Monocle Weekly

Good evening,

Tonight I want to share with you the excellent analysis of GMO Asset Management (a New York fund managed by the famous permabear Jeremy Grantham whom we appreciate for the quality of his analyses) published last month.

In this article, the growth of earnings expectations is compared to the growth of stock prices between 1993 and 1999. At that time, the new technology craze, combined with growing confidence in the Fed, led to very high expectations in the market. In seven years, earnings per share expectations in the US rose by 11.1% on an annual basis. The valuation of the S&P500 index, meanwhile, has risen 69% faster. And as you know, the story did not end well.

Today, history is repeating itself. Since 2013, earnings expectations have been rising 6.4% per year, but valuations are soaring 70% faster. Not exactly reassuring.

Conclusion: of course, many assets have excellent assets and growth prospects. But what worries us are the prices to be paid for this growth: “there are no bad assets, only bad prices”.

Have a good weekend,
Pierre.
pierre@monocle.lu

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