Have stock markets hit bottom?
BlackRock's Dennis Stattman: US recovery to be "shallow, intermittent, and disappointing."
Stattman, who manages BlackRock Global Allocation, thinks that valuations are now to the point that stocks are likely to outperform bonds going forward, he believes that those expecting a V-shaped recovery are likely to be sorely disappointed. Indeed, he stated flatly that the recovery in developed markets would be very weak by historical standards and argued that the recovery in the US would be "shallow, intermittent, and disappointing."
Stattman's view stems in part from his belief that US and other monetary authorities are treating the wrong problem. Using a Keynesian demand-stimulus approach, they are trying to re-inflate consumer demand by injecting massive amounts of liquidity into the system. However, Stattman showed figures on US home and auto ownership, among others, that suggest there isn't much scope for demand to increase materially and described demand for both cars and houses as "saturated". Instead, Stattman thinks policymakers should focus on increasing savings and rewarding consumers for forgoing consumption today.
But all is not lost: In contrast to the satiated consumer appetites of the larger developed economies, Stattman noted that China suffers from too much saving and too little domestic demand. Another way of putting it is that the US standard of living is very high, whilst that of China is much lower. But this is unlikely to remain the case: He cited the fact that demand for motor vehicles in China has surpassed that of the US in each of the past three months as an enormously important data point that is not being paid enough attention. The implication is that if world demand is to grow, China and other emerging markets will drive it, not the large developed economies.
