Friday, June 9, 2017

World economy fact of the day

Jesse Felder (HT : Ananth) points to this stunning graphic of relative valuations of equities and commodities, in the form of the ratio of GSCI benchmark commodities index and the US S&P 500. 
This should ring alarm bells among investors. Even discounting for the fact that past is no predictor of the future, the trend is striking. And there appears no compelling reason to argue that this time is any different. In fact, if we assume that the Trump Presidency and its foreign policy impacts on W Europe, Russia, China, and Middle East as foreign policy shocks engendering some of the largest uncertainty seen in decades, the volatility index has been remarkably stable during the current uptrend. 

It can be argued that by any reasonable sense of informed human judgement, equity markets today appear off-sync, both in its valuation and volatility. And among major economies, India has the second most expensive equity market after the US.

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