Bonnie, FWIW,I am on the road again and will post a
few more observations about the current market from my
hotel before dinner.
I agree that the bottom is a long way down yet.
Risk has been "for sale" for quite a while in
many markets, that is, it is cheap in an historical
sense.
As you are well aware, one is not compensated for bearing
risk given current equity valuation. The market for
credit risk is in a similar situation since corporate
bond spreads were extraordinarily narrow in early
October. REIT's have also been in high demand this
year and, IMHO, the pricing does not reflect potential
real estate risk. In another market for risk, insurance
and reinsurance, a fellow traveler made me aware of
the depressed prices for property and casualty risks
currently being negotiated for '98 renewals between
insurance companies. Four global markets...equity, credit,
real estate, and insurance risk...all with risk/reward
imbalances.
IMHO this undervaluation of risk and its counterpart
the overvaluation of so many classes of assets is
untenable. Furthermore, the Fed has reinforced equity
market concerns by their inaction. After all, if the
Fed is so concerned about the global conditions that
they are willing to forego their credibility then the
average portfolio manager may begin to take notice. Stock market
rallies will probably have a "lid" above them now in the
form of interest rate increases from further economic growth,
as corporate earnings are equities' only remaining source of
positive surprises.
Gotta go. Good luck all. |
