The final report from Smithers & Co has landed, as the septuagenarian scourge of “stockbroker economics” eases into retirement.
We are assured that he’ll still be blogging for the FT, but the regular research output will cease. The valedictory note is, as you might expect, on the bearish side of things:
The US equity market is overvalued to an extent only experienced five times before in the past 212 years. On two occasions, however, it has risen well above the current degree of overvaluation.
We’ll see your bullish forecast, and we’ll raise you, Brian.
That’s Brian Belski, the BMO strategist who thinks that 10 per cent annual returns for the next decade are plausible for the US stock market. Read more
Janet Yellen says share valuations remain within “historical norms”.
Two words: “irrational exuberance”. Read more
A quiet reformation continues.
One of the central articles of investing religion — that a forward price earnings ratio is a useful indicator of stock market value — is under sustained intellectual assault. Read more
An online service that matches buyers and sellers you say? Worth $18bn? Well, there are a lot of taxis in the world.
We have seen this one before though, so $18bn is entirely possible, if not necessarily sensible.
Consider this chart of the original dot com network effect superstar, eBay. Read more
Further evidence arrives that if you are looking for value stocks in these markets, then you are going to have a tough time of it.
Millennial Invest has charted the change in the dispersion of valuations over the last five years for the US market. What he finds is that it is not just the average valuation that rose in the long post crisis bull market, but the range of valuations has narrowed as well as the market has become much more homogenous.
What he looks at is something called the Ebitda yield. Read more
If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?
Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.
Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more
About that European bull market. Enthusiasm is there, but the earnings not so much yet.
With little support from earnings, European equities continue to be re-rated in P/E and price/book terms. From 10x in late 2011 to 17x now, European equities trade above both post-1980 and post-1990 average P/Es.
Citi strategist Jonathan Stubbs finds that it’s not just the average, value stocks no longer offer great value either. So, look for places where corporate earnings are actually, y’know, growing. Read more
In addition to John Authers… please welcome James Mackintosh, the FT’s Investment Editor, as an Alphaville blogger. Like John, James has written for us before, on everything from fair value accounting to EM hot money.
Economists have been worrying about Europe turning Japanese. Investors seem to be more concerned about Japan turning European: for the first time since IBES started compiling forward price/earnings ratios in the 1980s, Japan is cheaper on this widely-used measure than Europe (as this chart shows): Read more
The battle to claim the long term is in full force, focused on the use, interpretation and adjustment of the Cape Ratio to value the US stock market.
Pessimists hold dear the Cyclically Adjusted Price Earnings ratio, a value calculation using average annual profits over 10 years, as a signal that equities have been overpriced pretty much since since the first Bush administration. Damn you irrational exuberance, the day of reckoning will come, just you wait… Read more
Goldman Sachs have found a new way to show us that the European stock market is not cheap at all any more — although we’re not sure that was entirely their intention.
Indeed, their European strategists would have you buy the GSSTDMGR. That sounds like the plea for one last merger from a dying banker, but it means Goldman like companies which will grow as the European economy recovers. Read more
In case you hadn’t noticed, European stocks are no longer cheap. Word reaches us from Morgan Stanley this morning that valuations are starting to look “somewhat full”.
Indeed, the median stock in Europe trades on 14.5x forward PE and 18% above the 5-year average – which is the top of the last 20 years range. Read more
China is cheap — at least on a price-to-book basis.
At 1.58x the P/BV of the MSCI China is still below the 2008/09 lows of 1.64x. At this level China is among the cheapest countries in the MSCI universe (Russia and Hungary are the cheapest) . Read more
FT Alphaville has been on a history kick lately, and thanks to James Montier — founder of the Behavioural Investing blog and a member of GMO’s asset allocation team — we can indulge it a bit longer.
Montier has just penned a new paper titled “A Man from a Different Time”, which he begins by looking into the historical importance of dividends to stock returns (emphasis ours): Read more