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Wall Street Revalued: Imperfect Markets and Inept Central Bankers 1st Edition

4.2 out of 5 stars 5 customer reviews
ISBN-13: 978-0470750056
ISBN-10: 0470750057
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Editorial Reviews


"...an economist with a good record in identifying bubbles...provides evidence" (Financial Times, August 5th 2009) "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 interesting book with many challengers to conventional thought.' (TheActuary.org.uk, June 2010). ‘ …excellent book…' (Fool.co.uk, August 2010).

From the Inside Flap

In 2000 one of the world’s foremost economists, Andrew Smithers, showed that the US stock market was widely over-priced at its peak and correctly advised investors to sell. He also argued that central bankers should adjust their policies not only in light of expected inflation but also if stock prices reach excessive levels. At the time, few economists agreed with him, today it is hard to find those who would disagree.

In the past central bankers have denied that markets can be valued and that it did not matter if they fell. These two intellectual mistakes are the fundamentals cause of the current financial market crisis. In addition, a lack of understanding by investors as to how to value the market has also resulted in widespread losses.

It is clearly of great importance to everyone that neither these losses nor the current financial chaos should be repeated and thus that the principle of asset valuation should be widely understood.

In this timely and thought-provoking sequel to the hugely successful Valuing Wall Street Andrew Smithers puts forward a coherent and testable economic theory in order to influence investors, pension consultants and central bankers policy decisions so that thy may prevent history repeating itself. Backed by theory and substantial evidence Andrew shows that assets can be valued, as financial markets are neither perfectly efficient nor absurd casinos.

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Product Details

  • Hardcover: 256 pages
  • Publisher: Wiley; 1 edition (August 24, 2009)
  • Language: English
  • ISBN-10: 0470750057
  • ISBN-13: 978-0470750056
  • Product Dimensions: 6.2 x 1 x 9.2 inches
  • Shipping Weight: 1.2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (5 customer reviews)
  • Amazon Best Sellers Rank: #815,010 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Michael Suh on November 19, 2009
Format: Hardcover
Andrew Smithers (no, not the Simpsons' Smithers) might be considered part of the economic cognoscenti -- James Grant and Jeremy Grantham think very highly of him, but none of them seem to show up on CNBC all that often. But I believe these economists and money managers are all cast in the same mold -- true value investing. It's a shame more investors don't listen to this breed; they'd save themselves a lot of time, money, and grief.

This book wasn't really written with the individual investor in mind and has the loftier goal of pushing central bankers to realize that it is indeed possible to value markets, whether they be stocks, bonds, or housing. Smithers doesn't really go into commodity pricing, which is unfortunate; commodities are the hottest asset class right now. It could be there is no simple way to price oil or gold.

Regardless, he takes the reader through Tobin's q and Ben Graham's CAPE, which he considers decent approximations to where markets should be priced (as of today, that's about 900 in the SPX -- 20% lower). But he points out shortfalls with this method -- mainly that it requires a lot of historical data, and that often doesn't exist for any nation other than the US.

So he develops another method based on historical returns that comes up with roughly the same answer. But he doesn't give the reader the price data (which come from other academic papers and books) to verify it. So we're left with nothing but trust and no way to reproduce an analysis for future usage. This to me is a major flaw. Robert Schiller provides data on his website to reproduce CAPE that he introduced in his book, I believe Smithers could do the same with his "hindsight" model from this book.
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Format: Hardcover Verified Purchase
"Wall Street Revalued" (2009) is a great sequel/victory lap to "Valuing Wall Street" (2000) by the same author.

Smithers clearly saw coming what neither Greenspan nor Bernanke did. And he tells you how to value the stock markets so you too can see the next crash coming. He refutes Bernanke's claim that low interest rates were not a major cause. He debunks Greenspan's position that you can't see bubbles and even if you could, it's better to let them burst and clean up the mess.

To do justice to this complex subject, Smithers must present a lot of technical data. He puts the hairy bits into several appendices, and uses copious charts and tables in the main body of text so that even a layman can visualize and understand the historical data, concepts and conclusions he presents.

Although he succeeds in a comprehensive coverage of his subject and offers constructive solutions, his recommendations raise other questions. For example, on regulating capital requirements to prevent bubbles -
How effective would adjusting minimum equity of banks be if most liquidity is still coming from unregulated companies via derivatives? Would getting rid of off balance sheet stuff like SIVs help?

On monetary policy -
Can we have effective monetary policy without fooling with interest rates, i.e. leave interest rates to the free market supply and demand like Singapore does? David Malpass suggests adjusting money supply to keep prices stable, e.g. as for a basket of goods. Nathan Lewis suggests keeping the price of one commodity stable, gold.

Perhaps these questions will be addressed in the next sequel.

There are more good comments in the review by Michael Suh.
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Format: Hardcover
I thought Smithers first book "Valuing Wall Street" was fantastic book and really changed my view of how to value the stock market. I bought Wall Street Revalued because the first book was so good, but I was disappointed. Other than an interesting chapter on the fed model as a predictor of stock returns and the usefulness of historical returns as a viable alternative when q data is unavailable, I thought the book didn't offer anything new and was kind of boring.
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Format: Hardcover
Economist Andrew Smithers is the founder of Smithers & Co that gives advice on asset allocation to many of the largest asset managers globally. Smithers real claim to fame is however as the co-author of the extremely well timed book Valuing Wall Street. In this book he, right at the climax of the stock market bubble in 2000, presented the measure q and showed that the stock market not only could be valued with a tool that gave sufficiently accurate predictions of future returns, but also pointed out that the stock market at the time was hugely overvalued and as a consequence could be expected to give quite mediocre returns the coming decade. This Smithers third book is to some extent a follow up and extension to Valuing Wall Street.

Smithers was in the aftermath of the financial crisis of 2008 understandably frustrated that central bankers and especially those at the FED hadn't caught up with the idea that markets can be valued and that this is a useful practice also for them. Prior to the crisis, Alan Greenspan and Ben Bernanke persisted in their opinion that markets were to a large extent efficient and even if they weren't, asset bubbles couldn't be predicted.

The central thesis of Smithers book Valuing Wall Street was that assets can be valued and if the prices are far from their fair value mean reversion is to be expected, i.e. asset bubbles can be predicted and if the FED had done just that much of the crisis of 2008 could have been avoided. Smithers see the accommodating interest rate environment during the last decade as the root cause of the financial crisis. "When too much liquidity is being created, the results will show in consumer or asset prices", in this case real estate prices.
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