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.

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.

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.

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.

Where is the summer rush – UK property market – July 2010 Update

It’s at this time of year that I thought it was a tradition for the British people to head out to the Real Estate Agents and start bidding up the prices of already over priced housing. This summer though it’s starting to look like that might not happen. Even the new coalition government don’t seem keen to ramp up property and property prices. Of course they are acknowledging that the country no longer has any money however the previous government seemed to always find some way to ramp prices and keep the plates balanced and spinning. This month has seen both prices and mortgage approvals turn down. Who knows if this continues for a couple of years maybe we might even get to the point where instead of the government forcing builders to build “affordable housing” (or as I have eloquently seen these properties referred to elsewhere, slave boxes) instead maybe we might just get housing that is affordable. What a novel idea.