donderdag 29 juni 2017

The Ambiguity Of Stock Value

*) Expensive Assets; Yes, absolutely, all assets are incredibly expensive. But pension funds are not going to make their nut sitting in cash waiting for them to get cheaper. Seniors in Europe can’t eat with their interest earnings from negative rates. Argentina floating a 100-year bond at 7 percent-ish, even after defaulting several times over the past 30 years, is definitely the warning bell of a credit bubble closer to the top. And a contrarian call inflation is about to ignite. The FOMO * yield and return chasing behavior of the markets reminds us of portfolio managers running to catch the Titanic, knowing full well the ship is going down. They just want to enjoy the 3-day party. How long will the party last?
# Take a look at the three objects. Two charts of the exact same market, the S&P500 over different time horizons and one picture. Do you see an S&P500 that is overvalued? Undervalued? Oversold? About to rollover or break to new highs?

Do you see a young lady or an old hag?

It most likely depends on your confirmation bias. Larry Summers, who will leave the White House at the New Year, coauthored a paper in the late 1980’s stating market volatility is caused by investors and traders with different time horizons...

But, like Keynes’ beauty contest analogy, the true question to ask is not what we see, but what we believe the market, the dominant marginal buyers, will see. Do they see the young lady or the old hag? Or maybe beauty is relative, or even ambiguous, and we have to determine which markets will be deemed the least old or the most pretty. And that just may be the best lesson here, which we think certainly is the case for the world’s major currencies. Dollar strength doesn’t necessary equate to the young lady!