On the investment front the equation remains the same: pushing stock prices higher are the twin forces of the Fed's policy and corporate buybacks. Trying to push prices down is an impressive array of everything else: disappointing productivity, growth, and profit margins together with all our domestic and international political uncertainties. And now Brexit! It is a testimonial to the strength of those two bullish forces that they can steady the US market near its high, regardless, apparently, of what is thrown at it.
I therefore remain, on the basis of those two remarkable pillars of support, for at least one more quarter, where I have been for the last two years; despite brutal and widespread asset overpricing, there are still no signs of an equity bubble about to break, indeed cash reserves and other signs of bearishness are weirdly high.
In my opinion, the [US] economy still has some spare capacity to grow moderately for a while. All the great market declines of modern times – 1972, 2000, and 2007 – that went down at least 50 per cent were preceded by great optimism as well as high prices. We can have an ordinary bear market of 10 per cent or 20 per cent but a serious decline still seems unlikely in my opinion.
Now if we could just have a breakout rally to over 2300 on the S&P 500 and a bit of towel throwing by the bears, things could change. (2300 is our statistical definition of a bubble threshold.)
But for now I believe the best bet is still that the US market will hang in or better, at least through the election.
