Recap 2014-08-18


The low growth => higher PV view is starting to get disseminated, but it’s not quite there yet. Shiller wrote an op-ed in the NY Times about high equity valuations, but he conclusion was disappointingly short of complete:

Shiller: It’s possible that bond prices account for today’s stock market valuations. But that raises another question: Why are bond prices so high? There are short-term explanations: the role of central banks, for example. But is there a compelling reason for prices of stocks and bonds (and maybe houses, too) to remain high indefinitely? … nothing I’ve come up with is a slam-dunk explanation for the continuing high level of valuations. I suspect that the real answers lie largely in the realm of sociology and social psychology — in phenomena like irrational exuberance, which, eventually, has always faded before. If the mood changes again, stock market investments may disappoint us.

On that topic, my two takeaways from this graphic from the WSJ:

  1. People have been comparing this rally with the 1990’s market. The macro backdrop is actually more similar to the 1950’s market, IMO. Either of those templates suggest the current rally may not even be half over yet, in terms of either time or price
  2. The outflow data suggest a repeat of the Feb price action

This chart from Brent Donnelly @ Citi is interesting:

Daiwa @DaiwaEurope observes that Japanese Labor Cash earnings are the highest in 4 years, but note that growth remains below 1% YoY.

Finally, this is a text book case of one sided reporting:

The NYTimes reporter did not get anyone to explain the other side of this story, so it comes off as an outrage. But if you replace “congestion contract” with “call option on power prices” this basically seems like a working market. Not free of abuses, but also not a market where people are getting fleeced. The Stanford economics professor does not come off well either.


  • US NAHB rose to 55 vs 53 exp and prev.
  • Hilsenrath in the Journal said the Fed is confident it isn’t behind the curve and that they will raise rates at the appropriate time without stoking inflation or imperiling the nascent economic recovery. “Fed officials believe they have been served well keeping the money spigots open in an economy that keeps disappointing. They will need some more proof before they heed the warnings of those who say they’re falling behind the curve.”
  • Kurdish forces retook a key dam in Mosul with help from US air support. With Maliki’s resignation the US will significantly increase the aid sent to Iraq including more arms to both Baghdad as well as the Kurds.
  • Home sellers in London cut asking prices by the most in more than six years this month, trimming 5.9% off prices from the previous month. This is the largest drop since December 2007 tracked by Rightmove. “Buyers and sellers are becoming increasingly aware about personal finances, given that the cost of mortgages are going up and regulators are trying to bring availability down, this limits what buyers are willing or able to pay, and helps moderate sellers’ price expectations.” Prices across the UK dropped -2.9%.
  • ECB lending – economists cut their TLTRO demand forecasts. Analysts estimate that banks will borrow 650 billion euros ($870 billion) in the targeted longer-term refinancing operations, or TLTROs. That’s down from 710 billion euros estimated in last month’s survey. Bloomberg


  • Mon: RBA Minutes
  • Tue: UKCPI, USCPI, US Housing Starts, Building Permits,
  • Wed: BoE Minutes, Fed minutes, Japan PMI, China HSBC PMI
  • Thu: EU PMI, US Jobless Claims, Markit PMI, Philly Fed, Existing Home Sales, EU Consumer Confidence
  • Fri: Canada CPI, Yellen & Draghi Speak at Jackson Hole
  • Mon: German IFO, US New home Sales, NZ Trade Balance