Tag: equities

Some thoughts on the new Internet bubble

Some thoughts on the new Internet bubble

Going back to my comments from yesterday about the utility of macro, I want to talk a bit about credit excesses and valuation manias. The overall gist here is that manias are endemic to our system because psychology plays a big part in social systems. And while it is debatable how well macro policy can “lean against”, it is clear […]

Iran real beneficiary of Russia-China gas deal and more on overheated markets

Iran real beneficiary of Russia-China gas deal and more on overheated markets

The big news today is the Gazprom deal in China. This is a $400 billion gas deal to supply gas from Russia to China for 30 years that has been in the works for over a decade. But the changing geopolitical atmosphere has given it urgency. Overall, from a macroeconomic perspective I am positive. But risk has really increased. And the Russell 2000 is one of the areas where you see the biggest overvaluation. We see it in high yield as well.

Bubbles: Jeremy Grantham, Fingers of Instability and the Medium Term View

Bubbles: Jeremy Grantham, Fingers of Instability and the Medium Term View

I was reading a summary of Jeremy Grantham’s remarks in GMO’s recent quarterly analysis. And it occurred to me that a lot of what we see there is predicated on some embedded longer-term assumptions that I want to make clear. Grantham is talking about the potential, even likelihood of a bubble in equities by 2016. This has to worrying because it would usher in another period of deleveraging. But it also assumes that the real economy gets us through 2016 via expansion. Some thoughts below

Secular versus cyclical factors in equity markets

Secular versus cyclical factors in equity markets

Continuing where I left off yesterday, it’s clear that the global economy is growing now. We see growth in the US, Europe, Japan, and in emerging markets. Economic growth is the norm, not the exception. And over the longer term, markets will rise to reflect that growth. That’s what I mean when I say market and economic momentum is up and to the right. Here’s the problem; there are periods of time when economies and markets fall out of bed. And sometimes the upheaval is so great, it turns into a generational divide – a depression and/or secular bear market. I believe there is a good case that we are still both in a depression and a secular bear market and I want to explain how that matters below.

Emerging Market Equity Allocation Model for Q2 2014

Emerging Market Equity Allocation Model for Q2 2014

We view Q1 2014 as a potential turning point for EM this year, just as the May 22 Bernanke speech on tapering was last year. In recent weeks, EM has digested the start of Fed tapering, devaluations in Argentina and Kazakhstan, the Crimean crisis, a deeper than expected China slowdown coupled with a shift in its FX regime, and now potentially earlier than anticipated Fed rate hikes.

Policy-induced market overvaluation is building, will end badly

Policy-induced market overvaluation is building, will end badly

It is now patently clear that US equity and corporate bond markets are overvalued. Much of the overvaluation has to do with low discount rates and the risk-on signal easy Fed policy has sent investors for over five years. Yet again, signs of weakness like falling profit growth are mounting. But the Fed is tightening as opposed to adding more stimulus as in prior lapses during this economic cycle. Therefore, a sharp market downturn at this cycle trough is increasingly likely.

Economic and market themes: 2014-03-21

Economic and market themes: 2014-03-21

Sanctions because of the Crimean crisis have had less economic impact than private portfolio preference shifts. However, as Ukraine moves into the EU sphere, further actions against Ukraine could be more far-reaching. China has moved toward stimulus to avoid a hard landing Signs are abundant that risk assets are overpriced and that de-risking is in order Wage and job growth […]

Historical realities and 50% profit growth

Historical realities and 50% profit growth

There is mounting evidence, from valuations being paid in M&A deals, junk bond yields, margin debt and price extensions from long term means, “irrational exuberance” is once again returning to the financial markets. However, that does not mean that a mean reversion process in imminent. It was in 1996 when Alan Greenspan first uttered those famous words, it was 4 years later before investors regretted not paying attention them. It is likely that the same will be true this time.

Edward Harrison’s Ten Surprises for 2014, Part 2

Edward Harrison’s Ten Surprises for 2014, Part 2

Yesterday, I began my Ten Surprises List. As a reminder, the surprise list is loosely based off Byron Wien’s list of ten surprises which he has conducting doing at Blackstone and Morgan Stanley for the last thirty years. Wien defines his surprises as events to which investors assign 1-in-3 odds of happening but which he believes have a more than 50 percent likelihood of occurring in 2012. If the list is mediocre, I should get 3 or 4 out of ten. If I guess right at 50% odds, I should get 5 of ten. Anything above 5 means I had a good year.

What do bank share prices tell us about growth?

What do bank share prices tell us about growth?

Owning shares in a bank is the functional equivalent of owning a call option on the bank’s future operational earnings, and if the share price contains little intrinsic value (i.e. the value of its assets does not exceed the value of its liabilities by a large margin, and may even be less than the value of liabilities), by definition most of its value consists of time value, and so is extremely sensitive to changes in expectations.