Byron Wien, vice chairman of the advisory services unit at Blackstone Group LP, sees improved economic conditions in Greece and Iran leading to higher global stock values.
“I have a somewhat different view of the Greek situation from the consensus. Most observers believe Greek Prime Minister Alexis Tsipras was forced to give in on all of the demands of the International Monetary Fund, the European Central Bank and the European Commission and that he is in serious political trouble as a result,” he wrote in Barron’s.
“My assessment of the situation is that, in the eleventh hour, Tsipras correctly concluded that Europe would, for a number of reasons, do almost anything to keep Greece in the European Union,” he wrote.
“While Tsipras would appear to have capitulated on his anti-austerity program, he did keep Greece in the European Union, kept the euro as its currency and secured a third bailout of over $96 billion (a huge amount; more than 50% more than what was being discussed a few weeks ago) to reopen the banks and keep the country operating. About half of this money will be used to meet external financial obligations. Greece will also sell $55 billion in assets to repay loans,” he wrote.
But he warned the Greek drama may not yet be over.
“The Greek economy is in shambles and the prospect of running a budget surplus is dim. While the current deal buys some time, we may be wringing our hands about Greece six months from now,” he wrote.
Turning to Iran, he said the nuclear agreement “will not be considered a success unless the inspection provisions of the agreement are tough and that the sanctions are lifted slowly and only upon evidence that the nuclear development program has been restrained. I think President Obama will veto any effort to block the agreement. With sanctions phased out, Gross Domestic Product growth could increase from 3% to 6%, creating enormous investment opportunities. Iran will begin to ship more crude oil (perhaps one million additional barrels a day), but I still expect somewhat higher prices for crude as the developed world economies recover.”
China is yet another matter.
“In the case of China, any analysis needs to recognize that the country has only limited experience with capital markets. The steps the leadership has taken to control the market decline may stabilize prices temporarily, without permitting the cleansing sell-off that could provide the ultimate low,” he wrote.
“A correction was to be expected, but that doesn’t mean a bear market has begun. China is now the second largest economy in the world, and it is still growing more than twice as fast as the United States. The key question, however, is whether the market decline will have an impact on the economy,” he asked.
“As a result, the U.S. economy is likely to grow at a rate closer to 2% than 3% for the remainder of the year, but there is no recession in sight. When the Federal Reserve starts raising interest rates, if it ever does, the increases will be small and intermittent. Currently, we see little inflationary pressure. I do not believe the market is overvalued.”
To be sure, not everyone is as optimistic as Wien.
For several years, Marc Faber, publisher of The Gloom, Boom & Doom Report, has been arguing that U.S. stocks are overvalued and poised for a major plunge.
And he's not changing his tune now that the S&P 500 index stands just 1 percent beneath its record high. "In the U.S., the market could easily drop 20 percent to 40 percent," Faber told CNBC
. A 40 percent drop would take the S&P 500 to 1,270 from 2,116 Wednesday morning.
He noted that valuations are high. The S&P 500 carried a trailing price-earnings ratio of 21.24 Friday, up from 19.54 a year earlier, according to Birinyi Associates.
Other bearish factors include an increasing number of companies trading below their 200-day moving averages and more stocks declining than advancing, Faber said.
Faber also sees problems stemming from the plummet in commodity prices to a 13-year low Wednesday. "Maybe this is the signal that there are strong deflationary forces, despite all the money-printing by central banks," he said.
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