Greenspan's use of the phrase “irrational exuberance” before 2008, has now become a hackneyed phrase almost
seared into capital markets' mass consciousness.
However
since 2009 bottom, whilst feverish in its first rebound phase,
thereafter the ever rising main western stock indices in the USA, UK
and Europe have experienced slower but still powerfully strong upward
trajectories, but critically these have been logically generated
trajectories given the impetus of US, UK (and Japanese QE) along with
critically a largely positive “dashboard” of still fragile but
confidence ratifying economic indicators.
Given
the initial scale of the rebound, as critical has been the cautionary
manner by which professional investment organisations have
periodically “taken profits” so creating 'corrections', and
critically utilised such price drops as re-buy opportunities; often
so from an enlarging cash-pool from various client sources, the
re-growth of private and company based pension scheme contributions a
primary conduit.
For
some months previously throughout May and June the financial press
had been highlighting the danger of apparent irrationality of high
averaged index P/E figures, though generally not stating how such
high valuations had been heavily skewed by the “tech-story”
effect, whilst ironically recognising the irrationality within the
intrinsic dynamic of the web-tech sector itself. this effect
obviously very much USA centric.
Nonetheless,
across the western hemisphere, given that the 5 year rally has whilst
endemically powerful also been largely conservatively driven, with it
seems even the notional “early bird / catch the worm” speculators
actually staying on-board for longer given the rising tide effect of
what has been much reduced volatility and the general rise in most
financial instruments given the massive amount of liquidity being
force-fed then 'taper' drip-fed into US, UK and Japanese economies.
Given
the success of previous QE programmes, juxtaposed against the EU's
present contracted growth dilemma, it is almost unthinkable that the
ECB would not now instigate its own closely monitored programme now
that the painful but required path to economic reform is now
under-way.
Exempting
the obvious 'global agenda' vagaries of Wall Street's unflinching
over-support for California's tech-sector, it appears that overall
western 'real world' economic traction though slow is sustainable.
This
exemplified by instances of corporate share buy-backs highlighting
the manner in which large companies themselves seek to balance labour
rates against CapEx against their own desire to build internal
reserves given their own international M&A and organic growth
ambitions.
This
in itself an argument for general confidence amongst various investor
types.
Of
greatest obvious impact since 2008 have been periods of heavy
geo-political headwinds, Europe suffering most with at first the
'sovereign debt crisis' of 2010-11 (itself presenting a golden buy
opportunity) whilst over recent months the much increased social and
military tensions across the buffer nation that is Ukraine and the
Middle East (Gaza and Iraq) have undermined near-term confidence.
The
Ukraine issue with its low probability but high impact long term
potential to fracture the inter-relationships of Euro-zone member
states immediately created concerns for EU - Russia trade relations,
leaving Germany most exposed given its importation of energy and
exportation of vehicles, industrial tooling and chemicals. This in
turn undermining internal investment confidence across the German
economic engine and the other core nations of France and The
Netherlands.
Middle
Eastern tensions are of more immediate but remote affect the US,
given its close ties to Israel regards Gaza, and a desire to defend
via proxy actions the flow of energy interests in the Middle-East.
Though of less pronounced impact upon its own stock indices given the
combination of homeland economic re-strengthening and exposure to
many EM markets via its conglomerates.
Thus
we note that European stocks have contracted most so over preceding
months – see attached chart for the effect on Autos – potentially
offering a new buy opportunity. That opportunity now seemingly
availed with the easing of Ukraine tensions through consolatory
words by President Putin.
As
stated for many years now by investment-auto-motives, investors today
sit within an unparalleled new world era of western rebuild, BRIC
rebound and broad EM growth.
Furthermore,
for the west, and Europe in particular, this economic process now
effectively underwritten by administrative policies and actions given
the still existent debilitating economic stresses which exists for
much of the western populace: from Southern Europe's ex-middle class
to the renewed social spark in Ferguson, Missouri.
Though
presently socially unpleasant, it is within this continued 'society
rebuild' context that investor confidence appears wholly sustainable.
And
so to this crucial juncture.
Prior
to the provision of 'Coupled Ratios Analysis',
investment-auto-motives will simplistically convey the 'drop from the
top' that has been witnessed amongst the 'global 11' auto-makers.
Price
and % Drop
High......as
of 08.08.14....as of 20.08.14
GM $38.........$33.11
(-13%).......$34.57 (-9%)
Ford $17.75....$16.82
(-5%).........$17.36 (-2.2%)
FIAT-Chrysler €9.00......€6.85
(-24%).........€7.20 (-20%)
VW €195.......€165
(-15%)..........€172 (-12%)
BMW €95.50....€86.90
(-9%).........€88.55 (-7%)
Daimler €70.........€59.50
(-15%).......€61.10 (-12.7%)
Peugeot* €11.50....€10.00
(-13.5%)....€10.60 (-7.8%)
Renault €72.........€59
(-18%)............€59.30 (-17.6%)
Toyota** $130.......$116.70
(-11%).....$117 (-10)
Honda** $42.........$34
(-19%)............$7.90 (-18.8%)
Hyundai
NB
*
Peugeot previous high measured within period after Dongfeng dilution
**
Toyota and Honda measured from 'Abenomics' induced high
The
attached chart illustrates the above.
It
demonstrates how the 'Detroit 2' have remained relatively unscathed,
GM's drop the internally created micro-consequences of the massive
recall. European producers now climbing back from macro-surpression.
Japanese having to re-climb primarily via operational efforts with
reduced domestic assistance. S.Korean experienced no negative fall
given upturn in S.Korean economy.
