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Equity markets don't reflect your viewpoint. There's a reason the S&P is now less than 10% below its previous highs. Regarding monetary stimulus being exhauste
by dcolkitt 6y ago
Equity markets don't reflect your viewpoint. There's a reason the S&P is now less than 10% below its previous highs.
Regarding monetary stimulus being exhausted, the Fed Chairman specifically says that's not true[1]. Even at the zero bound for short-term rate the Fed can push overnight rates negative, or purchase long-dated bonds, corporate bonds, municipals, or even equities.
The only fundamental limit on monetary stimulus is inflation or a balance-of-payments crisis. Inflation expectations are significantly lower than before the stimulus. And rather than a devaluation of the dollar, there's a global shortage of dollars. The reality is the Fed can print far more money before running into constraints related to inflation or currency devaluation.
[1] https://finance.yahoo.com/news/jerome-powell-federal-reserve-not-out-of-ammunition-by-a-long-shot-60-minutes-233614558.html https://finance.yahoo.com/news/jerome-powell-federal-reserve...
- anm89 6y agoSure, throw your money in near all time highs with all this going on. Good luck with that.
- dcolkitt 6y agoTo be fair, I went long when S&P was around 2500. My reasoning was/is that if you run a DCF on large-cap US equities, then only about 10-15% of the NPV is derived from the next eight quarters. So even if corporate profits go to zero until 2022, the underlying assets are still valuable in a post-pandemic world. For example in 2007, we were paying $500 billion for Citigroup, and it turned out that it just wasn't worth anywhere near that. It's still 90% off its 2007 high. My sense is that even if Disney World is shut down today, in 2022 it will still be worth what Disney World was in 2019. Besides maybe Boeing, I don't see any equivalent to Citigroup or Enron in today's market.