Thought For A Day
Archives of “February 2021” month
rssDalio gauge shows equity markets frothy but not in a bubble
Dalio writes about equity markets
Bridgewater founder Ray Dalio writes about equity markets today and looks at whether stock markets are in a bubble.
He measures them in size ways including leverage and sentiment. He says that emerging tech is close to bubble territory but that the overall market isn’t.
His overall bubble meter scores at 77%, which is elevated by has been exceeded at least 14 times since 1920. It peaked at 100% in the 1920s and late-1990s.
Right now, he says that about 5% of the largest US companies are in a bubble, mostly emerging tech stocks.
He writes:
“What one chooses to do with this is a tactical decision. Even if this gauge is perfectly accurate (which it is not) timing tops and bottoms based on it is precarious because while it shows what neighborhood these stocks are in, there is nothing precise about it. So it is tough to pick the levels and timing of tops and bottoms based on it. Having said that, we have found that it is a pretty good predictor of relative performance of stocks over the subsequent three to five years. As a result, while it contributes to our increasingly favoring non-bubble stocks, we need to combine it with timing indicators.”
I expect Dalio is looking at markets outside the US where valuations are much cheaper or within the value space in the US.
European equity close: Modestly weaker to start the week
Closing changes for the main European bourses
- FTSE 100 -0.1%
- German DAX -0.4%
- France CAC flat
- Spain IBEX -0.4%
- Italy MIB -0.5%
Italian stocks bought the Draghi rumour but are selling the fact.
Gold’s rebound shows the shine isn’t off yet
Gold up $25
Precious metals are starting the week strong as the rebound from $1760 continues.
It looks like Gundlach bottome-ticked the latest move with some negative commentary on gold from the bond king. I highlighted at the time how sentiment had turned extremely negative.
Today the drop in dollar is a big factor as commodity prices climb across the board (except natural gas). Crude, industrial metals and precious metals are all solidly higher.
Technically, the Feb 12 low offers some token resistance but it doesn’t get too tough until the $1850 area, which includes more Feb highs along with the cluster of the 50, 100 and 200 day moving averages.
Iran’s Khamenei says won’t abandon stance on nuclear deal
Will Iran’s oil return to the market?
Iran’s leader Khamenei says Tehran will not yield to pressure and can enrich uranium up to 60% as part of the nuclear deal.
It doesn’t sound like they’re in a mood to negotiate. With the price of oil rising, there’s lots of focus on spare Iranian supply.
5%
Oil swings higher, bullish Goldman Sachs call gets heavy play
Goldman sees brent hitting $75 this year
It’s been awhile since I’ve seen a commodity call get as much attention as the bullish call from Goldman Sachs last night.
They see brent hitting $70 in Q2 and $75 in Q3, both $10 hikes.
The Australian stock market was the most profitable in the last 120 years.
The cycle of profitability.
Fed Chair Powell will be speaking this week … is he worried about rising UST yields?
Federal Reserve System Chair Powell will speak on Tuesday 23 February 2021
- From 1500 GMT
- to the US Senate Banking Committee where he’ll deliver semi-annual testimony
Powell will speak the following day to the House Financial Services committee
We’ll be watching for what Powell thinks on rising yields in the US. In the past month Powell has hammered down comments from other Fed officials surrounding a possible taper … is he still of the same opinion and will this week’s comments give any indication?
