Investment Chart Kondratiev Wave

Investment Chart Kondratiev Wave

Sunday, 5 February 2012

BCA: the bull market will climb the wall of worry further: the future will be better than we have seen, tail risk is exaggerated.

The equity markets rose nicely in the last few months, but still is everybody very cautious, seeing disasters and tail risks everywhere. People are not impressed by the macro numbers in the past quarters. Those were indeed not what was normal in economic recoveries, but that was the past and the only thing that counts is the future: that is what Zhao from BCA is saying, while one cannot accuse BCA of overoptimism in the past years.
The economic climate is improving while the tail risk in Europe is declining pretty fast.

Most people underestimate the favourable influence of the three years deposits (LTRO) from the ECB and the big monetary easing that China will give us. In the US small and mid sized companies at long last can get credits easier. Central banks are now creating liquidity more energetic than ever. In thepast investors knew what to do: buy, buy, buy.
Investors underestimate growth in the US. That will remain c. 2.5%. The housing market is improving and business is slowly getting more brave with investing.
The equity markets are pricing in a mild recession, while the ISM is pointing to an above normal economic climate.

Everywhere in the world pessimism reigns. Transport shares indicate that the world economy is not at all in a bad condition. The consensus hears the whole day long we are in a crisis.
The quantitative models of BCA are very optimistic, evrywhere it is green aaand BCA advices to buy lots of beta. The only cloud at the horizon is the strong dollar and its bad influence on US profits.
I think that equity market can rise further as long as the ISM goes up and in Europe no new disasters develop while Iran is not exploding.
The BCA story is of course approved by the club of optimists.

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