Monday, 9 August 2010

Isn’t Greece doing well? Its people must be so proud – Aus, UK, US and the PIGS government 10 year bond yields – August 2010 update

It’s been a few months since I last had a look at the 10 year government bond yields of Australia, UK, US and the PIGS (Portugal, Italy, Greece, Spain) however with the IMF and others applauding Greece for their "vigorous implementation of the fiscal programme" I thought it might be a good time to revisit. Generally all yields since June 10 have either been flat or fallen which I think means the market sees investment in these countries carrying the same risk or less risk of default than previously. Let’s look quickly at the yields:
- Australia has gone from 5.11 to 5.16
- UK has gone from 3.35 to 3.22
- US has gone from 2.96 to 2.83
- Portugal has gone from 5.98 to 5.06
- Italy has gone from 4.10 to 3.79
- Greece has gone from 10.60 to 10.31
- Spain has gone from 4.70 to 4.07

Saturday, 7 August 2010

The market is climbing from its June low - Australian (ASX 200) stock market plus its PE10 – August 2010 Update

The Australian stock market index, the ASX200, closed on Friday at 4566. This means that since the June average low of 4302 the market has risen by 6% in a little over one month. As of Fridays close the cyclically adjusted PE ratio (ASX200 PE10 or CAPE) has risen from 16.51 in June to 17.36. This can all be clearly seen in my first chart today.

Thursday, 5 August 2010

It was all so predictable - Bank of England Rate held at 0.5% - August 2010 Update

Today’s decision by the Bank of England to hold the Official Bank Rate at 0.5% for the 17th month in a row was so predictable that I nearly didn’t bother posting today. As I’ve been saying for a while I think they are going to try and inflate some debts away but I’m starting to become concerned by this strategy for a number of reasons.

Wednesday, 4 August 2010

My first FTSE 100 cyclically adjusted PE ratio update – August 2010

As regular readers will know I monthly follow the cyclically adjusted PE ratios, also known as a CAPE or PE10, for both the US S&P 500 and the Australian ASX 200. Based on this information I make tactical asset allocations to my equity funds with the only exception being my allocation to emerging markets. Today though is quite exciting because it’s the first update of a brand new dataset which I first introduced here. That dataset is the FTSE 100 CAPE or FTSE 100 PE10 and it is the ratio of the Real (inflation adjusted) Price divided by the average Real Earnings of the last 10 years for the FTSE 100.

Monday, 2 August 2010

The British Pound is undervalued

Given the current state of the UK economy today’s post title might be seen as pretty reckless however I’m not so sure. I’m not talking short term trader talk here rather I’m sitting here writing this post thinking as a long term investor. This thought has come about after MoneyWeek referred to the Big Mac Index which is an informal way to determine whether a currency is over or under valued based on purchasing power parity. The theory is that the same item should cost roughly the same anywhere in the world. In my opinion this theory is probably a little naive as the Big Mac Index is based on a price which is what the product is sold for. A price is of course the cost of producing the product plus any profit and I know from companies I have worked for that price is not correlated in any way to cost in different countries where products were sold. That is profits in absolute or percentage terms for an identical product can be very different in different parts of the world. If McDonalds has the same pricing policy then this could skew the index. I guess with some time one could also pull together a Starbucks Index, an Apple iPhone Index or even a Samsung 32” LCD TV index.