Skip to main content

Posts

Showing posts from November, 2017

Asset Prices

Irrational exuberance

Over the course of the last few years American equities, reflected in the value of the Dow 30 index, have spiked and some would argue, beyond reason. So has the more representative S&P 500, together with bonds and property. A quick scan of the PE ratios of the S&P 500 index since 1926 reveals 10 instances when sceptics may have had cause for concern that a bubble was forming. The most significant amongst these were the crash of 1929, the dotcom bust of 2001 and finally, the collapse that followed the global financial crisis of 2008. The cyclically adjusted price-earning ratio of US equities now stands at 30, which is irrational from many benchmarks. The only time it was higher, was just prior to the GFC.
Higher and higher
When markets enter a bull phase everything, including stocks, bonds and homes, rises in value. This is often the result of a herd mentality, one that fails to comprehend risk and hence not price it correctly. In this instance, asset prices …

CHINA : Rise of the Dragon

Chinese President Xi Jinping’s dream of the Great Rise of the Chinese Nation has been interpreted to contain several facets. First, is the purge of corruption known to have plagued and impaired the Chinese State. Consequently, tens of thousands of civil servants, party officials and army officers have been charged and jailed for crimes against the nation. The credibility of the communist party, specifically in the context of a single party state, hinges on the perception that its administration is fair. The second aspect is an increased assertiveness across its borders, but particularly within the Asian region, which China believes is well within its backyard. The tensions in the South and East China Seas are a reflection of the new paradigm. The third is economic growth, which China considers essential to keep urban middle-classes gratified, critical in an authoritarian state where elections cannot replace the party in power. It is for this reason that it consistently pump-primes its…