Secure
Offshore Investment Fundamentals
Whichever way you look at it, the stock market fundamentalists
have had a lousy couple of years, and the markets are asking
them how they could possibly have got it so wrong. America’s
economy is now moving into record territory with an unbroken
107-month run of growth that beats the last record (106 months,
from February 1961 to December 1969).
The Dow has very nearly doubled since that historic day in
December 1996 when Federal Reserve chairman, Alan Greenspan,
first told the world that Wall Street was trading on “irrational
exuberance”, and that the next move ought to be down.
The cyclical global economic slowdown of 1998-99 simply failed
to materialise, even though the Russians, the Latin Americans
and the East Asians all did their best to help spoil the party.
Secure Offshore Investment Fundamentals - Appetite For Bonds
And still there isn’t any appetite for bonds. Average worldwide
yields have risen by more than 1.7 percentage points in the last
12 months (and by more than 2 percentage points in the USA). The
bond/equities yield ratio (a comparative measure of popularity
between bonds and equities) is getting on for double its traditional
average, with a staggering 3.5 figure, which tells us that investors
are more stock-crazy and less safety-minded than they’ve
been at any time since the months just before the 1987 stock market
crash. The current price-earnings ratio on the Standard &
Poor’s 500 is nudging 40 - compared with 27 just before
the 1927 crash. Tokyo’s p/e is on 80, almost the same as
it was in late 1989 before the Tokyo crash. So why aren’t
the alarm bells ringing now?
Secure Offshore Investment Fundamentals - Markets
Well maybe they are, but maybe nobody’s listening. Then
again, maybe that’s because the markets intuitively know
that the world has changed its shape since the last time we had
a crisis, and that the best thing we can do is to throw away all
our investment textbooks and start again. Whisper it quietly:
perhaps the present state of lunacy is sanity in disguise.
But that’s a bit of a big statement to make this early
in the day, and we’d be falling down on the job if we
didn’t at least try to substantiate it. So let’s
run through some of the things that seem to make today’s
investment situation so different from the way things used to
be. You never know, we might learn something useful.
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