Tobias Levkovich Discusses Benefits to the Economy of the Oil Crash
Tobias Levkovich, Chief U.S. equity strategist at Citigroup, was on CNBC yesterday and discussed the interrelationship between oil prices and the general economy. In summary, Levkovich said it would take about 18 months for the benefits of low oil prices to flow through to the economy. He added the economy should be seeing benefits right about now.
Levkovich said VIX readings between 10 and 20 show a higher probability of the market moving higher, moreso than a VIX reading between 20 and 30 which has been observed recently.
Regarding interstock correlation, Levkovich said it had increased recently to around 66% indicating investors are very, very nervous.
Levkovich sees a year-end target for the S&P 500 of around 2150. He said the “Panic/Euphoria model” gives a 96% probability of the market being higher one year from now.
Levkovich stated the normalized earnings yield gap which looks at the futures strip of bond yields versus the “Shiller PE” is signaling a 93% chance of higher markets in the next year.
Levkovich said investors should focus on running statistical models to determine at what levels markets are likely to go up and down, because cheap markets can become much cheaper and expensive markets can become much more expensive.
Back in November 2013, Levkovich predicted an 80% chance the market would pull back 5% within the context of a long-term bull market [link].