Looking Ahead

As the Fed’s asset purchase program ends, the price of oil plunges, global growth stalls, and the stock market recovers from its fall jitters, this seems like a good time to take a long view of where we are in the post-apocalypse recovery. The best guide to any such assessment remains Reinhart and Rogoff’s brilliant survey of financial crises, This Time Is Different, published in 2009. In their preface, they write: “If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by governments, banks, […]

Bond Market Liquidity: Impending Crisis?

Introduction: This is a tale of unintended consequences arising from good intentions (and we all know where those lead!). Chapter One:  Fallout from the financial crisis Once upon a time there was a vicious, worldwide, financial crisis.  Just who and what was to blame, and by how much, will still be debated 50 years from now, but does not concern us here. Suffice to say that very large banks went bust and with the exception of Lehman Brothers, whose bankruptcy plunged global markets into chaos, they were deemed “too big to fail” and bailed out by taxpayers lest their demise […]

Is the Cyclically-Adjusted P/E Ratio Now Unreliable?

We all know the familiar mantra:  buy low, sell high.  But how can we recognize “low” and “high”? One stock market valuation measure receiving some recent attention is the cyclically-adjusted price-earnings ratio (CAPE), which is computed by dividing the current price of the S&P 500 index by the annualized average real earnings-per-share of the S&P 500 constituent companies over the past ten years.  (The CAPE was developed by Robert Shiller of Yale University and is regularly updated on his website.) As John Authers noted in a column in the Financial Times (8/17-18/2013), Merrill Lynch’s head of U.S. Equity Strategy recently […]