Hat tip to my good friend TA for sharing insights from Credit Suisse. Having worked at Credit Suisse, albeit awhile ago, they have always had outstanding research and analysis. I am happy to share their macro view of the markets and economy.
I. More Cautious on Equities: Why?
» the recent rise in bond yields makes bonds look that much more attractive versus their equity counterparts.
» implied corporate default rates have declined. This decline implies that equities at current valuations are at best reasonably priced.
» equity issuance has picked up considerably. The recent net issuance equates to 2% of the total market capitalization. That figure is an all-time high!!
» insider buying is extremely low.
» market breadth is deteriorating.
» stocks with high beta are not attractively priced.
» concerns over the economic backdrop: fear of a double dip as green shoots fade or do not grow.
» downside and upside risks to equities are now evenly balanced. Upside risk to equities is further aggressive quantitative easing.
» Overall Assessment of Equity Market: a range trading market similar to the 1970s.
II. More Values Appearing in Bonds: Why?
» with interest rates moving higher in the government space, bonds look increasingly attractive.
III. Federal Reserve Policy: the Fed will risk a dollar crisis (declining value of greenback given excessive money supply) than a funding crisis due to insufficient capital and liquidity in the system.
IV. Inflation Outlook: if anything inflation will surprise on the downside, especially in Continental Europe.
Sense on Cents generally concurs with the Credit Suisse outlook, with the exception of their call on inflation. I believe we will experience an uptick in inflation. As I had written in the May 2009 Market Review, I am looking for the following:
Add it all up and I think the following will occur:
– equity markets will now move sideways in range bound fashion;
– the bond market will move lower in price, higher in rates;
– the dollar will gradually decline;
– our economy will be filled with more stops than starts.
Overall I believe I am much more in agreement than disagreement with both Scott Black and Credit Suisse. Please feel free to share your thoughts and assessments on the economy and markets.