ASSET CONSENSUS (Positive Consensus/Bear Market Indicator) Everything Is Up...EVERYTHING
We spend most of our time focusing on the behavior of stocks and companies behind them. For the last few years’ stocks have been going up. There has been a lot of discussion how the money printing and zero-interest rate policy by Central Banks around the world has guided investors to equities as the only game in town. Well it turns out it’s not just equities that have been in a bull market but EVERY investable asset type out there has been going up.
- In Spain, where there was a debt crisis just two years ago, investors are so eager to buy the government’s bonds that they recently accepted the lowest interest rates since 1789.
- In New York, the art deco office tower at One Wall Street sold in May for US$585 million, only three months after the going wisdom in the real estate industry was that it would sell for more like US$466 million, the estimate in one industry tip sheet.
- The price of office and apartment building has risen; office space in central business districts nationwide costs US$300 per square foot on average, up from US$147 in early 2010, according to Real Capital Analytics.
- In Manhattan, an investor in an office building can expect rent payments after expenses to add up to a 4.4% return, known as the capitalization rate, lower than in 2007, the top of the last boom.
- In France, a cable-television company called Numericable was recently able to borrow nearly US$11 billion, the largest junk bond deal on record – and despite the risk usually associated with junk bonds, the interest rate was a low 4.875%.
- Emerging markets, which generally have higher interest rates because of higher inflation and less political stability, are offering record low interest rates as well. Bonds issued by the governments of Brazil and Malaysia, for example, are currently yielding a relative low of around 4%. 6 Months ago, everyone was pounding the table that EM was done.
It’s quite ironic that despite this run up in asset prices and flood of paper money being thrown at global economies, there is very little inflation reported. That’s another discussion. Normally we would see inflation ramp up and interest rates going up, but none of that is happening. Is this the new normal they keep talking about?
So where can an investor find some deals. Well if everything is going up, it turns out nowhere right now.
“We’re in a world where there are very few unambiguously cheap assets,” said Russ Koesterich, chief investment strategist at BlackRock, one of the world’s biggest asset managers, who spends his days scouring the earth for potential opportunities for investors to get a better return relative to the risks they are taking on. “If you ask me to give you the one big bargain out there, I’m not sure there is one.”
Bizarro times indeed. Let the gluttony continue.