Yup that’s what the Irish Times said this morning; so it must be true.
And on a Saturday morning as well – just to set the week-end off to a good start. If I was heading to my club downtown, or a dinner party in the Hamptons, it would be the subject du jour.
But unfortunately I’m not
I know the journalist and he’s one of the good ones. And it is true, there has been a growing clamour over the health of finacial markets. Last week, Niall Ferguson wrote about financial red lights flashing again, and in bold print saying “ I saw the 2008 crash coming and was ignored – a new one is looming”. Looming is a great word; scary but with absolutely no sense of time-line!
But to get back to the Irish Times piece, there’s a lot that’s good in it. It’s balanced, highlighting both the concerned and the more constructive views. To be concerned you have to worry about the “three Xs” – extreme leverage, extreme sentiment and excessive policy tightening.
Looking at each.
Leverage is high but financing cost are low and we have seen improving asset values in recent years. There was a good piece from Lombard Street Research on this in October.
Extreme sentiment? Are investors complacent? Certainly not at any of the investment strategy group or trustee meetings that I’ve been to recently. Also the ML survey of fund manager positioning shows little sign of irrational exuberance. The VIX (volatility index) is low but I don’t think it ever says a lot about where we may going, and just a little bit about where we are.
Excessive tightening by Central Banks. Do you really believe central banks are going to squander all they have achieved through a snail paced monetary policy to date, by hiking excessively or catching markets off guard?
Look we are late in this cycle – but to use one of my favourite cliches “bull markets don’t die of old age”.
We have growth in economies and in profits and I think we will continue to see reasonably low interest rates and inflation. For choice I’d prefer not to be starting from these valuation levels but I think it’s more relevant in the medium term to see that impacting on levels of returns rather than whether they have a positive or negative sign in front of them.
Tradewinds 