long good buy’ for equities, as we expect them to embark on an upward trend over the next few years.”
The note managed to get past Goldman Sachs email monitors, who are reportedly on the lookout for any staff calling their clients “muppets” following last week’s very public resignation by a senior manager via the New York Times.
With U.S., German, British and Japanese bond markets yielding less than inflation, the case for stocks is pretty strong.
David Bloom, the chief FX strategist at HSBC, told CNBC on Thursday that monetary policy is so loose that it’s easy to make a case for stocks.
“With Japan and the UK in quantitative easing mode and the ECB pumping a trillion euros into the system you can see why stocks are doing well,” he said.
“If U.S. bond yields rise, the Fed would drive them back down again. If yields don’t rise, the case for buying stocks relative to bonds stays in place,” said Bloom, who also pointed out that the Japanese market rallied strongly on a number of occasions during its long-term bear market in the 1990’s.
Larry Fink, who runs Blackrock, the world’s biggest asset manager, has been saying for nearly a year that he would be 100 percent in stocks if he could.
When you manage trillions, going all-in-stocks is not possible, but his argument has been that the poor returns on offer in high-yield debt make the case for holding stocks.
Recent economic reports have been encouraging in the U.S., and Thanos Papasavvas, a fixed income and currencies strategist at Investec Asset Management said the mood has improved across the board since the beginning of the year.
“China will not have a hard landing, and the US numbers have been encouraging,” said Papasavvas.
Lots of money in the system added to signs of a global rebound in growth, adding to the case for stocks.
Oil prices remain high and could go higher if some bulls get their way.
Things might not look as rosy if the Saudi authorities cannot maintain prices at around $100 a barrel.
The euro zone has for the time being fallen off the front pages following the LTRO (long-term refinancing operation) injection from the ECB and the successful completion of the Greek debt deal.
This happy change of events will not last if some are to be believed.
“I think they (ECB) did the right thing in drowning the markets and banks in liquidity. But it really hasn’t solved the problem...and for Europe, and in my view, the euro area especially, the worst is still to come” said Citi Chief Economist Williem Buiter on CNBC earlier this week.
“The markets and the banks are liquidity junkies. They love these injections but they really haven't solved the fundamental problem,” said Buiter who worries the euro zone does not have enough firepower to cope with a major states finances collapsing.
“If Spain becomes a program country, a Troika program country, IMF program country – which I expect. This fund will be close to exhaustion.”
Despite all the money pumped into the European banking system by the ECB credit to consumers and businesses remains weak, according to Carl Weinberg from High Frequency Economics.
“The U.S. banking system is now creating credit again for small businesses and consumers. The banking system in Euroland is not. As soon as it does, we will be ready to mark up our outlook for the euro zone,” said Weinberg in a research note.
“However, all the data and analysis tell us that the dislocations among Euroland’s banks remain severe and threaten the banking systems balance sheet. Banks that are worried about capital adequacy do not write loans, and that is what we are seeing,” said Weinberg who remains very bearish on Europe.
With stocks having doubled in value since the March 2009 lows, many will treat a once in a lifetime call to buy stocks with caution. 2009 was a once in a generation time to buy stocks, so was 2003. Both followed once in a generation chances to short stocks.
It is amazing how many generational opportunities you can get into a single decade these days.