Press

An Obscure Currency Can Ruin the Markets: What We Learned This Week

Bloomberg, 21st Aug 2015 by Timothy Coulter

1) Currency rout

The race to the bottom of global currency markets is on.

You could blame China for devaluing the yuan earlier this month. Then this week the Central Asian state of Kazakhstan shocked markets by dropping control of its currency, called the tenge (pronounced TEN-gee).  The currency plunged 22 percent and ignited a debate over which country would be next. A list of 10 prime candidates eventually emerged. 

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Nobel Winner’s Math Is Showing S&P 500 Unhinged From Reality

By Lu Wang and Jennifer Kaplan, Bloomberg 18th May 2015

If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you’d have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality.

The concept is embodied in a measure known as the Q ratio developed by James Tobin, a Nobel Prize-winning economist at Yale University who died in 2002. According to Tobin’s Q, equities in the U.S. are valued about 10 percent above the cost of replacing their underlying assets - higher than any time other than the Internet bubble and the 1929 peak.

Valuation tools are being dusted off around Wall Street as investors assess the staying power of the bull market that is now the second longest in 60 years. To Andrew Smithers, the 77-year-old former head of SG Warburg’s investment arm, the Q ratio is an indicator whose time has come because it illuminates distortions caused by quantitative easing.

“QE is a very dangerous policy, in my view, because it has pushed asset prices up and high asset prices, we know from history, are very dangerous,” Smithers, founder of Smithers & Co. in London, said in a phone interview. “It is very strongly indicated by reliable measures that we’re looking at a stock market which is something like 80 percent over-priced.”

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