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CEO of Gavekal Research, Louis-Vincent Gave sees a massive outperformance of growth stocks, tech stocks, and US stocks, all of which investors should be sensitive to. His clients are confused – the bond market indicates that the World is headed down, meanwhile stocks are doing well. He believes, however, that both stocks and bonds have given us the same message: we can rely on Central Banks to save the day and be ‘easy’, something which is reflected in valuations. Gave also discusses the rise of the dumbbell portfolio, whereas overvalued stocks are hedged with overvalued bonds. The third leg of the podcast is on the dollar – Gave comments that its path depends on market expectation of rate cuts. He sees every currency out there as priced to expect aggressive easing and he recommends owning CAD, GBP, and AUD as they are currently undervalued. Gold will remain in a structural bull market and might be worth buying next year.
Why does this matter? US equity investors are too bullish and bond investors too bearish, causing a dilemma and indicating that Central Bank easing might be overdone. Stocks that are sensitive to interest rates and yield are being pushed up as the 10-year US Treasury yield has dropped back down to 1.5%. And if the drop in yields reverses, as it did in early September, these overvalued sectors could decline significantly.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)