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Oil prices are high and interest rates are surging. Meanwhile, gold prices have been volatile, Iran is unstable, and China is slowing.
And amid all of these concerns, stocks are sitting at 4-year highs.
Wall Street’s sharpest economists, strategists, and analysts all sounded off on these matters this week.
Most offered the same trite analysis we’ve read repeatedly.
But some thought outside the box or went against the grain (to use two overused cliches).
'EUROPE HEDGES UNWOUND: While stocks sold off on the day, the key markets we were monitoring were the peripheral bond markets in the eurozone. One of the themes we have repeatedly mentioned has been the sizable investment by euro-area money managers into USTs while being underweight their domestic bonds. We find it instructive that the significant selloff started during European hours and was accompanied by spread tightening across peripheral and semi-core sovereigns (despite supply), and welcome early signs that these flows have started to reverse.'
'We believe that at current levels, a further rise in yields would signal more robust growth prospects, consistent with higher stock prices...Our work indicates that stock multiples are currently anchored to non-investment grade (B) yields. More specifically, in recent years, stock multiples have responded to a combination of Treasury yields and credit spreads. Importantly, while 10-year yields have increased by 31 bps since month end, spreads have offset this by contracting 21 bps.'
DOUG KASS: This Chart Of Apple Looks Exactly Like Google Did Right Before The Economy Completely Melted Down
'If you look at the Chinese data, you should stop debating about a hard landing,
'Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK (witness the IMF's recent recommendation that inflation targets be raised to 4%: IMF Tells Bankers to Rethink Inflation -- WSJ). Until it does, the outlook will remain favourable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the time to sell gold.'
'Kostin said there were three main reasons for his call:
- The U.S. economy is stagnating, growing below trend.
- In a weak economic growth environment, markets historically have a flat multiple
- 2012 is expected to see earnings growth of only 3 per cent.'
'Though coal and natural gas prices have helped contain the overall global energy budget, it is clear that another surge in oil prices, resulting from a supply disruption and not a surge in economic strength would be enough to tip the global economy back into recession. What is also important is that a weaker EUR and higher Brent prices have resulted in a disproportionately high price for the more fragile European economies.'
'Bottom line: At least for now: What drives the yen is the alternation between risk on and risk off, whether Japanese investors are investing abroad, and whether hedge funders are borrowing in yen to buy various assets. When people are investing more and taking risks, that's yen negative.'
'Then there is the problem of how accurate is the improving jobs picture. Yesterday, we cited Doug Kass's interpretation and analysis that temporary jobs and low paying jobs made up almost 70% of the job growth. Similar analyses are popping up elsewhere.'
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