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Garnry: 5 reasons we're not in an equity bubble
With global equity markets at record highs, it’s not surprising everyone seems to be talking about bubbles. But according to Saxo Bank’s Peter Garnry, there are five reasons why we are not in one.
1. Equity rises are normal: Peter explains that equities have what is called a "positive drift". This means equity markets continue to go up over time, which is why we can expect new highs from time to time.
2. Role of central banks is exaggerated: Peter says it’s a huge misconception that the Fed somehow pumps money into the stock market, because central banks can’t do that. The only way cashflow can go in and out of the stock market – because it’s a closed system – is through IPOs.
3. Pessimism isn’t shared: Pessimism on Wall Street among analysts is historically high, according to Peter, and that’s normally not the case when you have a bubble. He says the fact that you have so many people talking about a bubble is evidence that there is no bubble.
4. The "bubble" word is overused: Peter believes we are shell-shocked from the collapse we had in the equity markets in 2008 and as a result we are seeing bubbles everywhere.
5. Companies are still doing well: When you have a bubble, it’s normally driven by the top tier of companies, like Apple and IBM, according to Peter. Those firms will then pull indices higher everyday whereas the 450 other companies would not rise as much. But in this scenario every stock is just going higher - yet another sign we are not in a bubble.
02:00 minutes
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