RV Blog Hirst: Risk Is Starting to Build

Hirst: Risk Is Starting to Build

Your Real Vision Daily Briefing for June 4, 2020

Ash Bennington and Roger Hirst discuss the latest developments in macro, markets, and coronavirus.

  • The lows aren’t in yet in terms of outlook, but the short-term catastrophic move in GDP is likely behind us.
  • The savings ratio went to 33%, suggesting that this may be the start of corporates and households changing behavior toward deleveraging.
  • The real economy is going to play out and equity prices will eventually catch up to the reality of slow growth.


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The short-term GDP shock that came on the heels of the coronavirus crisis is likely behind us, but we’re set up for a second wave of slow growth that will eventually be a massive drag on equities, Roger Hirst told Real Vision during today’s Daily Briefing.

While the U.S. equity market may be detached from the crisis and divorced form fundamentals right now, we’re seeing material and structural changes like a skyrocketing savings ratio, job losses at the managerial level, and declining 401K levels that suggest a slow grind lower may be ahead.

Hirst said the Fed can support asset prices all it wants, but monetary policy doesn’t drive growth; it does the exact opposite and creates economic deflation. We may well see 4000 on the S&P at the same time we’re in a recession – but if that happens Hirst says his outlook for future growth of U.S. economy is reduced.

The reason is because that would indicate is a massive misallocation of capital away from productive capacity toward asset prices, particularly zombification of corporates that normally would have gone under.

Hirst said risk is starting to build, things are getting overstretched with the recent influx of retail investors, and the danger will come from slow-burning insolvency.

The real economy is going to play out and equity prices will catch up to that reality, he said.