Danielle Park is President and Portfolio Manager at Venable Park Investment Counsel Inc. Her talk was entitled "Cyclical Opportunities within an Era of De-Leveraging: How to Protect and Grow you Capital Over the Full Market Cycles". Her web sites are Venerable Park and Juggling Dynamite. She also has a blog on the Juggling Dynamite site.
I found that Danielle Park had a very different and very negative view of what was occurring in the US compared to other speakers. I do agree with her that we are still in a secular bear market. However, I have never gone liquid at any time.
The risk in the capital market is higher than at any other time in History. QE has made the dumb and the reckless look smart again. Every blow up in the market has ended badly. The tech run up was to go on forever. People believed that QE would cause the market to go up and it does go up on these rules. Suspending market to market accounting and superstition in QE were big factors in the driving the market.
The logic behind QE will make people feel good and invest and therefore create jobs. The money multiplier has not been lower. Growth is worse than hope for. There is little room for stimulus and no political consequences make for no easy out of QE. We have the lowest growth since 1930's in the US. We have more debt than in the 1930s and much less budget buffer for the economy.
We need infrastructure, but there is no money because of debt. People are more indebted and have low savings and have little to spend so there is weak demand. People are cutting expenses to grow profit. This has caused profit to be higher than ever. Eventually we will need corporate sales to generate profits.
Corporate borrowing is cheap and companies are buying back their own shares to elevate EPS on weak sales. There is no lasting benefit to this. We now have lots of debt. People are taking cash now and leaving nothing for the future. In the next downturn, companies will lack a buffer to survive. There will be less demand. Companies buying back shares give non-productive growth. Price per sales is low.
Stock buyers have been paying more and more for shares, relatively. Earnings growth is negative in quarters 2 and 3. There is disappointing earnings and revenue. The forecasts called for high sales and earnings, but it was no so. Normally, GSP is connected with revenue growth, year over year. In quarter 2, growth was 2.9%. The lowest ever recorded outside of a recession.
Because of low business investment nominal GDP growth is going lower. Real final sales growth is now at recessionary levels of 1.6%. Sales growth that is lower than 2% is at recessionary growth levels. US retail sales have been falling since 2010. People do not have the income level or jobs to fund sales. The people are still heavily in debt.
It is not just the US that is facing slower growth. World GDP growth has been falling since 2010. And it is now below 2%. In the prior growth period it was 5%. US stocks are in a world of their own since QE forever was promised in 2011. The most expensive markets are in the US and India.
North American bonds sold off after each QE and then caused a deflationary rally to lower yields every time. Tapering talk cause the bond market to sell off. Commercial rates tightened. (That is interest rates went up.) There was a spike in rates re tapering talk.
Sales are low and revenue is declining worldwide. US household income is the lowest in 60 years. Aggressive Fed liquidity fuels the third stock bubble in 13 years. It is Ben Bernanke bubble now. S&P500 market debt today, in 2000 and in 2007 was high. We are still in a secular bear market. Commodities prices bought the inflation promise in QE1 and QE2, but not for QE3. Commodities prices are deflationary because of demand since 2008. The only cure is the cycle to have a bottom.
Because commodities are price in US dollars, this is a major headwind for commodities prices. Canada has disappointed high hopes. The economic data continues to disappoint. Canada is ill prepared for a slowdown. The Federal Government has downloaded debt to the provinces.
The financials and REITs are the last legs holding up the TSX. They are derivative sectors of the energy and material sectors in Canada. Energy and materials sectors reflect global demand. The TSX is drive by venture and is down.
Once people realize that QE is a fraud, the market will go down. Even in more normal conditions the next global recession will come. Maintaining liquidity is the key.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.