Earlier this month, Miller Value Partners founder Bill Miller shared thoughts and insights on the market in his Q2 letter to investors.
Here are highlights:
- “The future is about probabilities and the current situation is about facts and interpretations,” Miller writes, emphasizing the difficulty in predicting market movements.
- He summarizes what he calls a “cross section” of characterizations on the current state of the market from pundits:
- Michael Burry: “Greatest speculative bubble of all time”
- Jeremy Grantham: “Fully fledged epic bubble”
- Jeffrey Gundlach: “very over-valued versus history”
- Stan Druckenmiller” “I also have no doubt we were in a raging mania in mid ’99, but it kept going on, and if you shorted the tech stocks in mid ’99, you were out of business by the end of the year.”
- Miller expresses curiosity about bearish predictions for an “epic market crash,” noting that we had one “only 15 months ago” due to the Covid-related panic before beginning “the remarkable recovery we are currently experiencing.” He cites current consensus growth estimates of 7%, “the fastest in 30 years,” as well as an uptick in both household income and home prices.
- “The point of most contention,” Miller writes, “is the outlook for inflation.” He argues that while prices across the board are rising, “we are already seeing sharp decline in some of the more sensitive commodities such as lumber,” adding that if inflation is going to present a problem, “prices will have to continue to rise over the next few years at well over the Federal Reserve’s average 2% target.”
- Miller quotes the New York Times, “As far as major shifts in inflation go, we are all in the dark, just as we are essentially clueless about where the stock market is heading or the price of oil in 2022, or the date of the next recession.”
- Concerns are already priced into the market, says Miller, adding, “The market looks broadly fairly valued to me, with most stocks priced to provide a market rate of return plus or minus a few percent.”
Noting the current level of optimism in the market, he concludes, “There are pockets of what look like appreciable over-valuation and pockets of significant undervaluation in the US market, in my opinion. We can find plenty of names to fill our portfolios and so remain fully invested.”