While markets may rally over the coming months, the hurricane of deleveraging is far from over, with a second wave of turmoil likely as a weakening U.S. economy weighs on growth in the rest of the world, a scenario still not fully priced into equity markets.
A look at what history tells us to expect as the earnings, business, and stock market cycles converge.
2008 may prove to be a particularly dangerous year, as slowing U.S. and global growth force a turning of the profit and credit-default cycle, the consequences of which equity markets are not well prepared for.
While the long-term case for emerging markets equities remains intact, now is not the time to overweight emerging markets equities as soaring valuations and a blind faith in “decoupling” leave them quite vulnerable in the near term.
While the U.S. dollar may be poised for a short-term rebound, the long-term direction for the U.S. dollar is down, as emerging markets untether themselves from the greenback.
Whether the current turmoil in the credit markets intensifies or slowly blows over, the days of easy credit financing are over.
While rising real yields have restored some value to European inflation-linked bond markets, linkers are not yet attractive on their own, although do offer some value relative to nominal government paper.
Our thoughts on the recent debate in the financial press over the relevance of cyclically adjusted P/E ratios.
While small caps may be able to climb higher amid the current liquidity-driven market, valuations clearly point to an unfavorable risk-reward trade-off relative to large caps.
This report on asset allocation in the current environment is the fifth in what has evolved into a series of occasional papers on the evolution of the secular bear market in equities and our thoughts on how investors can best cope with the prevailing uncertainties. While recognizing that conditions could certainly remain benign for some…