Cover of MoneyWeek magazine

How fragile is Britain's recovery?

13 December 2013 / Issue 670


  • Politicians should get out of the housing market
  • Bitcoin may be as big as the internet
  • The billionaire backing Bob Diamond in Africa



John Stepek

How to spot cheap markets

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.

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?

• Read the full editor’s letter here: How to spot cheap markets