The TINA (there is no alternative) argument for US (and many other) equity markets rests on their relative cheapness to government bonds. TINA has come about because of the central banks’ ZIRP/NIRP and QE policies. ZIRP (and NIRP) pulls the whole yield curve lower, as investors price low policy rates further out into the future (i.e. along the yield curve as conviction grows that zero/negative rates are likely to endure). QE then floods the system with liquidity, reducing the pool of available assets (principally bonds), thereby bidding up the valuations of the remaining assets.
With that as a backdrop, therefore, the real question becomes: What will change those central bank policies which have been inducing TINA? Indeed, this is especially important given the speculative elements to markets, the rich valuations and widespread participation, in large part encouraged by those TINA policies. In that respect, it’s easy to agree with Grantham’s thesis that this is a bubble (and arguably, in his words, the largest one since the ‘South Sea Bubble’).
Chris Watling founded Longview Economics in 2003 with a desire to produce research that was independent, courageous and relevant to every investor type. Chris has been obsessed with markets and generating intelligent investment advice since beginning his career at Cazenove in 1994. Prior to that, he trained at KPMG in London. Longview has built relationships with over 150 clients across the globe and are constantly seeking to deliver cutting edge market analysis and trading ideas.