In his latest market commentary, Byron Wien, vice chairman of Blackstone Advisory Partners
, takes aim at several myths that he says are commonly believed by investors.
- "American [economic] exceptionalism is a thing of the past." But, "looking at the performance of the U.S. equity market, you would certainly think that American companies have a competitive advantage." The S&P 500 index has tripled in the past six years, besting the eurozone and Japan. And the dollar has outperformed every major currency except the Swiss franc. A Goldman Sachs study shows that U.S. GDP has risen 12.9 percent from its 2009 low, compared with 3.8 percent for the eurozone and 8.9 percent for Japan.
- "The price of oil is likely to stay low for a long time." U.S. oil prices have plunged 55 percent since late June to below $50 a barrel, and many experts have forecast the slump will continue to $30. But "taking a look at past periods when the price of oil has had sharp declines shows a consistent pattern of rapid, not slow, recoveries," Wien writes.
He also notes that the myth that "Europe's economy is in a slow growth deflationary trap" is just that — a myth. "In Europe, the Purchasing Managers Index for both manufacturing and services is currently signaling economic expansion. With the European Central Bank beginning a program of monetary easing, growth should pick up even further."
The last myth he debunks is that "Abenomics is not working, and Japan is in danger of falling back into a recession."
Wien explains, "The increase last year in the value added tax in Japan dealt consumers a powerful blow, but the drop in the price of oil was the equivalent of 2.1 percent of GDP, and this was, according to a study by Observatory Group, bigger than the impact of the tax increase, he notes, adding that "the decline in the yen versus the dollar has given a boost to Japanese exports."
Mutual fund manager John Hussman
, president of Hussman Investment Trust, probably doesn't agree with Wien's argument on American exceptionalism.
In a recent market commentary Hussman explains why he's bearish on the economy and stocks.
- "The U.S. has become a nation preoccupied with consumption over investment; outsourcing its jobs, hollowing out its middle class and accumulating increasing debt burdens to do so," he writes.
- "U.S. wages and salaries have plunged to the lowest share of GDP in history, while the civilian labor force participation rate has dropped to levels not seen since the 1970s. Yet consumption as a share of GDP is near a record high."
- As for stocks, "the most reliable stock market valuation measures . . . suggest that the S&P 500 index is likely to be lower a decade from now than it is today (though dividend income should bring the total return to about 1.5 percent annually)," Hussman says.
It's unclear which measures he has in mind. But Robert Shiller's cyclically adjusted price-earnings ratio for the S&P 500, which includes 10 years of earnings, stands at 27.2, topped only by 1929, 2000 and 2007. Those, of course, were periods that preceded market crashes.
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