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James Montier: "The Market Is Overvalued By 50%-70%" And "Nothing At All" Is Attractively Valued

Tyler Durden's picture


A month ago we presented a must read interview by Swiss Finanz und Wirtschaft with respected value investor Howard Marks, in which, when explaining the motives driving rational investing he summarized simply, "in the end, the devil always wins." Today, we are happy to bring our readers the following interview with one of our favorite strategists, GMO's James Montier, in which true to form, Montier packs no punches, and says that the market is now overvalued by 50% to 70%, adding that there is "nothing at all" that has an attractive valuation, and that he sees a "hideous opportunity set."

Still, despite the clear bubble in stocks, he is unsure what to do since financial repression could last very long with "the average length of periods of financial repression in history is 22 years. We’ve only had five years so far." Finally on the topic of Japan and Abenomics, "for me, there is too much hope and expectation embedded in Abe, not unlike Obama in 2009: There was so much hope projected into Obama that he could only disappoint." He did, well... everyone but the 0.001% billionaires. Then again in a world in which there is only hope left, what happens when that too is removed?

From Finanz und Wirtschaft

James Montier is a full-blooded value investor. Pickings are slim these days, though, says the member of the asset allocation team at the Boston-based asset manager GMO. He sees a «hideous opportunity set» for investors, with the S&P-500 being overvalued by 50 to 70 percent.

James, are you able to find anything in today’s financial markets that still has an attractive valuation?

Nothing at all. When we look at the world today, what we see is a hideous opportunity set. And that’s a reflection of the central bank policies around the world. They drive the returns on all assets down to zero, pushing everybody out on the risk curve. So today, nothing is cheap anymore in absolute terms. There are pockets of relative attractiveness, but nothing is cheap or even at fair value. Everything is expensive. As an investor, you have to stick with the best of a bad bunch.

Where are these pockets of relative value?

There are two and a half of them. The half pocket is high quality stocks, companies that have high and stable profitability. But granted: They are nowhere near as compelling as they were even a year ago, so we are slowly selling our high quality positions. We are by the way also reducing our overall equity weight gradually as this year goes on. We have already taken about five points out, and we are at 50 percent now. By the end of the year we’ll probably be at around 39 percent.

And what are the other pockets of value?

European value is still somewhat okay – although there we have increasing concerns about the prospect of deflation in the Eurozone. The breakup risk of the Eurozone has been diminished, the thing seems to be holding together. But that comes with the cost of outright deflation in peripheral countries. That’s a big issue for European equities, not only because deflation increases the discount rate in real terms, but it also increases their debt in real terms. They will owe more in real terms the longer this deflation goes on.

What sectors fall under European value?

A mixture of asset rich sectors: Utilities, oil & gas, some telecom, some industrials. Names we like in that field are Total, BP, Royal Dutch, Telefonica and the like. The problem with all those sectors is that they tend to be debt heavy, which is why the prospect of deflation is such a big issue.

But the European market in general is not cheap anymore?

No. The time to be buying broad European equities was two years ago.

How do you make sure you don’t fall into a value trap with sectors like utilities and telecom?

You can deal with it by demanding a very large margin of safety. I’d argue you don’t get that right now. You could try fundamental analysis, have guys who think they know something about these stocks, and the third is good diversification. You don’t want too much in any one individual name. That’s why we own 150 stocks in our European value portfolio.

What about the mining sector?

They are tricky. We spent a lot of time thinking about mining as well as oil & gas. We’re quite happy with oil & gas. But the mining sector looks expensive to us today. The problem is there is so much supply coming onstream over the coming years, that commodities like iron ore and copper will show significant excess supply even on the assumption of unchanged demand. So we stay away from materials.

What about financials?

We tend to stay away from them, too. You just don’t know what you’re buying. Their balance sheets are built the wrong way around, their assets are liabilities, their liabilities are assets, you just end up scratching your head. So generally, they end up in our too-difficult-to-understand bucket. We own some financials, but only in small size.

And the third pocket of value?

Emerging markets are relatively attractive. But again, despite their underperformance of late, they are not outright cheap.

Every investor seems to hate emerging markets these days, and everyone loves developed markets like the U.S. and Europe. What do you make of that?
This is weird. We see a reverse decoupling theory. For years we heard that emerging markets can decouple from developed markets, and now we hear it the other way round. Neither of these assumptions is true. I don’t think decoupling can happen in either direction. If my assumption is correct that emerging markets are the canary in the coal mine, developed markets will get a hit.

Brazil, China and Russia all trade on single digit P/E right now.

Yes, true. The trouble is that many of these markets basically consist of two things: Financials and resources. Russia is a prime example. And when you look at the credit cycle in many of these markets, they are often quite extended. So they might look cheap, but you have to ask yourself if the earnings they have today will be sustainable. You definitely want to be cautious with financials in emerging markets. We own some assets in markets like Russia or Korea. Gazprom for example, which trades at a P/E of 2, is very cheap. But again, this is not a market to be enthusiastic. Every asset has been affected by the quest for return. I call this the Cinderella curse: Cinderella has already been taken out by Prince Charming, so you are left with the choice between her two ugly stepsisters.

And in order not to be alone, you end up taking out the ugly stepsister?

Yes. That’s what the investing world looks like right now. Not attractive, but there is no good alternative. You have to own some assets. And you just try to get paid as much as possible for taking these risks.

Do you see outright bubbles anywhere?

By some measures, you can say we are in a bubble, for example in U.S. equities. But it doesn’t feel like a mania yet. Today we experience something like a near-rational bubble, based on overconfidence and myopia by investors. It’s a policy-driven, cynical kind of bubble. Not a mania.

You coined the term foie gras rally, where the Fed just shoves liquidity down investor’s throats. How will it all end?

Probably not well. The exit from these policies is going to be extraordinarily difficult to handle. Today’s situation shows parallels with 1994. Then, the Fed had thought that they had done a great job in communicating their policy going forward. But it turned out the markets were not prepared at all, given the fact that it resulted in the Tequila crisis in Mexico. Couple that with expensive markets, and you have a good reason to want to own a reasonable amount of dry powder. You don’t want to be fully invested in this world.

Since the tapering started in December 2013, markets take it rather calmly.

Yes, the ones that suffered were the emerging markets. The S&P-500 just keeps drifting upwards. But I think emerging markets are the canary in the coalmine, the first signal. They had been the beneficiaries of these incredible capital inflows. So the fact that they are the first ones to suffer makes sense. It’s not a huge surprise that stock markets in the U.S. have not reacted, because the bond market has not reacted. The bond market seems to think the tapering will turn out fine. Maybe they’re right. But there is no margin of safety in asset pricing these days. That’s no comfortable position to begin a tightening cycle.

What if there won’t be any exit?

That’s a possibility. The Fed might decide that growth is still too weak and that inflation is not an issue. Then they could keep their policy in place for longer. The history of financial repression shows that it lasts a very long time. The average length of periods of financial repression in history is 22 years. We’ve only had five years so far. That creates a huge dilemma for asset allocators today: How do you build a portfolio with such a binary situation? Either they exit QE, or they don’t. And the assets you want to own in these two scenarios are pretty much inverse. So you either bet on either one of these scenarios, with is kind of uncomfortable for a value-based investor, or you say because we don’t know, the best we can do is build a robust portfolio. A portfolio that is able to survive in all kinds of scenarios.

And what does such a portfolio look like?

If you have continued financial repression, you want a much higher share of equities, because they are the highest performing asset, compared to bonds and cash. If you think financial repression will go on for another 20 years, you need to have equities. For the scenario that the central banks will exit their policies, you will want to own cash, because that’s the only asset that does not get impaired when interest rates rise. So you have two extreme portfolios: One almost fully in equities, the other almost fully in cash. So that’s what we do: We have about 50% in equities, and 50% in dry powder-like assets. That means some cash, some TIPS, and some long/short equity spread trades. But as said, we are reducing the equity part over the course of the year, to build up dry powder.

The pattern in the past years was rather simple: Whenever the S&P 500 corrected by more than 10%, the Fed launched a new program. Could that continue?

You can’t rule it out. That’s part of the Greenspan-Bernanke-Yellen put. Whenever there was a problem, the Fed rescued equity markets. That created a huge moral hazard. Investors have come to believe that the Fed will always make sure that nothing bad happens to equity markets.

Does that explain the buy the dip mentality we see these days? Or is there really so much money left on the sidelines, just waiting to get into equities?

Valuations suggest that most people are fully invested today. I don’t see much evidence of people being overly cautious, but a lot more evidence of people getting exuberant. But bear in mind: Owning a large chunk of cash today hurts your performance. Following a value-based strategy requires you to be patient. We know that patience is a rare treat in human beings, and it is extraordinarily rate among investors. Patience hurts. But it is less foolish to do the right thing for the long term, than try to second guess what will happen in the short term.

What is the fair value of the S&P 500 right now?

Several valuation measures suggest that the S&P is overvalued by 50 to 70%. Every piece of valuation I do says this market is too expensive. The only U.S. equities we currently own are high quality names like Microsoft, Procter & Gamble or Johnson & Johnson.

What’s your view on Japan?

It is far from obvious that prime minister Shinzo Abe will succeed in breaking the mold. He has succeeded in weakening the Yen, but now they increase consumption taxes next month – and thereby run the risk of a re-run of 1998, when Japan killed its own recovery. For me, there is too much hope and expectation embedded in Abe, not unlike Obama in 2009: There was so much hope projected into Obama that he could only disappoint. I’m not sure that Abe will succeed in ending deflation in Japan.


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Fri, 03/21/2014 - 15:18 | 4578120 ebworthen
ebworthen's picture

S&P true valuation = 666!!!

Fri, 03/21/2014 - 15:21 | 4578138 flacon
flacon's picture


Fri, 03/21/2014 - 15:34 | 4578189 Newfie
Newfie's picture

Yer mom's bush

Fri, 03/21/2014 - 15:43 | 4578219 Soul Glow
Soul Glow's picture

The markets are overvalued - no shit.

So is the dollar, so are bonds, almost everything is over valued, especially Kim Kardasion.

Fri, 03/21/2014 - 15:51 | 4578256 CIABS
CIABS's picture

Why would we want to read an interview that packs no punches?

Fri, 03/21/2014 - 16:02 | 4578285 DirtyWilly
DirtyWilly's picture

How about Amazon?  With that P/E of theirs they'll still be around after 615 years no?

Fri, 03/21/2014 - 16:12 | 4578329 skwid vacuous
skwid vacuous's picture

I prefer Cramer - Is he on again tonight... have to set the DVR...

Fri, 03/21/2014 - 21:31 | 4579253 Mister Kitty
Mister Kitty's picture

James Montier must have went to Harvard.  He's a smart dude.  Bastards.

Sat, 03/22/2014 - 07:59 | 4579918 AbbeBrel
AbbeBrel's picture

Delicious Squiddly Tidbit!!  The downvoters need a Klo

Fri, 03/21/2014 - 17:52 | 4578643 Bangin7GramRocks
Bangin7GramRocks's picture

I had a mindless paper shuffling boob explain Amazon to me. He said that the price was fine because lots of people make money trading the stock. Profits didn't matter BECAUSE the stock traded so high. I expect to see worthless turds like him sucking dick for dollars in a few years.

Fri, 03/21/2014 - 17:31 | 4578584 rosiescenario
rosiescenario's picture

......probably meant to say 'pulls'....

Fri, 03/21/2014 - 21:16 | 4579223 philipat
philipat's picture

Umm, ZH is not renowned for its proof reading or English language ability. But it dpes make up for it with its "Truthiness"??!!

Fri, 03/21/2014 - 15:45 | 4578229 aVileRat
aVileRat's picture

Guy's a generalist looking for free press.

Anyone who is talking his book saying Long microsoft and P&G, but is worried about overvalued retail vehicles trading at irrational growth multiples is full of shit and has a scant sector understanding.

Inflation expectations will die with the end of QE. Fed models say to raise rates, but the second T's price that factor in, retail momentum monkey's are going to be margin hiked back into the sidelines.


Sat, 03/22/2014 - 08:08 | 4579921 AbbeBrel
AbbeBrel's picture

Downvote cuz Grantham et al (Montier above) are Class Acts  (GMO - M is for somebody else it appears).  As for UR comment, check out Harry Dent and demographics before you spin up inflation yarns.  Looks more likely that 22 years (!! Amazing) of financial repression (i.e. low rates / no interest on your granny's savings) is more likely.  

Fri, 03/21/2014 - 15:39 | 4578199 Cursive
Cursive's picture


Everything's so phony these days, fair value could be $6.66 (excluding dividends, of course).

Fri, 03/21/2014 - 19:09 | 4578858 PT
PT's picture

Approx 15 years ago I thought that real estate was 30% over-valued.  Then in 2007 I thought it was 450% over-valued.  Then it crashed in 2008 and it was only 350% over-valued.  Then it gradually went back up to 450% over-valued.  But those are just my numbers.  You don't have to believe them.  Your area may be different.  Even if I am right, it hasn't changed anything for almost 15 years.  For all I know, I could easily grow old and die with real estate 1000% over-valued.  Don't forget the old ways of measuring things, but if you want to analyze the current world then you need to use a new set of tools, and I'm not sure if or how maths fits into the new tool kit.

Don't use DC equations to analyse an AC circuit.
Be very careful how you analyse feedback and hysteresis circuits.
If there is no co-relation between your analysis and your results, then you have to find what is missing. 

Fri, 03/21/2014 - 20:32 | 4579107 FreeNewEnergy
FreeNewEnergy's picture

Valuation is all relative. Depends on what you're looking for and what works.

Here in the great megalopolis of Rochester, NY, there are so many empty lots, the city offers a FREE garden permit to anybody who promises to grow stuff and keep the lot clean, mowed etc.. So, I found three empty lots in a row (three more right across the street, but I didn't want to be greedy) and the city granted my permit. They are also providing me with flower seedlings, mulch and compost - also free. I have to grow any vegetables in raised beds, so I began rounding up pallets, also free.

With my labor, I will have a 1/2 acre garden within two blocks of about 20,000 working people. So, yeah, a free 1/2 acre sounded good, but I will have to protect the crops too. A couple of motion sensors, some high fences (made from the free pallets) and maybe a few free tomatoes to a couple of the right street people may do the trick.

I'll post some links as the project progresses, but seriously, free land, ya really can't beat that with a stick.

In my more lucid dream-state psychosis I see greenhouses, solar power, maybe a mobile home and eventually the city selling me the land for $50 a lot (total $150) as a public benefit. And, to boot, they can tax me on it (hopefully not too much).

I may not make a lot of money selling my vegetables, but I'll be well-fed, that's for sure, and maybe have a place to live that's (no pun intended) dirt-cheap. Talk about re-puposing!

Sat, 03/22/2014 - 03:12 | 4579740 kareninca
kareninca's picture

I'm confused.  Didn't you write a number of months ago, that you had bought land down south and were moving there?????

Anway, your Rochester garden sounds fantastic.

Sat, 03/22/2014 - 13:44 | 4580523 PT
PT's picture

I based my valuations on published prices and wages.  Price should have some kind of co-relation with people's ability to pay (I'm a little old-fashioned that way - guess I'm a slow learner).

Nice to know you found your niche. 

Sat, 03/22/2014 - 18:57 | 4581042 Snoopy the Economist
Snoopy the Economist's picture

Yeah, I'm sure the deparate people will leave it alone. I remember when I was a kid and we raided gardens almost every summer evening - it was fun and nutritious.



Fri, 03/21/2014 - 16:47 | 4578462 rubiconsolutions
rubiconsolutions's picture

Long KY Jelly

Fri, 03/21/2014 - 17:40 | 4578602 Downgraded
Downgraded's picture

Lol...and WD40 - wait...WD40 is at 77!

Fri, 03/21/2014 - 18:00 | 4578666 Freddie
Freddie's picture

FaceBook and Tweeter are great companies at cheap valuations. (sarc)

Fri, 03/21/2014 - 18:38 | 4578768 Eeyores Enigma
Eeyores Enigma's picture

"Nothing At All" Is Attractively Valued"

 Not even humanity or the biosphere that provides the life support for humanity.

Fri, 03/21/2014 - 15:19 | 4578128 RaiZH
RaiZH's picture

The gold and silver paper markets are attractively "valuing" the physical market, for sure. 

Fri, 03/21/2014 - 15:23 | 4578147 EatYourCornTake...
EatYourCornTakeyourPill's picture

I agree that PM's are available at a bargain right now. Not 100% sure if it's because of the paper markets though. It's possible that someone knows something we don't know.

Fri, 03/21/2014 - 17:41 | 4578534 Jack Napier
Jack Napier's picture

It is most certainly paper markets. If for nothing else, because they massively expand the available supply (by an order of magnitude of 50-100 according to the late Adrian Douglas of GATA in front of Congress) while simultaneously diverting demand away from the real thing which both create downward price pressure even in a supposedly unbiased market.

Yet we have no such thing since the CME can change margin requirements whenever they are feeling lucky, and the steward of the SLV (JPM) is both the paper runner and the vault watchdog. Heck, the SEC tried to hire Blythe. This IS a very biased downward market, because real money is competition for fiat money; the tool of debt enslavement. Real money cannot be conjured ex nihilo, and would effectively render the Fed powerless, as well as all the entities that benefit from their ponzi.

So it's a double whammy. Metals are not just the obvious choice, they are the only choice. Unless you'd rather listen to Fonestar and implant an RFID chip in your head so you can keep using BTC when the overlords really get out of control.

Fri, 03/21/2014 - 18:52 | 4578808 explosivo
explosivo's picture

This is the same conclusion I've come to. Don't play a rigged game. Hold onto some real money for now. 

Fri, 03/21/2014 - 15:20 | 4578135 css1971
css1971's picture

Russian gas.

Fri, 03/21/2014 - 15:38 | 4578196 Newfie
Newfie's picture

You have been around Boris!

Fri, 03/21/2014 - 15:21 | 4578140 McMolotov
McMolotov's picture

Reversion to the mean is gonna be a bitch, bitchez.

Fri, 03/21/2014 - 18:21 | 4578646 prains
prains's picture

come on!, everyone likes their Ponzi a little plumpy in the humpy

Fri, 03/21/2014 - 15:22 | 4578144 Soul Glow
Soul Glow's picture

Shorting is the contrarian play and there ain't nothing wrong with being a contrarian when Wall Street is beyond insane.

Fri, 03/21/2014 - 15:28 | 4578169 EatYourCornTake...
EatYourCornTakeyourPill's picture

Ask all the people on here who have been shorting the market for the last two years as per ZH blogs advice and let them tell you their results. I would be willing to bet that on average they are all losing investors. Or ask Bill Ackman how his short position went on Herbalife.

Fri, 03/21/2014 - 16:33 | 4578404 Carl Popper
Carl Popper's picture

My only successful short was silver and I am not even close to breaking even on my other shorts. 


I have had my ass handed to me more times than I care to remember. 


Fuck shorting.  

Fri, 03/21/2014 - 16:46 | 4578460 Soul Glow
Soul Glow's picture

Thus why I pointed out it is the contrarian play.  And until a year ago it wasn't such an over bought market.  As for using other peoples opinions for your own market making, well, I hate to break it to you, but you don't have to take their advice.

Fri, 03/21/2014 - 17:52 | 4578641 eclectic syncretist
eclectic syncretist's picture

A little voice in my head keeps saying "must short Netflix".

Sat, 03/22/2014 - 10:52 | 4580179 WmMcK
WmMcK's picture

First leg, shorted SLV.

Second leg bought Ag.

Still waiting for the 2nd leg to pan out, of course.

Sat, 03/22/2014 - 19:05 | 4581062 Snoopy the Economist
Snoopy the Economist's picture

"Fuck shorting"

Carl, I remember listening to Tom Obrien's show when the market came off the bottom. To this day I recall listening to a caller ho stated that he placed a heavy position on shorting S&P at 850 - he wasn't worried because he 'knew' the S&P would drop back below 850 - to Tom's credit he told the caller to use a stop. I also learned the hard way that this market can not be shorted - now I only do longs with quick profits because I don't trust it in either direction.

Fri, 03/21/2014 - 17:47 | 4578628 Downgraded
Downgraded's picture

When you look at big picture, the LOSERS will be all the jackasses in equities "for the long haul".  Of COURSE ppl have made a bundle since S&P @666.  A no-brainer when we had the Stimulus and The Fed is the continual "foie gras feeder".  But if you're not covered, you're going down.  Anything can cause these equities to implode.  You can't take history like you said (last two years) and extrapolate that as though it's going to continue.  Hockey stick bullshit.  Financial companies are hanging by a thread.

Fri, 03/21/2014 - 15:29 | 4578170 NOTaREALmerican
NOTaREALmerican's picture

Re:  contrarian play

It's not patriotic tho.     It's cynical, and REAL Mericans are optimistic.  

Fri, 03/21/2014 - 15:57 | 4578274 Blues Traveler
Blues Traveler's picture

IN the words of Richard Russel, the stock market was not design to make you rich, it was design to distribute equities.  However, stay long the US banks and the list of 36 US companies that are considered national secutiry interest.

Fri, 03/21/2014 - 17:36 | 4578592 IPA
IPA's picture

If a stock does not pay dividends i don't see its value. But like gold, companies can't just create more of their stock, or did i get that wrong? 

Fri, 03/21/2014 - 15:27 | 4578161 NOTaREALmerican
NOTaREALmerican's picture

Bullshit will see us through.  It always does.   I confidient our brilliant sociopaths will create bullshit for our dumbasses which will increase their confidence AND dick sizes.

* Putin,  a godless commie who hates Merica, and the troops.  

I'm thinking 30 more years of "Keynesian" cold-war toys will turn this country around.

Cue:  slow motion eagles,  flags, and VERY expensive figther jet (protecting our children and creating high paying "Keynesian" jobs.)

Fri, 03/21/2014 - 15:39 | 4578200 McMolotov
McMolotov's picture

Your inspiring words just gave Bill Kristol sticky-pants.

Fri, 03/21/2014 - 16:43 | 4578447 RafterManFMJ
RafterManFMJ's picture

I like it! The new KB-35 fighter jet at an all in cost of 600 million per unit!

KB = Keynesian Boondoggle

Fri, 03/21/2014 - 19:32 | 4578929 Independent
Independent's picture

Yeah at least the MIC is smart enough to increase prices relative to the increase in monetary supply.  They are not dumb.  Wait till the dollars flood back in as soon as Russia and China finish off the dollar once and for all.

Fri, 03/21/2014 - 15:27 | 4578164 Motorhead
Motorhead's picture

Sounds like a 'buy' signal!

Fri, 03/21/2014 - 15:28 | 4578168 Element
Element's picture

At least it's not serious.

Fri, 03/21/2014 - 15:30 | 4578175 Gene Parmesan
Gene Parmesan's picture

He "pulls" no punches, not "packs" no punches.

Fri, 03/21/2014 - 15:32 | 4578182 Hongcha
Hongcha's picture




Fri, 03/21/2014 - 15:33 | 4578185 TheRideNeverEnds
TheRideNeverEnds's picture

Maybe so but buy the dip, we are still going dramatically higher.


If you think we are overvalued here wait until we are 20% higher at the end of the year.  

Fri, 03/21/2014 - 15:34 | 4578186 Hongcha
Hongcha's picture

I'm 1/2 cash 1/2 PMs real and paper; and a little Russian gas ...

Fri, 03/21/2014 - 15:43 | 4578217 McMolotov
McMolotov's picture

Thanks to ZH, I'm 1/2 crazy and 1/2 drunk.

Fri, 03/21/2014 - 15:51 | 4578253 YHC-FTSE
YHC-FTSE's picture

That's infinitely better than being a msm loving 1/2 wit. 

Fri, 03/21/2014 - 20:09 | 4579033 Yen Cross
Yen Cross's picture

    I concur.

Fri, 03/21/2014 - 16:31 | 4578396 Emergency Ward
Emergency Ward's picture

Ha, or 90% hammered and the other half insane.

Fri, 03/21/2014 - 18:03 | 4578683 General Decline
General Decline's picture

I like math jokes

Fri, 03/21/2014 - 20:39 | 4579125 FreeNewEnergy
FreeNewEnergy's picture

Borrowing and reprhasing a line from Yogi Berra, "90% of investing is half mental."

Fri, 03/21/2014 - 16:08 | 4578309 Jack Sheet
Jack Sheet's picture

call mine fart gas, but otherwise we're thinking the same!

Fri, 03/21/2014 - 15:34 | 4578187 Osmium
Osmium's picture

"What’s your view on Japan?"


It's radioactive, stay the hell away.

Fri, 03/21/2014 - 15:38 | 4578195 soopy
soopy's picture

So we'll just wait for a 50-70% correction before getting in again, gotcha.

Fri, 03/21/2014 - 15:41 | 4578207 Cursive
Cursive's picture


If you like your over-valued equities, you HAVE to keep your over-valued equities.

Fri, 03/21/2014 - 15:39 | 4578197 khakuda
khakuda's picture

Well stated, thanks for posting ZH.

Fri, 03/21/2014 - 15:40 | 4578203 Cursive
Cursive's picture


Fri, 03/21/2014 - 15:42 | 4578208 HaroldWang
HaroldWang's picture

Biotechs have been leading this ridiculous bubble and we saw that start to turn over on 2/25. Now the slaughter is on in the momos and bios. 

CNBC and their idiotic talking heads can talk all day about this being "nothing other than rebalancing" but it's much, much worse than that. Too bad the sheeple listen to these jerks.

Fri, 03/21/2014 - 17:53 | 4578645 Downgraded
Downgraded's picture

Yea, you mean just like listening to CNBC up until their jaws were on floor in March, 2000 (new paradigm)

Fri, 03/21/2014 - 15:42 | 4578210 MiniCooper
MiniCooper's picture

I am a big fan of James Montier and the GMO way of doing things. My feeling too there is nothing worth investing in.

The only thing I disagree with is that financial repression has 'only' been going on 5 years.

Its been going on since 1987. Greenspan was apointed in July 1987 and the stockmarket crash of October 1987 prompted the interventions that created teh breeding ground for the Dotcom and Housing bubbles that followed and now the recent Bond bubble.

That makes it 25 years already. If he is right about periods of financial repression we are near the end point. We have one final desperate act in the death throes and then capitulation. Probably when the bond market collapses when QE is finally ended and interest rates start to rise. Janet Yellen said when that was going to be just the other day and the market reacted instantly.



Fri, 03/21/2014 - 16:04 | 4578294 Duke Dog
Duke Dog's picture

Very excellent points!

Fri, 03/21/2014 - 16:11 | 4578313 Rainman
Rainman's picture

I agree. I also think the LTCM bailout arranged by the Fed in 1998 emboldened the central bank on the intervention front, allowed the bigger playerz to swallow up the smaller for cents on the dollar and all of it in the name of preventing systemic risk. Same playbook was used 10 years later. Now look what we got ....capitalism without bankruptcy is like christianity without hell.

Fri, 03/21/2014 - 17:50 | 4578635 Offthebeach
Offthebeach's picture

Since 1913.

Fri, 03/21/2014 - 22:59 | 4579463 jerry_theking_lawler
jerry_theking_lawler's picture

It started in 1775, when real Free men were born, then quickly their freedoms were re-confiscated....then, when it became evident to some, it continued with February 1861....when a peaceful 'succession' was not allowed to occur. Once that was in the bag, 1913 was next on base and was their crowning achievement. Its been down hill since then.

Fri, 03/21/2014 - 17:54 | 4578647 Downgraded
Downgraded's picture

You make an excellent points here!

Fri, 03/21/2014 - 19:29 | 4578923 khakuda
khakuda's picture

Yes, fantastic points. The Fed has been tinkering with reckless abandon in an increasingly interventionist way since 1987. Each disaster brought ever lower interest rates and now quantitative easing.

Contrary to their stated intentions, they actually harmed economic growth with the constant misallocation of capital from the various bubbles they caused.

When the current bubble blows up, isn't necessarily the end for them. It should be, but the central planners are going to go down fighting. They will try and pull something else out of their sleeve that's even more shocking to anyone who believes in freedom and free markets. Maybe there will be a debt Jubilee and all the debtors debts will be forgiven. Wealth taxes, confiscation of bank accounts, direct intervention and purchase of stocks, and literally dropping money from helicopters could be the order of the day.

Sat, 03/22/2014 - 20:20 | 4581207 Midnight Rider
Midnight Rider's picture

Good points!

Fri, 03/21/2014 - 15:42 | 4578211 Perimetr
Perimetr's picture

how about puts and bear market funds? 

Fri, 03/21/2014 - 18:00 | 4578667 Philalethian
Philalethian's picture

"how about puts and bear market funds?"

Speaking of puts, what's up with that soros put?

Fri, 03/21/2014 - 15:43 | 4578215 Duc888
Duc888's picture




The money shot is right here....


What about financials?

We tend to stay away from them, too. You just don’t know what you’re buying. Their balance sheets are built the wrong way around, their assets are liabilities, their liabilities are assets, you just end up scratching your head.

Fri, 03/21/2014 - 19:27 | 4578913 Ban KKiller
Ban KKiller's picture

Totally, dude! I mean, come on, financials are a maze of nonsense that NO ONE can decipher. So we see all the hype from Bovo the Clown telling us to buy banks. Yes, they will go up. Can they go down? Stupid question of me...

Fri, 03/21/2014 - 15:45 | 4578228 Carl Popper
Carl Popper's picture

Women are reasonably priced now. 


Go mongering in Latin america for amateurs or semi pros. 


Advertise for a "sugarbabe" on craigslist.  Be very careful but for a couple thousand per month you can get an enthusiastic amateur who has always wanted to experience being an older guy's girlfriend  anyway and be spoiled by him. 

Fri, 03/21/2014 - 16:42 | 4578442 Cacete de Ouro
Cacete de Ouro's picture

Fri, 03/21/2014 - 19:24 | 4578901 Ban KKiller
Ban KKiller's picture

Granada, Nicaraqua. Tourist town...gals from all over the world. Inexpensive place if you take your time to scope out the housing and food. 

Sat, 03/22/2014 - 04:05 | 4579754 kareninca
kareninca's picture

Oddly enough, I have never met a fellow female who had the fantasy of spending time with some dribbly old prostate-y dude in Depends.  With purple veiny hands, and wobbly saggy jowls, and old dude halitosis, sharing his Sixties tales, haha, yeah, get out the vibrator, haha.

Young women whose young boyfriends terrify the old dudes who drool over them, appear everywhere in world literature.  Check out The Brothers Karamzov.  Oh, they appear everywhere in reality, too.  Keep one bleary, cateract-y eye open at all times, ardent old dudes!!!!!  Keep the hearing aid turned up, for the heavy sound of approaching young male feet!!!!

Fri, 03/21/2014 - 15:55 | 4578267 wstrub
wstrub's picture

It is not is just reflecting the currency devaluation since the launch of QE.  This is exactly what happened in the 80's when Disney climbed 10 fold.  They said it was overvalued and it just kept going post the Savings and Loan crisis.

Fri, 03/21/2014 - 18:02 | 4578676 Downgraded
Downgraded's picture

And when interest rates begin to ride, watch them bolt from equities (value of greenback or not).  Everyone in equities cuz there's NOWHERE else to be.  (Except those brave enough to stay in cash, PMs, short paper). 

"Foie Gras Rally" is exactly what it is.  It's NOT EXACTLY what happened in 80's.  We didn't have the Fed Bankster creating BILLIONS out of thin air.  There's no comparison.

Fri, 03/21/2014 - 16:05 | 4578297 Frank N. Beans
Frank N. Beans's picture

"The average length of periods of financial repression in history is 22 years."

What??  What periods is he talking about, and how does he measure them as being financially repressed?  Definitely we are in such a period now, but when else?  22 years (average) is a long time and implies even longer periods happened. It also begs the question, how long (short) are the periods of financial NON-repression (i.e., between the periods of repression)? 


Fri, 03/21/2014 - 16:05 | 4578300 Jack Sheet
Jack Sheet's picture

GMO - genetically modified organism?

Fri, 03/21/2014 - 16:31 | 4578397 Rising Sun
Rising Sun's picture

go feed your BS to the shorts James - you'll get a punch in the face


no shit the markets are detached - asshole!!!!

Fri, 03/21/2014 - 16:37 | 4578419 rsnoble
rsnoble's picture

The funny thing about saying the market is 50% overvalued does that mean if we sold off to DOW 8k does that mean it will be perfectly priced and no one will buy because that's all it's worth or does it mean everyone will pile in again and ramp it right back to overpriced garbage territory? LOL.

You can't price something based on a market of emotion in terms of saying where it should be at.

One things for sure the mother of all resets is far below DOW 8k.  They could have that over 10k in a month and the momentum of dumbasses would be in full swing once again.

Fri, 03/21/2014 - 16:39 | 4578420 Cacete de Ouro
Cacete de Ouro's picture

Why doesn't GMO sell every equity if they think the market is overvalued? Instead it's, well, sell a little bit here, reduce weight here, go underweight here, we hope to be at 39 by year end. Why not sell the lot?

I'll tell you why.

1. They don't want to get it too wrong if they're wrong.

2. The whole long only fund industry works on relative performance and benchmarking and peer performance so they keep in with the herd

3. How do you make a salary and keep the lights on (30bps of mgt fee on the funds) if you sell it all and go to cash? LoL

Fri, 03/21/2014 - 16:55 | 4578489 Jack Sheet
Jack Sheet's picture

the management gets their 2% cut irrespective of whether the market goes up, down or sideways

Fri, 03/21/2014 - 16:43 | 4578449 moneybots
moneybots's picture

"...says that the market is now overvalued by 50% to 70%, adding that there is "nothing at all" that has an attractive valuation"


Other than inverse funds, primed to gain when the market moves back to being ZERO% over valued.

Fri, 03/21/2014 - 16:49 | 4578471 moneybots
moneybots's picture

"Do you see outright bubbles anywhere?

By some measures, you can say we are in a bubble, for example in U.S. equities. But it doesn’t feel like a mania yet. Today we experience something like a near-rational bubble, based on overconfidence and myopia by investors. It’s a policy-driven, cynical kind of bubble. Not a mania."


100% of bubbles burst.  A maniacal policy driven bubble is still a bubble.  The math is the same.

Fri, 03/21/2014 - 16:59 | 4578494 NOTaREALmerican
NOTaREALmerican's picture

Sure, but assuming you're dealing with humans, the price of anything in ANY market will be R + BS: where R is reality and BS is (well) bullshit.

The first rule of bullshit tells us that:   X + BS = $ ^ BS, so, for example:

stuff + bullshit = bling
craft + bullshit = splatter art.

Bullshit adds LOTS value, as you can clearly see above.  

Because we are dealing with humans,   the amount of bullshit is unlimited and is self-generating.

Hence, bubbles are really just the amount of bullshit present in society at any given time.

The US has been based on bullshit for 200 years.  There's LOTS of bullshit. 

Bullshit and bubbles are a natural part of being human (and Merican).

Fri, 03/21/2014 - 17:32 | 4578567 kill switch
kill switch's picture

"The Market Is Overvalued By 50%-70%"


So WHAT it will still go up!!! What don't you understand?????? IT'S FUCKING RIGGED,,,,HELLO....................................

Fri, 03/21/2014 - 17:29 | 4578573 Der Wille Zur Macht
Der Wille Zur Macht's picture

Tyler. You desperately need a proofreader / editor:


1) The phrase is "pulls no punches," not "packs no punches." That is, unless you are remarking on the feebleness of Montier's claims.

2) There are TONS of grammatical and spelling mistakes in almost every post.


I will proofread articles for a nominal amount. Message me.

Fri, 03/21/2014 - 17:29 | 4578574 xamax
xamax's picture

We see s&p500 rally by year end to 2400. In our view, it is a gud time to buy stocks.

Fri, 03/21/2014 - 17:29 | 4578577 Pumpkin
Pumpkin's picture

Politicians are WAY over valued.  I wouldn't trade a dried dog turd for the whole lot of em.

Fri, 03/21/2014 - 17:36 | 4578593 klapper
klapper's picture

'And "Nothing At All" Is Attractively Valued'

Not even Tesla?

Fri, 03/21/2014 - 17:41 | 4578608 Inthemix96
Inthemix96's picture

James Montier sounds like a nice bloke,

I get a real chuckle standing here having a few beers thinking that the bastards who fucked me over over in 2008 are walking away from this car crash.  You.  Are.  Not.

The interwebs have ingrained your filthy bastard faces into my mind, twice, thrice over.

I still stand here laughing as I type this, I am but a cog in the wheel, wait till you meet my friends you cunts.

I would rather be dead.

Heres an old one for the fuckers reading this, TalkTalk, Its My Life.  Google it.

Smile and wave boys.  Smile and wave.

Fri, 03/21/2014 - 17:48 | 4578632 rosiescenario
rosiescenario's picture

Here's the base assumption: our Fed can continue to floor the market via the Yellen put so there is no downside, leaving only upside. Money created by the Fed has no place to go but into equities. The Fed is free to print and there is nothing to impede it for at least another 15 years, etc.'s the problem with this assumption.....there might be some foreign centered issues beyond the Feds control that kill the dollar value if they maintain this course.

Fri, 03/21/2014 - 18:21 | 4578726 geno-econ
geno-econ's picture

Yep. Watch that Black Swan fly West from the Black Sea which will force Russia and China to open new patterns of trade based on Russian energy in exchange for Chinese consumer/manufactured products currently experiencing overcapacity. Will drive dollar down, import prices up, and interest rates sky high to attract fools willing to buy US treasuries. Game over--our fault

Fri, 03/21/2014 - 18:21 | 4578727 TrustbutVerify
TrustbutVerify's picture

Very good interview.  But his last statement about Obama...  What's he saying?  Obama hasn't actually failed?  Its our own excessive expectations in him that has led to our disappointment?  So, if our expectations had not been so excessive we'd be thinking Obama was doing a great job?  

I'm trying to understand this.  Help me. 

Fri, 03/21/2014 - 18:46 | 4578798 Haager
Haager's picture

No, he says that Obama has failed for everyone except for the 0.1% - which is enough for the markets to sheer and enough for the dumb masses as long as they get their heroine/Obamaphone.

Fri, 03/21/2014 - 18:22 | 4578732 Philalethian
Philalethian's picture

One has to wonder about what the news 'headline' will say when the whole corrupted system all crashes, and goes pop! What will Tyler say here on ZH?


Fri, 03/21/2014 - 19:33 | 4578917 arby63
arby63's picture

One thing I am certain of: The consumer is about tapped out. Yelleninsky can print all she wants but the end is nigh--at least for this iteration of fraud.


My customers are now lean. This reality is rolling downhill soon unless we get a reprieve.


Whe the consumer is finished, we are finished.

Manufacturing is at a real STANDSTILL.

Fri, 03/21/2014 - 19:42 | 4578954 noguano
noguano's picture

The middle class can't take another hit.  Slowly chipping away.  It's sad.

Fri, 03/21/2014 - 19:34 | 4578935 Ban KKiller
Ban KKiller's picture

It has been said many times, we are not in a normal market. better pay attention if you are jacking around on these musical  chairs. In this game even the ones that grab a chair lose. 

Is history just ignored? I don't get that at all. 


Fri, 03/21/2014 - 19:43 | 4578953 Yen Cross
Yen Cross's picture

 How do you value a market that has been artificially inflated for over (5) years?

  Every segment of the equity,risk segment has been propped up with close to 12 TRILLION DOLLARS globally over the last (5) years.  Who knows? It could be much more...

Fri, 03/21/2014 - 20:49 | 4579161 Its_the_economy...
Its_the_economy_stupid's picture



Much more of this type of interview article please.

Fri, 03/21/2014 - 21:04 | 4579171 yogibear
yogibear's picture

So, the market can can keep going as long as the HFTs and bots keep bidding it up.

In the mean time Yellen claims we are not in a bubble. Keep the game going as long as they can.

The fed has to keep the equites  jacked-up for the insurance companies and  pension funds.

Fri, 03/21/2014 - 21:12 | 4579212 Luckhasit
Luckhasit's picture

Are we ahead of the curve if we already knew this?

Fri, 03/21/2014 - 21:17 | 4579224 AdvancingTime
AdvancingTime's picture

The term "the new normal" has not been used much as of late, but going forward it may be about to return. Many investors and the public at large may be about to realize that central banks can only do so much through printing money and lowering interest rates. Both these actions carry with them some very strong and nasty side effects.

Markets have become very distorted as money has flowed into risky assets in search of higher yields. It could be we are about to see the markets morph into a "realizing market", one that grinds slowly downward. Another possibility is that at some point as the wisdom of buying every pullback changes, it may simply drops like a stone. More on this subject below.

Fri, 03/21/2014 - 22:07 | 4579330 I Write Code
I Write Code's picture

The New Norbal!

Actually he leaves something out, not only is everyone pushed out on the risk curve by buying safe dividend-paying stocks for the return, but also because of the risk at any moment of hyper-inflation, you don't want to be caught with ANY kind of fixed-income instruments when that begins.

So the only rational buyers of even tbonds are those using ZIRP funds, who will be made whole in case of disaster anyway.

If Satan himself decided to start a new school of economics, this would be it.

Sat, 03/22/2014 - 01:35 | 4579673 ThisIsBob
ThisIsBob's picture

Valuations are sooooo last century.  Its the mo baby. Get with it.

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