When looking back at this time some years from now when the Dow is at 60,000, inflation is screaming and the Federal Reserve has been replaced by an algo that perpetually pumps the economy with fresh hits of QE in various shapes and forms, investors will in hindsight point to several things as being no-brainers for getting long equities in August of 2019 and staying long.
When looking back here is a list of items that will be seen as no-brainers, to avoid having to ask "how did I miss getting long stocks in August of 2019?":
- Stock dividends are yielding more than the 30-year Treasury bond for the first time in a decade. Not since pretty much the exact bottom of the financial crisis has this taken place. What does this mean? Without mincing words, it means that the current generation of mostly institutional investors are the biggest imbeciles in the history of Wall Street. It also means that they will be exposed like an episode of Cheaters in the coming months and years, with their investors chasing them out of fixed income securities much like many of the spouses chased mistresses out of cheap motel rooms with camera crews in tow. We will not have the privilege of camera crews, but will certainly witness the effects through observing how far up equities shoot in response.
- The Federal Reserve and all global central banks for the matter are cornered. This is perhaps the least discussed yet most relevant reason to be bullish here. Remember the old adage "don't fight the Fed?" Well, just imagine "don't fight the Fed" when the Fed and all of their buddies from Japan to Europe are fighting for their lives. They have to prove their relevance. They have to make sure they pull every string possible to ensure that developed economies don't fall into a recession. Why? Their toolbox becomes increasingly limited the further into a deflationary spiral we go AND there is so much disdain for global central banks at this juncture that they may well be burned at the stake, replaced by algos and CEOs of the top global banks, if the economy goes into a really dark place. This is the era of "don't fight the Fed when it has rabies and is about go into a roid rage" phase. They are going to do everything and I mean absolutely everything to boost the economy and the markets.
- Everyone is worried that everything is on the verge of collapse. Markets function on psychology PERIOD. It's why economists teach at universities and appear on CNBC a dozen times per day instead of applying their learned knowledge in the markets. Eventually fundamentals are reflected in prices but the markets go through the most treacherous maze ever created before getting to the true reflection of fundamentals. In the meantime, they blowoff to the upside, crash on the downside and lull investors to sleep, all the meanwhile throwing informational spit balls of deception at every part of the plate. Markets don't top on this type of sentiment, especially when its reflected in numerous measures of asset flows that show investors are avoiding equities like a plague despite being near all-time highs. The psychology towards equities is a dead giveaway that they will move higher from here in what will be a shocking manner.
The three aforementioned factors are the perfect symphony for the next leg of the bull market being as powerful as anything we have experienced over the past decade.
A global misallocation of capital while central banks are cornered and investors are highly skittish.
It's perfect.................
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