The fund manager who bet against U.S. mortgages before the 2008 crisis and recognized the deep value in GameStop sold out his stake entirely before the wild rally in the videogames retailer. That, and Warren Buffett’s latest moves, were among the revelations of Tuesday night’s wave of 13-F filings at the Securities and Exchange Commission. More on that in a second.
GameStop is now the poster child for what are called “stonks,” the seemingly one-way-only ascent in often hopeless equities. Vincent Deluard, director of global macro at StoneX, expects the madness to continue. “On the one hand, the market is obscenely overpriced and I am certain that stocks will deliver negative real returns in the next decade. On the other hand, the underlying drivers of the bubble are unlikely to go away in the next months: easy-money and financial repression are here to stay,” he says.
A fresh $1,400 check is likely to make it into the hands of Americans by April, special-purpose acquisition companies will have to make purchases with all the firepower they have accumulated, private-equity and venture-capital firms have nearly $2 trillion in dry powder, and many paused corporate stock buyback programs will continue, he says.
“In the U.S., fiscal and monetary authorities have inflated a massive stonk bubble. When all is said and done, Europeans will have savings under their mattresses, Asians will have even more productive assets, and Americans will have funny memes,” Deluard says.
Inflation, which investors are increasingly betting on, is the obvious answer to the problems the U.S. faces. “Inflation will act as a ‘debt jubilee,’ will restore the equilibrium between the asset-owning old and pauperized youth, and will allow a stealth default on unfunded liabilities that the boomer generation awarded itself,” he writes.
What will benefit from a period of inflation? Deluard has some interesting ideas. Latin American currencies already reflect a decade of weakness and a very poor response to the COVID-19 pandemic. On a commodity export model, Brazil’s real
is 37% undervalued. The Chilean peso
is 20% below its March high, while its main commodity export, copper
is 15% above its 2018 high.
Deluard says it makes more sense to compare Latin American stock prices now to the 2000-2010 decade. “The 2010s was a lost decade for Latin America: commodity prices cratered and the U.S. dollar strengthened, a horrible combo for USD-indebted commodity exporters. If, as I believe, the 2020s will resemble the 2000s (weak USD, reflation, outperformance of EM, value, and inflation-sensitive sectors), the denominator of the Shiller P/E must be shifted by a decade,” he says.
Go to the news source: Looking to avoid an obscenely overpriced U.S. stock market? Here’s one strategis…