Authored by Bilal Hafeez via MacroHive.com,
It’s easy to paint gloomy pictures of the world whether looking at market valuations, climate change or health scares. However, not all is lost, there are some things to appreciate. So I thought given it is Valentine’s Day, I’d find seven charts to love:
(1) Odds of US Recession This Year Are Low
When the US yield curve inverted last year, there was a panic amongst investors about an imminent US recession. And while recession odds did rise, they haven’t further increased since then (Chart 1). Most models have the odds at around 25%-30%, and if anything they seem to be edging lower. Moreover, they remain comfortably below the 50% threshold seen before the last few recessions.
Chart 1: US Recession Probabilities Starting to Subside
Source: Macro Hive, Bloomberg
(2) US Equities May Not Be At Valuation Extremes
Many are concerned about US equity valuations. Even with contracting earnings last year, they continued to rally. In the past, we have used the “Warren Buffet valuation” indicator, which compares US stocks to US GDP, as a signal of how expensive US stocks are. However, given that many US companies, especially the larger tech ones, are global in nature, it would perhaps make more sense to compare US stocks to world GDP. When we do that, valuations no longer look as extreme as they did in the early 2000s or indeed in the 1960s (Chart 2).
Chart 2: Modified Warren Buffet Valuation Indicator: S&P 500 to World GDP
Source: Macro Hive, IMF, OECD, Bloomberg
(3) Many Euro Haters, But Not in Europe
It’s easy to criticise the EU and especially the euro. How can a single currency survive without a single fiscal policy. Yet for all of its faults, the most recent surveys of Europeans find that …
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