Sense on Cents

Hat tip to my good friend TA for sharing insights from Credit Suisse. Having worked at Credit Suisse, albeit awhile ago, they have always had outstanding research and analysis. I am happy to share their macro view of the markets and economy.

I. More Cautious on Equities: Why?

-the recent rise in bond yields makes bonds look that much more attractive versus their equity counterparts.

-implied corporate default rates have declined. This decline implies that equities at current valuations are at best reasonably priced.

-equity issuance has picked up considerably. The recent net issuance equates to 2% of the total market capitalization. That figure is an all-time high!!

–insider buying is extremely low.

–market breadth is deteriorating.

-stocks with high beta are not attractively priced.

-concerns over the economic backdrop: fear of a double dip as green shoots fade or do not grow.

-downside and upside risks to equities are now evenly balanced.  Upside risk to equities is further aggressive quantitative easing. 

-Overall Assessment of Equity Market: a range trading market similar to the 1970s. 

II. More Values Appearing in Bonds: Why?

-with interest rates moving higher in the government space, bonds look increasingly attractive.

III. Federal Reserve Policy:  the Fed will risk a dollar crisis (declining value of greenback given excessive money supply) than a funding crisis due to insufficient capital and liquidity in the system.  

IV. Inflation Outlook: if anything inflation will surprise on the downside, especially in Continental Europe. 

Sense on Cents generally concurs with the Credit Suisse outlook, with the exception of their call on inflation. I believe we will experience an uptick in inflation.  As I had written in the May 2009 Market Review, I am looking for the following:

Add it all up and I think the following will occur:
   – equity markets will now move sideways in range bound fashion;
   – the bond market will move lower in price, higher in rates; 
   – the dollar will gradually decline;
   – our economy will be filled with more stops than starts.

Overall I believe I am much more in agreement than disagreement with both Scott Black and Credit Suisse. Please feel free to share your thoughts and assessments on the economy and markets.

LD 

This entry was posted on Wednesday, June 3rd, 2009 at 4:10 PM and is filed under Credit Suisse, Economy, General, markets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.