Wall Street overvalued? Long live fear and greed
Comment of the Day

November 19 2013

Commentary by David Fuller

Wall Street overvalued? Long live fear and greed

This is a good article from The Telegraph (UK). Here is the opening

Billionaire investor Carl Icahn fears US stock markets are set for a big drop, with many companies overvalued and their earnings driven by low borrowing costs rather than organic growth.

Meanwhile GMO, the investment firm run the respected Jeremy Grantham, says the S&P 500 - regarded as a bellwether for the US economy - is overvalued by around 40pc.

Ben Inker, GMO's head of asset allocation, says in a report titled Breaking News! US Equity Market Overvalued! that the S&P 500?s fair value is 1100 and the expected after inflation return is -1.3pc a year for the next seven years.

The S&P 500 (see chart above) is trading well above its 200 day moving average, which chartists or technical investors regard as the support level - so potentially quite "richly" valued.

And the Schiller cyclically adjusted PE ratio (CAPE) shows that the S&P 500 is 51pc higher than its historical mean of 16.5 - again a sign it is overvalued.

David Fuller's view

These situations end badly but the Fed's monetary tailwind is still very positive.

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