Randoms By Dylan Grice

Dylan Grice, the global strategist at Societe Generale, had some interesting thoughts along the lines of value, volatility and inflation today. Here are some that I wanted to point out:

...if equity volatility is a proxy for market visibility, then current equity volatility at its historical average suggests we are in such a delusional equilibrium right now. And thanks to Taleb's insights, which teach us that this delusional equilibrium is merely a neurological sleight of hand and not based on anything fundamentally true, the current confidence exhibited by the "average" level of equity volatility today isn't based on anything fundamentally true either. It's based on the tricks of our collective minds.

While focusing on higher inflation expectations in the markets right now, especially in the ones where experts of Quantitative Easing are active and promoting the reflation propaganda, the conclusion is quite straight forward:

During the 20th century, the ultra-low valuations have occurred when inflation wasn't under control. Low/stable inflation regimes, which I've loosely defined as occurring during the 1920s, the 1950s to the early/mid 1960s and the 1980s to the present, have seen considerably higher Shiller multiples than inflationary regimes. The average multiple during inflationary regimes has been 12.2x. During price stability it has been 19x.

Low PE was also observed during deflation period (unstable, not under control) of early 1930ties. The latest reading of Shiller's PE stands at almost 19x, the latest data to check available here, so equity markets appear to be fine with inflation outlook right now?