Exploding debt levels mean stocks can’t go ‘To the Moon’ forever

Exploding debt levels mean stocks can't go ‘To the Moon’ forever

By Sarah Ponczek and Michael P. Regan

Peter Cecchini, founder and CEO of AlphaOmega Advisors, joins the latest “What Goes Up” podcast to discuss the crazy year that was 2020 in markets, and to give his outlook for what’s to come. Topics include efficacy of the Federal Reserve, a boom in retail investor trading and zombie companies.

Some highlights of the conversation:

“Some of the earnings estimates that I’m seeing, as you said, the consensus is just below $170, are going to require multiples that just don’t make a lot of sense to me within the context of the fact that rates can’t go any lower. So if we’re looking for multiple expansion to continue to drive the rally, I don’t think we’re going to get that because the Fed’s efficacy is limited, right? It has firepower, no one’s saying the Fed doesn’t have ammunition. It can print money and it can go buy Treasuries for as long as it would like. But at the end of the day, when you’re at zero, the stimulative impact is muted… I think that is one huge piece that people are missing. We’re not just back to, you know, this `to the moon’ scenario for earnings. If anything, we’re back to a situation where cashflows remain challenge and, by the way, debt levels have exploded.”

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