United States

Submitted by Michael Lebowitz via 720Global.com,

On numerous occasions over the past year we suggested that U.S. equity valuations were expensive. Certainly the recent sharp rebound in share prices in the midst of declining earnings, lower earnings forecasts and slowing domestic and global economic growth has only strengthened our conviction.

In this article we compare equity valuations and the market drivers of 2013 to those today and outline why we think equities may be the so-called “bug in search of a windshield”.

We have closely watched the spring borrowing-base redetermination period for US shale drillers because for many cash burning oil and gas companies it could mean the difference between survival and a quick death in bankruptcy court, as it represents the semi-annual event that determines if they have enough liquidity to sustain operations for the next few quarters or, alternatively, if they have to hand over keys to creditors.

Last week when BofA reported that "everything is being sold" as its smart money clients (institutional, private and hedge funds) dumped stocks for a whopping 10th consecutive week, it said that "BofAML clients were net sellers of US stocks for the tenth consecutive week, in the amount of $3.98bn. Net sales last week were the largest since September, and the fifth-largest in our data history (since 2008). Since early March, all three client groups (institutional clients, private clients and hedge funds) have been sellers of US stocks."

Moments ago the IMF did what it does better than anyone (with the exception of the Fed): it once again admitted its forecast of world growth had been too optimistic, and as a result in its just released quarterly World Economic Outlook report, it cut its forecast for 2016 global GDP growth from 3.4% to 3.2%, and from 3.6% to 3.5% for 2017. Indicatively, back in July 2014 the IMF was forecasting 4.0% GDP growth in 2016. It is now 20% lower.

The latest confirmation of the pain global megabanks are suffering as a result of an abysmal trading environment, in no small part made even worse due to constant central bank tinkering, comes from Japan's largest brokerage, Nomura, which eight years after buying Lehman's European and Asian units has decided to fire 15% of its European staff and is abandoning most of its European equities business.