Monday, April 16, 2007

. Ken Fisher. "Stocks Never This Cheap", Forbes Digital Rules

- Ken Fisher, again. "All around the world", says the investor, "earning yields--defined as E/P (earnings over price) --are higher than 10-year government bond yields. For the American S&P index, the E/P is 6.7%. Compare that to the cost of borrowing. The average S&P company can borrow money at 5.8% pre-tax, or about 3.8% after-tax." Fisher is prompt to add that this highly abnormal situation ("We live in a unique period of history") has lasted already for 54 months. Remarkably, our own Global Liquidity Measure is growing at more than 10% for ... 53 months in a row. This, too, is quite unique.

- Geithner on funding and market liquidity. Timothy Geithner, the New York Fed president and CEO, tries to inject a dose of rationality into the debate about the "current period of exceptional liquidity". He defines funding liquidity as the "availability of credit or the ease with which institutions can borrow or take on leverage". Market liquidity, in turn, is referred to as "the ease with which market participants can transact, or the ability of markets to absorb large purchases or sales without much effect on prices". The two concepts, adds Geithner, "are closely related and are often mutually reinforcing". This is exactly what is happening right now.

- Argentine reserves at record level. According to the Financial Times, Argentina's reserves reached a record level of $47.4bn. True to its tradition as the boom-and-bust country par excellence, Argentina is firing on all cylinders, systematically undervaluing its currency and accumulating dollar reserves at full speed. Once the music stops, it will not be a pretty picture.

- Norway to lift equities exposure. Norway's government pension fund, with $300bn under management, is about to lift its exposure to global equity markets from 40% to 60%. According to the Financial Times: "In a significant reassessment of the fund’s attitude towards risk, it also announced on Friday that it would bolster investments in smaller listed companies, may invest in real estate and will also in coming years consider investments in private equity and hedge funds".

- Egypt & the New Bretton Woods. Egypt is increasingly marketing itselft as an export hub. In authoritarian countries, the cost of capital is high because property rights are naturally unstable. China's solution has been to systematically undervalue its currency (and to accumulate foreign reserves) in order export its way out of economic paralysis. Its success is attracting more and more would-be imitators — which bodes well for global liquidity conditions in the long run.

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