Wall Street Revalued Imperfect Markets and Inept Central Bankers

by Smithers, Andrew

• ISBN13: 9780470750056
• ISBN10: 0470750057
• Edition: 1st
• Format: Hardcover
• Copyright: 2009-08-24
• Publisher: Wiley

Summary

In Wall Street Revalued, leading analyst and bestselling author of Valuing Wall Street, Andrew Smithers presents a new way to value asset prices.Indifference to overvalued asset prices by investors, central banks and much of the financial press is the root cause of the current crisis. Bubbles in stock markets, house prices and financial assets cause huge damage when they fall, not only to their owners, but also to the world economy. An understanding of how to value assets is thus vital for managing the economy as well as for investors. This book explains how assets can be valued and shows how much incorrect and inaccurate information is published on the subject and how to spot this. Among investment bankers and financial journalists the two most common claims to value are, as Andrew shows, unadulterated lies. One of these is that "Shares are cheap given the level of current (or forecast) PE multiples" and the other is that "Shares are cheap relative to interest rates."Andrew also explains how asset prices affect the economy and how central banks lose their ability to stabilise it when bubbles collapse. The denial that markets can be valued has caused great damage. Markets are not perfectly efficient, nor are they are irrational casinos. This book sets out a new model for understanding the limited efficiency of financial markets, which is the key condition for improving investment and economic management today.Table of contents Chapter 1 Introduction. Chapter 2. Synopsis. Chapter 3. Interest Rate Levels and the Stock Market. Chapter 4. Changes in Interest Rates and Changes in Share Prices. Chapter 5. Household Savings and the Stock Market. Chapter 6. An Imperfectly Efficient Market. Chapter 7. The Efficient Market Hypothesis. Chapter 8 Testing the Imperfectly Efficient Market Hypothesis. Chapter 9. Other Claims for Valuing Equities Chapter 10. Forecasting Returns without Using Value. Chapter 11. House Prices. Chapter 12. The Price of Liquidity. Chapter 13. The Return on Equities and the Return on Equity Portfolios. Chapter 14. The General Undesirability of Leveraging Equity Returns. Chapter 15. A Rare Exception to the Rule against Leverage. Chapter 16. Profits are Over rather than Understated. Chapter 17. Intangibles. Chapter 18. Accounting Issues. Chapter 19. The Impact on q. Chapter 20. Problems with Valuing the Markets of Developing Economies. Chapter 21. Central banks' Response to Asset Prices. Chapter 22 Deflation, Inflation, Prevention and Cure.

Author Biography

Andrew Smithers is the founder of Smithers & Co., which provides economics-based asset allocation advice to over 100 fund management companies worldwide.  Andrew is a regular contributor in Japan to the Nikkei Veritas. He was a regular contributor to the London Evening Standard and Japan's Sentaku magazine, and has written for many other newspapers and magazines, including the Financial Times, Forbes (US), Sunday Telegraph (UK), Independent on Sunday (UK) and Genron (Japan).  Andrew is an invited contributor to the prestigious Economist's Forum on the FT website.
Andrew is a member of the Advisory Board for the Centre for International Macroeconomics and Finance (CIMF) at Cambridge and has also been a member of the Investment Committee at Clare College, Cambridge since 1998.
Prior to starting his own firm, Andrew was at S.G.Warburg & Co. Ltd. from 1962 to 1989 where he ran the investment management business for some years and which, by the end of his tenure, was the acknowledged market leader. This was subsequently floated off as a separate company, Mercury Asset Management, which was acquired by Merrill Lynch in 1998.

Table of Contents

Foreword	p. v
Introduction	p. 1
Synopsis	p. 15
Interest Rate Levels and the Stock Market	p. 25
Interest Rate Changes and Share Price Changes	p. 37
Household Savings and the Stock Market	p. 41
A Moderately rather than a Perfectly Efficient Market	p. 49
The Efficient Market Hypothesis	p. 57
Testing the Imperfectly Efficient Market Hypothesis	p. 67
Other Claims for Valuing Equities	p. 81
Forecasting Returns without Using Value	p. 91
Valuing Stock Markets by Hindsight Combined with Subsequent Returns	p. 97
House Prices	p. 105
The Price of Liquidity - The Return for Holding Illiquid Assets	p. 109
The Return on Equities and the Return on Equity Portfolios	p. 115
The General Undesirability of Leveraging Equity Portfolios	p. 121
A Rare Exception to the Rule against Leverage	p. 131
Profits are Overstated	p. 137
Intangibles	p. 145
Accounting Issues	p. 159
The Impact on q	p. 171
Problems with Valuing the Markets of Developing Economies	p. 175
Central Banks' Response to Asset Prices	p. 181
The Response to Asset Prices from Investors, Fund Managers and Pension Consultants	p. 191
International Imbalances	p. 195
Summing Up	p. 197
Sources and Obligations	p. 199
Glossary of Terms	p. 203
Interest Rates, Profits and Share Prices	p. 209
Examples of the Current (Trailing) and Next Year's (Prospective) PEs Giving Misleading Guides to Value	p. 217
Real Returns from Equity Markets Comparing 1899-1954 with 1954-2008	p. 219
Errors in Inflation Expectations and the Impact on Bond Returns	p. 221
An Algebraic Demonstration that Negative Serial Correlation can make the Leverage of an Equity Portfolio Unattractive	p. 233
Correlations between International Stock Markets	p. 235
Bibliography	p. 237
Index	p. 239
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