| Dear reader: Money Distilled is now behind the Bloomberg paywall. Existing readers will continue to get it for free until December 11th, but after that, it’ll only be available to Bloomberg.com subscribers (and terminal users, of course). So sign up if you haven’t already at the bonus rate outlined in the box above. You get far more than just this newsletter . You get access to the entire Bloomberg website with its unrivalled global coverage of markets across the world , including my colleague Merryn’s brand new newsletter. If you want to be informed, rather than told what to think — a rare commodity these days — sign up now. Oh and make sure you sign up for Merryn’s new newsletter. Here’s the link. As someone who has been describing US stocks as “expensive” for longer than I care to recall, I have a fairly straightforward approach to the US market. Be “underweight” relative to the global benchmark index (otherwise something like 70% of your equity allocation will be in US stocks), but do own them, in case financial gravity continues to be defied. Moreover, listening to Barry Norris of Argonaut Capital Partners in the latest Merryn Talks Money podcast, it’s hard to deny his basic point: capital flows to where it is treated best, and right now you won’t find many places that treat capital better than the US does. (He also likes Argentina — you need to listen to this one, you lot will love it). All of this said and caveated — I still think that US stocks are expensive. More and more, the euphoria around the US reminds me somewhat of the euphoria around the UK, and the City specifically, in the run-up to the bursting of the global financial bubble, when London was being touted as the world’s capital city, supplanting New York. This euphoria wasn’t reflected so much in the UK stock market as in the currency. A pound would fetch you more than two of your American dollars, and weekend shopping trips to New York were commonplace in the fashion pages. This is also why you young folk (and those with poor memories) should always be cautious when you see someone presenting any kind of chart of economic activity in the UK, which assumes that the trend up to 2007 was normal and should just have continued in a straight line. It really wasn’t normal. It was a financial bubble and the City was at the heart of it. What’s the relevance to the US? Well, there is now a similar feeling (if arguably more justified) about it. There’s an over-confident, dismissive tone. Where else should your capital go? You’d have to be daft or deluded to invest elsewhere. If you do, you just don’t “get” it. Of course, “feelings” are a rather nebulous indicator. But rather handily, Bloomberg writer Simon White has put some numbers on this sentiment question in his latest MacroScope column (only on the terminal). More on that in a moment, but first we’ll get valuation out of the way. I think most of us understand by now that US equities are pricey. But just in case, the cyclically-adjusted price/earnings ratio (which measures the value investors put on future earnings, adjusted for the economic cycle) has only been higher in 1999 (the tech bubble) and briefly in 2021. As for other measures, notes White: “on each of price-to-book, price-to-sales, EV/EBITDA or Tobin’s Q ratio, US equities are in the top 1-3% of their full-history readings.” You may or may not know what all of those things are, but you get the point. US stocks are unarguably expensive, it’s just a question of whether they stay that way or not. TINA Strikes Back On that note, White points out that ownership of US equities (by companies, private investors, and overseas investors) is close to all-time highs, while optimism is at a high too. “Never before has ownership been so high with valuations so stretched,” he notes. Ownership of stocks versus bonds is also near all-time highs. That last happened in the late 1960s (prior to a decade which ended with the infamous “Death of Equities” magazine cover) and — you guessed it — the bursting of the tech bubble. One further data point drives home how much this is an “America bubble” — investors are paying 20% more for a US-listed ADR (American Depositary Receipt) that gives exposure to shares in Taiwanese chip making giant TSMC, than for the Taiwan-listed stock. Convenience is surely not a sufficient justification for this premium. White has plenty of other good points, with regard to leverage and over-optimism regarding Donald Trump. And none of this says anything about what will happen in the short term. But to sum up, he’s not too upbeat about the long-term prospects for new money being invested in the US market today. What does it mean for your portfolio? I refer you back to my opening paragraph. The US is exceptional in many ways. Its optimism and can-do spirit are enviable at a time when many people in Europe feel as if our nations are in poorly-managed decline. You need exposure to that. But euphoria is, by its nature, a temporary state. And importantly, pessimism can be a spur to change. There’s a concerted campaign in this country right now to become a place where capital is treated with more respect. That won’t go away. And low valuations create their own demand (even if you think the UK is irredeemable, treat it as a closed-end fund in run-off, trading at a discount to a soon-to-be-realised net asset value). So while it may feel that there is no alternative (where have we heard that before?), it makes sense to own more in your retirement fund than just an S&P 500 tracker. Send any feedback, opinions or questions to jstepek2@bloomberg.net and I’ll print the best. If you were forwarded this email by a friend or colleague, subscribe here to get your own copy. What I’ve been reading this morning | - By keeping oil prices higher than they would have been, oil cartel Opec has shot itself in the foot by subsidising its rivals, writes Javier Blas.
 Opec has been unintentionally subsidising these guys in California. Photographer: Ian Tuttle/Bloomberg Looking at wider markets — the FTSE 100 is up 0.7% at around 8,370. The FTSE 250 is up 0.6% at 20,900. The 10-year gilt yield is sitting at 4.21%, flat on the day. Meanwhile, the gap between the yield on the German 10-year and the French equivalent has closed somewhat (which indicates that investors are feeling less panicky, despite the pending collapse of the French government). Gold is up 0.2% at $2,640 an ounce, and oil (as measured by Brent crude) is up about 1.1% to $72.60 a barrel. Bitcoin is down 0.5% at $94,970 per coin, while Ethereum is down 0.3% at $3,610. The pound is up 0.1% against the US dollar at $1.266, and is up 0.2% against the euro at €1.203. Follow UK Markets Today for up-to-the-minute news and analysis that move markets. | 
