Is the US stockmarket in a bubble?
One of the world’s top bubble-spotters doesn’t see in US stocks any signs of the euphoria that traditionally attends a bubble.
Is the US stockmarket in a bubble? One of the world's top bubble spotters doesn't think so. Jeremy Grantham, well-known value investor and co-founder of US asset manager GMO, told The Wall Street Journal's James Mackintosh that he doesn't see any signs of the euphoria that traditionally attends a bubble. He pointed out that, until recently, investors were happy to stick their money in "safe" government bonds paying negative interest rates. This, he says, is not emblematic of a "mad desire to invest in the stockmarket". So is he piling in? Not for a moment. US stocks are expensive, no doubt about it, he says. But he might think about buying on a "dip" of 15%-20%.
So what, if anything, justifies current valuations in the US? Michael Batnick, who writes for The Irrelevant Investor blog, highlights a paper by Michael Mauboussin and his team at Credit Suisse (one that we covered on the strategy page in MoneyWeek a couple of weeks ago). The paper looks at the fact that the number of firms going public in the US has fallen by half over the past 20 years. One side-effect of this is that those companies which are listed are both more mature and more profitable. On one measure, margins have risen from 5.5% on average pre-1996 to 9.1%. Grantham makes a similar point, and you could certainly argue that a market made up of more profitable companies should trade at a premium to one composed of less profitable ones. That said, notes Batnick, even if stocks aren't "really" expensive, they're at best, only "sort-of" expensive.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
You don't need to own the world's most expensive market, even if it is going up. Instead, hunt for value. We look at the latest updates on Cape ratios for global markets on page ten (where we remind you what the Cape is too). The US is the second-most expensive market in the world on that measure (Denmark is the most). The cheapest include troubled eurozone players Italy and Portugal. But this week's cover star Poland also makes an appearance. You can read more on how to invest in one of Europe's most under-appreciated markets here.
-
‘Sandwich generation’ carers losing £6,000 a year to support elderly relativesMiddle-aged adults are often caught between caring for children or grandchildren and their elderly parents, leaving them taking time out of the workforce and facing a huge hit to wages while they are still trying to save for retirement. We look at the true cost of caring.
-
Ground rents to be capped at £250 a year – what does it mean for you?The government has published draft legislation which would see ground rents capped at £250 per year for leaseholders. We examine what it means for homeowners and the housing market.
-
What to do as the age of cheap money and overpriced equities endsEditor's letter The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losing money, says Merryn Somerset Webb. What can you do to protect yourself?
-
Investors are bullish – but be very carefulEditor's letter Many investors are buying the dip, convinced the latest upswing is the start of a new bull market. The odds are that it’s not, says Andrew Van Sickle. The bear has unfinished business.
-
The MoneyWeek approach to investingEditor's letter At MoneyWeek, our aim is simple: to give you intelligent and enjoyable commentary on the most important financial stories, and tell you how to profit from them. So how do we do that?
-
Celebrity bitcoin ads echo the subprime mortgage crisisEditor's letter A wave of ads featuring celebrities punting crypto to the masses are reminiscent of how low income Americans were encouraged to take on loans they couldn’t afford, says Merryn Somerset Webb.
-
Will the UK's property slowdown turn into a house-price crash?Editor's letter As the cost-of-living crisis intensifies and interest rate rise, it is hard to see reasons for UK house prices to keep rising, says Merryn Somerset Webb.
-
The unintended consequences of ESG investingEditor's letter Many people are refusing to invest in energy companies, citing "ESG" concerns. But we still need fossil fuels, says Merryn Somerset Webb, and will for years to come. Boycotting the sector is a bad idea.
-
What sardines can teach investors about today's marketsEditor's letter A California tale of “eating sardines” and “trading sardines” can help us divide investments into speculative and real, says Merryn Somerset Webb. Something that's very useful when looking at today’s markets.
-
The market finally seems to be getting itEditor's letter Reality checks are coming fast to the markets, says Merryn Somerset Webb – with even 2022’s safe havens beginning to reflect recession worries.
