Content adapted from this Zerohedge.com article : [Source}(https://www.zerohedge.com/news/2018-02-12/morgan-stanley-no-coincidence-bitcoin-and-pe-multiples-peaked-same-day)
It appears the stock market and bitcoin are running in tandem.
At least that is what Morgan Stanley believes.
December 18th, the day before the Trump Tax Bill passed the U.S. Senate, saw the peak for bitcoin and the valuation on the stock market.
This was a pleasant surprise to Morgan Stanley's Equity Strategy group, because, as they write in a new note today, "we always viewed the tax passage as a likely place for the rally to take a pause." Of course, that didn't happen as earnings revisions far outweighed the multiple compression.
We find it instructive and rational that the market multiple did in fact peak that day. It also makes us feel a little better than our instinct was right even if our call for a market pause was wrong!
Furthermore, we find it instructive that Bitcoin also peaked on December 18th.
Morgan Stanley notes that their expectations of rising equity vol led by rates/FX vol and earnings estimate dispersion, are playing out, which they suggest should lead to lower multiples on higher, albeit lower quality, EPS driven by tax cuts but accompanied by falling operating margins.
Finally, they conclude, this vol shock/liquidity event has likely taken valuations too low at this point but realize such events have a way of overshooting to the downside which is why we have advocated patience in buying this dip.
Does that mean Morgan Stanley thinks bitcoin is a buy also?
Non-adapted content of this Zerohedge.com article:
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