The Economist wrote a piece which caught my attention. They approach the question scientifically - by rejecting the null hypothesis and asking themselves: What is to stop stock prices worldwide going on a really crazy run?
The Economy
In March, people had strong inclinations the world was going to get back on its feet by the end of 2020. Now, everyone knows that’s not the case yet the markets keep going up.
Bullish Sentiment
Akin to Jan 2018, bullish sentiment is at all time high. Then Trump came through with a shove to Xi and things went south, sending the S&P down 10% in a matter of days. Paradoxically, positive sentiment is often seen as a reason to be wary, and that investors have got ahead of themselves. However, seems like policy makers will save the day on this one.
Policy
According to JPMorgan, the $900bn fiscal package passed after Christmas will add two percentage points to GDP growth in 2021. But, what if policy makers withdraws further stimulus, like they did in 2010? And what if pent-up savings lead to a rise in interest rates? The latter seems unlikely just yet, as Treasury yields have barely moved.
Debt
Central-bank buying of corporate bonds has kept financing costs remarkably low for companies with access to wholesale capital markets. Additionally, bonds rated BBB, the riskiest invest-ment grade bonds, pay very low interest rates - of the kinds paid in 2006. Maybe the enlarging public debt could push up interest rates, but seems like most of these are going to safe assets, including government bonds, leaving no real fear of defaults.
So, what to do?
In a note this week Jeremy Grantham, co-founder of gmo, an asset manager, argues that stocks in America have already gone too far. “My best guess as to the longest this bubble might survive is the late spring or early summer,” he writes, and advises seeking refuge in cheap emerging-market stocks.
I’m not sure how this forecast is formulated and making predictions into summer seem quite far-reaching. For me, the only rescuable idea is that, with very high likelyhood, the rally at least won’t end this month. So resist the dips my friends! They’re often just market corrections from overreacting individuals.
Is Crypto a good hedge against inflation? We don’t know and this article from the Economist won’t tell us either.