Minyan Mailbag: Are We Overvalued?
Risks continue to percolate under a seemingly calm financial surface.
The numbers continue to sing the same tune. Growth keeps surprising to the upside while inflation doesn't budge. Seems like the best of all worlds, yet you still seem to filter everything through bear colored glasses. The subprime issues have been thoroughly discounted, yet the SPX is still up solidly for the year. I'm starting to think that you're going to be bearish no matter how high we go or how good the numbers are. You can't argue that we're overvalued with a multiple of 15. It's about as average as average could be and yields are near 4%, which is as low as it gets. What gives?
The message of Minyanville is to measure, respect and understand risk while promoting financial literacy and intelligence in an engaging and, dare I say, entertaining way. To your point, there is most certainly a case to be made that the mainstay averages have held up remarkably well given the heretofore 16% pullback in the banks and where crude is trading. That is what was and what is. What we're trying to help Minyans map is what will be.
We've written extensively on the cumulative effects of policy--dollar devaluation vs. asset class deflation, the underlying derivative fabric (as much as $500 trillion notional) and the difference between a legitimate economic expansion and debt induced growth. There's also the issue of coincident inflation (things we need) and deflation (things we want). I don't profess to know when it will "matter" but to understand where we are, we must appreciate how we got here.
To that end, and this is simply my opinion, the Treasury and Central Banks have pushed risk out on the curve with hopes that we can self-correct without, uh, self-correcting. In fact, I'm being told that CNBC has reported that FASB has delayed the implementation of Rule 157, which is curious, to say the least, in terms of timing. I can't say I'm surprised, however, as risks percolate under a seemingly calm financial surface.
All the very best as we collectively find our way.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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