Although the summer has not yet arrived for those of us that live in Britain, the constant rain does give rise to sitting inside and reading the tea leaves. Here is what the current levels across the various markets are telling us:
Equities certainly look like two kettles of very different fish and you definitely want the ones which are bigger. Nowhere is that clearer than when you compare this year’s performance of the S&P500 to an index that weighs the components equally. There is a 13% (!) difference. It all looks and feels a bit uneven, but that’s what we thought when the index broke 4000.
Bonds are acting like the last guest at the party who just won’t leave and when are interest rates finally heading lower? However, with yields like these continuing to be on offer, there is every opportunity to pile in. The only thing that seems odd, is if we are all buying bonds, where is the money for the on-going rally in equities coming from?
Commodities have been in a funk for a very long time. Some of that has to do with the strength of the US Dollar, which is back to levels we last saw in the early noughties. Foremost though, physical demand has been low. China has an estimated 65 million empty homes, which has made building new ones less of a priority, Europe is not exactly growing, and it all seems to spell recession.
Property? Imagine refinancing $600 trillion, which is the size of the global real estate market, at interest rates that are now 5% higher? We are also working more from home, so office and retail space is for sale everywhere, birth rates are shrinking in most of the developed world, and it really makes you wonder where the demand is going to come from.
Putting it all together, we should clearly start growing our own vegetables and wait for the Labour government to put our taxes up, but beware the great rotation. Some might even go as far as calling it healthy when people take profits to buy other things because they are relatively inexpensive, and hey, there is always Tesla, still down 40% from the previous high.
Comments