Book Value

Is The US Equity Market The Most Expensive In The World?

Over the weekend, we humbly suggested that the dream of ongoing US equity market multiple expansion may be over. It would appear SocGen not only agrees but finds current valuations very stretched. On the basis of Price-to-Book (valuation) and return-on-equity (profitability), the US equity market is extremely 'expensive'; and "hoping" for further expansion on the RoE to save the day is whimsical given the limits to leverage. Still, despite Obama's sell signal, it appears from today's open that the BTFATH crowd remains alive and well.

Don't Catch The Liquidity-Impacted EM Falling Knife (Yet)

The Euro area is no longer the centre of all the stress... EM countries are! Despite their significant correction in recent months, SocGen notes that valuations remain far more extreme (or cheap) and outflows are dominating (despite a 24% discount on a price-to-book basis across EM stocks, they reain rich historically). Significant structural issues like balance of payments, deficit or inflation may lead to further turmoil in emerging markets, potentially destabilising the underlying economies. Simply put, SocGen warns, valuations have further to fall; do not catch the falling knife (yet).

Three Key Lessons From Recent Travels Around The World

Amid the cozy world of X-Factor, American Idol, and Dance Moms, we can often be lulled into the belief that all is well in the world. But once the cocoon of mind-numbing media is shrugged off, the realities of the world are all too 'Matrix-like' exposed. Simon Black's travels have exposed these three things...

Frontrunning: May 8

  • Pentagon Plans for the Worst in Syria (WSJ)
  • Russia and US agree to Syria conference after Moscow talks (FT)
  • Hedge Funds Rush Into Debt Trading With $108 Billion (BBG)
  • Detroit is the new "deep value" - Hedge funds in search of distress take a look at Detroit (Reuters)
  • Commodities hedge funds suffer weak first quarter (FT)
  • But... but... Abenomics - Toshiba posts 62% decline in Q1 net profit (WSJ)
  • Americans Are Borrowing Again but Still Less Than Before Freeze (WSJ)
  • Man Utd announce Alex Ferguson to retire (FT)
  • Asmussen Says ECB Discussed ABS Purchases to Spur SME Lending (BBG)
  • Benghazi Attack Set for New Review (WSJ)
  • Belgium Says 31 People Arrested Over $50 Million Diamond Theft (BBG)
  • Brazilian diplomat Roberto Azevêdo wins WTO leadership battle (FT)
  • Bangladesh Garment Factory Building Collapse Toll Reaches 782 (BBG)

Frontrunning: April 24

  • The Inland Empire bubble is back: BMW to Amazon Space Demand Spurs Rush to Inland Empire (BBG)
  • Tamerlan Tsarnaev was on classified government watch lists (Reuters)
  • Brothers in Boston Bombing Case Said Drawn to Radicalism (BBG)
  • Germany Spurns Calls to Loosen Austerity Stance (WSJ)
  • Spain poised to ease austerity push (FT)
  • What ever happened to France's voice in Europe? (Reuters)
  • U.S., South Korea Reach Nuclear Deal (WSJ)
  • U.S. Sees No Hard Evidence of Syrian Chemical Weapons Use (BBG)
  • RBA Set to Invest Foreign Currency Reserves in China, Lowe Says (BBG)
  • FedEx Wins $10.5 Billion Postal Contract as UPS Shut Out (BBG)

This Time Is Different

The 2008 crash resulted from the bursting of the biggest bubble in financial history, a ‘credit super-cycle’ that spanned more than three decades. How did this happen? Some might draw comfort from the observation that bubbles are a long established aberration, arguing that the boom-and-bust cycle of recent years is nothing abnormal. Any such comfort would be misplaced, for two main reasons. First, the excesses of recent years have reached a scale which exceeds anything that has been experienced before. Second, and more disturbing still, the developments which led to the financial crisis of 2008 amounted to a process of sequential bubbles, a process in which the bursting of each bubble was followed by the immediate creation of another. Though the sequential nature of the pre-2008 process marks this as something that really is different, in order to put the 'credit cuper-cycle' in context, we must understand the vast folly of globalization, the undermining of official economic and fiscal data, and the fundamental misunderstanding of the dynamic which really drives the economy.