Hi, thanks for your thoughtful post.
That CNN index is indeed bearish but it has a shorter term focus, and a small correction would easily reset it. My point was more about the long-term bull market in risk assets, which began in 2009 and still continues, as shown for example by US stocks at all-time-highs.
I’m not sure I agree with your point about there being less upside than downside from here. Many of the major headwinds facing the markets are clearing away: oil prices have stabilised, China is picking up again, European bank shares seem to be carving out a low, Brexit doesn’t seem to have caused major dislocations (yet).
The most important economy – the USA – is hitting fresh post-crisis highs in employment, wage growth, income, consumption and housing.
Money supply is expanding strongly again around the world.
I think all this shows there is quite a lot of upside.
And there is so much skepticism in this bull – which, as I mentioned, provides additional fuel.
Meanwhile what is the downside when you have central banks at your back?
People have been speculating that markets will lose faith in central banks for decades but year after year after year they are proven wrong. Sure, they are muddling along a bit, but they're in uncharted territory. Governments are making their jobs that much harder.
I actually think the biggest risk to central bank credibility (the US specifically) is if they tighten too early! This is where the risks are asymmetrically to the downside.
GOod points! I dont agree however! But I guess people taking different views is what makes a market!
I'm not so sure there is too much skepticism, in this day & age its easy to find lots of people sharing the views you seek(whatever they may be), however risk assets going up(and quite quickly!) to me doesnt suggest there is more skepticism than optimism.
US GDP has been disappointing q1 and q2(q2 came in less than half estimates), however the signals are mixed(ie much stronger jobs offsetting lower than expected GDP).
CHina has pumped a huge amount of stimulus into their economy so far in 2016, prolonging and exacerbating the stresses in their banking sector. Yes, this can continue but for how long?
European bank shares have rallied on talks of a bailout of the italian banking system, which I think will happen, but the underlying solvency issues remain. ANd will no doubt raise their head again in the not to distant future - options to resolve become harder and harder everytime they kick the can down the road.
Oil has declined 20% off recent highs, granted its volitle. Over the last day we have again seen those "reports" that "OPEC is considering production curbs" which we saw 2H 2015. These normally provide a 1 day filip to the price and then everybody realises that almost all OPEC members are not in a position to curtail proudction due to domestic finanical reasons.
I agree with you partially though - if investors have central banks at their back why not invest? I cant see any short term cause for a sudden change in the market downwards (if I could do that I'd be a billionaire!) however I think the risks are greater than the benefits at this point.
One potential change is only recently has it became apparent that Central Banks have hit the lower bounds of interest rates. They cant go deep into negative rate territory without causing fresh problems for global banks. And they cant keep QE up as they are purchasing too many bonds(liquidity falling to very low levels, BOJ will own the entire JGB market in 2018 if their current purchasing rate keeps up!) - so there are limits. I'm not sure when markets will start appreciating these limits however, or what other tricks central banks have up there sleeve.
And I always fall back to the notion that if it was all so easy - if central banks could really starve off recessions(or worse) then they would have started doing this a long time ago, not just in the last few years. My view is the economic cycle cannot be contained in the long term.
If I was confident to ride the increase, and get out before what I think will be an eventual fall then I would be in the market. However in my experience these things tend to go on longer than I expect, but when the turn happens it happens very quickly. July 2007 was a good time to start selling assets after those 2 Bear Sterns hedge funds stopped redemptions, however the eventual "panic" didnt eventuate until late 2008, and it then cascaded very quickly.
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