Brian Pretti, money manager and editor of ContraryInvestor.com, tells Financial Sense Newshour that global investors are in a desperate scramble for return and one of the few places they're finding it is in the US stock market.
Likewise, as interest rates inevitably start to rise, he says this will further deteriorate government balance sheets and could start a self-feeding cycle of further rate increases until US corporate debt appears even safer than US goverment bonds:
“We’ve had a couple of days over the last six months where some corporate bonds have actually traded through US Treasuries of like maturity. That’s the market saying, ‘I trust them more than I trust you.’”
“The balance sheets of so many of these companies are in such good shape that they make the balance sheets of global governments look very, very poor.”
With pension funds and other large institutional entities—to which Brian advises and manages money for—starved for returns and not finding yield in government bonds, the US stock market has seen a massive concentration of capital not unlike what occurred in the tech boom. The real question is, how much further can this go?
Although careful not to make a prediction, Brian says that the scramble for return and lack of attractive alternatives could push the US stock market much higher despite corporate earnings or slower US growth.
This type of outcome has also been suggested by Martin Armstrong, which in a recent interview explained,
“You have interest rates that have been so low—you have pension funds that are virtually on the brink of insolvency—that it’s been forcing them to go into equities where they’re at least earning 5-7% dividends.”
Because of this dynamic and the relative weakness of foreign markets, Martin says capital will continue to flood into US stocks similar to what took place in the roaring ‘20s. He cautions,
"there will be a correction here short-term, but [the market] has been crawling up toward major resistance, which is at 16,000, and we’ve not been able to get through. We should back off first and then, I’d say, we’re going to go back up and make major highs in this thing going into late 2015, to the point where the Dow may even double in value yet."
Echoing the points made by Armstrong and Pretti, Hong Kong-based investor Puru Saxena, who also manages money for individual and corporate clients in Asia and around the globe, tells listeners,
"We weren’t invested in the US at all in the prior decade, but we have completely flipped."
Now, he says, they are “heavily long” developed markets, including the US.
Puru used to be a major investor in emerging market stocks and real estate. However, he has since sold all of his Hong Kong listings (some of which were recently selling for $2400 a square foot!) and is now long the US where prices are far cheaper in comparison.
Similarly, given its relative attractiveness, along with historical cyclical trends, Puru believes the US is likely in the beginning stages of a long-term housing boom, which will further drive outperformance of US stocks.
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See Related:
Six Reasons to be Bullish on America by Gary Shilling
