Wall Street Revalued: Imperfect Markets and Inept Central Bankers

Foreword v

Chapter 1 Introduction 1

Chapter 2 Synopsis 15

Chapter 3 Interest Rate Levels and the Stock Market 25

Chapter 4 Interest Rate Changes and Share Price Changes 37

Chapter 5 Household Savings and the Stock Market 41

Chapter 6 A Moderately rather than a Perfectly Efficient Market 49

Chapter 7 The Efficient Market Hypothesis 57

Chapter 8 Testing the Imperfectly Efficient Market Hypothesis 67

Chapter 9 Other Claims for Valuing Equities 81

Chapter 10 Forecasting Returns without Using Value 91

Chapter 11 Valuing Stock Markets by Hindsight Combined with Subsequent Returns 97

Chapter 12 House Prices 105

Chapter 13 The Price of Liquidity – The Return for Holding Illiquid Assets 109

Chapter 14 The Return on Equities and the Return on Equity Portfolios 115

Chapter 15 The General Undesirability of Leveraging Equity Portfolios 121

Chapter 16 A Rare Exception to the Rule against Leverage 131

Chapter 17 Profits are Overstated 137

Chapter 18 Intangibles 145

Chapter 19 Accounting Issues 159

Chapter 20 The Impact on q 171

Chapter 21 Problems with Valuing the Markets of Developing Economies 175

Chapter 22 Central Banks’ Response to Asset Prices 181

Chapter 23 The Response to Asset Prices from Investors, Fund Managers and Pension Consultants 191

Chapter 24 International Imbalances 195

Chapter 25 Summing Up 197

Appendix 1 Sources and Obligations 199

Appendix 2 Glossary of Terms 203

Appendix 3 Interest Rates, Profits and Share Prices by James Mitchell 209

Appendix 4 Examples of the Current (Trailing) and Next Year’s (Prospective) PEs Giving
Misleading Guides to Value 217

Appendix 5 Real Returns from Equity Markets Comparing 1899–1954 with 1954–2008 219

Appendix 6 Errors in Inflation Expectations and the Impact on Bond Returns by Stephen
Wright and Andrew Smithers 221

Appendix 7 An Algebraic Demonstration that Negative Serial Correlation can make the Leverage
of an Equity Portfolio Unattractive 233

Appendix 8 Correlations between International Stock Markets 235

Bibliography 237

Index 239