JACK: I WANT TO ASK OUR NEXT
GUEST IF IT IS TIME TO BUY
STOCKS.
JOINING ME IS RESEARCH
AFFILIATE FOUNDER ROB ARNOT.
HOW QUICKLY DO YOU THINK THE
FED CAN BRING INFLATION UNDER
CONTROL?
ROB:THE FED WAS OFF THE MARK
WHEN THEY SAID IT WOULD BE
TRANSITORY.
IF YOU DEFINE TRANSITORY IS
WITHIN FIVE YEARS, SURE BUT
PRESSURES, INFLATIONARY
PRESSURES ARE POWERFUL,
SUSTAINED AND LAST A WHILE YET.
TWO TO FOUR YEARS FROM NOW,
INFLATION WOULD HAVE MODERATED
BY THEN BUT WATCH OUT FOR 2022-23 AND PERHAPS 24.
2022-23 AND PERHAPS 24.
JACK: YOU HAVE TAKEN A BEARISH
CLASS, HAVE WE SEEN ENOUGH
MARKDOWN TO GET OPTIMISTIC ON
STOCKS?
ROB:OPTIMISTIC WOULD BE STRONG FOR US STOCKS.
FOR US STOCKS.
THE MARKET IS PRICEY.
PRICE RELATIVE TO THAT, THAT IS
32 TIMES, IF YOU GET BACK
HALFWAY TO HISTORIC NORMS.
WHEN MARKETS DROP, BUT
FORWARD-LOOKING RETURN
IMPROVES, THEY DROPPED,
FORWARD-LOOKING RETURNS HAVE
IMPROVED.
HAVE THEY IMPROVED ENOUGH TO BE
INTERESTING?
NOT REALLY EXCEPT OUTSIDE THE
US, EUROPE, JAPAN, EMERGING
MARKETS PRICED CHEAPER.
JACK: TELL ME ABOUT VALUE STOCKS, THEY RALLIED AND ARE
STOCKS, THEY RALLIED AND ARE
THEY STILL EXPENSIVE?
ROB:THE SPREADING VALUATION,
THE TEST SAME STOCKS AND VALUE
STOCKS, AUGUST 2020 WAS THE
WIDEST SPREAD EVER, EVEN AT THE
PEAK OF THE TECH BUBBLE IN
2000.
BECAUSE VALUE HAS SNAPPED BACK
THEY ARE NOT LONGER AS CHEAP AS
THEY WERE IN 2020 BUT BOTTOMED
UP CHEAPNESS.
THEY ARE STILL VERY VERY CHEAP.
WHAT WE SAW AFTER THE TECH
DOUBLE BURST IS VALUE FOR THE
NEXT WE 7 YEARS, OUTPERFORMED
GROWTH BY OVER 100 PERCENTAGE
POINTS.
WHAT WE ARE LOOKING AT IS VALUE
IS VERY CHEAP.
40 PERCENTAGE POINTS, JUST TO
GET BACK TO NORMAL THE LOAN
WHERE VALUE IS EXPENSIVE.
JACK: THE DOLLAR HIT A 20 YEAR
HIGH, TELL ME ABOUT THE
COMPARISON ON VALUATIONS VERSUS
THE US, AND WHAT ARE THE RISKS?
ROB:THIS IS AN AREA WHERE
VALUATION COMES INTO PLAY,
FOREIGN CURRENCIES FALLING,
STOCK MARKETS ALONGSIDE THE US MEANS THOSE MARKETS ARE CHEAP
MEANS THOSE MARKETS ARE CHEAP
AND IN DOLLAR TERMS CHEAPER,
AND UNDER 20 AND EMERGING
MARKETS JUST OVER 15 AND THERE
IS LOTS OF OPPORTUNITY, NOT IF
YOU WANT TO BE CENTRALLY
FOCUSED ON MAINSTREAM US STOCKS
AND BONDS.
BOND YIELDS HAVE GONE UP
SHARPLY BUT THEY ARE STILL NOT
INTERESTING, IF YOU HAVE 8%
INFLATION AND BOND YIELDS IN
THE TWO TO THREE YEAR RANGE AND
A REAL RATE.
ONE THING I THINK ABOUT
INTEREST RATES IS THE REAL RATE ACTS AS A SPEEDBUMP TO
ACTS AS A SPEEDBUMP TO
DISCOURAGE RECKLESS INVESTING,
TO DISCOURAGE DISSIPATION
RESOURCES, MALL INVESTMENT AND
THAT MALL INVESTMENT CAN BE AT
THE GOVERNMENT LEVEL OR THE
CORPORATE LEVEL, WHAT WE HAVE
IS ACTIVELY ENCOURAGING
DISSIPATION OF RESOURCES.
JACK: ARE WE GOING TO RECESSION
THIS YEAR OR NEXT YEAR?
ROB:I THINK IT IS REASONABLY
LIKELY THAT WE WILL.
I DON’T THINK THAT THE ODDS ARE
AS HIGH AS A LOT OF PEOPLE
SUGGEST.
APART FROM THE STOCK MARKET
INDICATION THAT THE ECONOMY IS
IN TROUBLE, FALLING STOCKS,
PAUL SAMUELSON ONCE SAID
FALLING STOCKS PREDICTED TWEEN
9 OF THE LAST FIVE RECESSIONS,
THIS MAY BE ONE OF THOSE CASES
BUT WAR IS INFLATIONARY, WAR
CREATES COMPLICATIONS FOR THE
INDUSTRIAL SECTOR, BUT THAT
SUPPLY CHAIN DISRUPTION CAN
WREAK HAVOC, ON BALANCE, I’M NOT AN UNDUE PESSIMIST WHEN IT
NOT AN UNDUE PESSIMIST WHEN IT