Andrew Smithers is the founder of Smithers & Co., which provides economics-based asset allocation advice to over 100 fund management companies worldwide.  Andrew is a regular contributor in Japan to the Nikkei Veritas. He was a regular contributor to the London Evening Standard and Japan's Sentaku magazine, and has written for many other newspapers and magazines, including the Financial Times, Forbes (US), Sunday Telegraph (UK), Independent on Sunday (UK) and Genron (Japan).  Andrew is an invited contributor to the prestigious Economist's Forum on the FT website.Andrew is a member of the Advisory Board for the Centre for International Macroeconomics and Finance (CIMF) at Cambridge and has also been a member of the Investment Committee at Clare College, Cambridge since 1998.Prior to starting his own firm, Andrew was at S.G.Warburg & Co. Ltd. from 1962 to 1989 where he ran the investment management business for some years and which, by the end of his tenure, was the acknowledged market leader. This was subsequently floated off as a separate company, Mercury Asset Management, which was acquired by Merrill Lynch in 1998.

• Foreword vChapter 1 Introduction 1Chapter 2 Synopsis 15Chapter 3 Interest Rate Levels and the Stock Market 25Chapter 4 Interest Rate Changes and Share Price Changes 37Chapter 5 Household Savings and the Stock Market 41Chapter 6 A Moderately rather than a Perfectly Efficient Market 49Chapter 7 The Efficient Market Hypothesis 57Chapter 8 Testing the Imperfectly Efficient Market Hypothesis 67Chapter 9 Other Claims for Valuing Equities 81Chapter 10 Forecasting Returns without Using Value 91Chapter 11 Valuing Stock Markets by Hindsight Combined with Subsequent Returns 97Chapter 12 House Prices 105Chapter 13 The Price of Liquidity – The Return for Holding Illiquid Assets 109Chapter 14 The Return on Equities and the Return on Equity Portfolios 115Chapter 15 The General Undesirability of Leveraging Equity Portfolios 121Chapter 16 A Rare Exception to the Rule against Leverage 131Chapter 17 Profits are Overstated 137Chapter 18 Intangibles 145Chapter 19 Accounting Issues 159Chapter 20 The Impact on q 171Chapter 21 Problems with Valuing the Markets of Developing Economies 175Chapter 22 Central Banks’ Response to Asset Prices 181Chapter 23 The Response to Asset Prices from Investors, Fund Managers and Pension Consultants 191Chapter 24 International Imbalances 195Chapter 25 Summing Up 197Appendix 1 Sources and Obligations 199Appendix 2 Glossary of Terms 203Appendix 3 Interest Rates, Profits and Share Prices by James Mitchell 209Appendix 4 Examples of the Current (Trailing) and Next Year’s (Prospective) PEs Giving Misleading Guides to Value 217Appendix 5 Real Returns from Equity Markets Comparing 1899–1954 with 1954–2008 219Appendix 6 Errors in Inflation Expectations and the Impact on Bond Returns by Stephen Wright and Andrew Smithers 221Appendix 7 An Algebraic Demonstration that Negative Serial Correlation can make the Leverage of an Equity Portfolio Unattractive 233Appendix 8 Correlations between International Stock Markets 235Bibliography 237Index 239

"... excellent book...." (Fool.co.uk, August 2010) "... an interesting book with many challengers to conventional thought." (TheActuary.org.uk, June 2010) "Mr Smithers makes his case convincingly, dismissing alternative indicators of valuation, such as the dividend yield, along the way." (The Economist, August 14th 2009) "... an economist with a good record in identifying bubbles... provides evidence." (Financial Times, August 5th 2009)

Andrew Smithers is the founder of Smithers & Co., which provides economics-based asset allocation advice to over 100 fund management companies worldwide.  Andrew is a regular contributor in Japan to the Nikkei Veritas. He was a regular contributor to the London Evening Standard and Japan's Sentaku magazine, and has written for many other newspapers and magazines, including the Financial Times, Forbes (US), Sunday Telegraph (UK), Independent on Sunday (UK) and Genron (Japan).  Andrew is an invited contributor to the prestigious Economist's Forum on the FT website.Andrew is a member of the Advisory Board for the Centre for International Macroeconomics and Finance (CIMF) at Cambridge and has also been a member of the Investment Committee at Clare College, Cambridge since 1998.Prior to starting his own firm, Andrew was at S.G.Warburg & Co. Ltd. from 1962 to 1989 where he ran the investment management business for some years and which, by the end of his tenure, was the acknowledged market leader. This was subsequently floated off as a separate company, Mercury Asset Management, which was acquired by Merrill Lynch in 1998.

• Foreword vChapter 1 Introduction 1Chapter 2 Synopsis 15Chapter 3 Interest Rate Levels and the Stock Market 25Chapter 4 Interest Rate Changes and Share Price Changes 37Chapter 5 Household Savings and the Stock Market 41Chapter 6 A Moderately rather than a Perfectly Efficient Market 49Chapter 7 The Efficient Market Hypothesis 57Chapter 8 Testing the Imperfectly Efficient Market Hypothesis 67Chapter 9 Other Claims for Valuing Equities 81Chapter 10 Forecasting Returns without Using Value 91Chapter 11 Valuing Stock Markets by Hindsight Combined with Subsequent Returns 97Chapter 12 House Prices 105Chapter 13 The Price of Liquidity – The Return for Holding Illiquid Assets 109Chapter 14 The Return on Equities and the Return on Equity Portfolios 115Chapter 15 The General Undesirability of Leveraging Equity Portfolios 121Chapter 16 A Rare Exception to the Rule against Leverage 131Chapter 17 Profits are Overstated 137Chapter 18 Intangibles 145Chapter 19 Accounting Issues 159Chapter 20 The Impact on q 171Chapter 21 Problems with Valuing the Markets of Developing Economies 175Chapter 22 Central Banks’ Response to Asset Prices 181Chapter 23 The Response to Asset Prices from Investors, Fund Managers and Pension Consultants 191Chapter 24 International Imbalances 195Chapter 25 Summing Up 197Appendix 1 Sources and Obligations 199Appendix 2 Glossary of Terms 203Appendix 3 Interest Rates, Profits and Share Prices by James Mitchell 209Appendix 4 Examples of the Current (Trailing) and Next Year’s (Prospective) PEs Giving Misleading Guides to Value 217Appendix 5 Real Returns from Equity Markets Comparing 1899–1954 with 1954–2008 219Appendix 6 Errors in Inflation Expectations and the Impact on Bond Returns by Stephen Wright and Andrew Smithers 221Appendix 7 An Algebraic Demonstration that Negative Serial Correlation can make the Leverage of an Equity Portfolio Unattractive 233Appendix 8 Correlations between International Stock Markets 235Bibliography 237Index 239

"... excellent book...." (Fool.co.uk, August 2010) "... an interesting book with many challengers to conventional thought." (TheActuary.org.uk, June 2010) "Mr Smithers makes his case convincingly, dismissing alternative indicators of valuation, such as the dividend yield, along the way." (The Economist, August 14th 2009) "... an economist with a good record in identifying bubbles... provides evidence." (Financial Times, August 5th 2009)

Andrew Smithers is the founder of Smithers & Co., which provides economics-based asset allocation advice to over 100 fund management companies worldwide.  Andrew is a regular contributor in Japan to the Nikkei Veritas. He was a regular contributor to the London Evening Standard and Japan's Sentaku magazine, and has written for many other newspapers and magazines, including the Financial Times, Forbes (US), Sunday Telegraph (UK), Independent on Sunday (UK) and Genron (Japan).  Andrew is an invited contributor to the prestigious Economist's Forum on the FT website.Andrew is a member of the Advisory Board for the Centre for International Macroeconomics and Finance (CIMF) at Cambridge and has also been a member of the Investment Committee at Clare College, Cambridge since 1998.Prior to starting his own firm, Andrew was at S.G.Warburg & Co. Ltd. from 1962 to 1989 where he ran the investment management business for some years and which, by the end of his tenure, was the acknowledged market leader. This was subsequently floated off as a separate company, Mercury Asset Management, which was acquired by Merrill Lynch in 1998.

• Foreword vChapter 1 Introduction 1Chapter 2 Synopsis 15Chapter 3 Interest Rate Levels and the Stock Market 25Chapter 4 Interest Rate Changes and Share Price Changes 37Chapter 5 Household Savings and the Stock Market 41Chapter 6 A Moderately rather than a Perfectly Efficient Market 49Chapter 7 The Efficient Market Hypothesis 57Chapter 8 Testing the Imperfectly Efficient Market Hypothesis 67Chapter 9 Other Claims for Valuing Equities 81Chapter 10 Forecasting Returns without Using Value 91Chapter 11 Valuing Stock Markets by Hindsight Combined with Subsequent Returns 97Chapter 12 House Prices 105Chapter 13 The Price of Liquidity – The Return for Holding Illiquid Assets 109Chapter 14 The Return on Equities and the Return on Equity Portfolios 115Chapter 15 The General Undesirability of Leveraging Equity Portfolios 121Chapter 16 A Rare Exception to the Rule against Leverage 131Chapter 17 Profits are Overstated 137Chapter 18 Intangibles 145Chapter 19 Accounting Issues 159Chapter 20 The Impact on q 171Chapter 21 Problems with Valuing the Markets of Developing Economies 175Chapter 22 Central Banks’ Response to Asset Prices 181Chapter 23 The Response to Asset Prices from Investors, Fund Managers and Pension Consultants 191Chapter 24 International Imbalances 195Chapter 25 Summing Up 197Appendix 1 Sources and Obligations 199Appendix 2 Glossary of Terms 203Appendix 3 Interest Rates, Profits and Share Prices by James Mitchell 209Appendix 4 Examples of the Current (Trailing) and Next Year’s (Prospective) PEs Giving Misleading Guides to Value 217Appendix 5 Real Returns from Equity Markets Comparing 1899–1954 with 1954–2008 219Appendix 6 Errors in Inflation Expectations and the Impact on Bond Returns by Stephen Wright and Andrew Smithers 221Appendix 7 An Algebraic Demonstration that Negative Serial Correlation can make the Leverage of an Equity Portfolio Unattractive 233Appendix 8 Correlations between International Stock Markets 235Bibliography 237Index 239

"... excellent book...." (Fool.co.uk, August 2010) "... an interesting book with many challengers to conventional thought." (TheActuary.org.uk, June 2010) "Mr Smithers makes his case convincingly, dismissing alternative indicators of valuation, such as the dividend yield, along the way." (The Economist, August 14th 2009) "... an economist with a good record in identifying bubbles... provides evidence." (Financial Times, August 5th 2009)