San Francisco Fed President John Williams has publicly announced he can’t recognize an overvalued stock market when it’s right in front of him. Speaking at a press roundtable following the Asia Economic Policy Conference at the Federal Reserve Bank of San Francisco on Tuesday, Williams said:
“If you look at the valuation of stocks today compared to earnings and dividends and relative to historical averages, it’s not obvious that the stock market is overvalued, in fact a lot of models will tell you that it’s undervalued given how strong profits have been.”
You mean current profits with margins 70% above historical norms? Combined with a CAPE ratio of 25, overbullish sentiment as measured by investors intelligence and almost guaranteed mediocre returns over the coming decade (using valuation methods that actually have a high correlation with subsequent returns).
But don’t worry about any of that. Keep moving folks, nothing to see here.
So if QE doesn’t work, what does that say about the current bull market which is based in large part on the Fed not taking the punch bowl away? Clearly, that the perception that QE works is more important in the short term that the reality that it doesn’t. But carry on buying stocks, nothing to see here. From Washington’s Blog via Ritholtz.com
Just a few years back the suggestion that China’s property market looked like a bubble was met with derision by a cadre of China bulls. You remember the arguments, don’t worry about those empty buildings, millions of Chinese are moving from rural areas and they need somewhere to live. Never mind that they will be earning two dollars a day and can’t afford the rent let alone the cost of ownership of a $60,000 apartment. Thankfully today those views just seem plain silly, ghost cities are not just some urban legend or one-off anomaly, they are everywhere in China as evidenced in this recent piece on 60 minutes. This will not end well.
By The Fundamental Analyst, on February 10th, 2013
We often hear allegations that Chinese economic numbers are fudged. It’s hard not to jump on that bandwagon when you see how the Chinese numbers come out exactly as the central planners said they would, for example the carefully engineered slowdown in growth to between 6- 7% in 2012. Whilst I have always been skeptical of the numbers, I don’t want to repeat the same conspiracy theory arguments of manipulated numbers without evidence. In the clip below, Gordon Chang points out the discrepancy between export numbers reported by China and the import numbers of other countries in this case Korea. Whilst it may not be a smoking gun it sure does raise a red flag.