Three days ago, Bank of America’s Chief Investment Officer, Michael Hartnett, published not one but 15 answers to the one question most investors are asking: “how late in the business cycle are we?” As Hartnett summarized it, we are now so “long in the vermouth”, the late-cycle is starting to get “tipsy”, and presented the following as evidence:
- 2017: Bitcoin’s rip from $300 to $19,600 in 3 years made it the biggest bubble ever
- 2017: Da Vinci’s Salvator Mundi sold for $450mn (would take average American 7,500 years to earn)
- 2017: Argentina (8 defaults in 202 years) issued a (oversubscribed) 100-year sovereign bond
- 2017: European high yield bonds were priced as less risky than US Treasuries
- 2017: the market cap of Facebook (25k employees) exceeded that of India (1.3bn people)
- 2018: US, UK, German, Japanese unemployment rates are at multi-decade lows
- 2018: the global stock of negatively-yielding global debt remains >$10tn
- 2018: S&P 500 trailing price-to-earnings ratio >20X…a level exceeded in just 12 of past 120 years
- 2018: S&P 500 price-to-book ratio >3X…a level exceeded in just 5 of past 70 years
- 2018: US tax cuts of $1.5tn will coincide with US corporate bond issuance of $1.5tn and US equity buybacks of $0.9tn
- 2018: QE “winners” (REITs, credit, EM assets) have started to underperform QE “losers” (volatility, US$, commodities, cash)
- Aug 22nd, 2018: S&P500 bull market becomes longest of all-time
- Dec 2018: Fed will be 9 hikes into tightening cycle & G4 central bank liquidity will be contracting
- May 2019: global profits are forecast to be 1/3 higher than their prior 2008 peak (IBES $3.3tn vs $2.4tn)
- July 2019: the US economic expansion will become the longest since the Civil War
Hartnett, did not miss the opportunity to showcase some of his favorite charts, including the “3rd largest bubble of the past 40 years“, i.e. e-Commerce…
… and the just as ominous chart showing that every Fed tightening cycle ends with an “event”, a topic that was picked up yesterday also by Deutsche Bank’s macro strategist, Alan Ruskin, who also took the opportunity to remind us that “Every Fed Tightening Cycle Creates A Crisis.”
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