måndag 14 juni 2010

Skeptiska WolfeTrahan

Här är hela ingressen till dagens WolfeTrahan. Analytiker och andra prognosmakare är för optimistiska inför 2011. Dagens börskurser tar inte hänsyn till hälften av denna optimism. Det är en av orsakerna till att jag tror på först stigande kurser, sedan ett rejält fall. Se förra inlägget för tankar om magnituder och tajming.

One of the great surprises we have encountered in recent weeks has been the latent optimism amongst investors. Truth be told, we don’t find folks to be extremely bullish but they are constructive and there are very few that think a bearish outcome is in the cards in the next year. One proxy of this attitude is illustrated in sell-side analysts’ price targets. In aggregate, if stock prices rose to the mean price target of all S&P 500 constituents then the index would reach 1,357 in the next 12 months, for a gain of about 24%. This is ambitious even for sell-siders and demonstrates the stickiness of optimism at this time.

As we see it, the constructive mood we encounter from investors stems from what they hear from their companies. Management teams have begun to see better data points and their enthusiasm for business opportunities is seeping down to the investment community. Of course, most companies are looking at coincident data points whereas stocks are anticipatory indicators of the economy. Either the recent pullback in equities is noise and a phenomenal buying opportunity OR the market is sending a message that the growth trajectory ahead is about to get bumpy. We would bank on the latter of course.

In many ways, this is classic. The investment business is almost designed to go through some sort of denial phase at major inflection points. In 2009, the investment community remained skeptical of the rally for almost six months because companies back then didn’t see an improvement ahead. We used the term “the denial phase” at the time and it applies just as well to today’s backdrop. The market is clearly telling investors that something is off with the economic outlook. It doesn’t seem to spell “recession” just yet, but it is clear the road ahead is not what many are looking for. As a reminder, consensus of Wall Street economists for 2011 GDP is still 3.2% (The Fed and CBO believe it’s closer to 4%). This seems demanding in a world where leading economic indicators have already peaked and traditional measures of stimulus have been bled dry.

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