The Great Feeding Frenzy

Clifford Bennett, Chief Economist at ACY Securities

18.10.2021 12:15 pm

#trading

The scariest chart in the world today: US Consumer Confidence.

The great feeding frenzy.

Good morning,

US stocks gained again on Friday. While consumer confidence fell to calamitous economic outlook levels. The market just stepped over that, as government stimulus and near zero rates continue to drive strong earnings, inflation, a housing bubble and stock market feeding frenzy.

Make the most of the up-trend, as long as you remain aware it cannot last. Like a game of musical chairs, you never quite know when the music will stop. When it does, everyone races for somewhere safe at the same time.

We are experiencing a 'buy anything at any price' pandemic.

The world feels assured that governments will make sure they get rich and protect those risk assets for them. No matter what. It is a lesson learned from the Global Financial Crisis. People for some reason believe that letting Lehman collapse was a mistake no government will make again. The fact is, it was not a mistake to let Lehman fail, and the cause of the crisis was an asset bubble in property, hyper exaggerated by the bond market in back of it.

This constant endorsement of extreme and leveraged risk taking via low interest rates, in an increasingly persistent high inflation world, is generating economic nightmares the likes of which the world has never seen before.

I do apologise, but that felt so good to write. OK, that may be a bit movie script like, but the point is there for all to see. We seem to be headed further down what in the end, is an unsustainable path. Simply by degree, prices are getting away from everyone, and we are forced to participate.

For now, in the real world, all the economic pointers remain troubling. Employment, is in fact weak in the USA, manufacturing has turned down and is in contraction in several major economies, there are property bubble concerns in China akin to that of the GFC, and consumer sentiment in the US is at disastrous levels. This was released on Friday, and the market took no notice.

Hence, the inescapable conclusion, that the real pandemic of concern, should be the 'buy anything at any price' approach investors are currently taking.

All of the above said, and still the price action again looks strong.

Markets of late can swing big, and it is almost flip a coin as to which way the next 100 points will be. Nothing has changed from Friday. Economic fundamentals are troublesome for much of the world, Australia will come back to only below trend growth, and asset markets continue their bull run.

The best advice I can give you, is to be a buyer who is aware.

Clifford Bennett

US Retail Sales

Over the past six months, for all of that period, Retail Sales have only grown a total of 0.4%. While Friday's number of 0.7% for the month, included, is a good one-off number, in combination with Consumer Confidence hitting new post pandemic lows, the overall picture is not one of good health.