Some key insights from Jim Bianco on Reuters explaining why right now is the most difficult time in 80 years to pick stocks and invest.
Here are some of the main points:
- Correlations are at an 80-year high
- Average correlation of stocks to the S&P 500 is 84%. Highest reading since 1926.
- Source of high correlations is government involvement in the markets
- Markets driven by QE, stimulus, and bailouts rather than the fundamental value of individual companies
- Resolution to Eurozone crisis will probably make correlations higher, not lower
- The only thing that will make correlations move lower is if governments don't interefere
- Since that won't happen, extremely high correlations are here to stay and therefore many stocks will remain mispriced
- Bad companies are being rewarded with high correlations, which makes investing and pricing of stocks very inefficient
- Stock market no longer a good leading indicator
- You have to look at the credit markets instead, which are still performing much worse
Click here to watch the interview
Further Reading:
