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