SOURCE: Jerome Levy Forecasting Center

Jerome Levy Forecasting Center

August 02, 2016 10:00 ET

Levy Cautions That Further Financial Asset Price Gains May Be Short-Lived

Economist Warns That Risky Financial Assets Are Increasingly Vulnerable to Either Falling Profits or Rising Interest Rates

MOUNT KISCO, NY--(Marketwired - August 02, 2016) - Economist David Levy, writing in the just-published summer issue of The Levy Forecast®, cautioned investors that "there is no path to sustained bull markets; there are only bubbles and busts, and the bubbles would seem to have limited scope."

"The reason," said the chairman of the independent Jerome Levy Forecasting Center (www.levyforecast.com), "is that today's risk assets owe their values more to the near disappearance of both short-and-long term interest rates than to earnings growth."

He reiterated that for risk asset markets to hold up or appreciate, they require what he called a "Demented Goldilocks" economy, one for which "'just right' is porridge that is cold but not frozen."

"The economy must not collapse, but it must remain weak enough to keep central bankers more worried about recession and deflation that about inflation."

In an environment dependent on continued central bank monetary easing, Levy said, "risk asset markets probably cannot rally too much lest their macroeconomic effect boost corporate profits and accelerated growth, thus inducing fears of less accommodative monetary policy."

The Levy Forecast®, the nation's oldest publication devoted to economic analysis, predicted that corporate profits and the economy not only aren't likely to improve much over the near-term, "both are likely to weaken a great deal, sooner or later."

"Assets are valued so highly and their valuations are so dependent on a collapsed discount factor that either a drop in earnings or a rise in interest rates (even with some earnings gain) could undermine asset prices," the economist said.

Levy concluded that "a surprisingly good performance by the economy this summer, which is not the most likely case, could perversely undermine financial stability by changing interest rate expectations."

About The Jerome Levy Forecasting Center
The Jerome Levy Forecasting Center LLC -- the world leader in applying the macroeconomic profits perspective to economic analysis and forecasting -- conducts cutting edge economic research and offers consulting services to its clients. The goal of the Levy Forecasting Center is to improve its clients' business and investment performance by providing them with powerful insights into economic risks and opportunities -- insights that are difficult or even impossible to achieve with conventional approaches to macroeconomic analysis. Additional information may be found at www.levyforecast.com.

Note: The full Levy Forecast is available to the press in PDF format by contacting Andrew Edson & Associates, Inc. - Andrew@edsonpr.com or 516 850 3195.

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