Asset prices are high across the board. Is it time to worry?

[gzbkel]

https://www.economist.com/news/leaders/2...prices-are (Paywalled, 3 articles/week)

With ultra-loose monetary policy coming to an end, it is best to tread carefully

IN HIS classic, “The Intelligent Investor”, first published in 1949, Benjamin Graham, a Wall Street sage, distilled what he called his secret of sound investment into three words: “margin of safety”. The price paid for a stock or a bond should allow for human error, bad luck or, indeed, many things going wrong at once. In a troubled world of trade tiffs and nuclear braggadocio, such advice should be especially worth heeding. Yet rarely have so many asset classes—from stocks to bonds to property to bitcoins—exhibited such a sense of invulnerability.
Dear assets are hardly the product of euphoria. No one would mistake the bloodless run-up in global stockmarkets, credit and property over the past eight years for a reprise of the “roaring 20s”, or even an echo of the dotcom mania of the late 1990s. Yet only at the peak of those two bubbles has America’s S&P 500 been higher as a multiple of earnings measured over a ten-year cycle. Rarely have creditors demanded so little insurance against default, even on the riskiest “junk” bonds. And rarely have property prices around the world towered so high. American house prices have bounced back since the financial crisis and are above their long-term average relative to rents. Those in Britain are well above it. And in Canada and Australia, they are in the stratosphere. Add to this the craze for exotica, such as cryptocurrencies (see Free exchange), and the world is in the throes of a bull market in everything.
[...]

[karlmarx]

...
"Asset-price booms are a source of cheer, but also anxiety. There are two immediate reasons to worry. First, markets have been steadily rising against a backdrop of extraordinarily loose monetary policy. Central banks have kept short-term interest rates close to zero since the financial crisis of 2007-08 and have helped depress long-term rates by purchasing $11trn-worth of government bonds through quantitative easing. Only now are they starting to unwind these policies. The Federal Reserve has raised rates twice this year and will soon start to sell its bondholdings. Other central banks will eventually follow. If today’s asset prices have been propped up by central-bank largesse, its end could prompt a big correction. Second, signs are appearing that fund managers, desperate for higher yields, are becoming increasingly incautious. Consider, for instance, investors’ recent willingness to buy Eurobonds issued by Iraq, Ukraine and Egypt at yields of around 7%.

More significant still is the behaviour of long-term interest rates. They have fallen steadily since the 1980s and remain close to historic lows. And that underpins all sorts of other asset prices (see article). A widespread concern is that the Fed and its peers have grossly distorted bond markets and, by extension, the price of all assets. Warren Buffett, the most famous disciple of Ben Graham, said this week that stocks would look cheap in three years’ time if interest rates were one percentage-point higher, but not if they were three percentage points higher. But if interest rates and bond yields were unjustifiably low, inflation would take off—and puzzlingly it hasn’t. This suggests that factors beyond the realm of monetary policy have been a bigger cause of low long-term rates. The most important is an increase in the desire to save, as ageing populations set aside a larger share of income for retirement. Just as the supply of saving has risen, demand for it has fallen. Stagnant wages and the lower price of investment goods mean companies are flush with cash. All this suggests that interest rates will stay low by historical standards."
...

Globally, I agree that asset prices have run up tremendously. U.S. and European stock and bonds at least. On sunny island Singapore, the stock market still seems a little quiet., and most equities are now fairly valued, compared to 5 years ago. 1987, 1997, 2008, and many people said 2017. 3 months to the end of the year so I shall keep my fingers crossed. I think 2018 will be another good year, and the bull may have a 2-3 more years to run, ceteris paribus.

[chialc88]

Good morning valuebuddies,
Life is short.
Time is fast.
No replay.
No rewind.
So enjoy every moment as it comes.

karlmax: "...and most equities are now fairly valued..."

Not sure whether you know my habit of digging for gold nugget using 52 weeks low.
Really enjoyable, feeling the joy of discovery every Saturday.
Super effective in 2015 and 2016.
I was wondering why these gems can be at 52 weeks low.

Sadly, all these gems disappear (I suppose it means fairly valued)
and, now replaced by bluechips (under-value)?

Scary hur...

Watch the video and this is precisely what I thought of current market.


and you?
How are you feeling?

[karlmarx]

LC, you think the market is very cheerful now? But volume is still quite low!

Maybe it will be more cheerful in 2018.

[chialc88]

2018 is too far away.

Definitely Azure in next few weeks...

[Terry]

common stocks uncommon profit says asset value has no correlation to earning power.

[brattzz]

NOT high then we worry...

always high before the crash!

[specuvestor]

common stocks uncommon profit says asset value has no correlation to earning power.

there is correlation to cashflow rather than accounting earnings... both on a business level and on a shareholder level. Most don't understand the difference. And of course there is the timeline to determine your assessment of correlation. This adage I hold very true: Market is a voting machine in the short run and weighing machine in the long run. Those who think markets are efficient obviously never seen how CLOB, dot-cons or even s-chips run

[Porkbelly]

The party continues....

In London, after having signaled a rate hike several times without following through, Bank of England Governor Mark Carney finally announced an increase on Nov. 2 -- the first in 10 years. However, with Brexit-related uncertainties influencing economic policy, this may turn out to be a “once-and-done” strategy rather than the start of a process of serial tightening. Some investors even fear that the central bank may be forced to reverse the rate hike if the economy weakens markedly.  Rather than appreciate after the monetary tightening, the pound fell sharply.

You will not see warnings of monetary tightening from Japan either. Prime Minister Shinzo Abe’s party won a landslide victory in elections held Oct. 22, allowing him to continue the stimulative policies he has favored. Speculation is growing that Haruhiko Kuroda, under whose leadership the Bank of Japan increased its balance sheet to an unprecedented 100 percent of gross domestic product, may be reappointed in April.

The message for investors: The Yellen-put, Draghi-put, Carney-put and Kuroda-put are all very much alive. That means the three decade-long bond rally is likely to continue, even as the speculative bubble in equities gets bigger.

https://www.bloomberg.com/view/articles/...going-away
[/url]
[url=https://www.bloomberg.com/view/articles/2017-11-03/party-on-the-central-bank-put-isn-t-going-away]

[brattzz]

it can only go higher!! :O too much liquidity!! up up up!