Hartar Blog

As the US stock market continues to climb and reaches "record-high" levels, questions on overvaluation and bubbles become more common. Robert Shiller CAPE measure of the US stock market shows now a market that is at a higher level than during the Great Depression. The market has only been more expensive in the years 1998-2000 in the run up to the burst of the internet bubble. While high CAPE values signal potential overvaluation, one has to compare those numbers to levels of interest rates to assess whether stock prices are truly overvalued relative to other asset prices. One simple way to compare the two is to calculate the stock market risk premium implied by current levels of stock prices, earnings, nominal interest rates, expected inflation as well as expectations of future earnings growth. In previous posts I have explained in detail the data and methodology to calculate the risk premium. Below is the most updated analysis including the value of 10-year interest rates t...

In 2017 GDP growth picked up solidifying a global expansion phase that had previously been slow and erratic. The number of countries growing at rates consistent with their potential increased to levels not seen since prior to the global financial crisis. As the expansion gathers pace and, in some cases, becomes long by historical standards, it is time to wonder where the next crisis will come from and how we will deal with it. Among the many potential reasons why the world might fall into another recession there is one that is repeated very often and it is linked to the narrative we created after the 2008 crisis. We find ourselves again at a point where debt levels are at record high, asset prices are in bubble territory and the only reason why we have growth is because of the artificial support of central banks. As an example, here is Stephen Roach looking at 2018 and being worried because  "Real economies have been artificially propped up by these distorted asset prices, and gl...