The key ingredients supporting current frothy equity valuations are the global availability of credit and its moderate price. Our contention has been for the past 18 months, that equity markets are under-pricing the inherent risks surrounding the eventual tightening and re-pricing of credit. As credit markets tighten, many types of asset classes become less attractive. In particular, we are cautious about equities that have been the beneficiary of so-called momentum investing and whose PEs have excessively expanded relative to changes in their expected earnings growth. Recent underperformance of the so-called US FANG stocks (Facebook, Amazon, Netflix and Google) should be a worrying sign for momentum investors, of which we are not. Other instructive examples would be Linkedin and Tableau recently both falling over 40% on one day due to small earnings misses. We have composed our Aussie equivalent which we call a “BITBAD”. The table below highlights these names and their dizzying multiples. Clearly this group of stocks is particularly exposed to any small misses or global multiple retracement. (Jeremy Bendeich, Avoca Investment Management)