Why Draaisma is saying Buy, Buy, Buy, Buy

Apparently we’ve got the strongest signal to buy equities in six years, according to Morgan Stanley’s super-bear bull Teun Draaisma - a “full house” of indicators that together have a “near-perfect” track record. But what are those indicators?

First there is composite valuation:

This is a traditional tool comparing equity valuations with inflation and official interest rates, the strategist says. Morgan Stanley uses a variety of weighted indices on real and nominal bond yields, dividend yields, short rates, and some equity valuation factors like price earnings multiples and price-to-book valuations to construct its so-called CVI index. If equities are fairly valued at zero, the buy and sell levels are -1 and +1, respectively.

Next up, the fundamentals indicator…

Risk…

And finally “capitulation.”

Draaisma says simply that the calculations for these indicators are broadly similar to the composite value measure, but include factors like business surveys, ROE, bond yields, credit spreads, fund flows, money supply, and momentum.

Not convinced yet? Here’s 28 years of history: