Are Equity Markets in a Massive Bubble

8/13/2019 Are Equity Markets in a Massive Bubble

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Are equity markets in a massive bubble?BY NIELS JENSEN/ ON 17 DECEMBER 2013 AT 08:04

Squeaky Bum Time: The Absolute Return Letter, December !"#

$Smart people learn from their mistakes. But the real sharp ones learn from the

mistakes of others%$

-Brandon Mull, Fablehaven

The 2002-03 season in the Engish !"e#ie" $eag%e& 'hi(h en)e) 'ith *i" Ae+,e"g%son 'inning a seenth !"e#ie" $eag%e tite& )eeo.e) into a he(ti( atte

et'een Man(heste" nite) an) A"sena At the height o the "a(e o" the tite& 'ithon a e' 'ees et o the season& *i" Ae+ %tte"e) the no' a#o%s 'o")s: Its

getting tickl no! " s#ueak bum time, I call it.$

*5%ea %# ti#e )es("ies e" 'e # e#otiona state at the #o#ent E5%it#a"ets (ontin%e to set ne' highs& see#ing ."e.a"e) to )is"ega") e(ono#i(%n)a#entas 6 hae nee" et enti"e (o#o"tae 'hen 6 st"%gge to "ationaiseinesto" ehaio%" an) 6 a# not aone A oe" the 'o") #a"et .%n)its a"e %s)e(a"ing this "a the atest in a ong st"ing o #a"et %es 'hi(h hae een )oingthe "o%n)s oe" the .ast e' ea"sMean'hie %siness .a"tne" an) goo) "ien) Ni( Rees has no' et the Cana"6san)s on oa") a "o'ing oat set o" Antig%a in the Ca"iean 'he"e the e+.e(t toa""ie in ate an%a" o% (an oo' Ni(9s ."og"esshere 6 o% (i( on the "a(et"a(e" #a.& Ni( is in the oat (ae) Tea# Neas Ene"g e" in) s.onso"e) o%" "ien)s in Aao"g& Den#a" Een Ni(9s 'ie .oste) this "e.o"t see here

oe" the 'eeen):%t &pm last night 'Frida( )ick and *d !ere on deck, )ick ro!ing, *d eating

dinner. +he !ere having a good chat apparentl % freak !ave described b )ick as

enormous reared up behind the boat. +he !ave knocked them out of the boat and it

capsied to the side, but righted ver #uickl and the bos '!ho !ere !ired onto their

safet lines( !ere able to get back on board safel. )ick got back on the oars to tr to

continue ro!ing, and *d !ent into the cabin " ho!ever another !ave threatened to

roll them again and )ick /oined *d inside. +he !ere then rocketed for!ard at a

terrifing 01.&knots b the !aves.$

*5%ea %# ti#e in)ee);

&o' to s(ot a bubbleBa( to the ina#o%s %es Not the so"t o %es #ost o %s en


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2hen the prices of securities or other assets rise so sharpl and at such a sustained

rate that the e3ceed valuations /ustified b fundamentals, making a sudden collapse

likel " at !hich point the bubble bursts.$

Asset %es a"e not a'as easi i)entiiae Aan "eens.an has een 'i)e"i)i(%e) o" asing the oo'ing 5%estion:

4o! do !e kno! !hen irrational e3uberance has undul escalated asset values,!hich then become sub/ect to une3pected and prolonged contractions5$

The #an has a .oint& tho%gh @e (an a s.ot the %es 'hen %sing the "ea"-ie'#i""o"& %t that is a %+%" on aaiae to a(a)e#i(s an) (o%(h .otatoes 6nesto"s)o not hae the %+%" o a "ea"-ie' #i""o">2? @e nee) to #ae "ea ti#e (as athe ti#e an) that is not a'as st"aighto"'a") A 1=3 ,e""a"i 20 TO (hange)han)s a( in O(toe" o" no ess than 2 #iion On o%" 'ees ago a ,"an(isBa(on .ainting et(he) 142 #iion at an a%(tion in Ne' Yo" 6 ee e" te#.te) to)e(a"e oth o those t"ansa(tions a ."o)%(t o i""ationa e+%e"an(e @ho in thei""ight #in) 'o%) .a those ."i(es o" %n."o)%(tie assets Yet 6 ee te#.te) to 5%ote

the age o) Danish saing: F@hat )o a"#e"s no' ao%t .i(e) (%(%#e"sG 6 ho.eo% get # .oint@hen 6 oo at Bit(oin& the (ha"t s("ea#s H%e9 to #e %t ho' )o 6 a%e it 6 a#not s#a"t eno%gh to ig%"e that o%t 6n s%(h a sit%ation the 'ise #oe is no #oeAnothe" e+a#.e: Cent"a $on)on ."o.e"t ."i(es Reasona inteigent .eo.e)e(a"e) $on)on ."o.e"t to e in a %e #o"e than a )e(a)e ago Mean'hie

."i(es (ontin%e to "ise 6s it a %e 6 )on9t no'& %t 6 )o no' that as ong as#isg%i)e) .oiti(ians in *rance& *.ain& 6ta an) "ee(e (ontin%e to #ae a) .oi()e(isions that #ae thei" o'n (itiIens .a( %. an) eae& $on)on 'i (ontin%e to

."os.e" an) ."i(e no"#a .eo.e o%t o the ."o.e"t #a"et& %t that is anothe" sto"atogethe" As ong as the"e )oesn9t see# to e an sho"tage o st%.i)it a#ongst the

.oiti(a eite in Euro(e& 6 'i not et against %"the" ."i(e in("eases on (ent"a$on)on ."o.e"t

The DNA o+ the !""# bull

No' to the ig 5%estion: 6s the"e a %e in goa e5%it #a"ets That is 'hat the"est o this ette" is a ao%t $et9s egin .%tting the (%""ent "a into a histo"i(a(onte+t Cha"t 1 sho's a %ninte""%.te) *J! 00 % "%ns sin(e 127 that haeaste) 0 'ees o" onge" Atogethe" the"e hae een 2 o the# an)& (ont"a" to'hat #an see# to thin& the 2012-13 "a is not an o%tie" 6t has neithe" een

e+(e.tiona ong& no" has it )eie"e) o%tsiIe) "et%"ns et& at east 'hen (o#.a"e)to the othe" #a


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-hart ": S./ 0!! bull runs since "12

Source6 Ineichen 7esearch 8 Management.

6 a# a#aIe) to see ho' #%(h a%e #an inesto"s assign to (ha"ts ie these @hat)oes (ha"t 2 "ea te o% As a" as 6 (an te not #%(h ,o" ee" (ha"t thats%ggests a "eationshi.& 6 (an in) t'o that (ont"a)i(t it To #e te(hni(a anasis isong on oo)oo an) sho"t on s%stan(e 6 #a hae ost a (o%.e o tho%san) "ea)e"s"ight the"e& %t so e it

-hart : The !""# bull market 3s% "14#!

Source6 http699allstarcharts.com9fair-compare-market-0:;:9
http://allstarcharts.com/fair-compare-market-1929/http://allstarcharts.com/fair-compare-market-1929/


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Anothe" .o.%a" (ha"t )oing the "o%n)s in "e(ent 'ees is the so-(ae)


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Anothe" e" .o.%a" (ha"t& sho'ing an a..a"ent in et'een the e+.ansion o the,e)9s aan(e sheet ie KE an) the "ise in * e5%it ."i(es& has een #a"ete)"e(ent as@erhaps the onl chart that matters (ha"t

ness one )igs a itte it )ee.e"& it is eas to get (a""ie) a'a 'hen ooing at (ha"ts

ie these& %t )igging )ee.e" is ."e(ise 'hat the goo) .eo.e at Mina( A)iso"shae )one an) thei" in)ings a"e 5%ite inte"esting 6 KE 'as soe "es.onsie o" the"e-"ating o e5%ities that has taen .a(e& one 'o%) e+.e(t a st"ong (o""eation

et'een !/E "atios an) the siIe o (ent"a ans9 aan(e sheets th"o%gho%t the .ost-("isis .e"io) ie "o# ea" 200L ho'ee"& !/E "atios a(t%a (ont"a(te) )%"ing thei"st t'o ea"s o KE (ha"t = 6n othe" 'o")s& KE aone )oes not e+.ain the "e(ent

%-"%n

-hart 0: 9E 3s% equities

*o%"(e:http699!!!.mcoscillator.com9learningAcenter9!eeklAchart9perhapsAtheAonlAchartAthatAmattersAforAno!9

No'& eo"e o%


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-hart : 9E 3s% equity market 3aluation

Source6 Minack %dvisors

The beauty o+ +inancial alchemy

Taing ao%t haing goo) "easons to e s%s.i(io%s& tae a oo at (ha"t 7& (o%"tes oBi "oss an) !6MCO Een a (as%a oo at the (ha"t s%ggests that the (hi(ens #asti (o#e ho#e to "oost * (o".o"ates a"e )es.e"ate t"ing to )eie" ea"ningsg"o'th 'hen #eas%"e) on a .e" sha"e asis een i the %n)e"ing ea"nings t"en) isat to negatie The ."i#a" too to a(hiee s%(h #agi( is oio%s sto( %-a(sA 'ho..ing 1 t"iion /- is s.ent ever earon %a( ."og"a##es in the *


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The"e a"e .otentia t'o )na#i(s at 'o" he"e The i"st one is st"aighto"'a") thee(ono#i( ((e !e"ha.s (ha"t 7 is teing %s that the * e(ono# an) #o"e

"oa) the goa e(ono# is not 5%ite as "o%st as * (o".o"ates 'ant %s toeiee The se(on) one is #o"e (o#.e+ an) has to )o 'ith ho' nationa in(o#e is)ii)e) et'een ao%" an) (a.ita

,o" #an ea"s it 'as a "eatie stae "eationshi. =P o nationa in(o#e 'ent toao%" 'ith the aan(e going to the o'ne"s o the (a.ita>3? As "e(ent as 10-12ea"s ago that 'as sti the (ase Then things sta"te) to (hange an) ao%"9s sha"e has

een %n)e" ."ess%"e ee" sin(e To)a ao%" "e(eies


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O%" s%s.i(ions a"e (oni"#e) 'hen 'e (o#.a"e * e5%it a%ations to those oothe" #a"ets (ha"t 10 6t is oio%s "o# this (ha"t that the st"ong %-"%n in *#a"ets has o.ene) %. a signii(ant a%ation ga.& in .a"ti(%a" is-Q-is e#e"ging#a"ets One sho%) aso "e#e#e" that E%"o.ean (o".o"ate ea"nings a"e )e."esse) at

."esent& sen)ing a%ations highe" so& on a ((i(a a)E7


The "ea o..o"t%nit set see#s to ie in e#e"ging #a"ets& tho%gh On(e goae(ono#i( g"o'th "e-a((ee"ates& EM e5%ities a"e ie to (o#e a( into ao%"& an)#%(h o the a%ation ga. (o%) an) sho%) )isa..ea" as a "es%t6n a %e-ie eni"on#ent inesto"s "a"e )isting%ish et'een goo) an) a) @esa' it in the ate 10s 'hen o' 5%ait )ot (o# (o#.anies 'e"e i) %. to"i)i(%o%s a%ations an) 'e sa' it again in the ho%sing %e in the #i) na%ghties'hen inesto"s o"got ao%t the go)en "%e o ."o.e"t inest#ents o(ation&o(ation& o(ation @hen 6 oo at inesto" ehaio%" to)a& 6 see the o..osite Most&i not a& inesto"s& a"e high see(tie an) a.."oa(h #a"ets 'ith a g"eat )ea os(e.ti(is#-hart "!: A ?ro'in? 3aluation ?a(



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10/12

-hart ": =aluation )iscount @ to( quintile yiel) 3s%


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!ete" a"g%es& an) 6 a# in(ine) to ag"ee& that 'e a"e (o#ing to the en) o the ho.e.hase 'hi(h is the .a"t o the e5%it ((e 'he"e "et%"ns a"e the highest 6n the ne+t.hase the g"o'th .hase "et%"ns a"e ie to e #%(h #o"e #o)est an) a"ge a%n(tion o the (o#.anies9 aiit to (one"t the a((ee"ating e(ono#i( #o#ent%#into "ising (o".o"ate ea"nings Yo% 'i aso note "o# (ha"t 13 that& in the g"o'th

.hase& !/E #%ti.es a(t%a (ont"a(t so#e'hat& et ea"nings g"o'th #o"e than(o#.ensates o" that& eaing inesto"s 'ith a .ositie& aeit "eatie #o)est&"et%"n 6t is on in the ina .hase o the e5%it ((e o.ti#is# that inesto"s ten) toget (a""ie) a'a an) %i) in %n"eaisti( e+.e(tations 'hi(h the s%se5%ent .a)ea" o" in the )es.ai" .haseo)#an9s "esea"(h is ase) soe on E%"o.ean )ata One #ight a"g%e that the *is 'e in to the g"o'th .hase an) th%s (ose" to the e+it .oint than #ost othe"#a"ets 6 'o%)n9t )isag"ee 'ith s%(h an ose"ation

-onclusion

Being (ose" to the e+it .oint )oes not& ho'ee"& i#. %e ehaio%" Yes& the"e

a"e signs o e+(esses ("ee.ing a( in to the #a"ets The ,T "an a .ie(e on asset-a(e) se(%"ities "e(ent 'hi(h sho%) 'o"" ee"one seehere an)& es& (oenantight oans a"e et again on the "ise see hereL ho'ee"& 6 )o not see #%(h in te"#s othe (assi( signs o %e ehaio%" e+(ess ee"age& ta+i )"ie"s giing o% hissto( .i( )e


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-hart "8: The bon) 3s% equity s'eet s(ot

Source6 C@ Morgan

No" a# 6 t"o%e) ao%t a the ta.e"ing ta ,inan(ia #a"ets too a it o a no(a( in Ma an) %ne oo'ing Be"nane9s (o##ents on 22 Ma 'hi(h #a"ets'e"e (o#.ete %n."e.a"e) o" No'& a#ost seen #onths ate"& the ne(essa"e+.e(tation a)

Are Equity Markets in a Massive Bubble

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