Here’s a cool graph from Dr Ed’s blog showing how far gold has come back into favour versus stocks, as people have sworn off the future:

American confidence - in the golden brown

Dr Ed write:

In the chart above, you can see that there is a long-term inverse correlation between the P/E versus the inflation-adjusted price of gold, which is approaching the record high of $866 per ounce during January 1980, when Carter was President. This does not bode well for the valuation multiple. The real price of gold was $682 during June. To match the 1980 peak on an inflation-adjusted basis, it would have to rise over $2,500 in current dollars. If it gets there, odds are that the P/E will be lower.

(Source: Dr Ed’s blog)

Precious little detail on the FirstBuy first-time buyer scheme so far, but it seems designed partly to prop up the housing market:

The new FirstBuy scheme will provide a £250 million fund to help first-time buyers get on the housing ladder, via a shared equity arrangement. It will be jointly funded by the housebuilders.

Osborne claims FirstBuy will help 10,000 first-time buyers, which is non-trivial in a market where only 43,000 or so mortgages were approved in February 2011 – way down from the 80,000 or so that was previously seen as required for stability in the housing market.

(Source: Monevator)

Okay, so we know equities have had a bad decade. But if you look at the following graph of ten-year asset class returns and think “I’ll shun shares an invest in government bonds and gold” then slowly put down your PC and walk away from your online dealing account…

(Source: Business Insider)

A striking graph from a New York Times piece pointing out the massive outflows of money from US equity funds:

Contrararians 'R' Not Us

The whole article is worth a read if you want to know why equities are so cheap and bonds are so expensive, but here’s a taster:

To be sure, a lot of money is still flowing into the stock market from small investors, pension funds and other big institutional investors. But ordinary investors are reallocating their 401(k) retirement plans, according to Hewitt Associates, a consulting firm that tracks pension plans.

Until two years ago, 70 percent of the money in 401(k) accounts it tracks was invested in stock funds; that proportion fell to 49 percent by the start of 2009 as people rebalanced their portfolios toward bond investments following the financial crisis in the fall of 2008. It is now back at 57 percent, but almost all of that can be attributed to the rising price of stocks in recent years. People are still staying with bonds.

Needless to say, my money is on equities for the long term.

(Source: New York Times)

If you’re not banking on a double-dip recession and yet you’re out of the stock market, you better know you’re taking a huge risk

Just check out this graph from Wells Capital:

Poor quality graph. High quality opportunity

No wonder US value investing legend Bill Miller smells a big opportunity:

U.S. large capitalization stocks represent a once in a lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951. I was 1 year old then, but did not have then sufficient sentience or capital to invest. I do now, and if you are reading this, so do you.

One day this anomaly is going to be resolved. I’m not saying “buy buy buy!” but rather that you’d better have a good reason why you don’t.

(Source: Fool US)

Interesting list from Kiplinger via Yahoo of the cheapest and most expensive places to live in the US.

The five cheapest US cities are:

1. Fort Worth, Texas
2. Pueblo, Colorado
3. Harlingen, Texas
4. McAllen, Texas
5. Johnson City, Tennessee

The three most expensive are:

1. New York, New York
2. Honolulu, Hawaii
3. San Francisco, California
4. Santa Ana, California
5. Stamford, Connecticut

Here’s an interesting tidbit showing how a high income isn’t everything:

Housing costs [in New York] four times the national average are a big reason that the overall cost of living is so high. But everything from grocery items to utilities are much pricier in Manhattan than in the rest of the nation. A New Yorker would have to make $127,935 a year to have the same standard of living as someone earning $50,000 in Fort Smith, Ark., the least expensive city.

As a mug who has lived in London for 15 years, I feel your pain New Yorkers.

Click through the link below for full details.

(Source: Yahoo)

Bouncy Englishmen's castles

I must admit that living in London, I tend to forget the house price crash isn’t quite over in the rest of the country. Prices have been coming back everywhere though:

House prices in England and Wales are now at similar levels to those seen in the summer of 2006, according to the Land Registry.

However, property values crept up by just 0.1% from May to June, taking the average cost of a house to £166,072.

Prices were 8.4% higher than a year ago – the eighth consecutive month that there has been a year-on-year rise.

(Source: BBC)

While I am pretty bullish and think the banking system is now fundamentally sound – a combination that makes people drop their forks in open-mouthed amazement at a certain kind of dinner party – even I’ll admit the EU banking stress tests weren’t exactly testing the banks against Armageddon:

An important caveat is that the chance of another extreme lurch downwards in GDP so quickly after the last is negligible.

In fact, perhaps it could only be brought about by a banking panic inspired by a too-severe stress test! (They’re nothing if not realists in Brussels).

Besides, the main point of the stress tests was to flush data out of the banks and into the market. Now you – or your team of back office quants – can run your own stress test and reach your own conclusions.

(Source: Business Insider)

The market blogger all bloggers would like the grow up to be, Barry Ritholtz of The Big Picture blog, reckons US house prices are still overvalued:

Whether we are looking at US housing stock as a percentage of GDP or Median income vs home prices or even ownership vs renting costs, prices remain elevated. Indeed, we see prices remain above historic mean.

Consider price relative to income. From 1977 to 2010, the median US home price was 4.1 times median household income. But as the chart below shows, Home prices are still above that mean. Oh, and that mean is artificially elevated due to the 2002-07 boom. Same with home prices relative to rentals, or housing value as percentage of GDP.

Further, we should not assume that prices will merely mean revert back to historic levels. In most markets, a near 3 standard deviation price move is resolved not by reverting to the mean, but by by careening far below it.

Here’s a graph of prices relative to income:

Click to enlarge the dread forecast

And here’s a graph of prices relative to rents:

Click to see the big picture

By both metrics, UK house prices are at least as over-valued, incidentally.

(Source: The Big Picture)

Very interesting and in-depth article in The Economist today on the gold bubble boom:

Investment demand has accelerated and jewellery demand has collapsed. Last year, indeed, was the first in which investment demand exceeded jewellery demand. Purchases of gold for jewellery dropped to 2,193 tonnes in 2008 and then to 1,758 tonnes in 2009. Meanwhile, the signs of surging investment have been everywhere. This has more than made up for the slump in the jewellery trade: total demand in 2009 was the highest since at least 2000.

Investment in gold ETFs and similar products reached a record high in 2008, of 321 tonnes—and then almost doubled, to 617 tonnes, last year. The stock of gold held by such funds more than doubled to 1,839 tonnes in the two years to the end of 2009. John Paulson, a New York hedge-fund manager best known for making handsome sums betting on the collapse of the American subprime-mortgage market, holds $3 billion-worth of gold ETFs, the largest part of his $35 billion portfolio.

(Source: The Economist)