Morning Note: Lots priced in — And — The incentives/results of cheap, easy credit…

As we suggested they would be, earnings beats have been stellar — and while I seldom watch financial news networks these days, I can only imagine the running of the bulls on the likes of CNBC.

Now, never to purposely rain on anyone’s parade, I feel it my duty herein to point out that the earnings expectations for this year are essentially where they were for 2020 (h/t Dave Rosenberg) — and that stocks are up some 30% since…

Dang! There’s a lot priced into stocks right here. And, like I mentioned in Saturdays video, the current state of high valuations, high debt and record low interest rates — among other things (maybe higher taxes and a turning down the stimulus spigot a bit) — does not the typical beginning of a strong bull market make.

I also stated that these factors don’t necessarily mean that the market’s about to crash through the ice, or that it won’t indeed produce stellar returns going forward, it’s just that the ice right here remains somewhat thin, and we should, at a minimum, lower our forward return expectations — particularly on the stuff that’s trading at all time high valuations…

Asian stocks leaned red overnight, with 10 of the 16 markets we track closing lower.

Europe’s better so far this morning, with all but 4 of the 19 bourses we follow higher so far.

U.S. major averages are mostly down to start the session: Dow down 59 points (0.17%), SP500 down 0.17%, SP500 Equal Weight down 0.12%, Nasdaq 100 down -.48%, Nasdaq Comp down 0.39%, Russell 2000 up 0.24%.

The VIX (SP500 implied volatility) is up 1.87%. VXN (Nasdaq 100 i.v.) is up 2.79%.

Oil futures are up 0.76%, gold’s up 0.09%, silver’s up 0.68%, copper futures are up 0.67% and the ag complex is up 0.05%.

The 10-year treasury is down (yield up) and the dollar is up 0.08%.

Led by India, silver, energy stocks, industrial stocks and uranium miners — but dragged by MP (rare earth miner), wind stocks, Verizon, Asia Pac stocks and oil services stocks — our core portfolio is down 0.16% to start the session.

Thomas Philippon, in his book The Great Reversal, points to the “lackluster” rate of corporate investment over the years as a key cause of what has been disappointing productivity growth. As I’ve mentioned multiple times herein, the huge volume of corporate share buybacks during the last bull market made the companies themselves the only net buyer of stocks from ’09 through ’19. 

Call it greedy pay packages (awarding execs for juicing their companies’ share prices, vs for raising productivity) and the incentives offered up by the Fed (monetary policy that facilitates cheap easy corporate credit — with which to fund those buybacks and inflate the biggest corporate debt bubble in history):

“Another important factor behind disappointing productivity growth is the lackluster rate of investment in the corporate sector. Technological innovations often need to be embodied in new equipment and new software. But US firms, despite high profits and low funding costs, have not upgraded their capital much in recent years.”

Have a great day!

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