Economic “reflation” is becoming the next bullish narrative as equity valuation increases continue to outpace earnings gains, at least according to Gold Sachs and Tony Pasquariello. “If GS is correct on the big calls, the macro backdrop is set to remain friendly: the US economy should continue to grow nicely above trend — picking up speed as the year moves along — with three adjustment rates cuts along the way.  to not obscure the moral of that story: the Fed is set to ease policy … into an upswing.  while Fedspeak this week had a somewhat hawkish bent, the house view for 2024 remai ..read more

Is immigration why employment reports from the Bureau of Labor Statistics (BLS) continue defying mainstream economists’ estimates? Many are asking this question as the U.S. experiences a flood of immigrants across the southern border. Concurrently, many young college graduates continue to complain about the inability to receive a job offer. As noted recently by CNBC: The job market looks solid on paper. According to government data, U.S. employers added 2.7 million people to their payrolls in 2023. Unemployment hit a 54-year low of 3.4% in January 2023 and ticked up just slightly to 3.7 ..read more

Having risen by about 40% since last October, Gold is on a moonshot. Many investment professionals consider gold prices to be a macro barometer, measuring the level of anxiety in the economy, inflation, currency, and geopolitics. Therefore, we must investigate what is and isn’t driving the price of gold higher. The Divorce Between Gold and Real Yields To help us figure out what may be driving the momentum in Gold, it is worth first considering that a trusty relationship that largely explained the movement in gold prices broke down about two years ago. The graph below, courtesy of Matt Weller ..read more

In the most recent report from FINRA, margin debt levels have surged as bullish investors leverage their bets in the equity market. The increase in leverage is not surprising, as it represents increased risk-taking by investors in the stock market. We previously discussed that valuations, in the short term, reflect investor optimism. In other words, as prices increase, investors rationalize why paying more for current earnings is rational. “Valuation metrics are just that – a measure of current valuation. More importantly, when valuation metrics are excessive, it is a better measure of&n ..read more

Your mother likely imparted valuable investing lessons you may not have known. With Mother’s Day approaching and bullish market exuberance present, such is an excellent time to revisit the investing lessons she taught me. Personally, when I was growing up, my Mother had a saying, or an answer, for almost everything… as most mothers do. Every answer to the question “Why?” was immediately met with the most intellectual of answers: “…because I said so”. Seriously, my Mother was a resource of knowledge that has served me well over the years, and it wasn’t until late in life that I real ..read more

Back in 1989, Japan was taking over the world. The country’s economy had grown 6.7% in 1988. Sony had just bought Columbia Pictures, one of the largest Hollywood studios, for $3.45 billion. Japanese property company Mitsubishi Estate took control of Rockefeller Center in New York City that October. When land prices peaked in Tokyo, Japan’s Imperial Palace grounds were more valuable than all the land in Florida. – WSJ At its height, in 1989, real estate in Tokyo sold for as much as $139,000 a square foot—more than 350 times as much as choice property in Manhattan. – Vanity Fair Some say the ..read more

One of the most interesting conundrums is the surging wealth gap in America. Despite two of the largest bull markets in history since 1980, most Americans struggle with making ends meet and are unprepared for retirement. Such a reality starkly differs from the belief that rising asset prices benefit the masses. For example, in a recent St. Louis Federal Reserve Bank analysis, total household wealth was $139.1 trillion, covering 131 million families. Of that total wealth, 74% was owned by just 13.2 million families, or roughly 10% of the population. Notably, this measure of wealth includes the ..read more

At last week’s FOMC meeting, Jerome Powell said, “We think financial conditions are weighing on the economy.” His comments seem sensible, given the following: The Fed is reducing its balance sheet (QT). The Fed Funds rate is at its highest level in over 15 years. Mortgage rates are about 7%, 3-4% above pre-pandemic levels. Credit card interest rates are 20% or more. Auto loans range between 7% and 10% Consumer loan growth, excluding the pandemic, is down to levels last seen over ten years ago. Outstanding Commercial & Industrial (C&I) loans are declining. Powell’s statement indicates ..read more

Technical measures and valuations all suggest the market is expensive, overbought, and exuberant. However, none of it seems to matter as investors pile into equities to chase risk assets higher. A recent BofA report shows that the increase in risk appetite has been the largest since March 2021. Of course, as prices increase faster than underlying earnings growth, valuations also increase. However, as discussed in “Valuations Suggest Caution,” valuations are a better measure of psychology in the short term. To wit: “Valuation metrics are just that – a measure of current valuation. More i ..read more

It is long past the time that we face the fact that “Social Security” is facing a retirement crisis. In June 2022, we touched on this issue, discussing the stark realities confronting Social Security. “The program’s payouts have exceeded revenue since 2010, but the recent past is nowhere near as grim as the future. According to the latest annual report by Social Security’s trustees, the gap between promised benefits and future payroll tax revenue has reached a staggering $59.8 trillion. That gap is $6.8 trillion larger than it was just one year earlier ..read more