Poor Hugh Hendry. The Eclectica hedge fund manager was one of the most vocal proponents of the bear case before the credit crunch, and gained lots of media exposure for his straight-talking put-downs of pompous talking heads during the eurozone crisis.
But now he's been forced to throw in the towel by the Fed's endless money-printing. As we noted, it's not that Hendry has turned bullish he still thinks everything will end badly. But while the printing presses are running hard, he doesn't see any benefit to fighting the world's central banks as governments across the globe compete for growth by devaluing their currencies.
Hendry's dilemma sums up the problem with bubble spotting. You might be certain that a market is being propped up artificially, and that the fundamentals are firmly against it. But how can you tell when the fundamentals will reassert themselves? You can't.
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Sure, there are often psychological cues that suggest a bubble's days are numbered. The mass scorn that greeted the brave souls who stepped into the market at its low is now aimed at the bears. At the bottom, all you hear are arguments that begin: "Yes, the market looks cheap, but..." At the top, the arguments begin: "Sure, the market looks expensive, but..."
So what do you do? Well, the good news is that, unlike most fund managers, no one pressurises you to be in any particular market if you don't think it is good value. So if you don't see any opportunities, you can just be patient.
Secondly, while the US stock market certainly looks expensive, there are still some cheap and hated markets out there that should offer good returns in the long run. A piece in The Wall Street Journal this week sums it up.
On the one hand it argues that, while the cyclically adjusted price/earnings (Cape) ratio implies that US "stock returns in the near future will be lower than average... the ratio has gone much higher than its current level during past rallies". Which sounds a lot like a "the market is expensive, but..." argument to me.
On the other hand, in the same piece, various experts' warn sagely that the Cape isn't reliable for overseas markets, even though they look cheap.
But the actual data suggest that's nonsense. According to fund manager Mebane Faber, at the end of 2012 Greece, Ireland, Argentina, Russia and Italy were the cheapest markets in the world, on Cape. By 4 December all but Russia (down 7.9%) had gained at least 14% Ireland was up 40%.
Meanwhile, the most expensive markets Peru, Colombia, Indonesia, Mexico and Chile had all fallen. Mexico was down by just 3%, but the others shed at least 16% (Colombia) and as much as 31% (Peru).
As for the year to come, the cheap markets line-up remains the same. Many of you will know I favour Italy, but I'm increasingly tempted by Russia too. As for the most expensive market? It's the US.
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