The discussion makes a few key points.
First, guys at perpetually long equity firms (the vast majority of commentators) are constantly married to an optimistic hope for the stock market. No one should ever be mislead or encouraged by their bullish take; they can only sing the one tune.
Second, we are not in a typical post-war recession cycle, we have not been for 10 years. Analysts that keep tossing out comparisons to the last two recessions are not useful. We are perhaps just half way through a deleveraging cycle that will continue to suppress credit, growth, earnings and stock prices over the next 5-10 years. On top of that real estate is also in the midst of a secular down trend where we will move from the present over-supply to a market of tight supply eventually over the next few years. Boomers are in the process of realizing that they own too much house and too little cash and savings. Interest rates have been reduced in efforts to rescue debtors but in the process this has thrown savers into a dire need for more capital to produce subsistence income.
As the penny drops for boomers, one by one, their rational response is to look to reduce their stock and real estate holdings. The challenge is that the population behind the boomers is much smaller, poorer and more pessimistic. They are not feeling confident, wealthy or self-indulgent enough to snap up highly priced assets. Prices will need to work down and population will need to expand to soak up the supply. This will take years not months. Dealing with the facts at hand and calibrating our approach to the conditions in which we exist is the only response that makes any sense. Trying to drive on with an idea of how conditions used to be (when we were in the secular leveraging period) is akin to financial suicide.
Cory’s Chart Corner
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