Great cover — and cover story — this week in the Economist:

“The effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.

For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again. In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.”

Is this a contrarian signal?

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I doubt it. This is a valuation discussion in a business mag; I’m not certain it has the appropriate mass appeal to qualify. I certainly would not suggest that the public is part of a bubble zeitgeist, and this cover represents the climax of that.

Based upon that, it does not seem to be the sort of contrarian magazine cover indicator

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Hat tip Dan B!

Source:
Bubble warning
The Economist print edition, Jan 7th 2010
http://www.economist.com/opinion/displaystory.cfm?story_id=15213157

Category: Contrary Indicators, Markets, Psychology, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Economist: Bubble Warning”

  1. TakBak04 says:

    BR….

    I know enough to know..that if “they” can blow a bubble they will for the “Mid-Term Elections.”

    I’d Pick Commodities..but I know nothing. I’d just figure with those “gold ads” all over the web political spectrum from Limbaugh to Air America Radio…and “Gold Parties” with wine and cheese for the women of America getting rid of their ‘scrap gold’ that something is going on…with that one.

    I’m riding it…but then…I’m very puny investor. I wonder what the Hedgies will make?

    Anyway…I’m thinking Contrarian these days…but the news is so conflicting…where is the real “Indicator?” Too much STATIC…to figure a path forward. You are a trader…but me and other humble “inwestors” on your site are just watching and doing “Dividend Stuff” and hoping that we can get out of our “FARKING 401K…Managed to the HILT! I pray for an “AMNESTY” so I can get out of my Farking 401-K and IRA and CASH OUT! I don’t trust them. My other investments are doing pretty well. We’ve been in market for 20 years on our own. It’s our 401-k and IRA (Forced Investments) that FUCKED US UP that WE LOST ON…and YEAH…we are very angry that we did better on our own than what we were forced into as “Small Business Owners.”

    I’m contrarian thinking Obama and Wall St. (If the current Regime isn’t Ousted) will GOOSE THIS MARKET for all the way to 2010 in ANY WAY THEY CAN…

    I think there’s a possiblilty that Geithner might go, though…although Bernanke might squeek through. But…if there are changes….predictions go down and we have to be “nimble.”

    OMG…why is this the way it is? It’s too much to manger for those of us who are not Professional or do Trading for a Living.

    That’s what’s wrong. How do we fix it?

  2. The 1999 cover was years before 1% interest rates that sent Oil skyrocketing from 2002 to 2oo8 — it was hardly a well timed contrary indicator.

    On the other hand, that RecOil cover from 2008 was pretty poorly timed!

  3. VennData says:

    … yeah but that was the year oil was low, was predicted by ‘The Economist’ to be low (and for a long time to come.) And was predictably, wrong.

    http://www.sais-jhu.edu/bin/i/x/Adam_Sieminski.pdf

    As they were wrong on the “recoil” cover.

    They were 0-2 on oil-cover predictions. Now they may still make the playoffs, but it’ll be tough.

  4. km4 says:

    Without bubbles Wall St cannot get their bonuses
    http://motherjones.com/politics/2010/01/unjust-wall-street-bonus

    The game is rigged and nobody seems to notice….nobody seems to care. That’s what the owners count on. The fact that Americans will probably remain willfully ignorant of the big red, white and blue dick that’s being jammed up their ass everyday, because the owners of this country know the truth. It’s called the American Dream, ’cause you have to be asleep to believe it . . .,George Carlin

  5. Steve Barry says:

    Assets=Debt + Owner’s Equity…debt is unprecedented, so as a whole, debt backed assets are likely a bubble. Not so hard to figure out. Figuring out when it will burst is impossible though. The Economist was writing cover stories in 2003 about a housing bubble…they were right, but 3 years early.

    Pig farmers in China hoarding copper…best contrarian signal I have ever heard of…better than doormen giving stock tips in 2000. Tells me not to be long commodities.

  6. VennData says:

    Wall Street’ll get their bonuses no matter what, but looks who’s complaining about the heavy hand of gov’t now?

    “Obama and Labor Unions at Odds Over Health Care”

    http://content.usatoday.com/communities/theoval/post/2010/01/obama-and-labor-unions-at-odds-over-health-care/1

    I wonder how many union members have been screaming about Wall Street bonuses, greed, etc.?

    On a related note, wasn’t it the Right Wing media machine that told us Obama was “beholden” to the unions? … even after ‘Card check’ got squeezed out?

    I guess you just can trust the Right Wing media machine about as much as “The Economist” cover predictions.

    .. Which they also said Obama would do… Hmm…

  7. VennData says:

    …and speaking of the Commander-in-Chief

    “North Korea Calls for Peace Treaty to Replace Armistice”

    Dear Leader’s lucky GOP’s not his opposition, they’d be screaming at him for being “weak” and “not knowing we’re at war.” Chalk yet another one up for the Commander-in-Chief.

    ttp://www.reuters.com/article/idUSTRE60A4LE20100111?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29&utm_content=Google+Feedfetcher

  8. VennData says:

    But let’s not stop there…

    “White House Opposes Harold Ford’s Challenge to Gillibrand”

    Glen Beck, Fox News, et al must be right that Obama hates white people…

    http://www.huffingtonpost.com/2009/07/28/fox-host-glenn-beck-obama_n_246310.html
    http://videocafe.crooksandliars.com/cspanjunkie/barack-obama-has-deep-seated-hatred-wh
    http://mediamatters.org/mmtv/200907280008

    …otherwise, why would he be supporting a white Congressperson when an African American wants their seat…

    http://www.nytimes.com/2010/01/12/nyregion/12ford.html?partner=rss&emc=rss

    Maybe that’s just another wild-eyed mischaracterization (what Websters defines as a lie) about the president?

    …oh but Geithner personally oversaw the looting of the Treasury before he was even confirmed and after he recused himself from the NY Fed…. another howler, perhaps?

    Yes, I say.

    Keep on believeing that Right Wing media guys.

  9. JoWriter says:

    “In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, …”

    According to Dr. Housing Bubble, this comment is wrong, wrong, wrong…
    http://www.doctorhousingbubble.com/fannie-mae-and-freddie-mac-behind-the-big-number-of-canceled-foreclosure-auctions-745-billion-bailout-to-erase-negative-equity-for-every-underwater-homeowner-fannie-and-freddie-uncapped-prelude/#comments

    Of course, DHB’s commentary may apply only to Calif., and all other parts of the U.S. housing market are just fine. I do know for a fact (my daughter who lives there) homes are priced way highter than rental costs would indicate.

  10. JoWriter says:

    Steve Barry @ 9:51 pm:

    Why should we be cheered up? Assessing fees on “banks” – note no description of what kind of bank or how many — why would that cheer me up?

    Most of the 3000+ banks were not engaging in the shenanigans the dozen or two TBTF banks were. And if they were, it wasn’t to the degree the big guys were. Yet, as far as I can tell, ALL banks will have to pay for the sins of the few.

    And VD – your partisanship makes your posts less interesting. Do you listen to/watch all the RWM guys, all day? If so, when do you have time to get the real and correct data?

  11. Given the crowd the Economist appeals to I suspect this is a cover delivering a message most everyone reading it believes themselves smart enough to avoid, and because THAT is the consensus, most will fail to get out of the way once the Government Finance Bubble bursts. Indeed, I fear it is rather likely this period of “recovery” effected by the lender of last resort was in fact the last chance to batten down the hatches before all hell breaks loose (and woefully few probably have done so).

  12. OkieLawyer says:

    @Steve Barry:

    As for the farmers in China hoarding copper: is copper now the new poor man’s … silver? Was there any information as to why they were hoarding copper as opposed to something else?

  13. Myr says:

    I think Time Magazine’s “Person of the Year” is the one to be worried about(h/t EWI):

    http://www.nypost.com/rw/nypost/2009/12/16/news/photos_stories/US-ECONOMY-FINANCE-BANK085145–300×400.jpg

  14. call me ahab says:

    OMG

    VD- STFU- non-stop w/ you-

    same song over and over-

    if everyone at Fox news collectively jumped off a bridge would you shut the fuck up then?

    what will it take- the world wants to know

  15. VennData says:

    Nice points Ahab. You a professional debater or just a top flight researcher somewhere?

    … trying to click your links.

  16. call me ahab says:

    links?

    are you shitting me? a person can find links for anything- even if they are saying the same stupid fucking thing over and over and over-

    we all wave the white flag OK- go sell that shit someplace else now-

    like a conservative blog somewhere possibly- lead them to the promised land

  17. Greg0658 says:

    links links everywhere blah blah blah

    The utility poles near many local homes could be missing something important, and it’s costing customers money. Copper wire thefts are way up and the costs are being passed on to consumers.
    http://www.wlwt.com/money/21987514/detail.html

  18. Lugnut says:

    @Venndata – “…otherwise, why would he be supporting a white Congressperson when an African American wants their seat…”

    Primarily because Gillibrand is a compliant mouthpiece that will ‘yes, sir!’ vote on any legislation she’s told to. Obama may or may not have a thing for white folks, but he’s a politician, and they love puppets, regardless of their stripe. Ford hasn’t been paid for yet, so why endorse an unknown quantity?

  19. Mannwich says:

    @Lugnut: Don’t bother with VD. He’s obsessed with knocking down right-wing straw men here at TBP, of all places, where the loony right doesn’t even hang out. It’s a bit bizarre.

  20. some_guy_in_a_cube says:

    The Economist is calling a bubble?

    Go Long!

  21. [...] Forming new bubbles across world [...]