Are share prices over extended and due for a fall?
In this week’s video insight Roger discusses why fund managers may currently have maximum cash in balance sheets or portfolios and how correction in share prices might be short lived, as the cash is freely available to purchase stocks which limits the extent of a market decline.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
andrew ronan
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Hi Roger, is the sheer level of debt cause for concern as it appears to be roughly three times that of the 07 crash on that last chart and will that situation magnify any downturn ?
Also at 30 times earnings with profits on the slide it’s very hard to see any upside unless I’m missing something and also if you consider the amount of time the cape Schiller has spent over the 30x level in the last 120 years and compare that to the time spent below it, seems like playing Russian roulette every day you stay in the market and for what gain? Maybe we get to 40x ? But as the chart suggests probably not .and gee wiz throw it a couple of rate hikes just for good measure as appears likely, unless the fed is full of it .It just sounds like the pennys and steam roller game.
David Shepherd
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To reduce risk, I have been investing in LICs
Do you have any plans in creating a LIC of quality shares in Aust / Global.
Chris
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Roger, in your video at 6:20, you say that “when balances have moved from high debt levels to a credit balance, that has pulled money out of the stockmarket and it has declined.” and that the leading indicator of debt balances versus credit balances is between one to six months.
That implies that somehow, it is this balance that influences the market, not the other way around, and I put it to you that it is the market and sentiment or confidence in that market which governs the level thereof and where people are invested at a particular time (being “the market” or “cash”). I understand that cash inflows and outflows will raise / lower a market accordingly through sheer demand but I think that the two sides of the equation somewhat balance each other, rather than one being more dominant than the other.
Remember, no one rings a bell at the top (or conversely, the bottom) of the market and I would doubt there is ever a coordinated move by a significant volume people to sell when things are going really well (or again, conversely, to buy when they’re really bad), as though they sense “we’re at the top” and it’s time to go, because humans are notoriously bad at picking these times and usually greedy enough to try and eke out just “one more dollar”. We say “Buy low, sell high” but most people don’t or can’t.
Even Buffett says that a bull market is like a particular activity, in that it feels best just before it ends.
Just prior to the GFC on July 10, 2007, Chuck Prince said “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”; and dance they did, right over the cliff. If those who are supposed to be at the top of their financial game can’t see it, what hope has anyone got ?
Rather, it’s when there’s a turn or event in the market that is the wake up call to people and THEN people say “I’m getting out” and cashing in because sentiment has turned; in 1929, people were unable to cover their own positions because of the amount of margin debt and the massive fall in the market.
If there was a correction in the market, instead of whether people decided it was a good idea to move from a debt balance to a credit balance, the former would be the trigger, surely ?
And if so, they are much more difficult to predict, rather than a leading indicator of inflows or outflows of cash into loans.