1Q11 Macro-Trends: Early Reflation Feels Like Growth

Mon, Jan 3, 2011 - 2:16pm

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. stocks climb a wall of worry, and the over-valuation of “risk aversion” caused “risk” to become relatively attractive. We still see a middle ground of rising Treasury bond yields and rising stocks.
  2. In 2011-13 we see the S&P 500 near the high end of the ~700-1500 range of the past decade, then backto the middle of that range by mid-decade on tails risks (a 2nd oil shock, geo/political risk & Fed exit).
  3. Still, it does not pay to think long term in a trading range market. Early reflation feels like growth, and long before we see any inflation we foresee a nice rally in large cap growth U.S. equity.
  4. We felt QE talk was mostly just moral suasion, ‘the Fed commanded and the market obeyed’ before the first bond was ever bought. It was “insurance.” There is negligible inflation, that is a distant problem.
  5. We foresee the U.S.$ lifting, China inflation and credit issues, commodity momentum falling, and EM equity P/E multiple compression. China inflation and bullion buying may cap off the gold bubble.
  6. We like U.S. growth stocks (Tech-Media-Telecom-Health), because what is coming in 2011-12 may feel like a faint echo of the late 1990s Tech Bubble.
  7. The constituents of ROE (margin x asset turn x leverage) do not support strong S&P 500 EPS growth, further supporting the “growth stock” (unit growth, minimal pricing, distant large cash flows) case.

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