These times are getting interesting

Crispin Odey

The FTSE 100 share index is now up 30% over five years, while earnings have fallen by 80%. On an earnings yield of 1.6%, the stock market could fall by 80% and, provided profits did not fall, would be on a 13x P/E multiple. The Bank of England is proud it has engineered such a pleasant result, but there is now increasing evidence that this is unsustainable. On the back of the uncertainty for overseas investors in UK PLC following the Brexit result, the current account deficit is ballooning and the budget deficit is following. Carney, the Governor of the Bank of England, has responded by flooding money markets with more cash, QE and, in the process, supporting the government 10-year bond at a current yield of 1.2%. However, as sterling falls against all its trading partners’ currencies, it is mechanically ensuring inflation rises up through 3.5%. (VIEW LINK)


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