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if you look at the real estate market all real estate markets pretty well around the world are very very high and if you look at the bond market of course interest rates are incredibly low and bonds are incredibly high but when it comes to the stock market rather like 2000 and the tech bubble this is more an American Affair than anything else outside America the world is merely overpriced pohunk it's often overpriced it's usually not that dangerous in the U.S however we have an extreme overpricing extreme crazy behavior and I think we're in a rather dangerous Equity bubble so there is a decent chance that Australia the UK Japan has some fairly reasonably priced countries if they come down in sympathy they'll come down a lot less and probably rally earlier this bubble in the U.S is eerily similar to the 2000 Tech bubble it's led by the NASDAQ it was led by the specs 2000 the specs unperformed all year and yes simply continue to climb it is just possible that the s p will rally to a new high I think it is impossible that the specs will so I think the game has started and it will play out perhaps rather like a 2000.
historically the stock market has hated inflation it crushes price earnings ratios this time uniquely it did not inflation started June of last year roared through the roof and the peas continued to rise nothing like that had happened before and in 2000 you had for example at the top of the market world record profit margins and very little inflation and today we have world record profit margins but we have rather High inflation the market should have dropped starting in the middle of last year being following the normal battle plan it did not Market is saying about inflation that it totally ignored it completely believes the fact that it's a temporary ephemeral Etc and it doesn't appear to be and if that seeps into the market in the usual way it will mercilessly depress the the price earnings ratios and In the End the Fed doesn't like to get on the bad side of the administration politically inflation is death the average personal industry notices it measures it if anything exaggerates it but even without exaggeration it's painful and politically very very tough on the voting pattern and therefore the administration really wants to do everything it can to get inflation down so it will be discreetly leaning on the FED to do what it can there are people who spend their entire lives watching the fed and going into the nuances of quarter points and half points and I do not I am confident that they will move at the stronger end of the range I am confident they will try very hard to make sure that inflation does not become embedded I'm also confident that that will be difficult and wage rates will start to come through the system in the U.S increasingly for the next few months that makes it very difficult to control inflation so it will be quite a struggle and the FED will have to raise the rates quite a bit if you have to own U.S stocks you should earn high quality stocks that are in Good Financial shape because this can always spiral in for something of a financial crisis they often do I would emphasize in general though non-us stocks and quite a few countries as I said are not that bad Emerging Market overhang problems if the US goes Commodities are high priced it's a mixed blessing at best for them but they're very very cheap and in the end cheapness usually trumps everything else so Emerging Markets some of the cheaper developed countries would be very much better idea than a massive holding of U.S equities I think it is ending I'm trying to write a paper which is basically the end of the golden era or Goldilocks and Three hungry bears everything has been different for the 20 years of the 21st century the PE is average not just a little bit higher but 56 percent higher profit margins average 30 35 percent higher than they had in the previous 50 60 years everything seemed to work out corporations got a lot of political power the taxes on Capital all draft tax on dividends taxed on interest rates tax on capital gains all came down most of the regulatory bodies were somewhat captured by corporations and they have had a golden era we've never seen bigger profits the concentration in each industry has increased and the fangs that are remarkable companies are in their own way instant monopolies so the monopolistic feature of our economy today and somewhat around the world has increased this is very good for profits it's not so good for growth and the governments are beginning to Twitch a bit I don't think their assets I think they embed a technology that may turn out rather like the internet to be useful Here There and Everywhere and when they are usable and when they're making money in the traditional way then you value it like any other money making Enterprise but while they just sit there and they go up in price because people are persuaded that they will go up in price it's very much a question of the emperor and his clothes I think uh Bitcoin in particular it does nothing for anybody and is superseded by a whole generation of smarter and more effective cryptocurrencies many of which in their turn do not make money in the traditional way and if you do so I'm sure the idea embedded in cryptocurrency will be around perhaps forever everyone can agree that the volatility is massive it goes up and down with the high risk stocks what is the point of a story of value that trades like a hyper respect I mean this is not the principle goal in comparison with several thousand years of practice has been boringly stable throughout the last couple of years I should know I earned some for me value has always been you pay for what you get and so I'm not a great believer in price the book particularly since book as an accounting entry has been incredibly distorted in the last 20 years it used to be a pretty good proxy back in the 90s 80s 70s but not recently what I've always felt is the best definition of value dividend discount model that projects earnings into discounts and back according to the Quality with high quality companies having a lower discount rate than junkie companies and what we brought to bear on this 40 years ago almost was we studied the regression rate by type of company we tried to work out on a company specific basis what regression rate they were liable to have if they behaved in the normal way given their special characteristics and so we had Microsoft and our value portfolio all the way through the 90s we didn't phase it out until June of 99 we started to slice it out we had 12 monthly slices and by June of 2000 really before the crunch came on Microsoft we had gotten rid of it and if you use those models you do see for example that Emerging Markets are absolutely cheap they are relatively as cheap as they have ever been parallel to one or two other occasions but if anything a little bit even cheaper relatively and you see that they are absolutely not bad at all and that's the group where the absolute price looks appealing and I can anticipate because I hear it so often of course Emerging Markets always have a lot of question marks a lot of risk questions a lot of quality questions a lot of currency questions and so on and so forth and it's all true they've always had those things but they are highly Diversified you've got you know 28 countries in the index 40 of that is China and heck China the biggest economy in the world in uh inflation adjusted dollars considerably bigger than the us growing much faster just this year Alone by the way they've opened up yet another 10 GDP Gap where minus four in their plus six and they're grinding this out the IMF as you know the rest of the guys think that they're going to have to carry about a third of all the growth on the planet on their shoulders and interestingly into intellectual capital and Consulting and the use of real brain power and you have interesting riskier Brazil and so on it really is the future in a world where the developed world has had a growth rate that frankly is slowly but surely unraveling for 40 years when I came here the productivity per person hour was about three percent a year and now it's down to one and they'll be lucky to be one in Europe so growth is not what it was and then the increase in the workforce has declined when I got here it was one and a half percent a year this year it will be 0.2 in 10 years the us will go negative Japan has been negative in the growth rate of the workforce for 15 to 20 years and Europe is going negative as we sit we're going to have to get used to a GDP growth which is a whole lot less than we thought and there'll be a premium on growth and emerging will have a lot higher top line revenue than the developed world we are suffering a baby bust without precedent throughout the world in the developed markets South Korea is a whole lot worse than China at 1.0 fertility rate when 2.1 is replacement I mean it's just hard to get one's brain around it they're losing half the baby cohort every generation which is to say every 30 35 years Italy is 1.4 Japan is 1.4 China is 1.5 1.55 which is terrible the US is 1.70 Italy is in the mix and Hungary is the growth rate of Eur Europe and population that's going to be very similar to China it's perhaps a little bit higher but not enough to count the U.S will not have a rising Workforce but we were highly unlikely to take immigrants sufficient to block or drop off in the baby cohort at 1.7 you're running 15 plus below replacement we haven't taken that level of immigrants for years and we don't know going forward how the immigration numbers will hold up but highly unlikely I do expand enough to even get to zero
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