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  1. #381
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    This secular bear market cycle has been very unusual according to its hypothesis....The main obvious point is it's CAPE indicator being reluctant to oscillate down towards 10 as it should be doing..

    I've spent some time lately on trying to figure out why the today's market (secular Bear) is so reluctant to "do its natural thing" and cycle back down to <10 in its normal (historic trend) oscillating fashion...Obviously Central Bank has a part to play in the todays world but secular movements are usually trader behavioural and not overly affected by business or economic behavioural scenarios..In other words when there is a secular Bear market cycle in progress (as it has been on Wall St since the year 2000), the very long term falling PE trend is not due to deteriorating economic conditions but due to Investors attitudes changing in wanting better value for their money invested..They as a herd have become more fussy.

    So why in his today's world with a secular bear market cycle in progress do we have an unusually very high PE, market earnings uncertainty, investor anxiety, and a lack of investor sense in wanting better value for their money??

    An Article written on Seeking Alpha by Lawrence Fuller seemed just another one of these doomsday articles with dramatic headlines SELL EVERYTHING!..I nearly didn't read it.
    Writing about crashes during an exhilarating Equity boom party is analyst suicide...Sticking ones reputation on the line is usually only done when ones reputation is not that good to start with...It doesn't matter how fundamentally overvalued the market is..if all the market participants are exuberant and making money they will not see the market as overvalued and will present any evidence they can find not matter have scarce to justify their reasoning..they post it and others find it..so with most market participants having the same reasoning, it is mass self perpetuating justification that the market is in their eyes not overvalued and the market will keep on rising ..nearly everyone agrees, the market is making record highs, so it must be true, so lets us crucify anyone who disagrees with us ..because... how dare they!!! try to destroy our nice financial investments way of life with their "unfounded" pessimism..

    So back to this Article written by Lawrence Fuller who says sell everything a day after Wall St reaches another record breaking high..Do read the comments below as some people are cautious (comments longer than the article
    He basically mentions ....
    Individual and institutional investors have been forced to go from money markets to bonds to high-yield bonds to high dividend-paying stocks with ever- increasing levels of risk to achieve their income requirements. The potential for downside is seemingly irrelevant....which seems to answer my question above why investors are not investing for value as they should be..
    Moral Hazard
    I think that while all of these fundamental issues are major concerns, what worries this elite group of investment minds even more is the issue of moral hazard. There is a lack of incentive for an investor to guard against risk, because he believes that he is being protected from any adverse consequences. In this instance the protector is our Federal Reserve....
    .........It is clear that central banks around the world, led by the Federal Reserve, have borrowed from the future, in terms of forward market returns, in hopes of presenting a better today...........
    ......This is how moral hazard leads to reckless behavior, which ultimately results in bubbles. It has happened over and over again, and this time is no different. The smartest investment minds know this, which is why they are so sternly warning all of us.

    Hmmm this time no different...Question:- Have we seen another secular bear market cycle act strangely but similar to the 2000 to now Secular Bear Cycle?..The 135 year S&P500 Shiller PE chart below shows 1929 - 1950 with a similar abnormal peak with following disruptions to the secular cycle oscillation...
    Being very basic and excluding all noise (FED QE and all) one can see a theme between the two periods...Both 1929 & 2000 had massive bubbles that burst creating huge financial destruction, a few years later the Great Depression 1932 -35 and the Great Recession 2008-2009 happened...

    With an eye on Market physics, the chart below shows the force of the bubble bursting (1929/2000) followed by disruption to the market causing volatile ripples (aftershocks) of fundamental over-correcting/ under-correcting for years until the market finally settled down back again into it's natural ordered rhythm (cyclic oscillation) again..

    Similar type of physics to that of a major earthquakes and the following aftershocks, lasting until the pressures are finally equalised.




    The Future?..from the chart above the longer term looks bleak..Like death and taxes PE of 10 (Shiller) will happen at some stage in the future (ending of the secular bear cycle)
    Last edited by Hoop; 14-08-2016 at 12:42 PM.

  2. #382
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    Hoop, great post and - as usual - to very high standard. As well - you clearly know more about market theories than I do, but I still have some questions.

    Correct me if I am wrong, but all the market theories are based on observations collected during the most recent say 100 to 150 years. People make observations about correlations and than form a theory about how the market is supposed to behave in future.

    Actually - this is similar to climate theories (and I hope that this does not open up another battle field over climate change ... anybody keen to discuss climate change - here is your thread: http://www.sharetrader.co.nz/showthr...climate+change). Scientists took measures over the last 100 to 150 years and are drawing conclusions from them how the climate is supposed to behave in future. And yes, they discovered a lot of correlations - be it with sunspot activity, (de-)forestation or the CO2 concentration in our atmosphere (and many other factors, some we know and others we don't). Now - obviously we don't know, which factors will be the most important to influence the climate in the future (because we are not there yet), but we do know with the climate that there have been in the past huge changes in the climate caused by other things than the factors we are assessing to predict tomorrows climate. Example: Vulcanic eruptions, huge storms (bringing dust into the atmosphere), meteorites crashing into Earth, increase and or decrease of other atmospheric components (like water). Some of the changes enforced as well some positive feedback like e.g. ice ages: more snow coverage caused lower temperatures due to higher sun light reflection.

    My question (now back to market theories) is - why do we think that we fully understand the markets based on a quite short period of observations? Maybe the current low interest period is something like a global ice age - basically freezing the market mechanisms for a long time? Looking at the data for the Japanese market over the past 20 years or so might support this idea. Obviously - all sort of equivalents of meteorite crashes or volcanic eruptions can happen in the markets as well, and I don't think that we have a method to predict what might happen and how markets will react medium term to them.

    One other question ... markets are obviously influenced by fundamentals, but at least as much by normal human behaviour. Now - it is not always easy to believe for people monitoring the political scene, but humans are capable of learning and of changing their behaviour. If they would not, we still would all swing ourselves from branch to branch through some central African forests.

    Which begs the question ... why would we think that things are not different this time? It is different people running the markets - and they do have the knowledge of the last 150 years ... actually, it would be highly unlikely that they don't use this knowledge and with that change the market physics.

    What I want to say is - I don't think it is possible to predict the market behaviour based on the last odd 100 years. And sure - given that the market seems to move in waves, it will go down at some stage. Always up is no wave. However - I think we better prepare if we accept that anything can happen - and that there are just certain likelihoods for each scenario.

    Personally - I think that a crash a la 1929 is possible over say the next decade, though it would need in my view a massive trigger which I don't see at current. On the other hand ... if we look into the dynamics of dumb mobs supporting in more and more countries populists over moderate politicians - Yes this might bring us at the brink of another large war, and this might upset markets at some stage. Interesting though, that the 1929 crash was not caused by WWII, but actually just triggered it.

    I think however that we need to prepare as well for some other scenarios.

    One of them would be a financial ice age with low interest rates for decades and very high PE's. Why is this an option? Well, given all the QE's we have ways too much money in the system (meaning no need to pay high interest rates to borrow it), and given that the world population is likely to peak soon - and afterwards likely to shrink is there as well no growth to reduce the money supply (per capita). Another reason for long low interest periods is obviously that no fed wants to bankrupt their own country, which they would do in most of the industrialised countries given their huge debt loads if they rise interest rates more than a couple of base points. I am sure that they all work towards a common goal (keep the interest rates very low).

    Last not least do I think that we still need to be prepared (as one possible option) for some years (or decades) of healthy growth to come. Despite the quote "never underestimate human stupidity" (falsely attributed to Einstein) did humans so far always manage to improve lives and living conditions (at least in the long run).

    I am sure that this time it is different (it always is), but I don't know in which way ... i.e. I try to be prepared. Sometimes it pays off to adhere to the old boy scout motto.
    Last edited by BlackPeter; 14-08-2016 at 01:52 PM. Reason: sentence construction ...
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

  3. #383
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    Quote Originally Posted by BlackPeter View Post
    Hoop, great post and - as usual - to very high standard. As well - you clearly know more about market theories than I do, but I still have some questions.

    Correct me if I am wrong, but all the market theories are based on observations collected during the most recent say 100 to 150 years. People make observations about correlations and than form a theory about how the market is supposed to behave in future.

    Actually - this is similar to climate theories (and I hope that this does not open up another battle field over climate change ... anybody keen to discuss climate change - here is your thread: http://www.sharetrader.co.nz/showthr...climate+change). Scientists took measures over the last 100 to 150 years and are drawing conclusions from them how the climate is supposed to behave in future. And yes, they discovered a lot of correlations - be it with sunspot activity, (de-)forestation or the CO2 concentration in our atmosphere (and many other factors, some we know and others we don't). Now - obviously we don't know, which factors will be the most important to influence the climate in the future (because we are not there yet), but we do know with the climate that there have been in the past huge changes in the climate caused by other things than the factors we are assessing to predict tomorrows climate. Example: Vulcanic eruptions, huge storms (bringing dust into the atmosphere), meteorites crashing into Earth, increase and or decrease of other atmospheric components (like water). Some of the changes enforced as well some positive feedback like e.g. ice ages: more snow coverage caused lower temperatures due to higher sun light reflection.

    My question (now back to market theories) is - why do we think that we fully understand the markets based on a quite short period of observations? Maybe the current low interest period is something like a global ice age - basically freezing the market mechanisms for a long time? Looking at the data for the Japanese market over the past 20 years or so might support this idea. Obviously - all sort of equivalents of meteorite crashes or volcanic eruptions can happen in the markets as well, and I don't think that we have a method to predict what might happen and how markets will react medium term to them.

    I think we can isolate the cycles somewhat....Geological cycles are huge oscillations spread over millions of years..and yes my doubt about present day climate change is.. have the Boffins factored in these natural interglacial cycles and are there any of those factors having a differing and a more dominant effect over the shorter cycles..Unfortunately. us the majority are Media taught and the media is fixated on the very short term factors within short term cycles with nearly any form of cyclic events...OK geological short term cycles can be hundreds of years,,but relate that to sharemarket short term market cycles and the influencing factors can just be "noise" (tertiary drivers)..
    Back to the Share Market...A personally would be happy to see a 1000 years of data for a secular analysis....Secular cycles last nearly a generation so having 50 Bull and Bear cycles within a 1000 years should be enough to acquire reliable data..So far however the primary driver (inflation) has been identified..Going back to climate (Geological time) 50 glacial cycles would need about 4.5 million years equivalent..There seems to be enough evidence to identify atmospheric CO2 concentrations as a primary driver..


    Eyeballing and applying the KISS method to the above Glacial warming cycle/CO2 composite chart it seems the present warming event is just another cycle going through the motions...nothing out of the ordinary..(yet!)

    One other question ... markets are obviously influenced by fundamentals, but at least as much by normal human behaviour. Now - it is not always easy to believe for people monitoring the political scene, but humans are capable of learning and of changing their behaviour. If they would not, we still would all swing ourselves from branch to branch through some central African forests.

    Which begs the question ... why would we think that things are not different this time? It is different people running the markets - and they do have the knowledge of the last 150 years ... actually, it would be highly unlikely that they don't use this knowledge and with that change the market physics.

    What I want to say is - I don't think it is possible to predict the market behaviour based on the last odd 100 years. And sure - given that the market seems to move in waves, it will go down at some stage. Always up is no wave. However - I think we better prepare if we accept that anything can happen - and that there are just certain likelihoods for each scenario.
    I think evolution dictates instinctive behaviours and for Humans to evolve towards a different instinctive behaviour would probably take hundreds of thousands of years..or longer...Humans are "herd" animals and we are all "hot-wired" before (at) birth with a set of survival instincts. In effect all humans are "hot-wired" the same...Fibonacci tried to convert the instincts to math. He amongst others observed that all lifeforms and the universe itself have cycles..TA is able to show these group instinctive behaviours..and as these instinctive behaviours reoccur so do the behavioural events..Mark Twain nails it with his famous quote "history does not repeat itself but it does rhyme"..Humans being a "herd animal" is capable of irrational behaviour such as stampedes, from bear market capulations to hundreds being killed during mass crowd hysteria
    I think education and higher IQ will not override instincts...Market behaviour is just an extension of herd (group) behaviour and can be predictable..It would take an evolutionary effect to alter that behaviour such as an alien lifeform..Market Bots are programmed with human factors so they exihibit human behavioural traits but maybe in the future an alien lifeform could be an AI created by other AI without human input
    Personally - I think that a crash a la 1929 is possible over say the next decade, though it would need in my view a massive trigger which I don't see at current. On the other hand ... if we look into the dynamics of dumb mobs supporting in more and more countries populists over moderate politicians - Yes this might bring us at the brink of another large war, and this might upset markets at some stage. Interesting though, that the 1929 crash was not caused by WWII, but actually just triggered it.
    Always the scenario..booms causes busts...Humans seem to get bored/disenchanted with the status Quo (the fashion of today) so if the status quo is great economic times then attempting to become better by changing the systems ends up becoming worse, bizaare or just stupid..Good god I can remember wearing bell bottoms and a flowery cotton shirt and I thought I was cool!! I also wore speedos down at the beach..and later I voted for Rob Muldoon (Rob's Mob)looking back from now to then it was wasn't cool but bizzarre (bell bottoms) and creepy (speedos) and stupid (Muldoon)..The opposite is also true...hence the cyclical behaviour.
    I think however that we need to prepare as well for some other scenarios.

    One of them would be a financial ice age with low interest rates for decades and very high PE's. (See my post below) Why is this an option? Well, given all the QE's we have ways too much money in the system (meaning no need to pay high interest rates to borrow it), and given that the world population is likely to peak soon - and afterwards likely to shrink is there as well no growth to reduce the money supply (per capita). Another reason for long low interest periods is obviously that no fed wants to bankrupt their own country, which they would do in most of the industrialised countries given their huge debt loads if they rise interest rates more than a couple of base points. I am sure that they all work towards a common goal (keep the interest rates very low).

    Last not least do I think that we still need to be prepared (as one possible option) for some years (or decades) of healthy growth to come. Despite the quote "never underestimate human stupidity" (falsely attributed to Einstein) did humans so far always manage to improve lives and living conditions (at least in the long run).

    I am sure that this time it is different (it always is), but I don't know in which way (I disagree.. it is a cyclical thing) High PE and low inflation has been seen many times in History...The standard of living has been trending upwards at an expontental rate over the Centuries ,..Actually all things are trending exponentially from life expectancy technological advances..communication (decreasing cost of data)..efficiency in producing goods and services..advances in medicine and medical techniques..Biotech..sharemarket indices..Increasing IQ and knowledge, etc... In a hundred years our great grandkids will look back at us as cavemen living in a state of squalor having only basic needs..The unknown will be the Technological Singularity event due around 2045..We (humans) all hope that AI will be friendly and look after us well i.e. I try to be prepared. Sometimes it pays off to adhere to the old boy scout motto.
    ............
    Last edited by Hoop; 06-12-2016 at 11:33 PM.

  4. #384
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    The chart below is a mixture of overlays from my and others charts..
    It can be viewed as a thread summary....

    It is well known fact that long term repeated cycles driven by expected primary drivers act as better future predictors than the whipsaw/ inconsistent shorter term cycles which are influenced by both expected and unexpected secondary and tertiary drivers of all denominations and insundries.

    It is historically evident that low inflation creates overvalued share indices...Note the S&P500 is presently above the PE20 red line...
    During periods of high inflation or deflation the share index is undervalued, hovering around the PE10 green line...

    The chart demonstrates that the rate of Inflation is a primary driver for Wall St Equities over the long term..

    Using Inflation as a primary driver for long term outlooks (best guess predictions) it is interesting to be able to gauge whether todays overvalued market is sustainable...From the chart it seems this level of overvalueness is higher than "normal"...(the "normal" being the history of previous overvalued [PE20] combined with low inflation)..As seen on the chart, levels of extreme can last for long periods and not all end in crashes as seen in 1992..but many do have sharp corrections..A correction viewed on this chart are not all shareprice crashes, many corrections can take different forms such as S&P500 going side-ways while earnings rapidly increase (during the mid1970's inflationary period)..

    In theory with this knowledge we can twist around the variables and do theoretical model estimates to what level the S&P500 index could have been...for example if we changed the inflation rate from today's 1.00% (US) to a theoretical 10% and left all the other variables (factors) the same we would see the S&P500 near the green line (PE10) at around 900..A long way a way from today's 2204....so...Inflation may be a debtor's friend but from repeated history a rising inflation trend from a low inflation rate era would be a prolonged nightmare for Wall St Equity investors..

    I have added Secular cycles as extra interest...Note how the inflation trend falls during a secular bull market cycle and rises during secular bear market cycles..Although there isn't enough data (one example) it seems a severe deflation trend creates a secular bear market cycle (a paradox to the normal rising inflation trend type secular bear).

    Also of interest is when the present Secular Bear Market cycle will end....It is 16 years old now and shows zero signs of ending...From the chart the inflation rate trend has to increase for present secular bear cycle to become mature and the S&P index has to meet up with it's PE10 green line...there's still a lot of distance to travel...

    Last edited by Hoop; 06-12-2016 at 11:52 PM.

  5. #385
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    A Crestmont Research PE tool from dshort.com chart showing the relationship between Inflation and Annualised PE Ratios (145 years of data) from a Advisor Perpectives article

    Note:.. the Crestmont PE is similar to Shiller PE (PE10) ...not to be confused with the standard PE Ratio

    Last edited by Hoop; 07-12-2016 at 12:17 AM.

  6. #386
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    A new research paper shows that investors like Buffett and Soros are essentially factor investors.

    It's possible to replicate their investing strategies using quantitative models.

    https://www.aqr.com/library/aqr-publ...star-investors

  7. #387
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    A lot of new updated stuff from Crestmont

    http://www.crestmontresearch.com/recent-additions/

    Still says US in a secular bear market but we are currently in an unusually long cyclical bull market. Summary of 2016



    2016: market valuation (P/E) increased further, volatility subsided, and reported earnings increased. P/E is above sustainable levels and beyond the level that is appropriate for a low inflation environment. Regardless of whether the current environment is designated as a secular bear or secular bull, an elevated P/E means that returns over the next 5-10 years will be below-average and years with excess returns (like 2016) simply pull-forward future returns and increase the magnitude of subsequent corrections

    This a good article re structuring portfolios in these times
    http://www.crestmontresearch.com/doc...-Half-Half.pdf

    For me it's still about picking winners and running with them until the merry go round inevitably stops
    Last edited by winner69; 07-01-2017 at 10:21 AM.
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  8. #388
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    This merry go round is still working (so as Winner rightly says we should be all in reaping its benefits) but for the last few of years the FED mechanics and others within the US Brains trust have helped to keep it alive against the fundamental odds, hoping it will stay alive long enough to see the next round of the earnings cycle and so let earnings correct the market rather than a large fall in share price.....so full marks to them they have done a good job up to now...but with all Crisis Management there are times when large fundamental chunks fall off the fragile structures that make up the economic network..I think there's been a big chunk fall off recently, and now discovered how will the FED and other react to it.

    The FED Beige report was released today (US Time)..Basically it shows an US economy at the mature end of it's cycle...tight labour market pushing up business costs (wage increases) and not enough supply to meet demand (price inflation)..Oil related products have risen in price..Also property prices are higher and rents have increased ..Overall the FED have classed the situation as moderate and it shows inflation (2.7%) is in a rising trend and at a level not seen for the last 5 years...Consumer spending was a bit choppy in some of the 12 FED districts but overall positive..

    The fundamental chunk that's fallen off?
    Inflation is now outside that 0.5 - 1% Equity sweet spot...History has shown very low inflation can raise the PE value without it being called overvalued...Higher inflation can not raise the PE value without it being called overvalued..Crestmont currently says the PE(10) 27.7 (30th Dec 2016) and together with very low inflation the market price is unjustified and "significantly overvalued...so with the latest data showing a rapid increase in the inflation rate and the current PE(10) of 28.15 The situation has got much worse..

    Why hasn't the market corrected?
    The market with a current PE Ratio of 25.5 is forward looking.....There is a belief that 2017 earnings will significantly increase....S&P500 forward 12 month earnings ($133.49) lowers the forward PE down to 17.0...which in theory would start to see a lowering of the very high PE(10) and ease the pressure back down from "significantly overvalued"...Again in theory this would show that the S&P500 index price will fail to keep pace with its earnings increase..there is a chance of a fall in the S&P500 in 2017 including the stella earnings results confounding the investor layman into thinking the market is irrational by not appreciating together with that large earnings increase...As Crestmont says current high PE(10) predicts future market underperformance.

  9. #389
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    Default Conclusion: Stock Market and Hamburgers are very overvalued

    John Mauldin has written a great article dated April 9th 2017..
    The greatness is the way he wrote it..He took a complex array of stock market metrics (Most of which is already mentioned on this thread) and wrote about it in a way that most readers from Newbies upwards would easily understand...
    Due to his strict copyright it may be unwise for me to copy and paste this article in full with reference to the author..Instead go to his www.mauldineconomics.com home page and from there click on "Stock Market Valuations and Hamburgers"...This article is mainly intact but has bits missing urging you to sign up to receive his articles in full via email....Subscribing to these articles is free and all his emails are of high value info....

    John Mauldin's article is good starting point for anyone who could never fully grasp the understandings of this Investing Strategies and Secular Bear Market thread... and...also helps learn more about Stock Market Physics (Theory)..
    Last edited by Hoop; 10-04-2017 at 09:30 AM.

  10. #390
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    Quote Originally Posted by Hoop View Post
    John Mauldin has written a great article dated April 9th 2017..
    The greatness is the way he wrote it..He took a complex array of stock market metrics (Most of which is already mentioned on this thread) and wrote about it in a way that most readers from Newbies upwards would easily understand...
    Due to his strict copyright it may be unwise for me to copy and paste this article in full with reference to the author..Instead go to his www.mauldineconomics.com home page and from there click on "Stock Market Valuations and Hamburgers"...This article is mainly intact but has bits missing urging you to sign up to receive his articles in full via email....Subscribing to these articles is free and all his emails are of high value info....

    John Mauldin's article is good starting point for anyone who could never fully grasp the understandings of this Investing Strategies and Secular Bear Market thread... and...also helps learn more about Stock Market Physics (Theory)..
    Is a good article on a fascinating subject

    This an interesting bit - If there is no recession by 2020, we will have lived through the first decade in 120 years without one

    But as in most articles these days these words appeared "this time it is truly different"

    I would hazard a guess that many on this forum have only lived through the recent good times and not through a complete secular bull / bear cycle - current conditions are the norm eh.

    But as they say bull markets go out with a bang ......and inevitably there will be a bang one day

    So watch those charts
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

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