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BlackRock Warns "High Valuations & Low Volatility Are A Lethal Mix"

Tyler Durden's picture




 

BlackRock said there is a 20% risk that world events could go badly wrong, either because the eurozone acts too late to head off deflation or because of a chain reaction as the Fed starts to wind down stimulus in earnest. As The Telegraph notes, BlackRock’s risk indicator  is almost as high as it was just before the dotcom bust. "The ratio of the two is the key. High valuations combined with low volatility can make for a lethal mix. This market gauge sounded the alarm well before the Great Financial Crisis." Furthermore, the largest asset manager in the world warns, "troubling trends of growing inequality and weak wage growth, bring into question the sustainability of profit margins." What is good for investors is corrosive for societies, hardly tenable equilibrium.

 

Via The Telegraph,

BlackRock, the world’s biggest investor, has warned that central banks are poised to tighten monetary policy in the Anglo-Saxon countries and China, advising clients to be ready to pull out of global stock markets at any sign of serious trouble.

 

...

 

The group said in its 2014 Investment Outlook that investors have “jumped on the momentum train, effectively betting yesterday’s strategy will win again tomorrow”, but vanishing liquidity could leave them trapped if the mood changes. “Beware of traffic jams: easy to get into, hard to get out of,” it said.

 

...

 

the global system is still in the doldrums and far from achieving sustainable recovery. “The eurozone, Japan and emerging markets are all trying to export their way out of trouble. Who is going to buy all this stuff? The maths does not work. Not everybody’s currency can fall at once,”

 

...

 

BlackRock’s risk indicator - measuring “enterprise value” against earnings, adjusted for volatility - is almost as high as it was just before the dotcom bust. “The ratio of the two is the key. High valuations combined with low volatility can make for a lethal mix. This market gauge sounded the alarm well before the Great Financial Crisis,” it said.

BlackRock said there is a 20pc risk that world events could go badly wrong, either because the eurozone acts too late to head off deflation or because of a chain reaction as the US Federal Reserve starts to wind down stimulus in earnest.

 

...

 

the eurozone is “stuck in a monetary corset”, failing to generate the nominal GDP growth of 3pc to 5pc needed for economies to outgrow their debt burdens.

 

...

 

BlackRock said the profit share of GDP has soared to a modern-era high of 12pc of GDP, while the workers’ share has collapsed from 66pc to 57pc in one decade. “This speaks to troubling trends of growing inequality and weak wage growth, and brings into question the sustainability of profit margins.”

There is a 25pc chance that the world navigates these reefs and achieves a “growth break-out”. Even if that happens it will not help stocks, and will be “bad for bonds”. The Goldilocks outcome for markets is another year of feeble growth, buttressed by central bank largesse that leaks into asset bubbles. What is good for investors is corrosive for societies, hardly tenable equilibrium.

 

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Tue, 12/10/2013 - 22:22 | 4234722 zorba THE GREEK
zorba THE GREEK's picture

There is 100% risk that this farce is going to end very badly.

Tue, 12/10/2013 - 22:38 | 4234776 Boris Alatovkrap
Boris Alatovkrap's picture

"Fed starts to wind down stimulus in earnest"

Is improper use of word "earnest" in same sentence as Fed, no?

Tue, 12/10/2013 - 23:10 | 4234838 akak
akak's picture

"The Fed, through its interest rate and currency manipulations, earnest most of the wealth of the American people for the benefit of the elite".

No, it seems to fit well in this sentence, anyway.

Wed, 12/11/2013 - 02:16 | 4235203 Boris Alatovkrap
Boris Alatovkrap's picture

Oh, Boris is misunderstanding of word meaning. So sorry.

Tue, 12/10/2013 - 22:24 | 4234725 Colonel Klink
Colonel Klink's picture

CUNTrock, another parasite on the American people.  Along with all the giant hedgefunds, large TBTF banks, and market makers.

Tue, 12/10/2013 - 22:43 | 4234784 Seasmoke
Seasmoke's picture

Insurance companies. Definitely Insurance companies. 

Tue, 12/10/2013 - 22:29 | 4234744 Crawdaddy
Crawdaddy's picture

20pc chance it goes badly wrong. 80pc risk it goes what? Well? WTF kind of analysis is this?

Sometimes I think Blackrock sees themselves as that rock on the side of that cube in the middle of mecca.

Tue, 12/10/2013 - 22:33 | 4234754 frankTHE COIN
frankTHE COIN's picture

Reversion to the mean can be delayed, but ultimately it's inevitable. This market is rigged so badly, it's as if a coin was manipulated to land Heads 30 times in a row.
In the 1980's Joe Granville pointed out that all the Bull and Bear mkts. Fit into five year cycles. If a Bull mkt lasted 3 1/2 years the Bear would last
1 1/2 etc.
So when 1987 was the 5 th year of the Bull Mkt a lot of people were waiting for the crash. The 5th year of this Bull Mkt is approaching. We will see how far manipulation can push it.

Tue, 12/10/2013 - 22:44 | 4234789 Seasmoke
Seasmoke's picture

So this bear market will last 3 days ?

Tue, 12/10/2013 - 22:52 | 4234806 BandGap
BandGap's picture

You're so silly.

Tue, 12/10/2013 - 23:21 | 4234814 frankTHE COIN
frankTHE COIN's picture

Granville pulled a Hugh Hendry, before Hugh Hendry pulled a Hugh Hendry.
Mr Granville gave up and turned Bullish right before the crash.
But Tudor Jones and Peter Borish had an Analog indicator compared to the 1929 crash and let select people know that 1987 or a little later the mkt was about to crash.

This Bull Mkt started March 9, 2009

And yes, in 1987 the Bear Mkt lasted only days.

Wed, 12/11/2013 - 10:22 | 4235804 WarPony
WarPony's picture

March 9 ('33) - a day that will live in infamy: when lawful money was usurped by legal tender; when the bankrupt united States Federal Govt. went into a perpetual state of declared national emergency under maritime/admiralty law of war with gold fringed flags and the American people were declared to be the public enemy under the trading with the enemy act (still active and re-signed by the POTUS every 4 years) to fight the emergency of banks without gold.  Should have been a revolution!

Wed, 12/11/2013 - 10:49 | 4235890 WarPony
Tue, 12/10/2013 - 23:43 | 4234924 frankTHE COIN
frankTHE COIN's picture

I Believe that the mkt fell 150 points on the Friday before the crash and on Monday you got the 22 percent decline ( 500 pts plus ) decline and I believe that was the low. So the Bear bottom was, I believe 2 days. It hung around low levels for a while but the biggest part of the decline was 2 days. It slowly crawled up from there, until another crash in 1989.

Tue, 12/10/2013 - 22:59 | 4234818 yogibear
yogibear's picture

Bubbles Bernanke transfers the thrown to super bubble maker Yellen soon.

Tue, 12/10/2013 - 23:07 | 4234828 Cabreado
Cabreado's picture

What a charming, thoughtful, caring message from BlackRock.

The behavior is amusing and predictable... at least there is that.

Wed, 12/11/2013 - 01:07 | 4235102 brettd
brettd's picture

What stocks in the Dow are overvalued?

Wed, 12/11/2013 - 01:10 | 4235104 starman
starman's picture

Nonsense just turn on CNBC booya! Full retard need more cool aid!

Wed, 12/11/2013 - 01:35 | 4235142 yogibear
yogibear's picture

Blow it Black Rocks.

Wed, 12/11/2013 - 01:58 | 4235179 stant
stant's picture

did even care about the stock market in 87, and nobody here gave a shit then. i got out this past june and now i dont give a shit again. other than entertainment.

Wed, 12/11/2013 - 03:07 | 4235251 frankTHE COIN
frankTHE COIN's picture

I get that sense. I and many others try to bring up scenarios to help those who could use it.
Because the fact is you could become very, very rich thru the Mkts ups and downs. This kind of Mkt can wear a trader out. I hope people find endurance.
I was on the Nymex Floor starting in the mid 80 's when it was in the Twin Towers. If you can find an edge you can make life altering money, even in this manipulated Mkt.

Wed, 12/11/2013 - 05:59 | 4235355 Vice
Vice's picture

so . . an 80% chance we continue to kick the can and run those printers at full capacity? 

 

Methinks it's a 100% that things will go very wrong. Such a silly article. 

Wed, 12/11/2013 - 10:38 | 4235860 gmac
gmac's picture

Second chart footnote: "Non-financial companies excluded from all calculations."

Am I missing something?

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