EDITOR'S LETTERMerryn Somerset Webb
Is it 2007 all over again?
Are there any similarities between today and 2007? That was the last question asked at an investment seminar I spoke at this week. I imagine the questioner – alongside all the other investment professionals in the room – rather hoped that, five years into the crisis, the answer would be no. It isn’t.
Wherever you look you see similarities. They are there in stock valuations that are in no way supported by fundamentals – profits are falling but prices are rising. They are there in the ludicrously low rates at which risky countries and companies can borrow (is it really a good idea to buy a Rwanda ten-year bond on a yield of below 7%?).
They are there in the huge surge in share buybacks in America. Companies almost always buy their own shares at the wrong time, so the fact that they are now not far off the levels of 2007 is not a good thing. They are there in the obsessive way in which we are all watching and acting on the most tedious of words from anyone even vaguely connected to the Fed and in the volatility that is producing. They are there in the sharp rise in investing in margin (ie, with borrowed money) in America to match previous highs. As Troy’s Sebastian Lyon points out, “this evidence of speculation has traditionally been a contrary indicator” – past peaks came in 2000 and 2007.
But in Britain we have our own special similarity: our house price bubble.
• Read the full editor’s letter here: Is it 2007 all over again?