The sure fire way to make me grimace is to confidently say that the decline in asset prices in the developed world is a once in a lifetime “buying opportunity”.
Historically, those money managers who subscribe to these notions maybe correct. However, their banana split analysis is based on past performance indicating future results.
The very statement that is plastered all over their marketing materials as a disclaimer to their investors letting them know that: “Hey, just because we beat the S&P 500 by 300 basis points every year it trended higher with low volatility does NOT mean we couldn’t go bust in the future, and we probably will”.
Things change. Assumptions are only valid as long as the environment in which these assumptions are made persists.
If you believe that ageing populations, retiring baby boomers, massive deleveraging, increased savings (actually a good thing for society), double digit unemployment, rising poverty rates, rising child obesity rates, a failing educational system, a flaccid real real estate market, poor political leadership, uncertain fiscal policy & regulation, and a substantial increase in government debt will not dampen economic growth then this surely is the time to go shopping for “good value”. (The US does have a substantial amount of natural resources, but demand is / will be driven by Asia. I should also note that I am bullish on Canada and Australia over the very long-term for their political stability and agricultural based currencies.)
There needs to be pain unfortunately. There needs to be a purging of a Keynesian system that encourages reckless spending and lack of personal responsibility. I am not claiming that certain companies or the technology sector in general could not experience significant growth over the next 10 years. I am suggesting the new base case for the Western world is just blah. An economy most accurately portrayed as a stumbling drunk with blurry vision swaying back and forth on the sidewalk on his way to go black out.
U.S. Treasuries are not yielding 2% for the hell of it, there are massive problems on the horizon. ageing investors whose savings have been destroyed by market volatility simply do not have the time, nor risk seeking profile, to generate the yield to retire comfortably the way they thought they once would. The Japanese people have been living without yield for the past 20 years and I believe we are about to see how that story ends.
People seem to forget that the health of the economy and the equity markets are distant cousins and not brothers. Violent market rallies are just as troubling as strong market declines. I don’t hold myself out to predict equity price fluctuations. I am only constructing my views through straight facts. The more relevant indicator of global economic health are CDS spreads which have widen considerably since August.
Treasury yields also paint a bleak picture with the spread between US and Japanese Government Bonds narrowing significantly in just the past 12-months, an unthinkable occurrence for most who hold tightly to their historical looking models and those screaming for “hyper inflation” since 2008. Debt does not evaporate into thin air every time a new committee or acronym is created. Whether or not Greece defaults (they most likely will), the damage has been done and the economic karma police are knocking on the doors of the developed world.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.