Bulls Take a Step Back in the Second Quarter

This is the first page of an in-depth analysis of macro-trends provided by Barry Banister, CFA. The full article can be viewed below in fullscreen mode or by clicking here.

  1. U.S. Equity Outlook: S&P consolidates mid-12, then ~1,400 year-end, ~1,600 2013/14 then a correction mid-decade leaving the S&Pflat point-to-point 1998 to 2015. It is difficult to break out of the sideways large-cap trading range (i.e., the secular bear market).
  2. Fiscal & Monetary Policy: Deficits and negative real rates “create” low-quality profits by pulling demand from the future and creatingan artificially competitive currency. Low quality profits lead to a lower market P/E ratio. Bank credit de-leveraging math doesn’t add up.
  3. Europe & China: Germany pursued a solely deflationary solution for peripherals and is seeing an EU rebellion, and China may find thatconsumption is not “top-down” the way construction, export industry capital spending & government spending are state-directed.
  4. Labor & Housing: Increasing construction (There are signs non-residential is more attractive than residential) lifts GDP andemployment, but soft inflation-adjusted house prices prolong the U.S. balance sheet adjustment. Wages should rise with the dollar.
  5. Dollar/Commodities: The U.S.$ has bottomed, commodities & U.S.$ are opposites. U.S. rebalancing is 3 years ahead of the Eurozone(past the lender of last resort stage/entering contagion) and 4 years ahead of China (post-tightening “we can handle slowdown” stage).

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