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Slim Pickin’s.


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’.

Next time?

Me-and-My-Money … a Globe and Mail profile.

Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan

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5 Comments Post a comment
  1. Thanks for yet another scary chart.

    I fear investors are listening … but they cannot ‘hear’.

    … and I maintain that a balanced, globally diversified portfolio will be the answer.

    Like

    May 27, 2011
  2. diversifyme #

    Hi Doug. Thought you (and your readers) might find this interesting. Another extremely persuasive piece re why valuation matters when attempting to forecast expected returns. The second chart, in particular, is a bit of a jaw-dropper.

    http://advisorperspectives.com/commentaries/dshort_51711.php

    Like

    May 27, 2011
  3. hi as someone who thinks markets are at irrational exhuberance time and sees forecasts of 3 to 4% in s&p values for the next ten years is the simple solution not to buy government 10yr bonds for 4%? thanks.

    Like

    April 30, 2011
    • Sounds reasonable … look at even shorter government bonds … look at XSB … short bonds.
      good luck.

      Like

      April 30, 2011

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