• Clifford Bennett, Chief Economist at ACY Securities


• 08.12.2021 01:15 pm
#stocks

US Mortgage Applications had very modest growth against a backdrop of a severe weakening trend. Still, no one speaks of the current situation in the USA as being a property bubble. This is because everyone religiously believes in the idea that if there is free money to be had, near zero rates and bond buying, then property and even the stock market are both safe. The argument has merit as it in back of the huge asset price growth of the past 18 months or so from the pandemic sell-off lows.

We all know this is coming to an end in 2022, and most probably rather abruptly so. The market is busy at the moment convincing itself that rate hikes will not matter, that they reflect a strong economy and they are, if anything, a fresh buy signal. Watch for this to grow significantly as a theme. Anything, to believe in never ending money making. The argument has more validity than that of course and is the same as I proffered during the 2009 to 2020 grand cycle. This time, again I believe things are different. While no one else believed in the sustainability of the up-trend on that occasion, this time everyone is a believer.

The important difference is that in 2009 I was forecasting considerably higher above market sentiment economic growth. Which did indeed eventuate. This time I am forecasting below consensus economic outcomes, and indeed below what might be considered normal 'trend' growth. While interest rates are being raised, because they are near zero and overly stimulatory for the situation now evolving. In a nutshell, bullish market sentiment, with economic disappointment to remain entrenched as interest rates go up markedly.

That is my cautionary fundamental outlook for the stock market 2022-2025.

The largest off-setting factor is meme trading. By this I mean people follow like Pavlov's dog the most immediate stimulus offered to them by any celebrity status individual. This individual does not need to have any market awareness or capability. Just a following that will quickly regurgitate the idea around the world for all the puppies to jump onboard. We see this happening in everything from GameStop to Tesla. The distortions and market volatility generated by this struggle between any semblance of the 'reasonable' against simply highly excited puppies running in one direction because the other puppies are running in that direction, knows no bounds.

Fundamentally, with more than all the good news one can imagine for 2022 already priced in, stocks remained vulnerable to a truly significant downward corrective phase.

Price action will need to be watched closely however, as there has never been such overcrowded boats filled with excitable puppies. Global markets are more like a Disney show than ever before.

US Mortgage Applications.

A continually deteriorating trend. Stretching the demand/price elastic band considerably.

US Job Openings remain high.

Most commentators see this as a bullish sign, but it really represents workers bailing on the old idea of working for someone else for a living. Either to retire early or start some wonderful tech start up or Facebook/Amazon business. The vast majority doomed to distressing failure. Unfortunate, unpleasant, but true. Euphoria to be replaced by pain, then for some, learning, to enable the prospect of getting it right next time, is the human story.

For the economy as a whole, it again entrenches below-trend growth as businesses will continue to struggle to find workers.