Biotech Values

[bladerunner1717]

jbog,

I'm a little baffled that Treasuries sold off, when the Fed is clearly signaling that economic growth is still anemic and disinflation, not inflation, is still the dominant worry. I'm not sure if the rise in bond yields is due to fears of inflation or a belief that the economy is headed upward (Retail sales have been up for five months in a row.)

Rosenberg, by the way, is not buying any of this. He still thinks a "double-dip" is a possibility and he quotes Mitsubishi Asset Management to the effect that the 10-yr. note is headed to 1.75%. He says the Japanese know a lot about deflationary cycles.

Indeed, as the Bank of Canada (GoC) Governor put it yesterday (his entire
speech is well worth a read), “if nominal exchange rates do not change, the
adjustment will come through inflation in emerging economies and disinflation
in major advanced economies.” The barbell investment strategy of being short a
basket of emerging market bonds and long a basket of developed market bonds
makes perfect sense.

Because market sentiment is so wildly bullish, Rosenberg thinks that equities are due for a big sell-off. However, Rosenberg concedes that the tax deal, by keeping the taxes on dividends at 15%, will add $75 billion to the accounts of individual investors. Since that money usually gets reinvested, this will be bullish for equities.

Be that as it may, relative strength and momentum indicators are clearly faltering. Sentiment is wildly bullish with the AAII and the Investors Intelligence survey in excess of 50%. Not only that but the latest Shiller P/E ratio jumped to 21.87x in November from 21.38x — we have not seen it this high since June 2008 (and recall that the market went down another 45% from there to the lows). According to this metric, the U.S. stock market is overvalued by 33%. Yikes! And the typical Wall Street strategist thinks this market is cheap!

You and I will continue to disagree about Fed policy and QE. I think it has/will save us from a far more serious economic crisis, but, I admit, that is difficult to prove (as Obama and the Dems have found out politically). Nonetheless, it's hard not to believe that Bernanke's "weak-dollar" policy is helping the surge in U.S exports, which should help the job market, eventually.

One tidbit that you may find interesting is that the household debt to disposable income ratio in Canada--Rosenberg is headquartered in Canada--just hit 150%. At the height of the bubble in the U.S. the ratio, to the best of my knowledge, was 134%. Whatever happened to the prudent and cautious Canadian? When this bubble pops--and it surely will--I don't know the exact effect it will have on the U.S. But you can be sure that it won't be positive. If Japan, Europe and the U.S. are all going through this de-leveraging, disinflationary cycle, I just know see how your hyperinflationary thesis can hold up.

I guess we'll just have to agree to disagree.


Bladerunner