No stopping the raging bull

The equities market will continue to surge as the world picks up economic momentum.

Summary: The global economic map is changing, and much of that is still to be priced into equity markets. It’s a gradual process, but once that happens expect a new wave of rampant growth and prosperity. The bull market is well and truly out the gate.
Key take-out: The new world positive reality needs to be accepted and priced into the value of company stock prices. The Dow Jones Index can reach 20,000 as soon as next year.
Key beneficiaries: General investors. Category: Economics and investment strategy.

Yes, the long-awaited sharp rally for equities, that was always going to happen with the advent of actual “tapering”, is upon us.

Expect only a momentary pullback, if any, in what is likely to be an ongoing powerful bull market.

The raging global bull

In fact, it has been a “Grand Bull Market”, as I have termed it, since March 2009. So we are approaching nearly six years now of what is clearly one of the biggest bull markets in history. All along the way, this bull market has had little to do with quantitative easing and everything to do with what I call the “bottom-up economic revolution”. This is where small and medium-sized enterprises, particularly those of the “new first world” of Asia and Latin America, and recently the resurgent “old first world” of the US and Europe, are driving global growth.

This, and accelerating “intra-regional trade” in Asia and Latin America, which is itself a national level outgrowth of the “bottom-up economic revolution” process.

It is not the decisions of senior individuals and committees and organisations of the old west who have saved the world and re-engineered the return, or in many cases the ongoing expansion of prosperity, as we are generally led to believe.

It is in fact the arrival of free aspiration, as I have described before, in the lives of hundreds of millions, perhaps billions, of people around the world. China’s fantastic growth has involved some key centrally planned decisions, but it is really about a human tide of aspiration from west to east, from agrarian to white collar consumer lifestyle. Urbanisation is the result, rather than the originating force of what is going on in the world today.

Subsequently, what we are seeing in the real economy is an organic self-driving momentum that could well perpetuate itself for several decades to come.

Pricing in the new world map

This new world reality of rampant growth, and the expansion of prosperity around the globe, is not a map of the world that is held on the desks of US senators, European leaders, or central bankers anywhere. It certainly is not a view of the world widely recognised, let alone accepted, among Wall Street bankers and economists/strategists. It is therefore a positive aspirational view of global growth, that is not at all priced into the value of company stocks!

More than half the revenue of the S&P 500 companies is derived from overseas, which is why equities in general have continued to advance all these years despite high US unemployment or a previously depressed housing sector. Now that the US economy is growing strongly, and even the euro zone is expanding while China re-accelerates, equity markets the world over have to reset to a much higher level long term.

The new economic underpinnings

There have for some time been strong fundamental underpinnings to the bull market; it’s just that these underpinnings are of a different nature to that seen before. The economic strength is coming from near the bottom of the food chain this time, from SMEs (small-to-medium enterprises) whose innovative and rapid technology adoption is also forcing larger corporations to respond accordingly.

There is indeed a revolution sweeping the world, one based on the new and wide availability of knowledge via the internet. The weapons of this revolution are smart phones and tablets, and they are being used to great economic effect.

The enormity of this transformation of how business is done is not yet fully grasped or understood, but it is nonetheless very real. It is also a phenomenon that will drive corporate revenues and profits, particularly those catering to global markets, far beyond all of the current consensus forecasts. The world is an incredibly prosperous place, just when many thought it would be economically imploding. This new world positive reality needs to be accepted and priced into the value of company stock prices.

Subsequently, the Dow Jones Index can reach 20,000 as soon as next year, and may well go on to achieve 30,000 by 2019.

The advent of “tapering” is the clearest possible confirmation from one of the world’s most conservative organisations that the US, and the world economy, are now in a self-sustaining growth phase more akin to normal conditions than the fear crises of recent years. No wonder stocks have rallied immediately, and we can expect them to continue to do so.

Global market sentiment has only recently recovered from a historically intense, yet false, sense of doom and gloom, and only just begun to price in a global economic expansion period, the likes and prosperity of which we have never before seen.

It is all surprisingly driven by aggressive aspiring SMEs. When times are tough, we in the west retreat, particularly our larger corporations, while the new generation SMEs of the world simply recognise the need and opportunity in working even harder.


Clifford Bennett is Chief Economist, brushTURKEY clifford@cliffordbennett.com.au