Outside the Box

Complacency, elections and year-end rallies

John Mauldin

December 6, 2004

Once again we look at one of my favorite analysts and behavioral finance thinker, James Montier of Dresdner Kleinwort Wasserstein in London. James wrote a fascinating book two years ago called "Behavioural Finance: A User's Guide" and puts out ongoing research like what we will enjoy today. Long time readers will recognize the name because I have discussed many of his ideas in my weekly e-letter "Thoughts From the Frontline," my book "Bull's Eye Investing" and in "John Mauldin's Outside the Box."

This report by James explores many of the global markets to determine if they are overvalued or undervalued. We get an inside look into some historical data and financial models, plus a non-US perspective on the current condition of several world markets. Enjoy this week's "Outside the Box."

John Mauldin, Editor
Outside the Box

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Complacency, elections and year-end rallies

By James Montier

US: Condition IV (unfavourable valuation and unfavourable momentum sell equities signal)

Chart 1

Condition I: valuation favourable, momentum positive = buy equities

Condition II: valuation favourable, momentum negative = buy equities

Condition III: valuation unfavourable, momentum positive = buy equities

Condition IV: valuation unfavourable, momentum negative = sell equities

Valuation is…

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