As US QE has come to an end, depriving the world of US$1 trillion printed dollars a year, SocGen’s Andrew Lapthorne warns, there are stillplenty of things for investors to be concerned about. Indeed with asset prices where they are, investment returns look paltry from here on, as not only is there a long list of macroeconomic issues to worry about, but bottom-up firm level indicators are also flashing red. Valuations, as measured by median price to cash flow ratios, are near historical highs…

and the spread of company valuations within the market is near historical lows…

The implication is that downside risks are mispriced.

Throw in concerns over deteriorating earnings momentum, lacklustre earnings growth and poor earnings quality, and you have a set of variables that suggest it may be worthwhile to now focus on the short-side as much as on the long side.

*  *  *
So short strategies should be back on the menu

Steven Drobny of Drobny Capital is in the process of putting together his book “New House of Money” and Chapter 2, an interview with legendary short investor Jim Chanos of Kynikos Capital, is in this context chapters 1 and 2 are well worth a read.