I really cannot believe that stock prices are still hitting new highs, even as global growth is stagnant and more companies are showing declining profits or going into the red.
Some point to the fact that in an interest rate race by central banks to run down to zero and below in order to spur spending, asset bubbles are popping everywhere and equities are the main beneficiaries of cheap money. Property prices are also the other asset that is still rising, but at a slower pace now, as most countries have incorporated measures and curbs to prevent locals from being priced out of their own city.
The only sector that is coming down to earth fast seems to be the banking sector. We have seen global banks like DB, CS and SCB losing 50 to 90% of their value recently. Price to Book ratios of these 3 banks is now between 0.25 to 0.60, a historical low. This is implying that the market sees a lot of hidden unknowns still in their portfolio, plus difficult to measure litigation costs. Most European banks are in serious trouble with worsening NPL situations. Are banks the leading indicators to an end of the frothy stock markets?
The strategic big picture for investors is getting harder to forecast. The crystal ball seems to have fogged over. When in doubt, I guess it is better to stay on the sidelines at the expense of opportunity cost. This feels like the scenario of a rabbit that is staring into the headlights of an oncoming truck. You know something bad is coming, but you cannot get off the cheap credit candy induced ride…
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