All my favourite strategists are bearish. Michael Hartnett at BofA is bearish. Jeremy Grantham at GMO is bearish. Even Warren Buffet at Berkshire is bearish:
“Warren Buffett has warned Berkshire Hathaway shareholders that his sprawling $US905 billion ($1.38 trillion) conglomerate has virtually “no possibility of eye-popping performance” in the years ahead, laying bare the challenges that will confront his successors.”
With respect, I disagree, at least in the medium and long term.
To me, it appears we are on the verge of a spectacular convergence of productivity-boosting technologies that are secular and will drive immense uplift in growth, profits and wages without inflation:
- Peak Drudgery via AI is about to revolutionise and rationalise every office on earth.
- Peak Fat via weight-loss drugs is about to lift health outcomes for DM populations dramatically.
- Peak China via the five dooms – demographics, debt, deflation, deglobalisation and dictator – guarantees commodity deflation and limited military adventurism.
- Peak Oil demand is almost here, and along with Peak Carbon will soon push energy costs towards zero.
- Peak Car is upon us as robot vehicles roll out across US cities, dramatically lowering the cost of transport.
Potential growth across developed markets will shift materially upwards, which also hands us Peak Rates.
The US outlook is astonishingly bullish given its companies will monopolise the transition, its immense services sector will deploy AI the fastest, it is the fattest, and it has the tightest labour market, ensuring that the income gains from this productivity super boom will be shared with households.
This will help cure another evil as we may also have seen Peak Inequality.
Sure, US markets are expensive and overbought, but why wouldn’t they be? If you can’t get bulled about the potential convergence of these multiple peaks in problems plaguing humanity, when will you?
Other DMs are still reasonably priced, too.
I rarely agree with Goldman Sachs on anything, but I agree with this:
Whether this ends up a giant hype cycle 6mn-2yrs down the road I truly can’t tell but at the moment with economy late cycle , the backdrop relatively stable it seems every corporate/government etc is laying down the tracks on compute/cloud/infra so they don’t get left behind on the next wave technological innovation. A lot of that is in the price but theme is still in a phase of acceleration and until that changes its hard to fight (probably would be singing a different tune ifNVDA had missed). Although some parts of the market are exhibiting elements of animal spirits in aggregate we are very far bubble territory at least for the large cap names by way of valuation (if this is a bubble its one of the lamest one’s we’ve ever seen…NDX at 35x trailing 12m…in the late 90s tech bubble it went into the 90s!).
There are always risks, and some that are present today are:
- Very overbought conditions in the short term.
- Possible cyclical inflation rebounds before the secular themes fully kick in.
- The global commercial realty meltdown.
- Donald Trump.
- Geopolitics and oil.
Als, for the locals, the Aussie economy will get smashed by these trends as commodities decline while AI and Peak Fat lift labour availability directly into an immigration and labour-supply-led economy that systematically crushes wages.
This guarantees weak growth as all new productivity-driven income gains bypass households and go directly to capital, probably triggering Canberra to import more people. Rinse and repeat!
So, I’m not saying rush out and buy stocks today. Especially Australian stocks, given our dimming prospects mean rising local stock prices – most notably miners and banks – are a bubble!
But, sheesh, in my lifetime, the future has never been so bright for DM economies, profits and stock markets outside of Australia.
