Over the course of the 18.25-year bull market, more than half of the market’s capital appreciation was driven by inflation and the decline in interest rates, and another 20% by multiple expansion, leaving only about 20% of the appreciation attributable to real earnings growth. Between March 31, 2000 and March 31, 2002, inflation continued to…
Three key issues will determine the prospects for the global economy: the likelihood of an impending recovery proving feeble or robust, and the outlook for sustainable longer-term growth.
If Goldilocks were the presiding genius of the fabled new economy of the roaring nineties, Humpty Dumpty may be more appropriate to the current situation. All the Fed’s horses and all the President’s men are working to put the U.S. economy back together again, but their conventional tools may prove inadequate.
Three factors are critical in improving the prospects for the United Kingdom and Europe: a recovery in the U.S. economy, continued strength in U.K. consumer spending, and structural improvements in continental Europe. Although bond and equity markets have priced in expectations for a global economic recovery between the middle to end of 2002 because evidence…
European investors are increasingly moving into bonds. Provided the economic downturn does not generate a higher than expected level of defaults, the high-yield market should provide opportunities for those able to tolerate a higher degree of risk. For the more staid, the embryonic euro inflation-linked bond market and U.K. corporate inflation-linked bond market provide opportunities…
High-quality, intermediate- to long-duration bonds can hedge against deflation. In the current environment of extremely low short-term interest rates and widespread expectations of higher rates in the future, investors should resist the urge to move into short-term bonds.
Due to the consistent upward bias of analyst projections, investors should exercise caution in valuing equities on the basis of forward earnings expectations.
The disparity among market commentators and analysts in their assessment of market valuations is unusually high today. Although our analysis suggested that the sharp price decline following September 11 brought the U.S. equity market close to fair value, the subsequent rise in the market and our closer analysis of the aggressive earnings assumptions required to…
What is particularly worrisome about the global slowdown is that it was largely set in motion by the investment bust in the United States. The key issue for the global economy in the future is whether the next recovery, when it finally arrives, will correct the imbalances that the boom created in each economy, or…
Small-cap stocks in the United Kingdom and Europe are attractive because they provide added diversification within domestic, not global, markets. In addition, their valuations are more attractive than those of their large-cap brethren.