Postings on investments, soccer and life in general. 分享股票，债券和房地产投资的想法.
Sunday, 3 May 2015
Near Bubble Territory.... Hanging On...
Investing in financial assets is not easy. So far, my unit trust portfolio's return is up 2%, from being up 6% in early April. My FX return was previously up 35% before the EURUSD correction. Since then my return is up by only 15%. I've lost 20% of my returns since March. My stock portfolio is up 2.5% in a month.
My asset allocation is still overly aggressive, at around 72% stocks, 28% bonds. I need to gradually scale down to 50% stocks / 50% bonds at most. It will happen over the next 3 months. Then I'm all set for the rest of the year. It is a year of defence, not offense.
Jeremy Grantham On Our Near And Very Long-Term Prospects
Jeremy Grantham is as bearish as ever, but now the IMF agrees that US trend growth is permanently lower, possibly 1.5% or lower
GMO co-founder Jeremy Grantham is one of the few people who thinks the country’s weak growth isn’t the continuing aftermath of the 2007 financial crisis, but the result of long-term economic pressures that pre-date the crisis and would have eventually made themselves felt without it. He expects long-term US growth to be closer to 1.5% than 3%, and he finally has some mainstream economists in his corner.
“Official estimates for the longer-term growth trend of the U.S. have been falling slowly but surely over the last few years to a range from 2% to 2.5%,” Grantham writes in the latest GMO quarterly letter. “Into this quiet world of creeping adjustment, an IMF paper released in early April of this year acted as an unexpected jolt of excitement as, unusually, estimates tumbled all the way down to 1.5%. Wonders never cease.”
Jeremy Grantham’s seven-year asset return forecasts are grim
The IMF 2015 World Economic Outlook reduces its estimate of long-term US growth for two reasons: the US workforce is getting older and growing more slowly, and capital expenditure ratios are lower today than they had been for decades before the financial crisis.
Part of the reason this hasn’t been obvious is that markets have had a higher average PE ratio since the Greenspan Era (1987 to present, according to Grantham), but he worries that successive Fed chiefs have been treating the economy like a racehorse capable of achieving sustained 3% growth instead of a donkey that can only manage half that.
“The danger was, as I said, that they would keep on whipping it until either the donkey turned into a racehorse or dropped dead. Death from overstimulation,” Jeremy Grantham writes.
Jeremy Grantham considers a bubble to be anything more than two standard deviations past normal valuations, which he admits is a bit arbitrary but which also matches historical data reasonably well. By that measure, markets are overvalued and heading toward bubble territory but not actually there yet. Jeremy Grantham pegs an S&P 500 of 2250 as bubble territory and thinks that we won’t get there before the next presidential election, so the bulls should be safe a while longer. But as you can imagine, his seven-year forecasts are pretty grim.
Jeremy Grantham thinks humanity will ‘win the race of our lives,’ probably
In the long-term, Jeremy Grantham is more optimistic. He thinks there’s a good chance that civilization will manage to avoid collapse.
“With a little luck with the technology of alternative energy and perhaps some modest improvement in collective wisdom, I believe we will win the race of our lives as it applies to energy, but only after paying quite a high price in lower economic growth and some further substantial loss of biodiversity and damage from a rising sea level,” he writes.
Jeremy Grantham isn’t a climate change skeptic, and doesn’t understand how others can be despite mounting evidence, but that’s only part of what has him worried. He explains that in order for our energy-intensive cities to keep functioning, the energy used to extract more energy (the electricity that powers an oil pump, for example) needs to have a return of at least 8:1. Traditional oil wells returned 30:1, fracking is around 10:1 or 15:1, and solar is about 4:1. It’s not a matter of literally running out of oil, if the only fields we have left are too deep or difficult to access that the return on energy falls below 8:1 we are in for serious trouble.
The ‘race of our lives’ that Jeremy Grantham referenced is a combination of improving alternative energy sources andenergy storage while making our cities less energy intensive in the decades to come. Even then we will have the environmental damage and uncertainty of climate change to deal with, Grantham is particularly concerned about soil erosion, but at least we won’t be doing further harm. It may be hard to imagine people willingly scaling back for the common good, but Jeremy Grantham (citing WWII Britain) thinks that people do come together when push comes to shove.
“I do think that when times get much tougher most will rise to the occasion. And, you never know your luck – even Congress might pitch in,” he writes.
The stock exchange in Warsaw, Poland, in a 2010 view.
ALIK KEPLICZ/ASSOCIATED PRESS
More than six years into a bull market, U.S. stocks look expensive. But it looks like Poland is on sale.
Stocks in Austria, France, Italy, Japan, Malaysia, Peru, Singapore and Spain also appear relatively inexpensive, based on the cyclically adjusted price/earnings ratio, or CAPE, as calculated by Joachim Klement, chief investment officer at Wellershoff & Partners, an investment consultancy based in Zurich.
This figure is also known as the Shiller price/earnings ratio, or Shiller P/E, as it was popularized by Robert Shiller, a Yale University economist and Nobel Prize winner.
In each of those countries, the CAPE as of March was more than 20% lower than the historical average, which Mr. Klement says is a good rule of thumb for determining when the gap between the current ratio and the historical ratio really matters.
The U.S. isn’t the only place where stocks look expensive by that standard. The CAPE is well above average in Denmark, Indonesia and South Africa, according to Mr. Klement’s data. Canada, Germany, the Philippines, Switzerland, Thailand and the U.K. are among the places where it’s about average.
Many investors consider CAPE a valuable tool for gauging the chances that stocks will outperform or underperform in the long run, but there are also caveats and pitfalls that anyone who considers it should be aware of.
And be careful about using CAPE while making investment decisions if you are easily spooked by geopolitical turmoil. According to Mr. Klement’s figures, the gap between current and historical CAPE is particularly wide, for example, in Greece. Investing in stocks in a country that is negotiating with creditors about how to pay its debts is probably not for the faint of heart.
Country, Historical Average CAPE, Current CAPE
Selected markets that appear undervalued (listed alphabetically)
Austria, 25.7, 9.8
France, 20.1, 15.1
Greece, 18.4, 3.1
Italy, 20.4, 11.0
Japan, 34.4, 23.7
Malaysia, 24.6, 18.8
Peru, 29.4, 15.6
Poland, 17.2, 12.5%
Singapore, 21.6, 16.2
Spain, 16.8, 10.1
Selected markets that appear overvalued
Denmark, 23.0, 32.7
Indonesia, 18.7, 22.9
South Africa, 13.3, 19.9
Selected markets where CAPE is close to historical average
Canada, 19.4, 19.1
Germany, 18.2, 18.3
Philippines, 19.8, 20.2
Switzerland, 19.9, 19.7
Thailand, 15.8, 15.5
U.K., 12.8, 12.6
Fed-Driven U.S. Stock Advance Leaves Grantham Waiting for Bubble
Adjusting U.S. stock-market indicators for Federal Reserve policy since the 1980s shows a bubble has yet to come, according to Jeremy Grantham, Grantham, Mayo, Van Otterloo & Co.’s chief investment strategist.
The attached chart highlights one gauge, Yale University Professor Robert Shiller’s cyclically adjusted price-earnings ratio, that Grantham cited yesterday in a quarterly letter to shareholders. The P/E is based on average earnings for the previous 10 years, rather than four quarters of profit.
Shiller’s ratio averaged 24.4 from August 1987, when Alan Greenspan was first appointed Fed chairman, through last month. The period was marked by “the Fed’s habit (as in ‘addiction’) of pushing the market up in order to get a wealth effect,” or growth in consumer spending that reflects higher asset values, Grantham wrote.
The average P/E for what the Boston-based money manager defined as “the Greenspan era” was well above the comparable readings for earlier periods. Stocks were valued at an average of 14 times profit from 1900 to July 1987, as the chart shows.
Using the more recent figure as a benchmark would suggest stocks are “well on the way to bubble-dom but, clearly enough, not there yet,” Grantham wrote. The latest reading was 27.1 as of yesterday, according to Shiller’s website.
Grantham reiterated a view that the Standard & Poor’s 500 would reach a bubble at about 2,250, or 7.9 percent higher than yesterday’s close. He added that the threshold may be 5 percent to 10 percent higher after accounting for the Shiller P/E and another gauge, known as Tobin’s Q.
Tobin’s Q is a ratio of companies’ market value to the replacement cost of assets. The indicator is named for its creator, the late James Tobin, another Yale economist.
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