Equities in my opinion are overvalued based on the dangerous issues facing credit markets. Above is a chart of Financial stocks, Corporate credit, and equities. You can see the large disconnect between equities and credit securities. Stocks have yet to correlate with the credit markets and are due for a large correction based on negative fundamentals. Europe is having a true debt crisis and equity markets are not discounting this crisis. It’s possible we could see a substantial fall in the price of equities in a few monthes time. Maybe Seth Klarman and other investors see the issues plaguing the credit markets and are either raising cash to take advantage of an imminent collapse or selling equities outright to limit damage.

Advertisements