Credit Suisse on the Markets and Economy

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.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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