Deutsche Bank Warns “Markets Seem To Have Entered Frothy Territory (If Not Being In A Bubble)”

Monday, July 10, 2017
By Paul Martin

by Tyler Durden
Jul 10, 2017

Another day, another warning of market froth, only this time not from the (widely ignored) Federal Reserve, but from Mikihiro Matsuoka, chief economist at Deutsche Bank who in a note released on Monday says that he believes that “the equity market in developed countries begins to show symptoms of ‘froth’. A simple average of the standard deviation of the stock market capitalization as percentage of GDP of seven major developed countries has been approaching very close to the previous peaks of 2000 and 2008. The reason we believe it is entering a frothy territory is that an eventual turnaround of monetary policy after a long period of post-GFC accommodation is under way in major developed countries, which in our view, raises the returns on safe assets and lowers the valuation of risk assets.”

While Matsuoka hardly says anything Janet Yellen did not cover in the past two weeks, here is the summary:

Some factors, such as 1) higher nominal GDP growth above long-term bond yield thanks to massive monetary accommodation, 2) chimera equities in which dividend yields get higher than the long-term bond yield and a resulting rise in P/E thanks to ‘search for yield’, and 3) financial surplus of non-financial businesses in developed countries, might help evade or put off a large and prolonged adjustment in asset prices.

The Rest…HERE

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