JPM's head quant Marko Kolanovic is best known for timing the market's inflection points and quantifying - in plain English - the marginal buying and selling technicals at any given moment. In his latest overnight note he does not disappoint, explaining in simple terms "what the fate of the market rally is." We will give readers his answer... tomorrow.
For now we wanted to focus on something we have never seen from Kolanovic before: an outright foray into both social commentary and politics with his demolition of Buffett's insipid, hackneyed, and, according to some, downright idiotic, assessment that "the babies being born in America today are the luckiest crop in history."
Here's why:
Babies born in America today - the luckiest crop in history?
This statement has been used recently in the context of the outlook for the US economy (W. Buffet’s annual letter) and upcoming US presidential elections (M. Romney). The statement encapsulates a positive view on the US economy and downplays prospects of significant political changes in the US (it also assumes a link between an individual’s luck and US GDP growth).
While we do not take either a glass half-full or glass half-empty view on the current state of US economy, there are good reasons to believe that ‘the luckiest generation in history’ statement is overly optimistic. US primary results show a very strong lead for D. Trump in the Republican Party, and a surprisingly good showing for B. Sanders. We believe this indicates that a significant part of the electorate disapproves of the current political establishment and feels left behind by the new economy (e.g. voters may not agree with W. Buffet that an average upper-middle class American today has a better living standard as compared to John D. Rockefeller Sr.).
Over the coming months, uncertainty about the US election outcome may result in increased risk aversion and volatility in certain segments of the US Equity market.
Needless to say, we fully agree with Kolanovic.