The coming Reversion to the Mean of Inflated Economic Sectors and Assets Prices
Monthly Market Commentary: August 1, 2018
If in an economic system prices in one or several sectors increase over an extended period of time far more than the overall price level, a reversion to the mean will sooner or later take place. The adjustment in prices can take place in two different ways. Prices in the inflated sector can stagnate for a while or increase more slowly than the overall price level.
Another possibility which is more likely is that grossly inflated sectors and assets revert to the mean by crashing altogether.
I believe that stock markets around the world are at an important crossroad: Growth (represented by the NASDAQ 100) is out and Value (real estate, REITs, Telecoms, food, consumer staples, financials, and energy (as represented by the Russell 1000 Value ETF – IWD) is beginning to outperform.
Finally, may I suggest my readers to remember Larry Kudlow's recent words of wisdom:
“This is a boom that will be sustainable. Frankly, as far as the eye can see. This is no one shot, ever.”
(July 27, 2018)
With kind regards