Good morning!

Today's news flow is not particularly exciting, so why don't we have a quick roundup on markets in general?

The FTSE-100 has had a rocket under it since the beginning of June (this is a two-year chart):

5d1f0a2d24ffbChart-ftse-100-index-562019


As you can see, we are stll belows the highs of H1 2018. But for how much longer?

Other equity markets have been creating all-time highs. Here are the long-term charts for the Nasdaq (blue) and the Dow (grey):

5d1f0b45c7940Chart-nasdaq-composite-inde


One of the hedge fund managers I follow (thanks to his Tesla-related efforts) is Mark Spiegel. I should acknowledge that since inception in 2011, his fund has underperformed the major stock market indices.

But it has been a horrid era in which to run a long-short book, and Spiegel loves shorting: his fund is currently "very net short", according to his June letter!

The reason I mention him is that he has identified the Russell 2000 Index as "the most overvalued of all stock indices". This is the subset of the Russell 3000 (the top 3,000 publicy-traded US companies) that excludes the top 1,000. So we could think of it as a mid-cap index, a bit like the FTSE-250.

According to Spiegel, this index trades on a trailing P/E ratio of 35x, and 35% of its components are unprofitable! Those are quite amazing numbers (at least to me) and they suggest that the overvaluation relative to traditional metrics extends far beyond the FAANGS. So I remain extremely cautious about the valuation of US markets.

Turning closer to home, I'm becoming a lot more comfortable with the valuation of the FTSE.

The FTSE All-Share Index, for example, is on a trailing P/E ratio of 14.6x, while EPS growth of 3.2% is forecast to increase to 8.1%.

The FTSE does not have as many exciting growth companies as the US markets do, but I do think it can serve as a stable source of value.

Indeed, I've been picking up a little bit of extra income this year by making regular long bets on the FTSE. In the last few weeks, however, I've been cautious about placing any more trades - I've been comfortable doing it around 7100-7200, but am more reluctant with the market at 7600. Given the change…

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