With interest rates so low for so long all markets are awash in liquidity.
Investment Managers report that one consequence is that transaction activity is again through the roof, prices have been driven up (hello, again, leverage) and that all asset classes (stocks, commodities, real estate & infrastructure) now (again) have very high valuations.
In some cases, these Investment Managers are being out-bid by as much as 30%. (Other Managers must be pricing growth or risk … and therefore future returns … differently … or mis-using leverage). Value Managers are finding pickings slim.
If current value equal discounted future cash flows, then ‘as prices rise, prospective future returns fall. When assets are priced to achieve probable returns near zero … the process stops’ – John Hussman . Hussman estimates that ‘the 10-year annual total return projection for the S&P 500 is about 3.4%’. Hussman is not alone. Read Jeremy Grantham of GMO. Read anything by David Rosenberg. Read anyone who refers to Shillers’ P/E).
Stuff looks expensive.
Does this sound like ‘the time’ to buy … anything?
Individual Investors need not follow markets up.
Why? It’s just Math. See ‘next time’.
Me-and-My-Money … a Globe and Mail profile.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan