YWR GP: Climbing the Wall of Worry
Latest view from daquinn@targetedequityconsulting.com
Markets continue to climb a wall of worry. All the investment houses, portfolio manager, media, and people I meet in the normal course of the day are bearish.
Commonly cited risks include:
• Tariffs,
• Riots in United States
• Gaza
• Iran – Isreal
• Interest rates
• Valuations
• Ukraine – Russia
• Immigration issues in the United States and Europe
• And more
My premise has been and continues to be debt, demographics, and technology are fueling a goldilocks scenario. Our GDP and demographics are insufficient to manage the debt or generate growth. Liquidity and devaluation of all global currencies against assets remains the core driver.
Trump certainly has created a complete mess with erratic tariB policies. TariBs are unlikely to significantly impact markets or US debt levels.
Liquidity:
So, the driver is likely liquidity, it solves the debt and demographics problems in the near term.
The German Dax Index is up 21% year to date. Is it because German companies are 21% better than last year? No Germany ended financial repression and announced they would stimulate with massive deficit spending over the next 10 years. So yes, it is liquidity.
President Trumps “big beautiful” budget bill is estimated to increase the deficit from 2.5 trillion to 3.8 trillion over the next 10 years according to the Congressional Budget OBice (CBO), Penn Wharton Budget Model, Tax foundation, and others. The cuts as always will come near the end of the 10 years (meaning they will never happen). This is not austerity.
While central banks are pouring liquidity in the system, professional positioning remains negative according to Bank of America. We are no longer seeing the most bearish sentiment readings in the last 30 years, but investors are still cautious. Cash on the sidelines continues to grow. There is $7 trillion USD in US money market funds and over $4 Trillion USD in household checking deposits (they earn zero interest).
Fundamentals are not as bad as most believe.
• 80-90% of the US economy is driven by services.
• US unemployment is still very low. Companies do not want to fire employees; they view quality employees as a scarce asset.
• US wages are rising faster than inflation. Wages are growing by 4% and inflation is below 2% (truflation).
• Consumer is sitting on record high levels of cash; household checking deposits are over $4 trillion USD.
• 40% of US households own their home without any debt. The majority of the other 60% have locked in low rates, meaning they are stuck.
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