Professor Russell Napier’s interests are Financial History, with a focus on Money and Public and Private Debt. He has been advising money managers for over 30 years. He has written two books, Anatomy of the Bear and The Asian Financial Crisis 1995-1998. He is the Keeper of the Library of Mistakes. His lecture is titled Mean Reversion of Equity Valuation. The lecture is about the changes in the level of equity valuations; valuations mean revert -- what goes down will go back up and what goes up will go back down.
Here are the highlights from Russell’s 29 November 2024 lecture at the University of Aberdeen in four bullet points:
1. Bond markets and equities are driven by inflation expectations. Equities adjust more rapidly than bonds to changing inflationary expectations. Lower interest rates are related to higher equity valuations and higher interest rates are related to lower equity valuation.
2. Inflation around 4% signals a change in monetary policy.
3. Currently, US stocks -- the index -- are dangerous; valuations are near record high.
4. Currently, public debt in the West is at a dangerous level. Reducing debt requires low interest rates and high inflation.
5. China keeps its exchange rate low by buying foreign currency bonds. Hence, global bond yields are low.
6. Points 4 and 5 mean that bonds are unlikely to preserve the purchasing power of investors wealth.