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Hedge Clippings | Friday, 29 January 2021
Deja Vu (all over again!)
There's been increasing chatter and comment regarding an impending bursting of the global equities bubble - and who knows, this week may have seen the first glimpses of such an event. However, the difficulties of actually picking the timing of the top of the market (or the bottom for that matter, although that's arguably easier as values become compelling) make it a dangerous exercise in practice.
Hedge Clippings has no doubt that there's plenty of froth around, as evidenced by the listing of over 272 SPAC (Special Purpose Acquisition Companies) which have raised US$88 billion since August 2018... of which 193 with $63 billion are still searching for a target... and with 219 raising US$73 billion in 2020 alone. Equally, valuations are indeed stretched by historical standards, albeit in large part by minimal or zero level interest rates.
There are plenty of fund managers who believe there's still value, and upside, to be had in some of the market darlings of 2020 such as Tesla and Afterpay, which are expected to represent the new economy of the future, and which have lifted fund returns accordingly. Just to make sure there's a market, plenty of other managers, who probably found 2020 more of a struggle, back the warnings of a bubble, and the potential for it to burst:
Consider this headline from the Sydney Morning Herald, as it was announced this week that the median price for a house in Sydney rose to over $1.2 million: "Australia is in one of the worst housing bubbles we have ever seen." Probably a correct call - but the timing wasn't that great, given the headline was dated 27 March 2015 - almost 6 years ago.
Or this piece from Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, and recipient of the 2011 Deutsche Bank Prize in Financial Economics: "How should one understand the disconnect between the new highs reached by global equity indices..." Quite correct, except that was published on 9th March 2015, again almost 6 years ago.
Which supports the old dealing room adage "right trade, wrong timing, equals a bad trade".
So are we seeing another example? (or as Rex "Moose" Mossop, ex Australian Rugby Union and Rugby League international once was quoted as saying, "deja vu, all over again") What is clear is that all the signs are there, except it would seem, the imminent prospect of higher interest rates to pop the bubble.
And we're certainly closer to the end of the dance than the beginning.
For those not familiar with Rex Mossop, or those who are but would like to rewind to some of his more classic on air bloopers, here's a link to news coverage of his passing in 2011. Our favourite would be his objection to nudists at his local beach on Sydney's genteel North Shore.
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