Good reads from around the Web.
There’s little doubt that most potential investments look expensive at the moment, with the possible exception of marked-down Brazilian football shirts…
Take UK government bonds. As recently as 2008, you could taper down your risk exposure by buying gilts and locking-in a 5% return.
At the same time, interest rates on cash for the savviest private investors were over 6%.
Today you won’t get even 3% on gilts. As for interest on cash, it has dwindled to approximately the same level as interest in signing the Brazilian strikers Fred, Hulk, and Oscar.
i.e. Near-zero.
This low return from safer assets mirrors the wider picture, where ultra-easy policy from Central Banks has pulled down yields across the asset classes, and hence bid up prices everywhere.
The New York Times has a catchy name for it, or rather two: Is it the Everything Boom, it asks, or the Everything Bubble?
Either way it’s not a place for stingy buyers to go shopping:
“We’re in a world where there are very few unambiguously cheap assets,” said Russ Koesterich, chief investment strategist at BlackRock, one of the world’s biggest asset managers, who spends his days scouring the earth for potential opportunities for investors to get a better return relative to the risks they are taking on.
“If you ask me to give you the one big bargain out there, I’m not sure there is one.”
I think the article is a bit selective with its definition of “everywhere you look” (Manhattan real estate and US bonds have been surging for years, and the Indonesian stock market is one of the few major emerging markets that looks truly frothy) but I agree with the gist.
There really isn’t much that’s obviously cheap about. Emerging markets looked better value for a while, but I have to boast say my pointing to this in December last year proved to be decent timing, given how they’ve caught a bid in 2014.
Even the gold miners I flagged up last July are ahead, with the likes of Randgold Resources some 25% higher.
Today it’s not easy to find comparable bargains. I could point to a few things that might be cheap, but they hardly seem like slamdunk opportunities.
For instance UK housebuilders have fallen hard on fears the property market has overheated – but investors could easily be proven right to have marked them down, depending on how interest rates move from here.
Anyway, buying too many shares in say Barratt Developments is hardly the stuff of prudent asset allocation.
What if they’re right?
Still, what seems like an expensive time to buy assets might yet turn out okay.
For one thing, not all markets are as expensive as the US, which tends to dominate the media. The UK market looks fine to me, and emerging markets as a whole are not yet dear in my view.
More important than my guesswork however is that stock markets are not completely stupid. It may well be that investors are right to be paying up to buy assets, even if they look a bit pricey.
One of the easiest traps to fall into as a new stock picker is to think that a share on a P/E rating 1 of 6 is certainly a better buy than one on a P/E ratio of 18. Often it will be, but if the company on the higher rating grows earnings at 20% and the cheap stock sees profits fall, you will probably have done better to buy the more expensive looking option.
Similarly, it’s possible the global economy is finally going to shake off the long global slowdown and burst into strength for a few years. If it does, then today’s expensive valuations will be moderated by fast-growing earnings, and could turn out to have been a good investment after all.
Time will tell on that.
In the meantime, if you really must snag a bargain, maybe you could look at US golf courses! It’s a buyer’s market, apparently.
- The price to earnings ratio, often used as a measure of expensiveness.[↩]
play Tron bikes in cyber space, you and I limp along the information B-roads on our tuk-tuks. Even the best tool – Morningstar’s 
by Tim Hale, which I’ve almost come to blows over with my co-blogger.
