Fransesco Filia: The World’s Twin Asset Bubbles Could Collapse Under Their Own Weight
The comments above & below is an edited and abridged synopsis of an article by Tyler Durden
This is the text of an interview with Francesco Filia, a fund manager who is widely respected for his research about how post-crisis monetary policy has distorted markets and the different metrics he uses to determine whether a certain asset is in a bubble. He has a laundry list of metrics that all point to the same conclusion for today’s market: It is more overvalued than at any point in recent history—including the run-up to the financial crisis.
Filia has created his own valuation metric that is loosely based on the famous Shiller PE (or CAPE) ratio. It helps filter out distortions caused by the drop off in corporate earnings caused by the crisis.
Modern markets are precarious because investors are struggling with twin bubbles in bonds and equities. The former is often overlooked, because the public doesn’t have as nuanced an understanding of the bond market. Yet historically speaking, bonds are even more closely correlated with metrics like inflation.
NIRP and ZIRP have created distortions in bond valuations that have left them extremely overvalued compared with history, meaning that the inevitable regression to the mean will likely take the form of a vicious selloff.