Last night I did a speech in Melbourne for American Express and some of their clients. I made the point that the outlook for the next year or so remains pretty good. Despite claims that I’m a perma-bull on stocks and the economy, I simply call it as it is, relying on statistics, views of experts and expert bodies such as the Reserve Bank.
I also look at what banks and investment bank economists and special analysts have to say to try to make the ‘best guess’ on the economy and the stock market.
For example, I’ll ask Macquarie’s Martin Lakos what the bank’s China expert is seeing in our number one trading partner. I’ll grill and drill the likes of Westpac’s chief economist, Bill Evans on whether he sees a recession between now and the end of 2017. In fact, I did exactly this and though he wasn’t doing handstands about our future economic greatness, he still gave me a well-received “No” to the R-word question.
And I always ask 24/7 market watchers like CMC’s Michael McCarthy where he thinks the stock market is going. I did this early this year when shares shrugged off the dramatic dive over January and early February. He made the call 5900, which looked courageous at the time but with the market now at a surprisingly high 5541.9, he’s starting to look like a temporary genius.
Now, I’m not saying this with any disrespect because market-calls come with the understanding that anything can go wrong. They’re called black swan events because they are surprising and not seen every day. Calling them isn’t easy.
Of course, some experts see them coming and make the calls and are then hailed as geniuses. Before the GFC, Professor Steve Keen warned that debt levels would bring some scary outcomes. The Yanks gave him the Paul Revere award for timely warnings but he’s been wrong ever since but it hasn’t stopped him tipping a recession in 2017! (We have a bet on this one and I’m not worried at this point in time.)
Sure there are scary imponderables out there, such as the Chinese economy, its debt, Japan’s never ending ‘going nowhere’ economy, Europe’s slow growing economy, the central banks’ negative interest rates, as well as their too loose monetary policies, the low rates in the bond market and the impact of Brexit. And then there’s the diminishing threat of President Donald Trump. I’d like to rule that one out but after the Brexit complacency and outcome, I remain a little concerned about what the stock market would do with a shock win for Donald.
And while these economic and market wobbling worries are all recognised by the likes of our Reserve Bank, it hasn’t stopped them thinking economic growth in 2017 will be possibly over 3%!
But this week I’ve heard that Treasury thinks there’ll be 10 years of low interest rates and then a builder from Melbourne admitted he was scared senseless by an investment bank pedalling a 10-year recession scenario!
The builder was happy with my more rosy outlook for 2017 but I conceded that some time over the next few years could bring a big stock market sell off and that’s because the US stock market has climbed to an all-time high after crashing in 2008.
The market has been growing for eight years and we often see recessions every 10-15 years, though our last one was 25 years ago! The market crashed in 2000 (the dotcom bust) and in 2008 with the GFC. Before that, it was 1987.
Some of my experts think we are in a secular bull market that can last 35 years but they see a cyclical bear market happening, which is a more short-term crash – not a 10-year stint of stock market stinkiness and recession.
By tomorrow morning, we’ll hear from the Federal Reserve boss Janet Yellen, who speaks at Jackson Hole, Wyoming, which is a ski resort in winter. She could spook or excite the market, or she could play her usual cautious game but right now we think she’ll raise interest rates in December. Some are betting she could move in September.
If she moves on rates, it will be because she thinks the US economy is going well and inflation is starting to go higher. When she raises, she won’t be expecting a 10-year recession any time soon so it’s something I hope she does ASAP.
I’m a balanced guy and, on balance, I’m comfortable with my economic and marketpositivity about 2017. However I will be looking for signs that my positivity needs to change to negativity, just in case I’m missing something. If and when that happens, you’ll be the first to know but, right now, when I’m asked about a 10-year recession and 10 years of low interest rates, I say: “I doubt it.”
It makes me a temporary bull not a perma-bull. Given that stock markets go up about eight years in 10 (on average), it makes more sense to be a bull than a perma-bear!
Published: Friday, August 26, 2016