“Warren Buffett’s favorite valuation model is screaming that stocks are overvalued.” (Ed Yardeni ) “The most important observation an investor can make is that foreign equities (EU and EM) have not made any progress since October 2009, while majority of the gains in the All Country World Index (NYSE: ACWI) has come from the US equities outperformance.” Short Side of Long
In the extremely low interest rate environment many investors chased yield, and have begun to learn “investing for high income can sometimes be extremely risky…” Richard Bernstein.
In short, Asset prices are very rich. Stocks and bonds. This isn’t the year 2000 either, when Russell 2000 stocks were in the bargain bin. Precious little is investable.
The economy continues to plod along: Employment, Housing & Autos Point To Continually Improving Economy at Value Plays. Jobless claims are at a 40 year low (WSJ) though inflation adjusted incomes stinks (Doug Short). Pent-up demand for housing is real and underappreciated (WSJ).
The commody complex disaster has continued, and even accelerated this summer. “The Bloomberg Commodity index fell 3.3 per cent on the week, to the lowest level since 2009.” Financial Times
Fortunately in the real world, “The long run economic benefits of structurally lower energy prices and energy security are slowly feeding through to the wider economy.” In the Long Run
Salman Partners economist calls bottom in copper (Mining). Many a commodity bull has said the same the last four years and been wrong all the way down. Base metals are a tough business, and interetingly: “But since 2005, the world’s copper industry has consistently produced 7% less copper than planned.” TCK sports a $7 handle.
In commodities meltdown, natural gas is a bright spot at the Finacial Post. The delinking arguement is at least interesting.
The entilement program picture with color: Social Security, Medicare Outlook: Better but Still Bleak at the WSJ.
Commentary regarding the credit fiasco leading to the financial crisis often led to ‘gold to the moon’ as the investment conclution. Perhaps the goldbugs were just an economic cycle early. Household balance sheets have not improved. The governement’s balance sheet worsened significantly. Business balance sheets were strong going into the financial crisis, but the siren song of cheap money has turned out to be too much temptation for corperations as Companies May Be Running Out of Time to Borrow From Bond Investors to Pay Shareholders (Bloomberg). With a Kansas City Fed research paper finding changes in the economy and financial markets are blunting the effects of Fed policy, the money printing to arrive with the next recession will be larger than can be imagined (WSJ). We just don’t think it’ll be anytime soon.
“It could take many months — or even years — for the precious metals to form a bottom” says Peter Brandt.