I feel a sense of panic among the esteemed value investors on the board. Equities have been trading at a very high P/E multiple and how can we be so sure that they do not continue to trade at high multiples. Rates are likely to stay low worldwide and in such an environment, won't companies that can grow their earnings even ~5% or so be a good investment. European QE has further to go and that will perhaps provide a boost to the European equities. With the continued strength in the US dollar and decline in emerging market currencies, will the Fed be really able to raise the Fed Funds rate? Isn't the Fed supposed to be raising rates only if the US economy is steaming hot? With the US economy growing so slowly, the Fed would be a blockhead (using Gundlach's words) to raise rates. Summer and Dalio are already talking about QE4. What happens if the Fed gives indication that they will not be raising rates in the near term due to all the global concerns? Will that lead to a rally in the equities? What happens if they don't raise rates at all in 2016 due to the upcoming elections? Will that lead to a rally in the equities?
The Chinese economy has been slowing down since long. There's no new information about it lately to have caused such a decline in the US equities market. Also, we all saw how the Chinese equities markets were going up in a parabolic manner, with barbers and taxi drivers all jumping in. We all knew that it was a bubble and that it would burst at some point of time.
The worldwide growth is low. That should keep rates low. In such an environment, will equities not be the only game in town. And if rates do rise, that would be if the economy is doing well. That should lead to increased earnings which could mitigate some of the headwinds due to P/E multiples normalizing.
