Note Précis January 31,2018: Rakers of the Lost Art of Valuation – Amid gasps and contortions to justify markets without corrections (until recently), two realities seem missing. Perfect knowledge (or even efficiency) cannot be assumed, not least at any single point. Further as in the 1990s, the long term role of markets is capital allocation and not just following central bank diktat. Similarly as in the late 1970s, central banks should not be handmaidens to markets. Retrospective on monetary policy has been of paucity in depth. The January 31, 2018 FOMC would ideally have had more transparency and absorbed political blowback. Fed Funds rates unchanged seems opportunity forsaken. Other major central bank decisions loom but currency volatility is a risk. Between fixed income and equities, prior divergence in factor interpretation was not stable. Now, government borrowing is high. Fixed income vigilance seems overdue as central banks temper activity. Technology in production, logistics and services has changed. In needing funding, the U.S. State of Union $1.5 trillion infrastructure program joins others worldwide. For equities, global growth may be stronger and earnings in expansion but large P/E expansion already exists. In considerations on market behavior, M&A activity becomes pro-cyclically fervent closer to peaks. With junk bonds and concept equities particularly at risk on change, rakers of the lost art of valuation are both required and overdue. In equities with late cycle behavior in global growth amid market disdain until recently about their restructuring, valuation and delivery beckon in Energy and Materials.
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