We’re in the “sweet spot” – it’s “Goldilocks”- it’s “have your synchronized global growth cake and eat your ongoing central bank accommodation too.”
[Feel free to create your own fun description of the prevailing risk-friendly environment.]
The idea that a synchronous upturn in global growth accompanied by still-subdued DM inflation justifies “rational exuberance” in markets has become so ubiquitous that it found its way into the Friday installment of Jim Cramer’s Mad Money. This is the narrative that everyone has adopted to explain why it makes sense to stay long risk despite stretched valuations in bonds, credit, and equities and despite the fact that at least in the U.S., we are almost unquestionably late cycle (protestations and tortured attempts to characterize the situation as more “mid-cycle” notwithstanding).
As Barclays notes in the latest installment of their Global Macro Survey, “the US business cycle is now the third-longest on record since the Second World War, European economies have broken out of the tepid range that prevailed during the 2010-12 crisis, [and] Emerging economies have also rebounded, helped by the rise in commodity prices.”
The question is: how much longer? The real answer is complicated and a nuanced take requires adopting innovative frameworks for analyzing how central bank gradualism (i.e. the management of the risk that accompanies the unwind of accommodation) interacts with investor psychology and modern market structure to shrink horizons and optimize around the prevailing low vol. regime.
But a simple answer to the “how much longer” question is this: “a bit longer.” Or at least according to the 700 institutional clients who participated in the 33rd installment of Barclays’ survey.
On the growth front, investors still see the risks as balanced:
And investors are still reasonably constructive on EM although the proportion expressing skepticism via an Underweight allocation is rising:
Although investors seem to know that stocks are rich, the overwhelming majority are generally bullish. “Almost half of the equity investors we polled said global equity markets are overvalued, yet more than 80% think that stock markets will be at similar or higher levels three months from now,” Barclays notes:
Given that, it comes as no surprise that when asked which asset class has the best prospects over the near-term (3 months), the answer was: stocks.
So you can rest easy. Until later today, when we’ll tell you all about the biggest risks.
It would be useful to see this data going back to 2005-2009 (or farther). Part of the problem with people’s short memories is most data goes back no more than five years, which is now post the last great shock leading into the recession.
Just because bubbles are not talked about on MSM financial channels means they don’t exist. There is an alt-universe that won’t talk about debt that has permeated the entire planet. Head in the sand, rosy pictures of markets going up, up up and ZERO accountability. Central banks ready to print more if needed, what a joke this whole thing is not any kind of real market were you are rewarded for growing a company with the realization of trying to do something for your workers, your community any yourself.
It’s who can I con today.
Lol this post is like 50 years too late
Seems like it will be awhile because Sharon has a few friends who recently found out how to make more money on B.C. than on equities.
Oh well, it ain’t over till the Fat Lady sings and BTW, if RM III comes bearing gifts before the holidays… just sayin’.
When greed overtakes stupity, there is no end of protestations.