Hearing any single point of view on the current state of the markets that are again hovering near record highs, you might think market analysis was a science with clear answers.
That feeling may be deceptive. And for many Canadians, deciding what to do with their savings may be more difficult than ever.
Even as markets appear to be propelled by optimism that the COVID-19 pandemic will be defeated and by the promise from central banks that interest rates will stay low for years, the sensation of clarity and certainty may fade when you research more widely.
The latest high priest of market exuberance is Tesla and SpaceX boss Elon Musk, who, to his many acolytes, has established his can-do credentials not just by inspiring the electric car era in the face of naysayers and leading the private sector into space, but bumping out Amazon’s Jeff Bezos to become the world’s richest person.
Invest like a multibillionaire?
Those credentials have attracted followers. And while the multibillionaire’s market views are most often expressed in cryptic tweets and the actions of his companies — this week, for example, Tesla purchased $1.5 billion US in bitcoin — there are others who articulate at least part of Musk’s optimistic argument, albeit in a moderate form.
James Mackintosh at the Wall Street Journal is not recommending a bitcoin play, but when it comes to broader market optimism, he makes a rational case for why an expectation of more stimulus and not much fear of inflation have left market investors looking for further gains.
“Investors are predicting the sort of inflation they like, slightly higher in the next few years but moderating back down after that, and it’s helping stocks and commodities while limiting the pain to bondholders from rising yields,” the WSJ investment editor wrote in Tuesday’s paper.
Markets, which are a bit like voting with your money, demonstrate that a lot of people agree with Musk that asset prices, whether stocks or Canadian real estate, have more room to rise.
Also, markets were never supposed to tell you what is happening now. These days, Canada’s economy is weak and recently gave up more than 200,000 jobs. Instead, the theory is that high stock prices now tell you about what markets expect in the future.
As the Journal’s Mackintosh implies, asset prices may be in a bit of a sweet spot. While the pandemic is not over, the widespread distribution of vaccines suggests it could be soon. The Conference Board of Canada and Tiff Macklem at Canada’s central bank expect the economy to grow strongly this year and next.
Looking for a soft landing
As Macklem insisted in his most recent monetary policy news conference, even a strong recovery will take years to use up Canada’s available surplus of workers and…