Global Stock Market Valuations: Patience Is a Virtue

Stocks, both in the U.S. and abroad, are attractively valued from a historical perspective, but the economic challenges following the bursting of the credit bubble are daunting. This argues for a neutral (and patient) allocation to stocks in a longer-term asset allocation context.

The economy is stabilizing from the free-fall that began last September, and will likely spend an extended period at approximately the current level of economic activity, propped up by massive government intervention and stimulus, and simultaneously weighed down by private sector balance sheet rehabilitation, which will involve a multi-year process of higher savings and debt reduction.

There is a strong case to be made for a healthy allocation to foreign stocks in an equity portfolio: they are cheaper than U.S stocks; key emerging markets (e.g. China and Brazil) have superior growth prospects; a number of foreign economies (both developed and emerging) have fewer problems with banking and debt; finally, there are reasons to be concerned about the U.S. dollar over a secular time frame.

Comments

[Raymond Mic...:]

The problem here is that stocks have been persistently overvalued (relative to longer-term historical valuations) since 1994-1995. So while stocks may be attractive relative to their recent past, over a much longer time horizon, they don't look as attractive. On a sector-by-sector basis in the U.S., there are some legitimately cheap sectors, but those sectors are getting little or no love in this current rally.

May 04 02:47 PM

[Jorb:]

That's why I'm cherry picking the best stocks that benefit from global growth such as MA POT and Google, as opposed to buying an index.


On May 04 02:47 PM Raymond Micaletti wrote:

> The problem here is that stocks have been persistently overvalued
> (relative to longer-term historical valuations) since 1994-1995.
> So while stocks may be attractive relative to their recent past,
> over a much longer time horizon, they don't look as attractive. On
> a sector-by-sector basis in the U.S., there are some legitimately
> cheap sectors, but those sectors are getting little or no love in
> this current rally.

May 04 03:24 PM

[themackattack:]

Is it safe to say then that Cetin and Jorb and indeed the same characters?


On May 04 03:24 PM Jorb wrote:

> That's why I'm cherry picking the best stocks that benefit from global
> growth such as MA POT and Google, as opposed to buying an index.
>

May 04 08:48 PM

[punk_ash:]

Risk reward ratio is pretty bad. DOW can not meaningfully get past 10K for next few years, but it can go right back to 6-7K range, or even lower.

May 04 10:54 PM