Investing strategies and secular bear markets

[BIRMANBOY]

Ok I can see that...historically speaking where has the "smart" money gone in the interim? Govt bonds? Even lower than term deposits so doesnt seem right. Where would you (or others) "park up"?
Money doesn't pour out of the Market because someone buys the shares being sold ... so its the transfer of monies smart money v dumb money....with an evaporation effect when shares are swapping owners in a downtrend...where is the sale money parked?? ..look for the markets that have reverse correlation with that of the Equity market and those markets will be your answer.

[BIRMANBOY]

Where do you live FP? I'll send "the boys" over to deliver a few extra 'King size comfees" I know its pretty safe but makes me nervous having too much cash/assets etc sitting in the house. I know there are Safety Deposit boxes etc..but I hate to see non working assets.
No problem to buy two or three extra mattresses.

[Hoop]

Ok I can see that...historically speaking where has the "smart" money gone in the interim? Govt bonds? Even lower than term deposits so doesnt seem right. Where would you (or others) "park up"?

Depends Birmanboy....Yeah.. Govt bonds... doesn't seem right atm..eh? Thats the market for ya..when there's a financial instrument in high demand (more buyers than sellers) you would naturally expect that instrument's fundamentals to gravitate to the extreme boundaries.

During uncertain times the flight to safety is the obvious survival instinct behaviour. Factors such as risk become magnified..which affects fundamentals to the point that you question what's going on??

Many people think using "normal" conditions as their parameters...so to them it seems illogical behaviour.....If only they realised that in the real world their "normal" Textbook parameters conditions are fleeting moments in an environment that operates either too much one way or too much the other way.

I must confess earlier this year when I was "60% out" of the stockmarket I parked half of my cash in the multicurrency account cash in US$ earning zero % it seemed at the time to be a good idea my logic was when the NZ stockmarket falls so does the NZ$ currency..The theory has it that overseas equity investors cash up and sell their NZ$ thus flooding the NZ currency on to the Currency market............yes it logically was a good plan....but.....in hindsight it wasn't... it happened to be the Australian $ paying 4.8% (the highest currency % rate) back then.
I eventually converted them back from US$ to NZ$ without too much of a loss in time to catch this latest NZX rally + NZ$ appreciation..... luckily.

[Hoop]

Well I'm stockpiling cash so when (if) the crash comes, I'll be in like a robber's dog!

Great news:t_up:....when the crash comes and my stops get busted .....I have a buyer

[BIRMANBOY]

Its interesting that these conditions (either new highs or lows) do put excessive demands on the investors psyche. At moment I am feeling anxious that all my hard won (but unrealized gains) may be stripped away before I can even appreciate them,..sort of like winning a Porsche and then getting a phone call saying..sorry theres been a terrible mistake and your ex-wife (who doesnt even like cars) is the real winner.

[Hoop]

Love those last two posts...a bit of "that's life" humour has made my day :)

[winner69]

hoop - from chartoftheday their PE of the S&P since well before you were born

PE still trnding down .... we still in a seclar bear market then

[Aaron]

To drop from a PE of 15 to a PE of 8 assuming earnings constant, prices need to come back 47% if I am right in my maths.
15/1 to 8/1 7/15 = 47% drop in P
If earnings are starting to drop with a global slowdown say 20% then to get to a PE of 8 your dropping your price by 57%.

Pretty scary stuff if we ae headed back to a PE of 8 as well as an earnings slowdown. Low interest rates should be able to bouy the markets though as the reverse of an 8PE is 12.5% even a PE of 15 is 6.7%

I had a look at us interest rates to see if there is a corelation between interest rates and PEs as you would expect higher interest rates would mean lower PEs. This is the best i could come up with
http://observationsandnotes.blogspot.co.nz/2010/11/100-years-of-bond-interest-rate-history.html
The rise in PEs in Winners graph sort of matches the fall in interest rates since the 1980s. Interest rates can't really go much lower as they haven't been this low since 1940.
Doesn't really help me decide where to invest though.

[Fudosan]

Is NZ's stock market in a bubble? NZX was about 2500 in 2009 but now it close to 4,000.

[winner69]

Just for you Aaron (and for Hoop) a chart of the Aust 90 day bill rate v earnings yield of the All Ords (esrnings yield being the inverse of the PE)

Tell me what you think might happen over the next year or two

[Aaron]

Hard to say, the earnings yield I assume is the inverse to the PE ratio. 2009 Yields shot up as share prices crashed, interest rates were forced down to stop a depression.
Not that I think anyone can predict the future. From the chart there has been an inverse correlation since 2009. I guess in the eighties high interest rates affected company profitability. The nineties there was a balance between lending money and dividend yields.In the early 2000sthe mining and property booms pushed up profits and interest rates. I conclude this chart gives me no idea what will happen next. But at a guess if you are taking more risk owning companies than fixed interest the earnings yield should stay above the 90 day rate but reading the likes of Marc Faber, Jim Rogers and a few others holding $us or US govt bonds could be one of the riskiest things you could do. Aussie and NZ I don't think are as bad as our govts are trying to get their budgets balanced and they don't have central banks pumping up the money supply to the same degree as the rest of the world.
I should be like most posters on this website, looking at individual companies and finding opportunities. Instead I am procrastinating waiting for a deflationary crash before buying undervalued blue chip companies. When in fact we could quite easily end up with rampant inflation and me missing the boat even more.

[Hoop]

Just for you Aaron (and for Hoop) a chart of the Aust 90 day bill rate v earnings yield of the All Ords (esrnings yield being the inverse of the PE)

Tell me what you think might happen over the next year or two.

Eyeballing the two charts together and with only one previous secular bear cycle to compare against.
It seems the cross over? (1974) occurs during the later stages of the secular bear cycle and flips back when inflation takes off (signature of the dying last stage of the Secular Bull Cycle?) and causes the interest rates (90DBY) to rise up.

It makes theoretical sense, as it is the investor behaviour that makes the Secular bear cycle... the increasing desire to increase their portfolios with rock solid good yielding stocks. In other words..it is the era when the Equity Investor wants more bang for their buck and therefore in the end the Equity yield rate becomes higher than the interest rates.


.........Tell me what you think might happen over the next year or two.

Well Winner ....Taking the view that Secular Cycles are measured by distance not by time....These two charts side by side seems to confirm my belief that the present Secular Bear Cycle still has about 5 to 7 PE points to fall before the bear dies****... whether that happens with a sudden crash in Equities, or over another 5+ years with another round(s) of cyclic bull then bear (my preferred option atm) ..... who knows???

Can the length of the last Inversion be a reliable guide (1980 - 1974 = 6 years)????? If so then Jan 2014 looks to be the time of reckoning... the inversion ends and flips back signals the end of the Secular Bear Cycle.....If that is the case then, with the PE (annualised) at around 13 /14 this is far too high and there's too little time for growth to counter an Equity sharp drop down to sub 10.....Using this 6 year period scenario indicates a Equity crash (40-50%) any time from now to late 2013 together with a sudden increase in inflation (interest rates)......I consider this scenario as unlikely as it contradicts cyclic theory...It seems the All Ords is entering into another cyclic bull market cycle atm and these beasts live on average about 3.5 years.

**** The sub 10 back in 2008/2009 cash was panic driven and too brief a time frame in my view to consider the death of the secular bear

http://www.sharetrader.co.nz/attachment.php?attachmentid=4184&stc=1&thumb=1&d=1350369523http://www.sharetrader.co.nz/attachment.php?attachmentid=4200&stc=1&thumb=1&d=1351496046

[Fudosan]

I should be like most posters on this website, looking at individual companies and finding opportunities. Instead I am procrastinating waiting for a deflationary crash before buying undervalued blue chip companies. When in fact we could quite easily end up with rampant inflation and me missing the boat even more.I'm leaning more toward the inflation camp, but a crash is a crash, which will bring opportunities to pick up good bargains. So, I'm with you. Unfortunately, I missed the 2008 crisis/opportunity window

[BIRMANBOY]

Investors who are looking for the "ideal" moment could get old waiting.
I'm leaning more toward the inflation camp, but a crash is a crash, which will bring opportunities to pick up good bargains. So, I'm with you. Unfortunately, I missed the 2008 crisis/opportunity window

[Aaron]

Tell me about it. The impatience is building. Am I right or am I wrong. No one knows the future and I miss Phaedrus's advice of not trying to predict the future but run with the price action until it sends warning signals to bail out. I personally would prefer a company(s) making good profits and paying healthy dividends so I don't need to worry about price movements. Another big up day for world markets last night. I control my urge to just buy anything knowing that the world markets are waiting for me to buy before crashing but I will wait them out this time. My concern is that at my age I will die poor... waiting.

[POSSUM THE CAT]

Aaron that is exactly what you want to do. You can not spend it from the grave. All you need is enough to keep you in luxury until the day you die.

[BIRMANBOY]

So how much is that P the C? It would make it so much simpler if we could just log on to www.howmuchtimetogo (http://www.howmuchtimetogo).com and plug in your vitals, get a retinal scan, prostate and brain scan online and then you'll know exactly how much money will be required. I dont even need luxury...comfie is fine. Personally I have inserted a clause in my will stipulating that any surplus cash left at my demise will be stored in a safe in my coffin to which only I have the combination. You cant be too carefull.

Aaron that is exactly what you want to do. You can not spend it from the grave. All you need is enough to keep you in luxury until the day you die.

[BIRMANBOY]

Heres a newsflash for you....no-one, I repeat no-one knows what lies ahead. Just because charts and historical performance imply that certain patterns existed dosesnt mean they will repeat. The only way you can make investing work (in my opinionated opinion) is to buy regularly and dont worry too much about whether its too high or too low. Traders are always going to be concerned about what a SP is doing...forget the stress. Just buy strong co.s and hold. No stress, no hours spent poring over company balance sheets, no should haves, no beating oneself up when you make premature sells or late buys. This is why I loved the dividend re-investment programs in the USA..most you could also arrange to have regular payments deducted monthly from your bank.
Tell me about it. The impatience is building. Am I right or am I wrong. No one knows the future and I miss Phaedrus's advice of not trying to predict the future but run with the price action until it sends warning signals to bail out. I personally would prefer a company(s) making good profits and paying healthy dividends so I don't need to worry about price movements. Another big up day for world markets last night. I control my urge to just buy anything knowing that the world markets are waiting for me to buy before crashing but I will wait them out this time. My concern is that at my age I will die poor... waiting.

[Lizard]

So how much is that P the C? It would make it so much simpler if we could just log on to www.howmuchtimetogo (http://www.howmuchtimetogo).com and plug in your vitals, get a retinal scan, prostate and brain scan online and then you'll know exactly how much money will be required. I dont even need luxury...comfie is fine. Personally I have inserted a clause in my will stipulating that any surplus cash left at my demise will be stored in a safe in my coffin to which only I have the combination. You cant be too carefull.

Love it!

I used to think being a full time trader would be the perfect lifestyle... then, with the uncertain years of the GFC and torturing myself as to whether it was more important to preserve capital out of the market or to invest given the necessity of making money to live off... all the while sitting in a dim room staring at a computer screen, spending as little money as possible because of the need to preserve/grow the capital... rather like your coffin and safe at times! :)

[Aaron]

Aaron that is exactly what you want to do. You can not spend it from the grave. All you need is enough to keep you in luxury until the day you die.

I don't disagree but I am still hoping/praying/investing in getting to a point I can actually live in luxury. Probably not living in luxury but having enough financial assets to provide some financial security so I am not worrying all the time about finances or living hand to mouth.

[BIRMANBOY]

Hoping and praying doesnt sound like much of a strategy to me but I dont know your circumstances. Hoping and praying are the refuge of someone who seems to have "given up" on the actual process. Investment is certainly a positive way forward but more to the point investment in what? Investing in Lotto....no...investing in spec stocks hoping for the 10 baggers....low probability so probably no....investing in yourself and your marketability to command higher salary/wages...sounds good to me. Investing is not only about what you invest in its WHEN you do it. If an investor is a self aware and canny individual then they would be able to recognize where they get the "biggest bang for their buck". The most profitable investment I have ever made (and which has secured my financial security has not been the share/bond market but the 30 years OUT of the share market in which I built up a business, employing myself and others and building up capital. The return on that would have been much higher than anything I could have accomplished in the share market. Cash invested in the financial or business endeavors of others is always going to be subject to their capabilities and reduced by their drawings on YOUR cash. If you buy your own tools and value the cash you spent on them you'll probably take care of them but if you lend them to others they have nothing invested in them so the "care" may be diluted. If as you say , "Probably not living in luxury but having enough financial assets to provide some financial security so I am not worrying all the time about finances or living hand to mouth. " is an issue then perhaps an investor should be looking at the underlying issues. I believe too many investors see shares and bonds as being the Holy Grail to financial security..Wishfull thinking. The only true Grail is ones ability to create wealth form ones own endeavours. The share market can be usefull to preserve and maintain and consolidate wealth but only very, very few individual will actually get wealthy FROM the share market...most of them being brokers and facilitators. Cynical? probably but thats my opinion for what its worth.
I don't disagree but I am still hoping/praying/investing in getting to a point I can actually live in luxury. Probably not living in luxury but having enough financial assets to provide some financial security so I am not worrying all the time about finances or living hand to mouth.

[Hoop]

Stress is a product from emotion
Emotion kills (and also kills your portfolio)
Share investing is a discipline based around various financial fundamentals (FA) and trading behaviours (TA)....you won't earn money by ignoring it nor using punt and hope. Just like Doctors Lawyers Mechanics Carpenters you have to learn your trade and apply it....it takes years.

This thread attempts to collect and show the better ways of applying a small part of that trade (investing) during a secular bear market cycle. The trading methods and research mentioned on this are educational and are provided to us over the years by successful authors/traders to help educate people who want to invest and help minimize losses and help maximize gains...Winner, I and some others find this information and relay it onto this thread.
This thread concentrates on just one type of cycle, the Secular (long term) Bear Market Cycle...as it is a cycle, it and all its parts constantly repeats and therefore we can learn and apply using the past secular bear cycles as references , thereby by identifying the cycle and knowing what to expect so to avoid repeating the same old long term investment mistakes when this same situation occurs again.........if a situation does not constantly repeat then it is not a cycle...simple!

[BIRMANBOY]

I applaud your efforts and desire to bring discipline to share investing..as you say it takes a lot of work and time to do anything well. The only slight flaw in these plans is that the patterns and discovered cyclical nature of these things are only really obvious looking backwards at the years of accumulated data and details. If you draw the conclusion that this has repeated sufficiently then the next step presumably is to apply it to current stuations and expand it further into the future. The unfortunate fact is that to my mind an awful lot of investors will interpret the situation in different ways..some will be accurate (thereby cementing their belief that this system works) and some will be wrong in either the timing or details of the cycle. I just have a problem believing that you can "know" what to expect with any degree of certainty. How many times have we said, "why is the SP going up (or going down) when there is no apparent reason for it". A week or 2 weeks later there is some news in the media that explains the movement. The problem is any TA or FA analysis in these situations is useless because its "outside" the cycle. By all means try to bring order to the understanding but those who discount the possibility of "chaos" in disrupting the cycle are eventually going to be surprised.
Stress is a product from emotion
Emotion kills (and also kills your portfolio)
Share investing is a discipline based around various financial fundamentals (FA) and trading behaviours (TA)....you won't earn money by ignoring it nor using punt and hope. Just like Doctors Lawyers Mechanics Carpenters you have to learn your trade and apply it....it takes years.

This thread attempts to collect and show the better ways of applying a small part of that trade (investing) during a secular bear market cycle. The trading methods and research mentioned on this are educational and are provided to us over the years by successful authors/traders to help educate people who want to invest and help minimize losses and help maximize gains...Winner, I and some others find this information and relay it onto this thread.
This thread concentrates on just one type of cycle, the Secular (long term) Bear Market Cycle...as it is a cycle, it and all its parts constantly repeats and therefore we can learn and apply using the past secular bear cycles as references , thereby knowing what to expect and avoid repeating the same long term investment mistakes when this same situation occurs again.........if a situation does not constantly repeat then it is not a cycle...simple!

[Hoop]

Birmanboy....I suggest you read the thread.

[BIRMANBOY]

What portion in particular? Sorry its a big thread..I tend to post in regards to specific elements rather than "the big picture". Am I missing something?
Birmanboy....I suggest you read the thread.

[Hoop]

Scrambling for Returns By Ankur Shah Success in investing, as with life, sometimes boils down to timing. When I graduated from college in the late ‘90s, I actually had an offer to join PIMCO, which at the time was a relatively small, fixed-income manager tucked away in Newport Beach, California. I remember visiting their headquarters building, with its sweeping view of the Pacific Ocean. I could only imagine Bill Gross at his desk, gazing at the blue expanse and pondering the fate of interest rates across the developed world.
Despite my reverence for Mr. Gross, I chose a different career path, due to my youthful ignorance. I thought to myself, Why would anyone want to be a fixed-income investor when the “real” money is in equities? As we now know, I inadvertently ended up missing the tail-end of the ongoing bull market in US treasuries and caught the brunt of the secular bear market in equities that began in 2000.
We can see from the chart below that yields on US treasuries are at generational lows. As yield declines, the price of bonds rises. Given the unprecedented level of yields on US treasuries, we are, in my view, close to the end of the secular bull market in government bonds.
http://www.mauldineconomics.com/images/uploads/newsletters/10_year_130219.gif
As Martin Pring highlighted in his book Investing in the Second Lost Decade:
At the culmination of the 1982-2000 secular bull market in stocks the Fidelity Magellan Fund (a stock fund) was the largest mutual fund in the world. In 2012, the largest mutual fund in the world is the PIMCO Total Return Fund – a bond fund!
It’s no surprise that PIMCO Total Return is the world's largest fund, given that the secular bull market in government debt began in 1981. The question that remains for investors is, with yields so low for US treasuries, what is the upside in terms of prices, from current levels? After all, interest rates are zero-bound at the end of the day. Even Gross himself recently Tweeted, “Gross: Makin’ money with money gettin’ harder every day. When yields approach zero, all financial assets are squeezed.” (http://email.mauldineconomics.com/wf/click?upn=BeTegB-2F2Kmx1O1dA60T9PRpOKHAd0cCzeIzpBdBFArVmfTvTbQrv3Ta mvtbB5uTo5j2GGEzjbTOXIoymwl-2BpUw-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hWh8zrdSv6zfSW2f0kacWJFLzQN29tgfGfafJW2 tdNFNX8HvvY8zc-2FzdCS-2FTSGktGyq-2FNwqT43wXbVtE-2FZMVkfF92X8RhQmAC5u5HcgR4GvA263KXZ-2BMsHw0utx0dbtQp5fTNprq-2FIM7BbXe6zGxGXA-3D-3D) If the “Bond King” is having trouble finding a decent return, what can we mere mortals hope to achieve?
If fixed-income can’t provide the inflation-adjusted returns that retirement-bound investors so desperately seek, then equities might be the key. Unfortunately, Gross doesn’t see much hope for equities, either. He recently stirred up a bit of controversy in the normally staid world of asset management with his claim that the “cult of equity” was dying, in his August, 2012 Investment Outlook (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi-2FMTBscsYD-2BWnTG-2FwZd1IPr9lyklnYAzTpVxafrP7kVAzBLWRX64z9pOCsLBUmp4 Gw-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hZaZiQ9Owr-2FY6tAs9wWiG9EOMy4uh2XDcwlp8hsiRgBp2QHdXD8A2T8jKz0 RWpWxAouJynhGvVhUqer6aMba7okDwuBr-2FJSslcY8L51-2BHCda7G6oowAjuE8N7fJQQTt0CsHDWU2D0bja4usMwi6jZNg-3D-3D). I actually agree with his original premise that by the end of the current secular bear market in equities, investors will be completely turned off from equities as an asset class. Investors are in for a rough ride, and will earn far less in the current decade than the historical 6.6% annual real return achieved over the past 100 years.
Gross's argument had two main pillars:
1. Since 1912, equities have provided a real return of 6.6%, surpassing real GDP growth of 3.5% over the same timeframe. Essentially, he’s arguing that if stocks continue to appreciate at a faster rate than GDP, then stockholders will eventually own a disproportionate share of total wealth. Thus, expected real returns to shareholders can’t outstrip GDP growth indefinitely.
2. As a percentage of GDP, wages are near an all-time low, concurrent with corporate profits near an all-time high. Corporate profit margins will eventually mean revert.
I agree with Gross that equity investors are facing sub-par returns going forward, but I disagree with the first pillar of his argument. To explain my view, let's start with the basics. Total annual return is calculated as follows:
Total Stock Return = [(P1 – P0) + D] / P0
P0 = Initial price
P1 = Ending price (period 1)
D = Dividends
Essentially, your total return is determined by two components – price appreciation and dividends – in any given year. Using data graciously provided for free and updated on a regular basis by Robert Shiller (http://www.econ.yale.edu/~shiller/data.htm (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi9uI2ulACa5HqcjYakEXKYvC6mTUGhQFUQVPvPwAH K-2BNHh49w7yBkytj58EgrbCXTw-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hT0ziL-2BM1CJtrctqlmNjC5JZ3ra-2BiFe-2BM66HLrH2h7JeQ6sgackIgcsCvvnsa1mFLk4U1684OU54x2VB S0LfImxwbSUZtQvTFayGDCf3aYPzNvyPP5Sk-2BJ2Jzp9k5wDbMcts3839MTzFgAbhZ-2FvkI3Q-3D-3D)), I calculated that annualized real returns from equities have been 6.27% since 1871 (the earliest data available). Although I use a longer timeframe than Gross, my calculation of real returns is in the same ballpark.
The key point is that over that timeframe dividends have accounted for 70% of the total annualized real return to investors. Price appreciation added the other 30%.
Price appreciation is ultimately driven by a combination of earnings growth and multiple expansion. Gross is correct when he states that earnings growth is constrained by GDP growth. Additionally, we assume that price multiples will mean revert, which has been the case historically.
Dividends, which are typically spent and not perpetually reinvested, are the main reason that equity investors have achieved real returns well above the rate of GDP growth. If investors had reinvested their dividends, we would expect that over time real returns to equity holders would have diminished as an increasing amount of capital chased after limited profit-making opportunities. Thus, there is nothing inherently illogical about real equity returns outstripping real GDP growth, if we take into consideration that dividends are usually spent and not reinvested.
The second point that Gross raises is correct. We can see in the chart below that corporate profits (after tax) as a percentage of GDP have reached an all-time high. Conversely, wages as a percentage of GDP have consistently declined since the 1970s. Gross makes the point that the division of GDP between capital, labor, and government can vary over time and greatly advantage one constituency over another. It’s clear that since the end of the 2008 recession, the corporate sector has been the winner.
However, as fund manager John Hussman has consistently stated, corporate profit margins are mean reverting and current profitability levels are unsustainable. If you agree that margins in the corporate sector have peaked, it’s unlikely that the stock market can sustain rising price multiples.
http://www.mauldineconomics.com/images/uploads/newsletters/Corp_Wage_130219.gif
Analysts who view current valuations as cheap on a forward operating earnings basis are making a huge assumption that current profit margins are sustainable. However, analysts who take a normalized earnings approach to valuation will inevitably come to the opposite conclusion. As Hussman observed in a weekly market comment (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi5qmKomq-2B1MiUTr1LMlhwA5u3JdDN5OaKvP7luZvzIRx-2B5eOyrVf-2BcqqzyGWN2ctGg-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hjPcvMouk3-2FIHO7wv2SvKDQ6f1cj9QvafQz-2FjvK-2BHLb07HQfZCoq2ESJ4blWOkvHOv0zc9f9RtKvtychOx8aYABC nkiOCCTivuW02BWDUeuONR2nSoydR6MsBE3c75ulPW1u0MRZZl mkybhwEtNbN7Q-3D-3D):
“Profit margins are also highly cyclical over time. The wide margins at present are partly the result of deficit spending amounting to more than 8% of GDP – where government transfer payments are still holding up nearly 20% of total consumer spending, and partly the result of foreign labor outsourcing (directly, and also indirectly through imported intermediate goods) which has held down wage and salary payouts. Indeed, the ratio of corporate profits to GDP is now close to 70% above its long-term norm.”
In addition to the potential for declining margins, valuations as measured by the cyclically adjusted P/E ratio (CAPE) are still stretched. Earnings – the denominator in the CAPE ratio – are calculated by taking an average of the past 10 years. By using an average, we normalize for changes in profitability that occur due to the business cycle. Unfortunately, the CAPE ratio doesn’t tell you where the market will head in the next quarter or year, but is an exceptionally useful tool when calculating prospective returns over a long timeframe, such as a decade.
We’re nowhere near the peak levels achieved during the technology boom, but current levels still exceed the historical average of 16.5x, shown in the next chart.
http://www.mauldineconomics.com/images/uploads/newsletters/CAPE_Ratio_130219.gif
The chart also shows that the market was briefly cheap on a normalized basis in March 2009. Despite the protestations of some analysts, we are not in a new secular bull market for equities. Secular bull markets begin when the CAPE ratio is in the single digits.
What type of return from US equities can we expect going forward, given the current CAPE reading of 21.1x? We can calculate prospective long-term annual total return on the S&P 500 by utilizing the following formula derived by John Hussman (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi5qmKomq-2B1MiUTr1LMlhwA6FZJ-2FnzK-2FsosOIKr-2FTpmQndbWBJFRLHuzEG9WRoVM11A-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2h5tn29eg87NgA-2FdefQlUr4F0TwLmvHn297zSxgX4kA1kK3KkilurM2yYtw36-2BPi-2B0jcx0yimpLV49i03vqhTvxWkieYhPlhdGfzGYGFa5loepjP9 FNDJW8xKof-2FTqtoKbdzhxuqTewJQiIgtY-2F3KzJA-3D-3D):
Long Term Total Return = (1 + g)(Future PE / Current PE)^(1/T) – 1 + dividend yield (Current PE/Future PE + 1) / 2
g = Prospective growth rate of earnings
The equation simply forecasts the two components of total return that, as I noted earlier, are price appreciation and dividend yield. Using the data provided by Shiller, I calculated a long-term historical nominal earnings growth rate of 3.8%. Then, using the current 2.8% S&P dividend yield, I calculated prospective nominal returns for various future CAPE ratios, shown in the next table.
http://www.mauldineconomics.com/images/uploads/newsletters/Table_130219.png
We can see from the table that if the CAPE ratio reverted to slightly below its historical mean of 16.5x, it would result in an annualized prospective return on the S&P 500 of 3.61% over the next ten years. And if the market were to de-rate down to a single-digit CAPE ratio, investors could expect negative returns, based on current valuation levels.
Keep in mind that total return is calculated in nominal terms. So, depending on your inflation expectations, real returns over the next 10 years will be nowhere near historical levels unless earnings can grow well above historical averages or investors are willing to re-rate the market from already-lofty valuations. I have no doubt that prospective returns will eventually improve. Unfortunately, that will entail a significantly lower level on the S&P 500.
Even Bill Gross himself warned about the current valuation levels of stocks and bonds when he tweeted the following back in October: “Gross: Stock and bond managers today must be alchemists: turn lead into gold. NOT likely. Too much lead (bubbled assets).” (http://email.mauldineconomics.com/wf/click?upn=BeTegB-2F2Kmx1O1dA60T9PRpOKHAd0cCzeIzpBdBFArWwPFEojv44lq2 NEWHNv0jmZyDVE162E6rCQCOqHMKTUA-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hYOyk0FRWmwsfZqCmYvLsac58JDkwESH-2BFS-2FnwJVg20Rdf2-2FLFITrOYDdalzswrQZakmtBdR3jAWi7K9RFJy5-2FCX9pYaq6NDScqlN9Stfs9RkipdGzO1AwPAZoH2pO-2FR6AUZM51urClUXg7QRHM1qWg-3D-3D)
With both US treasuries and equities offering poor future returns, where can an investor find adequate inflation-adjusted returns?
With the announcement of QE4, the likelihood of significant inflation surfacing in the back-half of the decade has definitely increased. The best options for investors, in my view, are quality domestic and international equities with decent dividend yields, and precious metals. I may have missed the equity bubble of the late ‘90s and the current bond bubble, but the precious metals bubble is just getting started. I don't plan on missing this one.
http://www.mauldineconomics.com/images/uploads/newsletters/Shah_130219.gifAnkur Shah is the founder of the Value Investing India Report, a leading independent, value-oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on Southeast Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and as a sell-side analyst for an emerging-markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at Value Investing India Report (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi0lJ2YAFVjq4E-2BD1tvDDeWX3H9e3R5h3AWvC6zRO741m_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hF7Dwhy1pbqf3r9ehvk8Lrw-2B2r7uri9U1NqdtdFge-2Bx7Wfw-2Fjgcr7xtuTueeB5UzwrHmYvzhWT1bgPLFzZs3hhwlspXMXrZo pBbGAZkr-2FYpiXvR-2FahuOYUmrs6Fsz9G-2Btv5ZC91ypJocmTZSewRUf9g-3D-3D), or follow him on Twitter (http://email.mauldineconomics.com/wf/click?upn=BeTegB-2F2Kmx1O1dA60T9PSrPKwxtMW6Ibg9L2AnRLaNxkFul-2BZCSrykwtWouwj1a_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hSbWT1NyipAjV3CDoMah0tD5NtSiKMqvA544SyW RPqAJrDfH84ve3yNTYN5OjGwUhgbWu87zKFMuQZnoK3SzGS9Fv y71-2Fg1N-2BJMAzHricQv-2FKAk9vhZ6Q4hlM1JGfeDg7Ng5HUJiGIlHmBFZH4i6V-2BQ-3D-3D).

[winner69]

Hoop - good stuff

All to complicated though --- still looks like the world is going to collapse .... one day .... sometime

[BIRMANBOY]

Somewhat interesting until he says "but the precious metals bubble is just getting started. I don't plan on missing this one." Also his information /analysis is based on US information. Last time I looked we were in NZ and the NZX has taken on a life of its own and good returns still to be made on NZ equities and bonds. Sometimes we get distracted by too much information....makes sense to filter out what doesnt apply to us.

Scrambling for Returns

By Ankur Shah

Success in investing, as with life, sometimes boils down to timing. When I graduated from college in the late ‘90s, I actually had an offer to join PIMCO, which at the time was a relatively small, fixed-income manager tucked away in Newport Beach, California. I remember visiting their headquarters building, with its sweeping view of the Pacific Ocean. I could only imagine Bill Gross at his desk, gazing at the blue expanse and pondering the fate of interest rates across the developed world.
Despite my reverence for Mr. Gross, I chose a different career path, due to my youthful ignorance. I thought to myself, Why would anyone want to be a fixed-income investor when the “real” money is in equities? As we now know, I inadvertently ended up missing the tail-end of the ongoing bull market in US treasuries and caught the brunt of the secular bear market in equities that began in 2000.
We can see from the chart below that yields on US treasuries are at generational lows. As yield declines, the price of bonds rises. Given the unprecedented level of yields on US treasuries, we are, in my view, close to the end of the secular bull market in government bonds.
http://www.mauldineconomics.com/images/uploads/newsletters/10_year_130219.gif
As Martin Pring highlighted in his book Investing in the Second Lost Decade:
At the culmination of the 1982-2000 secular bull market in stocks the Fidelity Magellan Fund (a stock fund) was the largest mutual fund in the world. In 2012, the largest mutual fund in the world is the PIMCO Total Return Fund – a bond fund!
It’s no surprise that PIMCO Total Return is the world's largest fund, given that the secular bull market in government debt began in 1981. The question that remains for investors is, with yields so low for US treasuries, what is the upside in terms of prices, from current levels? After all, interest rates are zero-bound at the end of the day. Even Gross himself recently Tweeted, “Gross: Makin’ money with money gettin’ harder every day. When yields approach zero, all financial assets are squeezed.” (http://email.mauldineconomics.com/wf/click?upn=BeTegB-2F2Kmx1O1dA60T9PRpOKHAd0cCzeIzpBdBFArVmfTvTbQrv3Ta mvtbB5uTo5j2GGEzjbTOXIoymwl-2BpUw-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hWh8zrdSv6zfSW2f0kacWJFLzQN29tgfGfafJW2 tdNFNX8HvvY8zc-2FzdCS-2FTSGktGyq-2FNwqT43wXbVtE-2FZMVkfF92X8RhQmAC5u5HcgR4GvA263KXZ-2BMsHw0utx0dbtQp5fTNprq-2FIM7BbXe6zGxGXA-3D-3D) If the “Bond King” is having trouble finding a decent return, what can we mere mortals hope to achieve?
If fixed-income can’t provide the inflation-adjusted returns that retirement-bound investors so desperately seek, then equities might be the key. Unfortunately, Gross doesn’t see much hope for equities, either. He recently stirred up a bit of controversy in the normally staid world of asset management with his claim that the “cult of equity” was dying, in his August, 2012 Investment Outlook (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi-2FMTBscsYD-2BWnTG-2FwZd1IPr9lyklnYAzTpVxafrP7kVAzBLWRX64z9pOCsLBUmp4 Gw-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hZaZiQ9Owr-2FY6tAs9wWiG9EOMy4uh2XDcwlp8hsiRgBp2QHdXD8A2T8jKz0 RWpWxAouJynhGvVhUqer6aMba7okDwuBr-2FJSslcY8L51-2BHCda7G6oowAjuE8N7fJQQTt0CsHDWU2D0bja4usMwi6jZNg-3D-3D). I actually agree with his original premise that by the end of the current secular bear market in equities, investors will be completely turned off from equities as an asset class. Investors are in for a rough ride, and will earn far less in the current decade than the historical 6.6% annual real return achieved over the past 100 years.
Gross's argument had two main pillars:
1. Since 1912, equities have provided a real return of 6.6%, surpassing real GDP growth of 3.5% over the same timeframe. Essentially, he’s arguing that if stocks continue to appreciate at a faster rate than GDP, then stockholders will eventually own a disproportionate share of total wealth. Thus, expected real returns to shareholders can’t outstrip GDP growth indefinitely.
2. As a percentage of GDP, wages are near an all-time low, concurrent with corporate profits near an all-time high. Corporate profit margins will eventually mean revert.
I agree with Gross that equity investors are facing sub-par returns going forward, but I disagree with the first pillar of his argument. To explain my view, let's start with the basics. Total annual return is calculated as follows:
Total Stock Return = [(P1 – P0) + D] / P0
P0 = Initial price
P1 = Ending price (period 1)
D = Dividends
Essentially, your total return is determined by two components – price appreciation and dividends – in any given year. Using data graciously provided for free and updated on a regular basis by Robert Shiller (http://www.econ.yale.edu/~shiller/data.htm (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi9uI2ulACa5HqcjYakEXKYvC6mTUGhQFUQVPvPwAH K-2BNHh49w7yBkytj58EgrbCXTw-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hT0ziL-2BM1CJtrctqlmNjC5JZ3ra-2BiFe-2BM66HLrH2h7JeQ6sgackIgcsCvvnsa1mFLk4U1684OU54x2VB S0LfImxwbSUZtQvTFayGDCf3aYPzNvyPP5Sk-2BJ2Jzp9k5wDbMcts3839MTzFgAbhZ-2FvkI3Q-3D-3D)), I calculated that annualized real returns from equities have been 6.27% since 1871 (the earliest data available). Although I use a longer timeframe than Gross, my calculation of real returns is in the same ballpark.
The key point is that over that timeframe dividends have accounted for 70% of the total annualized real return to investors. Price appreciation added the other 30%.
Price appreciation is ultimately driven by a combination of earnings growth and multiple expansion. Gross is correct when he states that earnings growth is constrained by GDP growth. Additionally, we assume that price multiples will mean revert, which has been the case historically.
Dividends, which are typically spent and not perpetually reinvested, are the main reason that equity investors have achieved real returns well above the rate of GDP growth. If investors had reinvested their dividends, we would expect that over time real returns to equity holders would have diminished as an increasing amount of capital chased after limited profit-making opportunities. Thus, there is nothing inherently illogical about real equity returns outstripping real GDP growth, if we take into consideration that dividends are usually spent and not reinvested.
The second point that Gross raises is correct. We can see in the chart below that corporate profits (after tax) as a percentage of GDP have reached an all-time high. Conversely, wages as a percentage of GDP have consistently declined since the 1970s. Gross makes the point that the division of GDP between capital, labor, and government can vary over time and greatly advantage one constituency over another. It’s clear that since the end of the 2008 recession, the corporate sector has been the winner.
However, as fund manager John Hussman has consistently stated, corporate profit margins are mean reverting and current profitability levels are unsustainable. If you agree that margins in the corporate sector have peaked, it’s unlikely that the stock market can sustain rising price multiples.
http://www.mauldineconomics.com/images/uploads/newsletters/Corp_Wage_130219.gif
Analysts who view current valuations as cheap on a forward operating earnings basis are making a huge assumption that current profit margins are sustainable. However, analysts who take a normalized earnings approach to valuation will inevitably come to the opposite conclusion. As Hussman observed in a weekly market comment (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi5qmKomq-2B1MiUTr1LMlhwA5u3JdDN5OaKvP7luZvzIRx-2B5eOyrVf-2BcqqzyGWN2ctGg-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hjPcvMouk3-2FIHO7wv2SvKDQ6f1cj9QvafQz-2FjvK-2BHLb07HQfZCoq2ESJ4blWOkvHOv0zc9f9RtKvtychOx8aYABC nkiOCCTivuW02BWDUeuONR2nSoydR6MsBE3c75ulPW1u0MRZZl mkybhwEtNbN7Q-3D-3D):
“Profit margins are also highly cyclical over time. The wide margins at present are partly the result of deficit spending amounting to more than 8% of GDP – where government transfer payments are still holding up nearly 20% of total consumer spending, and partly the result of foreign labor outsourcing (directly, and also indirectly through imported intermediate goods) which has held down wage and salary payouts. Indeed, the ratio of corporate profits to GDP is now close to 70% above its long-term norm.”
In addition to the potential for declining margins, valuations as measured by the cyclically adjusted P/E ratio (CAPE) are still stretched. Earnings – the denominator in the CAPE ratio – are calculated by taking an average of the past 10 years. By using an average, we normalize for changes in profitability that occur due to the business cycle. Unfortunately, the CAPE ratio doesn’t tell you where the market will head in the next quarter or year, but is an exceptionally useful tool when calculating prospective returns over a long timeframe, such as a decade.
We’re nowhere near the peak levels achieved during the technology boom, but current levels still exceed the historical average of 16.5x, shown in the next chart.
http://www.mauldineconomics.com/images/uploads/newsletters/CAPE_Ratio_130219.gif
The chart also shows that the market was briefly cheap on a normalized basis in March 2009. Despite the protestations of some analysts, we are not in a new secular bull market for equities. Secular bull markets begin when the CAPE ratio is in the single digits.
What type of return from US equities can we expect going forward, given the current CAPE reading of 21.1x? We can calculate prospective long-term annual total return on the S&P 500 by utilizing the following formula derived by John Hussman (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi5qmKomq-2B1MiUTr1LMlhwA6FZJ-2FnzK-2FsosOIKr-2FTpmQndbWBJFRLHuzEG9WRoVM11A-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2h5tn29eg87NgA-2FdefQlUr4F0TwLmvHn297zSxgX4kA1kK3KkilurM2yYtw36-2BPi-2B0jcx0yimpLV49i03vqhTvxWkieYhPlhdGfzGYGFa5loepjP9 FNDJW8xKof-2FTqtoKbdzhxuqTewJQiIgtY-2F3KzJA-3D-3D):
Long Term Total Return = (1 + g)(Future PE / Current PE)^(1/T) – 1 + dividend yield (Current PE/Future PE + 1) / 2
g = Prospective growth rate of earnings
The equation simply forecasts the two components of total return that, as I noted earlier, are price appreciation and dividend yield. Using the data provided by Shiller, I calculated a long-term historical nominal earnings growth rate of 3.8%. Then, using the current 2.8% S&P dividend yield, I calculated prospective nominal returns for various future CAPE ratios, shown in the next table.
http://www.mauldineconomics.com/images/uploads/newsletters/Table_130219.png
We can see from the table that if the CAPE ratio reverted to slightly below its historical mean of 16.5x, it would result in an annualized prospective return on the S&P 500 of 3.61% over the next ten years. And if the market were to de-rate down to a single-digit CAPE ratio, investors could expect negative returns, based on current valuation levels.
Keep in mind that total return is calculated in nominal terms. So, depending on your inflation expectations, real returns over the next 10 years will be nowhere near historical levels unless earnings can grow well above historical averages or investors are willing to re-rate the market from already-lofty valuations. I have no doubt that prospective returns will eventually improve. Unfortunately, that will entail a significantly lower level on the S&P 500.
Even Bill Gross himself warned about the current valuation levels of stocks and bonds when he tweeted the following back in October: “Gross: Stock and bond managers today must be alchemists: turn lead into gold. NOT likely. Too much lead (bubbled assets).” (http://email.mauldineconomics.com/wf/click?upn=BeTegB-2F2Kmx1O1dA60T9PRpOKHAd0cCzeIzpBdBFArWwPFEojv44lq2 NEWHNv0jmZyDVE162E6rCQCOqHMKTUA-3D-3D_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hYOyk0FRWmwsfZqCmYvLsac58JDkwESH-2BFS-2FnwJVg20Rdf2-2FLFITrOYDdalzswrQZakmtBdR3jAWi7K9RFJy5-2FCX9pYaq6NDScqlN9Stfs9RkipdGzO1AwPAZoH2pO-2FR6AUZM51urClUXg7QRHM1qWg-3D-3D)
With both US treasuries and equities offering poor future returns, where can an investor find adequate inflation-adjusted returns?
With the announcement of QE4, the likelihood of significant inflation surfacing in the back-half of the decade has definitely increased. The best options for investors, in my view, are quality domestic and international equities with decent dividend yields, and precious metals. I may have missed the equity bubble of the late ‘90s and the current bond bubble, but the precious metals bubble is just getting started. I don't plan on missing this one.
http://www.mauldineconomics.com/images/uploads/newsletters/Shah_130219.gifAnkur Shah is the founder of the Value Investing India Report, a leading independent, value-oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on Southeast Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and as a sell-side analyst for an emerging-markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at Value Investing India Report (http://email.mauldineconomics.com/wf/click?upn=U8GusXYvzQrI-2BTfpBInOi0lJ2YAFVjq4E-2BD1tvDDeWX3H9e3R5h3AWvC6zRO741m_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hF7Dwhy1pbqf3r9ehvk8Lrw-2B2r7uri9U1NqdtdFge-2Bx7Wfw-2Fjgcr7xtuTueeB5UzwrHmYvzhWT1bgPLFzZs3hhwlspXMXrZo pBbGAZkr-2FYpiXvR-2FahuOYUmrs6Fsz9G-2Btv5ZC91ypJocmTZSewRUf9g-3D-3D), or follow him on Twitter (http://email.mauldineconomics.com/wf/click?upn=BeTegB-2F2Kmx1O1dA60T9PSrPKwxtMW6Ibg9L2AnRLaNxkFul-2BZCSrykwtWouwj1a_HXF-2F5zIpfxkfUuBwO0q4J4JidgiEUjfvQYRkFFjKoqmoNRq7w8Xk kbEgj9uDSh2hSbWT1NyipAjV3CDoMah0tD5NtSiKMqvA544SyW RPqAJrDfH84ve3yNTYN5OjGwUhgbWu87zKFMuQZnoK3SzGS9Fv y71-2Fg1N-2BJMAzHricQv-2FKAk9vhZ6Q4hlM1JGfeDg7Ng5HUJiGIlHmBFZH4i6V-2BQ-3D-3D).

[winner69]

this might interest you hoop

http://www.hussmanfunds.com/wmc/wmc130218.htm

“First you will come to the Sirens who enchant all who come near them. If any one unwarily draws in too close and hears the singing of the Sirens, his wife and children will never welcome him home again, for they sit in a green field and warble him to death with the sweetness of their song. There is a great heap of dead men's bones lying all around... Therefore pass these Sirens by, and stop your men's ears with wax that none of them may hear; but if you like you can listen yourself, for you may get the men to bind you as you stand upright on a cross-piece half way up the mast, and they must lash the rope's ends to the mast itself, that you may have the pleasure of listening. If you beg and pray the men to unloose you, then they must bind you faster.”

Homer, The Odyssey (800 B.C., Translated by Samuel Butler)

[BIRMANBOY]

Yes amazing how far a modicum of common sense can (or should) take you. I suppose there will always be a ready market for people/funds/analysts who purport to "do the research", provide "in depth industry wide expertise" and generally absolve investors from actually doing any thinking themselves. Its like..this is in print and we have 10,000 followers so you should absolutely take our advice. Great at broad sweeping statements but usually short on specific details. Oh well..it takes all types right...my instincts tell me the most successfull investors dont have the time or the inclination to publish "Investing Nirvana"
Yes you are right, the above is written for and about the US stock market and not the NZ one. Yet I still find them an interesting read. One of the caveats I have about this type of work however, is that they take a whole of index wide approach in their analysis. All stocks that make up that index therefore get reverted to the mean. This may or may not be correct when considering the performance of individual stocks over any particular time period within that index. Individual stocks can and do vary widely from the mean, and for a whole host of reasons. Fashions come and go, hot stocks and sectors ebb and flow, a company moves through the various phases of its growth cycle, acclaimed entrepreneurs/ managers leave a company or die etc., all of which will impact on the share price performance quite independently of the overall themes as outlined above. This just again highlights the importance of stock picking, and a good analysis and understanding of an individual companies performance and its business to overall investing success. When the market prices a great company low, buy. When it prices it at a silly level, sell. Or at least don't buy it!

[winner69]

While Hussman was on about the US markets it is relevant to the the NZ markets as well .... we prob also looking back half cycles as he put it .... see chart of NZX50

When markets rise and fall in secular ways (multi year) most stocks go up or down (to varying degrees) with the market. Hence the theme all the way through this thread and the strategy I laid out on the first post.

When markets are rising (multi year) a lot of the risk goes ... when markets are falling (multi year) it can be a very risky place. As you both point stock picking is the key and managing the risk that prevails at the time to protect capital ... and that means at times you may be out of the market altogether

[BIRMANBOY]

As I have pointed out ad nauseum...IMO charts are only usefull in trying to figure out what happened on a historical basis. There is no guarantee that we are due for a drop just because we are at a high. There would be a more than reasonable chance that it might.. but that alone shouldnt drive buying or selling. Chartists look for signals tiggered by volume, SP previous history etc. etc. I understand that I just cant buy into the "the charts dont lie" philosophy. As we have said, and you agree, stock picking is the key. The BEST time to be in the market for me is when its in the sh***er....you say its a risky place then..different strokes as they say. SInce I only buy to hold and for dividends...I am never "out of market"...its just that buying opportunities are fewer and the cash just waits for suitable situation.....must go TEL is requesting my contribution.
While Hussman was on about the US markets it is relevant to the the NZ markets as well .... we prob also looking back half cycles as he put it .... see chart of NZX50

When markets rise and fall in secular ways (multi year) most stocks go up or down (to varying degrees) with the market. Hence the theme all the way through this thread and the strategy I laid out on the first post.

When markets are rising (multi year) a lot of the risk goes ... when markets are falling (multi year) it can be a very risky place. As you both point stock picking is the key and managing the risk that prevails at the time to protect capital ... and that means at times you may be out of the market altogether

[winner69]

birman that chart doesn't say the world is about to collapse in NZ .... it confirms what Hussman was saying that some punters only see half the cycle and they only see the NZX50 more than doubling in the last few years .... and prob believe it will double again in the next few years (no bargains for you) .... and that might be foolish thinking eh

Funny thing is birman we esssentially have the same philosophy .... pick good companies and collect the divies .... the only difference between you and me seems to be that i cherish my capital and if markets look like going down 50% I'll cash up when one of few holdings starts going down with the market and if they re still fundamentally good will buy them back ... like you say a cheaper price.

[BIRMANBOY]

I have been tempted to micromanage my shares but dont want to be buying in and out because I dont trust myself to know when its emotionally, caffeine, genuine or herd driven drivers. Also I dont want to worry about the IRD interpretation of my actions. Whats interesting is that long term holders and divie devotees benefit from traders and chartists because they drive the SP up and down thereby creating opportunities and vice versa with the holders providing some measure of stability and acting as a counterbalance that would occur if everyone was trading in and out like yoyo's. Vive le difference eh? But long may our divies prosper.
birman that chart doesn't say the world is about to collapse in NZ .... it confirms what Hussman was saying that some punters only see half the cycle and they only see the NZX50 more than doubling in the last few years .... and prob believe it will double again in the next few years (no bargains for you) .... and that might be foolish thinking eh

Funny thing is birman we esssentially have the same philosophy .... pick good companies and collect the divies .... the only difference between you and me seems to be that i cherish my capital and if markets look like going down 50% I'll cash up when one of few holdings starts going down with the market and if they re still fundamentally good will buy them back ... like you say a cheaper price.

[winner69]

Birman we should never forget this from hoops post

The key point is that over that timeframe dividends have accounted for 70% of the total annualized real return to investors. Price appreciation added the other 30%.


In nz I would say the 70% ratio is higher

Sort of says traders don't win much ...... research shows nearly 100% of day traders end up losing anyway .... except those on sharetrader

[Hoop]

Although it does pertain to the US, Alan Greenspan thinks basically the same about the US stock market as Brian Gaynor thinks about the NZ one. He [Greenspan] considers US stocks are still cheap (based on historical metrics) and the current lift in the markets over there is far from the irrational exuberance that was seen during the dotcom and previous share market excesses. Given our markets tend to broadly follow the US markets, I find that very interesting.

http://www.cnbc.com/id/100556999

It would appear to me that those who have brought into US stocks (the good companies that is) between 2009-2012 have had a once in a generation opportunity to make some serious wealth going forward.

When a high profiler chips in with his/her opinions of where the market is ...do you add extra weight to the belief that they are right?

Allan Greenspan quotes
".... stocks by historical standards are "significantly undervalued" even considering the recent moves higher...." (Greenspan said in a "Squawk Box (http://www.cnbc.com/id/15838368)" interview)
Greenspan coined the phrase "irrational exuberance" in 1996, when he was asked a question about soaring stocks at that time. The year 1996 was coincidentally the last time the Dow Jones Industrial Average (http://data.cnbc.com/quotes/.DJI) had its last 10-session winning streak. Blue-chips will try to make it 11 in a row on Friday. That would be the first such run since late 1991 into 1992. "...Although blue-chip stocks are hitting all-time high after all-time high, former Fed Chairman Alan Greenspan told CNBC Friday that "irrational exuberance" is the last term he'd use to describe today's market..."

Hoop thinks the 87 year old has missed adding some important factors in forming his opinion.......How dare you say that about an expert a private advisor and consultant to many companies I hear you say...

Hmmm...I would assume I'm in good company if one thinks things through using the inter-reactions of various Market Analyses ..........Yeah there's no "irrational exuberance" now but that's only a small factor within the overall picture...
The bigger picture is long range and the fact that Wall St is still getting over that massive "turn of the Century" Equity bubble ,,,,.a historic record event

Many people forget over time... so there's problem now that many perceive when they look at the historic PE Ratio Fundamental the fact that historically the markets are just above fair value so they assume that there is no reason for the market to turn down yet. Therefore applying the reasoning that Wall St should keep going up until it reaches a fundamental cause for it to turn such as the well overvalued (irrational) limit.

I consider the above as simplistic flawed logic.....

Why?? ...One has to take in the environment surrounding of the Present Day market. As of 31 December 2012 when the S&P500 was at 1426 Crestmont Research (http://www.crestmontresearch.com/docs/Stock-PE-Report.pdf) considered it to be "fairly valued" it noted the unusually high annualised PE Ratio (20.9) for the time the secular bear market has been in operation, but found that it was still within acceptable range due to the historic low inflation/low interest rate environment.
Sounds good ..eh?
Unfortunately... there are other factors in play ..the very important SECULAR factors which many analysis too busy concentrating on the "now" forgetting or thinking these long range effects don't apply.................. The often ignored effect is Wall ST being in a secular bear cycle, a long period of time when the PE Ratio trends downwards, therefore averaging out historic PE Ratios and compare with today's situation is the wrong analysis to use.
Unfortunately... we all want the economy to come right..when it does the low inflation/low interest rates environment will disappear thereby making the adjusted PE Ratio of 20+ in a 13yr Secular bear duration period well overvalued.
Unfortunately ...Wall St has experienced record earnings growth during 2009/2012 which is considered unsustainable....

This does not spell disaster as the E in PE is expected still grow but at a reduced rate and investors take a view that when the economy booms again they perceive there will be earnings growth... but will this growth be enough to push the S&P500 upwards 1600+ with the secular pressures pushing down the Annualised PE Ratio...

The Chart from Crestmont Research does not paint as rosy a picture that Greenspans opinion does.

That 2000 bubble is still degassing but with the 2007/2008 GFC the FED has been pumping air back into it...creating a low inflation/low interest and forcing the secular bear to hibernate....The FED is hoping that buying time will help the market create enough earnings, cushion the negative effects and ride it out until the economic cycle upturns...and the cyclic extreme bumps smoothed out somewhat)

Crestmont Researchers describe Secular cycles as distance dependent and not time dependent...thereby the end of this Secular Bear cycle is the distance it takes for the annualised PE RATIO to get to below 10 before rising up again...Looking at the time aspect.. if the secular bear dies now then it would take a crash with the S&P500 going back to below 750 to end it...as this scenario seems unlikely it would be safer to assume that this Secular Bear could be alive for a number of years yet, with the future increasing earnings not pushing the S&P500 much higher but more likely to soften the next downward effect...but don't ignore the likelihood of another cyclic bear and maybe another bull and bear cycle to occur before this Secular Bear dies.

Conclusion :......It would not necessarily take irrational exuberance, nor a drop of Earnings growth, to create the next Wall St cyclic bear market...the biggest threat would be the changing environment from the record low low inflation/low interest rate scenario back up towards "normal" without high earnings growth..thereby putting pressure to lower the PE Ratio, and awakening the secular bear from its hibernation... The Wall St Secular Bear will eventually awaken...when and what will cause it to happen is not yet apparent.

http://i458.photobucket.com/albums/qq306/Hoop_1/SecularBearMarketCycles.png

[Hoop]

What happens long term when a market overreacts and gets to ridiculous highs?...Do we end up with a 5 year trading range as the Market recovers from it's
crazy high then low

If history repeats itself then the 1987 aftermath has occurred again in 2007 on the Aussie Market.

In 1987 the cyclic bull overstepped it's channel bounds..
In 2007 the cyclic bull grossly overstepped the secular bear's characteristic flat tops (shaded area)

So should we expect the inverse Head & Shoulder to form with a bottom form at around the 4300 area ...and then a long period of good times "up up and away" starting in late 2014 ??????????

Predictions are made so that they can proven wrong which happens most of the time :)

http://i458.photobucket.com/albums/qq306/Hoop_1/AORDS30yr15062013.png (http://s458.photobucket.com/user/Hoop_1/media/AORDS30yr15062013.png.html)

[Valuegrowth]

Hoop I also think next market cycle can start from late 2014 or beginning of 2015.

Next year is very crucial for global markets.

We cannot expect strong Australian economy over the next 18 months to two years. Probably Australian market can slow down during next 18 months.

Both Australian dollar and New Zealand dollar could fall to a level not seen in about three years in the next few months.

In June 1998, Australia's economy was growing at 3.9 per cent and, yet the Aussie dollar could buy only US58.

In mid-June 2006, the Aussie dollar traded at US73¢. During this time government had surpluses, unemployment was low and we had an equities boom.

Australia didn't undergo a recession during the global financial crisis. Growth is now slowing sharply. GDP grew 0.5% in the first quarter and is expected to rise less than 1% over the next year.

The peaking oft he mining cycle also will affect Australian economy. I believe at least three, and possibly four, more cuts are coming over the next six to eight months.

However there will be opportunities in some sectors in Australia and New Zealand even in the current challenging climate.

By end of next year we will be able to get some assessment on global economy trend including Chinese economy.

It is time to study market cycles, next most bullish stocks, commodities, sectors and markets and take positions accordingly.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.

[winner69]

Predictions are made so that they can proven wrong which happens most of the time

But economists are wrong most of the time ..... moosie believes what they say so this time may be different

http://www.mauldineconomics.com/frontlinethoughts/?utm_source=newsletter&utm_medium=email&utm_campaign=frontline

[Valuegrowth]

Winner69 the legend I completely agree with you. Yes nobody cannot predict 100% correctly.

[Valuegrowth]

In some point NZmarket also will have correction. But we cannot predict 100% exactly when? I think it is time to think about some ideas of Peter Lynch.

The SmartestThings Ever Said About Market Timing:

WarrenBuffett


"The only value of stock forecasters is to make fortune-tellers look good."

PeterLynch


"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.’
"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."

CharlesEllis


"'Market timing' is unappealing to long-term investors

BernardBaruch


"Only liars manage to always be out during bad times and in during good times."

\Bull market can last for five years andsecular bull market can last for 25 years.
A secular markettrend is a long-term trend that can lasts 5 to 25 years

A secular bullmarket consists of larger bull markets and smaller bear markets.

The United Statesstock market was described as being in a secular bull market from about 1983 to2007

A secular bearmarket consists of smaller bull markets

An example of asecular bear market was seen in gold (http://en.wikipedia.org/wiki/Gold) during the period between January 1980 to June 1999

During thisperiod the nominal gold price fell from a high of $850/oz to a low of $253/oz .[
A bear market is a generaldecline in the stock market over a period of time
A bear market followed the Wall Street Crash of 1929 (http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929).

My ideas arenot a recommendation to either buy or sell any security, commodity or currency.Please do your own research prior to making any investment decisions

[Hoop]

I read in MarketWatch today an article 7 ways to spot a market top (http://www.marketwatch.com/story/7-ways-to-spot-a-market-top-2013-06-24#)...not much help really but there was a Shillers PE Ratio Table listing various Countries which a I found of interest as long as you didn't read the dialogue..."Keep in mind, some markets are dirt cheap for a reason." ...I guess the Author meant Greece but no comment on USA ...so I'll add it "Keep in mind, some markets are expensive for a reason.":D (See the first table below.. I've jazzed it up a bit )

Normally a Secular bull dies somewhere around the CAPE 25 area (see chart 2nd figure below))
That 25 area sometimes doesn't work according to theory when the market gets irrationally overheated as was the case in 1929 and 2000 when the CAPE went to dizzy heights........Just to show how overly cooked the 2000 USA market was the Secular bear is now 13 years old and the CAPE has fallen only to around the area where previous Secular Bulls die.....As Secular markets are measured by distance and not by time this Secular Bear has still got some distance to travel...in actual fact is going the wrong way at the moment due to very low inflation.


Interesting also are the CAPE for NZ and Australia (both in Secular bear cycles)...
With NZ at 13, USA at 23 one might think therefore the USA market will take a bigger hit with the next downturn.....no, it doesn't work as simply as that.

Winner...... Australia's 14 (assuming this figure is correct) down from 17 looks like a Secular Bear...eh?

http://i458.photobucket.com/albums/qq306/Hoop_1/PERatioGlobalCAPEShiller.jpg (http://s458.photobucket.com/user/Hoop_1/media/PERatioGlobalCAPEShiller.jpg.html)

http://i458.photobucket.com/albums/qq306/Hoop_1/PERatioshcillersp500-1.png (http://s458.photobucket.com/user/Hoop_1/media/PERatioshcillersp500-1.png.html)

The NZX50 secular bear is tending down nicely as it should do in theory...Interesting to see the PE going down and the index going up.
That happened in Aussi a few years back

http://i458.photobucket.com/albums/qq306/Hoop_1/PERatioforwardNZX5010yearchart.jpg (http://s458.photobucket.com/user/Hoop_1/media/PERatioforwardNZX5010yearchart.jpg.html)

[Hoop]

Another scenario Mr Hulbert ? ...How about Wall St having interest rates bouncing around on & off the bottom for another decade...(repeat of the 1940's decade)



http://mw3.wsj.net/_newsimages/columnists/hulbert_mark.jpg Mark Hulbert (http://www.marketwatch.com/Search?m=Column&mp=Mark%20Hulbert) Archives (http://www.marketwatch.com/Search?m=Column&mp=Mark%20Hulbert) | Email alerts (http://www.marketwatch.com/tools/alerts/newsColumn.asp?selectedType=3&Column=Mark+Hulbert&chkProduct2=0)
July 31, 2013, 8:31 a.m. EDT

P/E ratios to drop 20% in coming years


Commentary: What history tells us about rising rate environments


By Mark Hulbert (mhulbert@marketwatch.com), MarketWatch

CHAPEL HILL, N.C. (MarketWatch) — We could very well be entering into a multi-decade period of much lower price-to-earnings (P/E) ratios.
That, at least, is the conclusion that emerges from a very long-term perspective on the relationship between interest rates (http://www.marketwatch.com/Subjects/Interest_Rates?lc=int_mb_1001) and P/E ratios. On average since 1871, it turns out, P/E ratios have averaged just 12.8 when long-term rates have been in a secular uptrend vs. 17.5 when those rates have been in a secular downtrend.

http://ei.marketwatch.com/Multimedia/2013/07/30/Photos/ME/MW-BG094_10_yr__20130730105106_ME.jpg?uuid=84cb14e6-f927-11e2-a97e-002128040cf6

This stark pattern emerged when I analyzed the historical database extending back to 1871 that is maintained by Yale University (http://www.marketwatch.com/organizations/Yale_University?lc=int_mb_1001) professor Robert Shiller (http://www.marketwatch.com/people/Robert_Shiller?lc=int_mb_1001). As you can see from the accompanying chart, there have been two fairly well-defined periods, each lasting two or more decades, in which long-term interest rates were in an uptrend.
The first appears more modest on the chart, lasting from 1901 to the early 1920s. The second, which is far more dramatic, began in the early 1940s and lasted until 1981. And though it’s premature to declare that the rise in long-term rates over the last few months is the beginning of a third such multi-decade period, virtually everyone believes that the trend in rates over the next couple of decades is more likely to be closer to what we saw between the early 1940s and 1981 than what we have experienced since 1981.
That’s why it’s so crucial for us to study those prior rising-rate environments to find out how they differed from the intervening periods in which interest rates were coming down. The differences summarized in the accompanying table are highly significant at the 95% confidence level that statisticians often use to conclude whether a pattern is genuine.


When long-term interest rates were in...
S&P 500’s average P/E ratio


A major uptrend
12.8


A major downtrend
17.5


All periods since 1871
15.5


There is a silver lining, however: Even though P/E ratios historically have been highly correlated with interest rates, no such correlation has existed between rates and the stock market itself: There has been no statistically significant difference between the S&P 500’s performance when interest rates were in a long-term uptrend than when they were in a downtrend.
How can this be? The answer is that corporate earnings — on average — grew faster during periods of rising interest rates, more or less counteracting the dampening effect of lower P/E ratios.
There is a catch, however: This silver lining is based on very long-term averages, and the transitions between periods of declining and rising rates can be messy and turbulent. Not all companies are able to thrive equally well in the face of rising rates, for example.
Furthermore, many investors fail to appreciate the historical correlation between higher interest rates and faster profit growth, and unfairly punish stocks when interest rates begin to rise. We saw a taste of that in June, following Fed chairman Ben Bernanke’s mere suggestion that the Fed’s quantitative-easing program wouldn’t last forever.
The bottom line? It’s a good bet that interest rates will be in a secular uptrend for many years, and we should be planning now how to respond. One possibility over the next year or two is a major bear market that causes P/E ratios to drop dramatically.
Click here to inquire about subscriptions to the Hulbert Stock Newsletter Sentiment Index. (john.kimble@dowjones.com)
Click here to learn more about the Hulbert Financial Digest. (http://www.marketwatch.com/premium-newsletters/hulbert-financial-digest?siteId=)

Mark Hulbert is the founder of Hulbert Financial Digest in Chapel Hill, N.C. He has been tracking the advice of more than 160 financial newsletters since 1980. Follow him on Twitter @MktwHulbert (http://twitter.com/MktwHulbert).

[Valuegrowth]

I believe we will see at least 10% correction in global stock markets. Next month is very crucial. There may be life time opportunities in some markets and sectors and commodities. Even now there are opportunities in stock, commodity, currency and bond markets. They are not dead. Markets, commodities, stocks, properties and currencies never go straight up and down and never stay the same. There are cycles such as business cycles, economic cycles and industrial cycles etc. Just like human beings these assets also have personalities.

Now some markets have come down due to panic situation and they have become more attractive. We should not forget USD was stagnated or went down against basket of currencies during last couple of years. Some wanted to dump the USD. Now it is one of the darlings in the market. Now USD has its day.

Similarly we will see bull trend for some currencies including emerging currencies when we see next cycle. It is time to study positive affects of tapering rather than taking it negatively. Markets, financial systems, interest rates, policies never stay the same. There were so many hiccups and crises in the global markets in the fast. Still markets rebounded strongly. Tapering is not the end of the world. Actually some areas in the global economy will benefit lot after this tapering. It is time to identify coming bull sectors globally in developed, emerging and frontier world. In short tapering will bring sustainable development. This is good for mid and long term developments in all types of assets markets. Sooner we see tapering it is better.

My ideas are not a recommendation to either buy or sell any security, commodity, or currency. Please do your own research prior to making any investment decisions

[Valuegrowth]

I believe some food and energy based commodities will outperform others in the short run due to new development in currency market, tapering and crisis in Syria.

As I expected currently pull backs, corrections and volatility is taking place in all types of markets such as developed, emerging and frontiers markets. We may see volatility in commodity, stock and currency markets in the short run. Even if Syrian crisis and tapering postpone until 2015 still markets will readjust while having pullbacks, correction and volatility.

There may be life time opportunities in some sectors globally for intelligent investors including contrarian intelligent investors. This is the time to look for undervalued consumer staples globally in emerging, developed and frontier world.

During war period consumer staples and energy may do well. War is not good for consumer discretionary industries, airlines and finance etc.

Remember in good and bad times people have to eat and drink. Even during world wars some sectors will outperform others. If I am correct In Iceland during their financial crisis their fish industry did well.

Time to come Middle East counties will have to import more food products from western and Asian countries in the future due to short supply. Even Asia will struggle to product some food due to their large population and lack of arable land. Remember these people need more coffee, tea, coco, sugar, nuts, oil, gas, Boeing planes, some tech products, potatoes, meat, egg, fish, health products and other services in the coming two decades.

Events such as short term political crisis and tapering create great opportunities. Actually tapering is very good for some sectors. Development in developed world means more opportunities for emerging world and frontier world. More economic activities in emerging world and frontier world means more opportunities for European and American companies such as Boeing, general electrical and some food companies. Some food companies have advantage over others due to their ability to get raw material easily and due to competitiveness where others will struggle to get some raw materials in the coming decades.

Finally still stock markets, commodity markets and currency markets are not dead. We had two world wars, financial crisis, credit crisis, currency crisis and asset crisis etc in the past. Still we had some of the greatest bull markets all over the world. As I said before this is the time to identify next bullish markets, sectors, currencies, stocks commodities globally. We may find life time opportunities in emerging world, frontier world and developed world.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.

[Valuegrowth]

This is the time to make some vital adjustments globally. Now is not the time to run and hide and it is time to take some bold action.

Actually tapering is good for some sectors globally. In addition different markets will benefits different sectors. For example emerging market and frontier markets including India will benefit their export sector and some commodity producers. Some Financial institutions in USA, Corporate Pension Funds, money market funds and some foreign markets etc should benefit from tapering. We need more study to identify clear winners in the market. Globally consumer staples sector may shine after tapering. I believe after tapering Money will flow back from gold, corn, soya bean and oil to other bull commodities and other bull stocks globally.

Bull Sector hunting is a must now. We should avoid coming bear sectors, bear commodities and bear currencies and should identify bull sectors, bull commodities and bull currencies before others. USD will shine strongly from 2015 onwards.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.

[Valuegrowth]

I believe we may see strong rally in few more stocks markets just like Dubai, Japan and Philippine sooner than later. Dubai’s stock index climbed to the highest in almost five years. I heard even Jim Rogers is bullish on frontier markets such as North Korea and Myanmar.


In Thailand 10-year government bonds had a rally as foreigners increased holdings. After big selloff, Indian stock market rebounded strongly. There may be few more hidden markets.


As I said before it is time to identify next most bullish markets, sectors, stocks, commodities, currencies and other assets before others.


My ideas are not a recommendation to either buy or sell any security, commodity, currency or any other asset. Please do your own research prior to making any investment decisions.

[Hoop]

Theory says inflation is the primary driver of the stockmarket (Equity) cycle....so today's Chart of the Day I received in my email box is rather interesting to me...113year history of the DOW adjusted to inflation.

When I align the two 113 year charts below (Crestmont Research and Chart of the Day) one can see the Secular Bull and Bear Market Cycles very clearly.

Notice how the DOW has never in the last 113 years risen greatly above its tops when it's within a secular bear market cycle (red) and when this scenario is inflation adjusted it shows depreciating value.

As the DOW is in the middle of a Secular Bear Cycle... the odds look excellent that the DOW can only go one way...inflation adjusted down!!!..

But hey!!..this time is different..eh;)...


References:
http://www.chartoftheday.com/20131120.htm?H
http://www.chartoftheday.com
http://www.crestmontresearch.com

http://i458.photobucket.com/albums/qq306/Hoop_1/DOWsecular21112013.png (http://s458.photobucket.com/user/Hoop_1/media/DOWsecular21112013.png.html)

[winner69]

Fascinating isn't it all hoop ....love your post

So a much lower market scenario still on the cards?

[Hoop]

Fascinating isn't it all hoop ....love your post

So a much lower market scenario still on the cards?

An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities (http://www.hussmanfunds.com/wmc/wmc131125.htm)

John Hussman's fund record has been under-performing due to his very bearish stance over the last couple of years......Is it that the market stays irrational just long enough for the perma-bears to become bullish? ..anyway ... It seems he won't be on Janet Yellen's Xmas card list this year

[Joshuatree]

Barring last minute black swans the mkt is recovering to finish pretty well this year ; pleased i ignored the noise and didn't sell up; atp. Good luck to all next year

[winner69]

Barring last minute black swans the mkt is recovering to finish pretty well this year ; pleased i ignored the noise and didn't sell up; atp. Good luck to all next year
Yes it is eh Joshua .....and as Hoop says unusual for the market to reach new highs during a secular bear phase.

Sort of highlights the artificial (and probably unsustainable) effect things like QE have had on markets.

This thread is about investing in secular bear markets - wouldn't want to bre out of the market for a long period of time would we even though long term market returns are likely to be minimal

Like you Joshua I am stock specific, market trends just give a clue as to what may happen and as per Mr P's infamous market indicator some disciplines are need at different parts of the cycle. Sell on weakness if the chart says so .... like I did with FBU recently

In spite of the current noise one day, sometime, there will/may be a time when PE ratios are sub 10 .... are you prepared to preserve your capital if this happens

[ratkin]

Yes it is eh Joshua .....and as Hoop says unusual for the market to reach new highs during a secular bear phase.

Sort of highlights the artificial (and probably unsustainable) effect things like QE have had on markets.

This thread is about investing in secular bear markets - wouldn't want to bre out of the market for a long period of time would we even though long term market returns are likely to be minimal

Like you Joshua I am stock specific, market trends just give a clue as to what may happen and as per Mr P's infamous market indicator some disciplines are need at different parts of the cycle. Sell on weakness if the chart says so .... like I did with FBU recently

In spite of the current noise one day, sometime, there will/may be a time when PE ratios are sub 10 .... are you prepared to preserve your capital if this happens

Investing wise its hard to have gone far wrong by investing in the big long term trends
ie Aging populaion / Healthcare and companies benefiting from growth in asian middle class

Held the likes or RYMAN , CSL Ramsay healthcare , since long before the GFC and they barely blinked

[Hoop]

...........Held the likes or RYMAN , CSL Ramsay healthcare , since long before the GFC and they barely blinked

:blink::blink::blink::blink: Blink!!!

http://i458.photobucket.com/albums/qq306/Hoop_1/RYM20072008.png (http://s458.photobucket.com/user/Hoop_1/media/RYM20072008.png.html)

[Bobcat.]

An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities (http://www.hussmanfunds.com/wmc/wmc131125.htm)

John Hussman's fund record has been under-performing due to his very bearish stance over the last couple of years......Is it that the market stays irrational just long enough for the perma-bears to become bullish? ..anyway ... It seems he won't be on Janet Yellen's Xmas card list this year

Thank you for the post, Hoop. I found the Hussman Open Letter fascinating - in particular his assessment of November's Equity Bubble characteristics (which by now have become even more extreme):

1. margin debt at the highest level in history and beyond 2.2% of GDP (a level that was matched only briefly at the 2000 and 2007 market extremes);
2. a blistering pace of initial public offerings - back to volumes last seen at the 2000 peak and featuring “shooters” that double on the first day of issue;
3. confidence in the narrative that “this time is different” (in this case, the presumption of a fail-safe speculative backstop or “put option” from the Federal Reserve);
4. lopsided bullish sentiment as the number of bearish advisors has plunged to just 15% and bulls have crowded one side of the boat;
5. record issuance of covenant-lite debt in the leveraged loan market (which is now spreading to Europe); and
6. a well-defined syndrome of “overvalued, overbought, overbullish, rising-yield” conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing).

This does not bode well for Equity markets in 2014, although given recent reforms in China and turnarounds in Japan those two markets may fare better than most. Also, as money flows from Equities to Precious Metals the ASX may find good support in that sector. The NZX will be hit along with most other sharemarkets. It's not a matter of If but When...and your guess is as good as mine. Hussman is picking next month. He may not be far wrong. At the latest, I would say April.

Discl: 70% of my portfolio is now in precious metal stocks.

[Bobcat.]

Also worth highlighting is Hussman's assessment of the dangers of continuing with QE:

Quantitative easing:
1. undermines planning, as every economic decision must be made in the context of what the Federal Reserve may or may not do next
2. starves risk-averse savers, the elderly, and the disabled from interest income
3. lowers the bar for speculative, unproductive, low-covenant lending (as it did during the housing bubble)
4. relaxes a constraint that is not binding – as there are already trillions of dollars in idle reserves at U.S. banks, on which the Federal Reserve pays interest both to keep them idle and to avoid disruptions in short-term money markets
5. undermines price signals and misallocates scarce savings to speculative pursuits
6. further skews the distribution of wealth, and while the extent of this skew has a scarce chance of persisting, the benefits of any spending from transiently elevated stock market wealth will accrue to primarily to higher-income individuals who are not as constrained as the millions of lower-income, low-asset families hoping for some “trickle-down” effect.

We have seen numerous variants of this movie before, and we should have learned the ending by now.

7. Importantly, the magnitude of the “wealth effect” on employment is dismally small. Even if the entire relationship between stock market fluctuations and employment fluctuations was causal and one-directional, it would still take a roughly 40% advance in the stock market to draw the unemployment rate down by 1%.
Unfortunately, price advances do not create the underlying cash flows to support them, so the strategy of manipulating stock prices higher also involves a piper that must be paid."

IMO, the Fed has overplayed its role to increase hugely the profits of large corporates (especially Banksters), whilst at the same time has been negligent in delivering on the two mandates earlier set them by Congress w.r.t. Unemployment and Inflation. But boy, do they know how to play the media, pulling strings where and when they choose to do so. Hopefully Congress is better informed and so not so gullible in their upcoming 100 anniversary review of the structure, purpose and mandate of the Fed. Now that will be an interesting power play.

...but for now, I must get prep'd the Christmas dinner. Offline for now. A seasonal cheer to y'all.

BC

[Hoop]

Hi Bobcat ..a belated merry xmas to you
Yes Hussman's "loud haler" call is ignored by the markets as optimism and the sense that's all's well within the market place and the economy comforts investors by taking away their worries..

Yep that's where the paradox comes in...the bull dies when no one worries...

I overlayed the VIX onto the long term S&P500 chart showing 3 bull markets and 2 bear market cycles....
It seems the time to start worrying is when everyone is not worried and the time to stop worrying is when everyone is worrying....Buffett strategy in a chart...eh?

http://i458.photobucket.com/albums/qq306/Hoop_1/SampP50028022014VIX.png (http://s458.photobucket.com/user/Hoop_1/media/SampP50028022014VIX.png.html)

[Hoop]

Article from Seeking Alpha 10th March 2014 (http://seekingalpha.com/article/2077333-new-all-time-highs-secular-bull-market?source=email_macro_view_mar_out_1_2&ifp=0)


http://static.cdn-seekingalpha.com/images/users_profile/000/285/658/big_pic.png?1320175459 (http://seekingalpha.com/author/cam-hui) Cam Hui (http://seekingalpha.com/author/cam-hui)
Mutual fund manager, bonds, ETF investing
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New All-Time Highs = Secular Bull Market?

Mar. 10, 2014 5:56 AM ET | 6 comments (http://seekingalpha.com/article/2077333-new-all-time-highs-secular-bull-market?source=email_macro_view_mar_out_1_2&ifp=0#comments_header) | Includes: BXDB (http://seekingalpha.com/symbol/BXDB), BXUB (http://seekingalpha.com/symbol/BXUB), BXUC (http://seekingalpha.com/symbol/BXUC), CRB (http://seekingalpha.com/symbol/CRB), DIA (http://seekingalpha.com/symbol/DIA), EPS (http://seekingalpha.com/symbol/EPS), FEZ (http://seekingalpha.com/symbol/FEZ), IVV (http://seekingalpha.com/symbol/IVV), QQQ (http://seekingalpha.com/symbol/QQQ), RSP (http://seekingalpha.com/symbol/RSP), RWL (http://seekingalpha.com/symbol/RWL), SDS (http://seekingalpha.com/symbol/SDS), SFLA (http://seekingalpha.com/symbol/SFLA), SH (http://seekingalpha.com/symbol/SH), SPXU (http://seekingalpha.com/symbol/SPXU), SPY (http://seekingalpha.com/symbol/SPY), SSO (http://seekingalpha.com/symbol/SSO), TRND (http://seekingalpha.com/symbol/TRND), UPRO (http://seekingalpha.com/symbol/UPRO), VOO (http://seekingalpha.com/symbol/VOO)






Five years after the market bottom in 2009 (also see my cautiously bullish Phoenix rising? (http://humblestudentofthemarkets.blogspot.com/2009/02/phoenix-rising.html) post on February 24, 2009), the SPX rallied to new all-time highs last week. Last year, this index decisively staged an upside breakout from a trading range that stretches back to the NASDAQ top in 2000.
Here's a key long-term market question. Is it time for the secular bear camp to throw in the towel and call this stock market a new secular bull?
(click to enlarge)http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_SPX_thumb1.png (http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_SPX.png)
Elevated valuation
The technical evidence is certainly there, but my inner fundamental investor remains conflicted because valuations are elevated. Doug Ramsey (http://www.advisorperspectives.com/commentaries/leuthold_022414.php) of Leuthold Weeden Capital Management recently penned an article on this very topic showing his (and my) certainty. First of all, Ramsey wrote that some analysts consider the 666 low on the SPX to be low enough for a secular bear low compared to market history:
A handful of analysts have contended the March 2009 low was not secular in nature-although their ranks thinned considerably in 2013. They claim the 2000-09 decline was simply too short to sufficiently purge the excesses built up during history's most powerful secular bull. They have a point: The four previous secular bears lasted from 12 to 17 years even though all four commenced from far less inflated valuations than those recorded at the 2000 peak.
Similarly, the remaining secular bears argue that U.S. stock market valuations never sank to levels befitting a true secular buying point. That's debatable. At the intraday low of March 6, 2009 (the infamous "666"), the SP 500 traded at just 10.1x our 5-yr. Normalized EPS estimate-only half a point above the median P/E of 9.6x seen at the last four secular bear market lows. Close enough for government work, in our view. On the other hand, the SP 500 dividend yield at that historic low amounted to just half the median of 6.7% seen at the prior four lows.

He went on to qualify those valuations on the basis of the low interest rate regime:
We expect that the March 2009 levels reached by essentially all of our key U.S. valuation measures will prove to be lasting secular lows. In the context of zero interest rates and (at the time) zero inflation, it was probably unreasonable to expect valuations to match those seen in conjunction with the double-digit interest rates and inflation at the 1982 low.

Ramsey expressed his concerns about current valuation levels:
Our concern is not with the troughs of 2009, but where those valuations stand a mere five years into the supposed secular upswing. Even the P/E on forward EPS-though not a serious valuation tool-has returned to its late 2007 highs, and those measures with actual predictive ability don't look any better.
All six of the accompanying valuation ratios are strongly (and negatively) correlated with subsequent 10-year stock returns, and the least extreme among them (the SP 500 12-Mo. Trailing P/E) still stands higher than about three-quarters of its history-with those earnings lifted by margins higher than 100% of their history. Three measures (Price/Cash Flow, Price-to-Book, and Price/Dividend) have moved into their ninth historical decile, and the SP Industrials Price/Sales ratio is now on a path into late-1990s bubble territory.

Whither corporate margins?
I feel Ramsey's pain. Secular bulls don't tend to launch themselves with valuations at elevated levels like these. Consider, for example, the market cap to GDP (http://www.vectorgrader.com/indicators/market-cap-gdp) metric as a proxy for the Price to Sales ratio. This metric remains elevated and has surpassed its pre-Lehman Crisis highs:
(click to enlarge)http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_Mkt_cap_to_GDP_thumb1.png (http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_Mkt_cap_to_GDP.png)
There have been a number of warnings on this so-called favorite valuation metric of Warren Buffett. As an example, Forbes (https://www.blogger.com/) wrote about these concerns in a recent article:
The ratio today is 115.1% of the $16 trillion GDP. In the year 2000, just before the market cracked in the dot-com bubble, the market capitalization was 183% times the GDP, according to a chart published recently.

And in 2007, just as the housing credit bubble was bursting, the ratio was 135% times the GDP. These are all times when the stock market looks overvalued.
Then, the buying point for stocks was reached in March 2009 when the ratio of market cap to GDP was only 73%. The numbers were somewhat different in 1929 when the market cap already was in decline and amounted to 81% of GDP, but fell precipitously to 25% of a ruinous GDP in 1933.
By comparison, in the bear market of 1975 the ratio of stock valuation to GDP was 75%, definitely a buy signal if you were Berkshire Hathaway. Even a better opportunity was 2009 when the ratio of stock valuation to the economy fell to 50%. It was shooting ducks in a barrel and Buffett said so publicly several times.


Much of the secular bull and bear debate based on the market cap to GDP ratio revolves around why corporate net margins are so high. Recall that P/E = P/(Sales X Net Margin). For a full discussion see my previous post He who solves this puzzle shall be King (http://humblestudentofthemarkets.blogspot.com/2013/11/he-who-solves-this-puzzle-shall-be-king.html).
Jesse Felder (via Business Insider (http://www.businessinsider.com/warren-buffett-on-profit-margins-1999-2014-3)) highlighted a warning that Warren Buffett made about corporate margins in 1999:
"In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be competition, which is alive and well. In addition, there's a public-policy point: If corporate investors, in aggregate, are going to eat an ever-growing portion of the American economic pie, some other group will have to settle for a smaller portion. That would justifiably raise political problems-and in my view a major reslicing of the pie just isn't going to happen."
-Warren Buffett

Here is a difficult question for those in the secular bear camp. Buffett made those comments in 1999. Why has he said nothing since then about corporate margins? His silence on this issue has been deafening.
New secular bull = New stock market bubble?
Here is a difficult question for those in the secular bull camp. What's the upside from here? Ramsey of Leuthold Weeden Capital Management projects limited upside under a secular bull scenario, even assuming that everything goes right:
If the current cyclical bull unfolds into a secular one that is perfectly average in duration and magnitude (a very tall achievement, in our book), the annualized total return over the next ten years will still be a bit below the long-term average return of 10%. Frankly, we don't find this all that compelling, considering all that must go according to plan for the market to achieve it (i.e. sustained EPS growth at a healthy 6% and an inflated terminal P/E multiple).
He added some of these gains depends on assuming the resumption of a stock market bubble:
Based on the relative positions of these time-tested measures, secular bulls seem to be implicitly betting on the reflation of a multi-generational stock bubble less than 15 years after it popped. The pathology of "busted bubbles"-which we've detailed at length in the past-doesn't support that bet.
A cyclical bull, a secular ????
When he puts it all together, my inner investor thinks that, if we are indeed seeing a new secular bull market, the extraordinary measures undertaken by global central banks in the wake of the Lehman Crisis has front-end loaded many of the gains to be realized in this bull. There is, however, a silver lining to this outlook.
In the meantime, we are in the midst of a global cyclical bull, so enjoy it. I can point to the many positives highlighted by Jeff Miller (http://oldprof.typepad.com/a_dash_of_insight/2014/03/weighing-the-week-ahead-what-is-the-risk-and-reward-for-stocks.html) in his latest weekly commentary, such as improving eurozone PMIs, the ISM beat last week, improving employment, etc.
From a technical standpoint, continued strength in breadth indicators such as the Advance-Decline Line has confirmed last week's new high in U.S. equities (see my commentary on breadth analysis in What bad breadth? (http://humblestudentofthemarkets.blogspot.com/2014/02/what-bad-breadth.html)):
(click to enlarge)http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_SUPADP_thumb1.png (http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_SUPADP.png)
Eurozone equities remain in an uptrend:
(click to enlarge)http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_STOX5E_thumb1.png (http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_STOX5E.png)
Commodities are rallying, though the leadership is somewhat unusual as it has been led by the agricultural commodities and gold (for further discussion see What fundamentals drove the equity rally? (http://humblestudentofthemarkets.blogspot.com/2014/03/what-fundamentals-drove-equity-rally.html)):
(click to enlarge)http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_CRB_thumb1.png (http://static.cdn-seekingalpha.com/uploads/2014/3/10/saupload_CRB.png)
These are all signs of a cyclical global bull and the question of whether it's a secular bull can wait another day. So don't worry, be happy.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (http://www.qwestfunds.com/) ("Qwest"). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui's blog to ensure it is connected with Mr. Hui's obligation to deal fairly, honestly and in good faith with the blog's readers."

[Valuegrowth]

We know that we cannot predict markets. Only things that we know is bull markets follow by bear markets or correction. Bear markets follow by bull markets. Are we going to get secular bear market, temporary bear market or correction?

Are we in current secular bull market or one of the bull markets in a secular bear market? What is the best strategy that we can apply now? Thanks

[Hoop]

We know that we cannot predict markets. Only things that we know is bull markets follow by bear markets or correction. Bear markets follow by bull markets. Are we going to get secular bear market, temporary bear market or correction?

Are we in current secular bull market or one of the bull markets in a secular bear market? What is the best strategy that we can apply now? Thanks

Hi Marketwinner....
The majority of the researchers think we are in a cyclic bull market cycle within a secular bear market cycle...What has questioned many researchers lately is that many people wrongfully perceive that secular bear market cycle are always "characterised" by oscillations with market index price flat tops in other words the market loses its very long up trend during these bear periods. This is often the case but unfortunaely for these people the problem this time is that the market has risen above its perceived top and created new record highs and therefore it's up trending..What these people have to remember (because they always forget and erronously think its different this time) is that cyclic cycles are governed by price trends and reversals but Secular cycles are governed not by the price trend but by Annualised PE Ratios (CAPE) trends..

Whats the best investment strategy within a Secular bear market cycle....a "rowing" strategy...A "sailing" strategy ( buy and hold variations) is the best option in secular bull market cycles...

Sailing/Rowing Strategies Video (https://www.youtube.com/watch?v=1COtsJyx8V0) (7min 49 sec)

I have written some posts about the All Ords having a tremendous run from 2003 to 2007 creating a high that one would expect from a secular bull cycle ..yet it was in a secular bear cycle...Looking closer at the All Ords at that time the Annualised PE Ratio was in fact falling (the true characteristic feature of a secular bear cycle)...It was the stronger than normal earnings growth forcing up the index price that masked the Secular bear market cycle ...

It seems the S&P500 is doing an All Ords this time...with spectacular earnings growth.....also helping is the annualised PE Ratio (CAPE) being a lot higher than "normal" within its secular bear cycle due to 2 factors:...
1.. being in a "sweet spot" due to low inflation (the sharemarket driver)
and
2 ..the long term degassing effects from the 1999 -2000 Equity Bubble (see how high that PE ratio was...it has taken 13 years to fall back to still high levels of today)
copied chart from Post #319
http://i458.photobucket.com/albums/qq306/Hoop_1/DOWsecular21112013.png

[Valuegrowth]

Hi Hoop

Thank you so much for your well written post. I really appreciate. This type of writing will help us to take better decisions in the investment world and it will also help us to mange our retirement portfolios prudently. Thank you remembering me some important things in markets. Few years back I heard and read about this secular bull and bear markets and didn’t study much.

[Hoop]

When will the Missionary arrive to the the Island of the Green Eyed Tribe ?



There's been a lot of questions asked about this latest unloved cyclic bull market cycle..Its over 5 years old, some say its overvalued ( +150%) and is defying gravity. Its above its historic average PE ratio range.. Its trading on borrowed money at record levels.. and.. its forward fundamentals are based on the past "unsustainable" (so some say) earning margins, therefore if this is all true the bull in theory should be near death and the investors in an exuberance no worry behavioural state, but presently there is no investor euphoria and it looks like the Bull could last another 5 years with company earnings forecast to continue the rise with the expected USA economic recovery...so...what's happening here..are we missing something???.....No we aren't missing anything..In reality we know all the answers , we have all the common knowledge available...or so says W.Ben Hunt...(see below)

One part of that Common Knowledge is Uncle Ben and now Aunty Yellen from the FED are here to support Wall St and the US economy and they will continue to apply QE until the economy has recovered..and by then the company earnings will be increasingly higher and sustainable thanks to a recovered healthy economy...

OK...so the Market is screwed up, but the FED is doing its part to fix that . ...Ok that's Common Knowledge and us investors know this and supposedly being responsibly cautious and quiet about it all...so, if that is the case.. why is everyone still "in" and freting, not feeling that confident, we sense distrust...There's that feeling we are all playing the game of hush hush wink wink "lets ignore this current problem as the FED will eventually take this problem away" game.

Some of this Common Knowledge stuff has been here for a long time now..especially the FED QE factor situation...

Behavioural-wise, long lasting Common Knowledge can become a part of culture which then gets embedded into the behavioural system ..When this situation happens it becomes a powerful factor entity, which takes an even more powerful entity to question its validity

Ahh HAhh ...maybe this is all just a game then?.....If that is the fact, what happens if we apply W.Ben Hunt's Epsilon Theory article (Gaming Theory) to the test...Well in actual fact Salient has already done that with Ben Hunt's Epsilon Theory on its website (http://www.salientpartners.com/epsilontheory/) with a disclaimer at the end saying that they disavow all content of Hunt's post...nice one Salient!!!.. ;).


Question: So...when will the Wall St Market crash??? ..or.... for the less dramatic orientated investor..when will this Cyclic Bull Market Cycle end?????
Answer: According to Ben Hunt ..When the Missionary arrives to question the market's validity

[BIRMANBOY]

It doesn't have to make sense when you are essentially a tabloid journalist....they get paid by the word...whether its about the yeti, bigfoot or the market. Sigh.
When will the Missionary arrive to the the Island of the Green Eyed Tribe ?



There's been a lot of questions asked about this latest unloved cyclic bull market cycle..Its over 5 years old, some say its overvalued ( +150%) and is defying gravity. Its above its historic average PE ratio range.. Its trading on borrowed money at record levels.. and.. its forward fundamentals are based on the past "unsustainable" (so some say) earning margins, therefore if this is all true the bull in theory should be near death and the investors in an exuberance no worry behavioural state, but presently there is no investor euphoria and it looks like the Bull could last another 5 years with company earnings forecast to continue the rise with the expected USA economic recovery...so...what's happening here..are we missing something???.....No we aren't missing anything..In reality we know all the answers , we have all the common knowledge available...or so says W.Ben Hunt...(see below)

One part of that Common Knowledge is Uncle Ben and now Aunty Yellen from the FED are here to support Wall St and the US economy and they will continue to apply QE until the economy has recovered..and by then the company earnings will be increasingly higher and sustainable thanks to a recovered healthy economy...

OK...so the Market is screwed up, but the FED is doing its part to fix that . ...Ok that's Common Knowledge and us investors know this and supposedly being responsibly cautious and quiet about it all...so, if that is the case.. why is everyone still "in" and freting, not feeling that confident, we sense distrust...There's that feeling we are all playing the game of hush hush wink wink "lets ignore this current problem as the FED will eventually take this problem away" game.

Some of this Common Knowledge stuff has been here for a long time now..especially the FED QE factor situation...

Behavioural-wise, long lasting Common Knowledge can become a part of culture which then gets embedded into the behavioural system ..When this situation happens it becomes a powerful factor entity, which takes an even more powerful entity to question its validity

Ahh HAhh ...maybe this is all just a game then?.....If that is the fact, what happens if we apply W.Ben Hunt's Epsilon Theory (Gaming Theory) to the test...Well in actual fact Salient has already done that with Ben Hunt's Epsilon Theory on its website (http://www.salientpartners.com/epsilontheory/) with a disclaimer at the end saying that they disavow all content of Hunt's post...nice one Salient!!!.. ;).


Question: So...when will the Wall St Market crash??? ..or.... for the less dramatic orientated investor..when will this Cyclic Bull Market Cycle end?????
Answer: According to Ben Hunt ..When the Missionary arrives to question the market's validity

[Hoop]

It doesn't have to make sense when you are essentially a tabloid journalist....they get paid by the word...whether its about the yeti, bigfoot or the market. Sigh.

Ben Hunt ..essentially a Tabloid journalist :confused:....You're lucky that he wouldn't stoop to low levels and read our ST posts BB :D

Ben Hunt PhD

http://www.financialsense.com/sites/default/files/pictures/picture-3124.png
Contact Information
Ben Hunt PhD
Author at Epsilon Theory
ben.hunt@epsilontheory.com
http://epsilontheory.com/follow/

About Ben Hunt PhD

Ben Hunt is the Chief Risk Officer of Salient Partners, an $18 billion asset manager based in Houston, Texas. He is also the author of the popular online publication and newsletter Epsilon Theory, which examines the markets through the lenses of game theory, history, and behavioral analysis.

Archive









05/05/2014
The Risk Trilogy (http://www.financialsense.com/contributors/w-ben-hunt/risk-trilogy)
Article


04/21/2014
The Adaptive Genius of Rigged Markets (http://www.financialsense.com/contributors/w-ben-hunt/adaptive-genius-rigged-markets)
Article


04/17/2014
Dr. Ben Hunt: How Sentiment and Narratives Shape the Crowd (http://www.financialsense.com/financial-sense-newshour/w-ben-hunt/how-sentiment-narratives-shape-crowd)
Newshour, Guest Expert


04/08/2014
The King Is Dead, Long Live the King (http://www.financialsense.com/contributors/w-ben-hunt/king-dead-long-live-king)
Article


03/24/2014
Two Shifting Narratives (http://www.financialsense.com/contributors/w-ben-hunt/two-shifting-narratives)
Article


03/17/2014
Panopticon (http://www.financialsense.com/contributors/w-ben-hunt/panopticon)
Article


02/12/2014
Goldilocks and the Dog That Didn’t Bark (http://www.financialsense.com/contributors/w-ben-hunt/goldilocks-dog-did-not-bark)
Article


12/10/2013
The Stuka (http://www.financialsense.com/contributors/w-ben-hunt/the-stuka)
Article


12/02/2013
A Dogmatic Slumber (http://www.financialsense.com/contributors/w-ben-hunt/dogmatic-slumber)
Article


11/19/2013
When E.F. Hutton Talks (http://www.financialsense.com/contributors/w-ben-hunt/when-e-f-hutton-talks)
Article

[BIRMANBOY]

Firstly, nothing good ever came out of Houston ...home of dodgy dealings and shady Petro dollar corporations. Secondly, those who can...do.. and those that cant.... write articles with esoteric titles and longwinded and complex theories designed to impress gullible and naïve investors. Thirdly, 18 billion dollar fund is chickenfeed to afore-mentioned oil rich billionaires wanting somewhere to place their money......he probably bored them into investing with him. PHD's are good for that. Lastly, pretentious articles titles such as you have listed just cry out "I'm important, smart as a whip and can invest your money much better than you". Apart from that he's probably a wonderful human being.:cool:
Ben Hunt ..essentially a Tabloid journalist :confused:....You're lucky that he wouldn't stoop to low levels and read our ST posts BB :D

Ben Hunt PhD

http://www.financialsense.com/sites/default/files/pictures/picture-3124.png
Contact Information
Ben Hunt PhD
Author at Epsilon Theory
ben.hunt@epsilontheory.com
http://epsilontheory.com/follow/

About Ben Hunt PhD

Ben Hunt is the Chief Risk Officer of Salient Partners, an $18 billion asset manager based in Houston, Texas. He is also the author of the popular online publication and newsletter Epsilon Theory, which examines the markets through the lenses of game theory, history, and behavioral analysis.

Archive









05/05/2014

The Risk Trilogy (http://www.financialsense.com/contributors/w-ben-hunt/risk-trilogy)

Article



04/21/2014

The Adaptive Genius of Rigged Markets (http://www.financialsense.com/contributors/w-ben-hunt/adaptive-genius-rigged-markets)

Article



04/17/2014

Dr. Ben Hunt: How Sentiment and Narratives Shape the Crowd (http://www.financialsense.com/financial-sense-newshour/w-ben-hunt/how-sentiment-narratives-shape-crowd)

Newshour, Guest Expert



04/08/2014

The King Is Dead, Long Live the King (http://www.financialsense.com/contributors/w-ben-hunt/king-dead-long-live-king)

Article



03/24/2014

Two Shifting Narratives (http://www.financialsense.com/contributors/w-ben-hunt/two-shifting-narratives)

Article



03/17/2014

Panopticon (http://www.financialsense.com/contributors/w-ben-hunt/panopticon)

Article



02/12/2014

Goldilocks and the Dog That Didn’t Bark (http://www.financialsense.com/contributors/w-ben-hunt/goldilocks-dog-did-not-bark)

Article



12/10/2013

The Stuka (http://www.financialsense.com/contributors/w-ben-hunt/the-stuka)

Article



12/02/2013

A Dogmatic Slumber (http://www.financialsense.com/contributors/w-ben-hunt/dogmatic-slumber)

Article



11/19/2013

When E.F. Hutton Talks (http://www.financialsense.com/contributors/w-ben-hunt/when-e-f-hutton-talks)

Article

[Hoop]

An update chart from "Chart of the Day"
http://www.chartoftheday.com/20140604.gif



.........http://i458.photobucket.com/albums/qq306/Hoop_1/Untitled-3.png (http://s458.photobucket.com/user/Hoop_1/media/Untitled-3.png.html)


Its a copyright no no to alter the author chart or its assumptions ...Please note the Chart of the Day Chartist has not assumed secular cycles at all with their published chart.....When I personally supply extra information..(the secular Bull and bear cycle periods time bar)... the above chart reveals extra information to the observer..

The coloured time bar underneath the chart... red for bear cycles blue for bull cycles..Notice how inflation adjusted DOW index only gain in secular bull cycles..As the DOW has reached its secular bear resistance area once again, it doesn't look that good for the near future..eh?

Maybe the Secular Bear Cycle has ended and its different this time and the DOW will keep rising?
Its Odds on that the secular bear is still operating..It may sound paradoxical to the few of the readers but history tells us the ending signature of a secular bear cycle is a prolonged period of either double digit inflation (+10+%) or high deflation (-5-%) As the DOW has had very low constant inflation these last 5 years (+1% in 2013) it seems safe to say there's been no inflationary/deflationary evidence to suggest a secular reversal has occurred

Therefore according to Secular Theory..The secular cycles are driven by the PE Ratio trends and the inflation rate is the primary driver of secular stock market cycles.... The inflation adjust DOW index with the secular bear cycle operating is indicating that the DOW has now reached the top area of its cyclic bull cycle.

The 2000 - 20?? secular bear cycle pattern type is looking very similar to the 1901 - 1921 secular bear cycle pattern type ...eh? ...

[Hoop]

How to spot a bull market top by The Investor on June 20, 2013


http://www.sharetrader.co.nz/newreply.php?do=postreply&t=5171

http://www.sharetrader.co.nz/newreply.php?do=postreply&t=5171

http://monevator.monevator.netdna-cdn.com/wp-content/uploads/2008/11/jim-slater-bear-market.jpg
Veteran UK investor Jim Slater is known for his penchant for high-flying growth shares (http://monevator.com/small-cap-investing/). But that doesn’t mean he’s always optimistic.
Slater has lived through many market cycles (http://monevator.com/never-say-never-again/) in his five decades of investing, and like any great investor he knows that shares go down as well as up.
Back in 2008 I found his signs of a bear market bottom (http://monevator.com/how-to-spot-a-bear-market-bottom/) a useful waypoint in navigating the slump.
But Slater has also shared some tips on how to spot a bull market top.
Signs of a bull market top Most of us will do better not to try, but for those who want to have a stab at stock market prognostication (http://monevator.com/are-shares-cheap/), here are Jim Slater’s signs of the top of a bull market.



Cash is trash (http://monevator.com/cash-is-king-or-cash-is-trash/) The ‘rubbishing’ of cash and the consequent low institutional holdings are an obvious danger, signalling that most funds will be fully invested.
Value is hard to find The average P/E ratio of the market (http://monevator.com/valuing-the-market-by-pe-ratio/) as a whole will be near to historically high levels. The average dividend yield will be low and shares will be standing at a high premium to book value.
Interest rates Interest rates are usually about to rise or have started to do so. In mid-1995, interest rates in both the USA and UK had been rising from historically low levels. Investors were wondering how much further they would rise before topping out.
Money supply Broad money supply tends to be contracting at the turn of bull markets.
Investment advisers The consensus view of investment advisers will be bullish (http://monevator.com/the-investor-sentiment-cycle/).
Reaction to news An early sign of a bull market topping out is the failure of shares to respond to good news. The directors of a company might report excellent results only to see the price of their shares fall. The market is becoming exhausted, good news is already discounted, and there’s very little buying power left.
New issues Offers for sale, rights issues, and new issues are usually in abundance, with quality beginning to suffer and low-grade issues being chased to ridiculous levels.
Media comment The press and TV tend to give more prominence to the stock market and to be optimistic near the top. If prices appear high in relation to value, the argument is that ‘it will be different this time’. The few bearish articles that warn of dangers to come are ignored by investors.
Party talk At the peak of a bull market, shares tend to be the main topic of conversation at cocktail and dinner parties.
Changes in market leadership A major change in leadership is often a prelude to a change in market direction. Near the top of a bull market, investors often move from safe growth stocks into cyclicals, which they buy heavily.
Unemployment An interest study by Matheson Securities of ten stock market turning points demonstrated the stock market turned downwards on average about ten months after the unemployment figures began to fall.This is wrong (see ahead of the curve book)
Remember that unemployment is a lagging indicator (http://monevator.com/unemployment-lagging-indicator/).
Want to learn more from Jim Slater? Check out his superb guide for small cap stock pickers, The Zulu Principle (http://www.amazon.co.uk/gp/product/B004G8QHOU/ref=as_li_ss_tl?ie=UTF8&camp=1634&creative=19450&creativeASIN=B004G8QHOU&linkCode=as2&tag=intheblackblo-21)http://www.assoc-amazon.co.uk/e/ir?t=intheblackblo-21&l=as2&o=2&a=B004G8QHOU.

[Hoop]

An Article from The Short Side of Long (http://shortsideoflong.com/2014/06/another-look-margin-debt/)

Another Look At Margin Debt June 22, 2014 (http://shortsideoflong.com/2014/06/another-look-margin-debt/) Chart 1: Margin debt peaked in Feb while the market continues higher…
http://i1.wp.com/shortsideoflong.com/wp-content/uploads/2014/06/NYSE-Margin-Debt.gif?resize=625%2C456 (http://i1.wp.com/shortsideoflong.com/wp-content/uploads/2014/06/NYSE-Margin-Debt.gif) Source: dShort.com As we all should be well aware by now, NYSE Margin Debt peaked in February of this year even though the stock market continues to rise ever so vertically. If we look at the last two decades by observing both Chart 1 and Chart 2, we should be able to notice that a peak in margin debt is usually a warning signal that the broad market is also close to a top as well. Furthermore, Chart 2 shows that a leverage peak correlates closely to a top in a investor darling sector of the time. In 2000, it was the Internet bubble, in 2007 it was the Financials bubble and 2014 it is Biotech. So far, S&P 500 has ignored all of these warning signs. Nevertheless, volatility continues to remain extremely low for both the index itself (http://shortsideoflong.com/wp-content/uploads/2014/06/SP-500-Low-Volatility.jpg) as well as in other asset classes (http://shortsideoflong.com/wp-content/uploads/2014/06/Volatility.jpg), while the technical perspective is showing the US index at a very much overbought (http://shortsideoflong.com/wp-content/uploads/2014/06/SP-500-Overbought.png) level right now. It will be interesting to see how the market behaves in coming weeks. Chart 2: Previous margin debt peaks were early warnings of a major top!
http://i1.wp.com/shortsideoflong.com/wp-content/uploads/2014/06/Peak-In-Margin-Debt.jpg?resize=625%2C476 (http://i1.wp.com/shortsideoflong.com/wp-content/uploads/2014/06/Peak-In-Margin-Debt.jpg) Source: J Lyons FMI

[winner69]

Not saying its a predictor or anything, but I have been doing a fair bit of selling recently due to TA sell signals firing - stocks in previously strong uptrends are dying, even though the index remains at a high. In particular the small financials, could be a insight into the state of health of the financial sector.

Just like me KW .... down to a few left and nothing really saying buy me ..... speculation aside

Was like this pre the last few big market corrections

[BIRMANBOY]

You guys should be putting your recently arrived cash in the BIRMAN DIVIDEND YIELD FUND:D

[winner69]

You guys should be putting your recently arrived cash in the BIRMAN DIVIDEND YIELD FUND:D

Suppose you want me to reply its great collecting all those juicy dividends but not so good when the shareprice goes down and capital losses are more than those juicy dividends

So I will say that Birman

Mind you I still have my RBD from years ago .... good divie there eh .... and shareprice still going up

[BIRMANBOY]

I Know. I know I know W69. However its only a loss if you have to sell. Sofar 90% of my on paper capital losses have resurrected themselves. if I was more active in the process I would consider doing what you all are positioning yourselves to do, i.e. selling before the correction. However I am testing my theory that with a dividend producing portfolio, the SP may/probably will correct but the dividends will remain basically constant. As you all wait for the upward correction with the cash on call ...you will be getting 4-5 % whereas I am theorizing I will still be getting my 9% . Who knows how long the correction may take to occur...could be years. Eventually the correction will come and you will no doubt catch it and as everyone comes back into the market the depressed SP will rise making my theoretical paper losses turn into paper gains. Anyway this is the concept...as I said its a work in progress. Apart form that I'm a lazy investor and have other things to do like watching Wimbledon:)..dark horse..Dimitrov...may have a few dollars at the TAB.
Suppose you want me to reply its great collecting all those juicy dividends but not so good when the shareprice goes down and capital losses are more than those juicy dividends

So I will say that Birman

Mind you I still have my RBD from years ago .... good divie there eh .... and shareprice still going up

[Hoop]

If I assume earnings keeps rising at the same rate as through history (green line on chart)..and the Secular history repeats itself as it has done many times before....the S&P500 future doesn't look that flash for the Capital Gain investor

At some stage the secular bear market cycle will end..It may seem paradoxical to some but cyclic bears can kill secular bears..If you take the extreme and most unlikely view of the secular bears death happening tomorrow the S&P500 index would be approximately at 850....If it happened in 2018 the S&P 500 would be approx 1100 and so on..(The black index line touching the generalised undervalued PERatio 10 solid up trend green line).

Even if the Secular Bear lived on miraculously and died in 2027 (making it the oldest secular bear in recent history) that point would still see the S&P500 at 2000 a similar area as of today...

There is a misconception about Secular bear market cycles.. contrary to myth, the economy operates equality well under either secular bull or bear..So if the secular bear died in 2027 it is not bad news for the Economy from now until 2027..

The secular market difference is the attitude of the market investor and the time it takes to change their ingrained habits/beliefs...During Secular Bear Market Cycles the investor slowly changes behaviour to a reasoning that they want higher yield rates for their investments..in effect there is an increasing numbers of investors with similar behaviours to that of the Birmaboy and MVT disciplines..they are in the market for the dividends and preservation of their Capital...
The quick capital gain at the expense of yield rate return attitude is a less attractive option within a secular bear market environment ..there is a more sober and responsible attitude to investing with less inclination to speculate....
Under this environment the yield rates slowly increases over time, the PE Ratio decreases and sanity returns as the overvalued market slowly returns to "Fundamental normal" before it carries on towards an undervalued status..thereby giving these investors more yield bang for their buck as this valuation shift gathers pace...The secular bear is their preferred environment..

So far this current Secular Bear has been seen as abnormal..Some have expressed the fact the bear has died....

My chart below takes the view that the Secular bear is still alive but in a hibernation period..

http://i458.photobucket.com/albums/qq306/Hoop_1/SampP500SecularJune2014.png (http://s458.photobucket.com/user/Hoop_1/media/SampP500SecularJune2014.png.html)

[DarkHorse]

Hi Hoop and Co
thanks for great information.
I've no expertise in charting but I agree that the long-term trends and consistent reversion to the mean are as plain as day.
In his 2005 book "Predicting the Markets of Tomorrow" (off putting title but actually a brilliant book) James O'Shaugnessy notes that, net of inflation, in the US 7% is almost an ironclad average - in fact back as far as 1802! (1802-1870 7.0%, 1871-1925 6.9%, 1926-2004 6.9%).

However he also makes the valuable observation that the 'smallcap premium' has an inverse correlation with large cap returns .
So for example during the severe bear market from 1968 to 1982 we see in the above charts, in the US small caps (200million-2 billion) actually returned almost 4% pa net of inflation, while large caps returned -1%pa in real terms.
Of course this seems consistent with your comments about markets not reflecting economic trends.

So perhaps there are still fish to catch if we're in the right spot :)

[Bobcat.]

Why the USA (and other debt-laden economies) are Doomed: Interest and Debt

Posted on July 15, 2014 by Charles Hugh Smith (from an American perspective):

Even if the economy were growing at a faster pace, it wouldn’t come close to offsetting the interest payments on our ever-expanding debt. If you want to know why the Status Quo is unsustainable, just look at interest and debt. These are not difficult to understand: debt is a loan that must be paid back or discharged/written off and the loss absorbed by the lender. Interest is paid on the debt to compensate the owner of the money for the risk of loaning it to a borrower.
It’s easy to see what’s happening with debt and the real economy (as measured by GDP, gross domestic product): debt is skyrocketing while real growth is stagnant. Put another way–we have to create a ton of debt to get a pound of growth.

6027
source: Acting Man
The Status Quo has only survived this crushing expansion of debt by dropping interest rates to historic lows. This is a chart of the yield on the 10-year Treasury bond, which reflects the extraordinary decline in interest rates over the past two decades.
The Federal Reserve has pegged rates at essentially 0% for years. That means the strategy of lowering interest rates to enable more debt has run out of oxygen: rates can’t drop any lower, and so they can either stay at current levels or rise.

6033
Near-zero interest rates for banks borrowing from the Fed doesn’t mean conventional borrowers get near-zero rates: auto loans are around 4%, credit cards are still typically 16% to 25%, garden-variety student loans are around 8% and conventional mortgages are about 4.25% to 4.5% for 30-year fixed-rate home loans.
This decline in interest rates means households can borrow more money while paying the same amount in interest.
So the interest payment on a $30,000 car today is actually less than the payment on a $15,000 auto loan back in 2000.

The monthly payment on a $400,000 home mortgage is roughly the same as the payment at much higher rates on a $200,000 home loan 15 years ago.
So dropping the interest rates has enabled a broad-based expansion of debt across the entire economy. Notice how debt has exploded higher in every segment of the economy: household, finance, government, business.

6031
source: The Born Again Debtor
The other half of the debt/interest rate equation is household income: if income is stagnant and declining, the household cannot afford to take on more debt and pay more interest. With real (adjusted for inflation) household income declining for all but the top 10%, households cannot take on more debt unless rates drop significantly.

Now that rates are at historic lows, there is no more room to lower rates further to enable more debt. That gambit has run its course.

Many financial pundits claim private debts can simply be transferred to the government and the problem goes away. Unfortunately, they’re dead-wrong. As economist Michael Pettis explains, bad debt cannot simply be “socialized”:
Remember that the only way debt can be resolved is by assigning the losses, either during the period in which the losses occurred or during the subsequent amortization period. There is no other way to “resolve” bad debt – the loss must be assigned, today or tomorrow, to some sector of the economy. “Socializing” the debt, or transferring the debt from one entity to another, does not change this.There are three sectors to whom the cost can be assigned: households, businesses, or the government.
Earlier losses are still unrecognized and hidden in the country’s various balance sheets. These losses will either be explicitly recognized or they will be implicitly amortized. The only interesting question, as I see it, is which sector will effectively be assigned the losses. This is a political question above all….

In other words, when marginal borrowers–households, students, businesses, local government agencies, etc.–start defaulting, the losses will have to be taken by somebody. This is true of every indebted nation: Japan, the European nations, China and the U.S.
The idea that we can transfer the debt to the government or central bank and the losses magically vanish is simply wrong.
Even if you drop interest rates, if debt keeps soaring the interest soon becomes crushing. Even at historically low rates, the interest on Federal debt will soon double. That means some other spending must be cut or taxes must be increased to pay the higher interest costs. Either action reduces spending and thus growth.
If rates actually normalize, i.e. rise back toward historic norms, interest payments could triple.

6030
source: Federal Spending by the Numbers, 2013: Government Spending Trends in Graphics, Tables, and

Key Points
Here’s one way to understand how reliance on ever-expanding debt hollows out the economy. Let’s say the average interest on the $60 trillion in total debt is 4%. (Recall that charge-offs for defaulted loans must be included as debt-related expenses. The interest paid to lenders is only one expense in the debt system; the other is the losses taken by lenders for defaulted credit card loans, mortgages, etc.)
That comes to $2.4 trillion annually.
Now take the $16 trillion U.S. economy and reckon that real growth in gross domestic product (GDP), even with questionable hedonic adjustments and understated inflation, is about 1.5% annually. That’s an increase of $240 billion annually.
That means we’re eating over $2 trillion every year of our real wealth, i.e. our seed corn, to support an ever-increasing mountain of debt. That is not sustainable. Even if the economy were growing at a faster pace, it wouldn’t come close to offsetting the interest payments on our ever-expanding debt.
This leaves the entire Status Quo increasingly vulnerable to any sort of credit shock; either rising rates or a decline in the rate of debt expansion will cause the system to implode.

6032

...which helps us to understand why the Fed
a) doesn't want to raise interest rates;
b) doesn't really want to taper (but nonetheless likes to give positive vibes about the US recovery not needing it forever - yeah right); and
c) is sh*t scared of inflation.

[Bobcat.]

So what do posters think will happen first -
..inflation and a corresponding rise in interest rates, or
..a significant decline in debt expansion?

Which one will it be that triggers a system implosion? Any sign of both occuring (the perfect storm) and it will be time to go very short on equities.

[Bobcat.]

One other option, BC, they just create some more fiat money to repay debt and problem solved.

Solved? Or merely postponed and heightened?

[BIRMANBOY]

Interesting looking at your chart Hoop...seems that the bear markets are becoming more subdued in the sense that they are nowhere near as pronounced nor as dramatic as in the early examples. Almost look like more of a suspended or non -committed stabilizing breathing period. Simplistically would seem that there is more money in the market and requires much larger events to shift the momentum. When all is said and done the money may come out for a while but then, for lack of a better alternative, goes back in. Maybe the days of the real bear are numbered.?

[Bobcat.]

http://davidstockmanscontracorner.c...ium=email&utm_campaign=Mailing List PM Monday

Today’s Mindless Rally: Its Jackson Hole, Stupid!
by David Stockman • August 18, 2014

"There is no reason rooted in the real world for today’s frothy stock market rally. In every single region of the planet, the post-crisis, central bank fueled expansion cycle—-tepid as it was in the global aggregate—is faltering badly.

Japan’s economy is only a hair bigger than 5 quarters ago (0.8%) before Abenomics supercharged the BOJ printing presses. Meanwhile, even as real wages in Japan plummet to modern lows, the BOJ’s balance sheet has now reached 55% of its GDP—–a ratio that would have been unimaginable even a decade ago.

Likewise, notwithstanding Mario Draghi’s “whatever it takes” bluster, the only thing that has happened in perpetually recessionary Europe is a short lived stampede of the fast money into peripheral debt. And that was on the tenuous predicate that the debt issued by basket cases like Italy and Spain can only go up because Mario might be buying it sometime down the road. Soon it will be apparent, however, that the Euro area economy benefited not a wit from Mario’s monetary magic, and that the hedge fund punters can dump their rented bonds as fast as they piled on.

And the schizoid policy of the comrades in Beijing needs no elaboration. Stabilizing China’s tottering tower of $25 trillion in debt is far beyond the pay and grade of people who believe with Mao that power comes out of the barrel of a gun, and with Wall Street Keynesian’s that prosperity comes out of the end of a printing press.

And now the usual Wall Street suspects are also busily marking down their US GDP numbers for Q2 and their outlook for the balance of the year. What was supposed to be the year of 3%+ “escape velocity” is heading for the lowest rate of GDP growth—about 1.5% at best—-since the 2009 bottom. And even that depends upon believing that the Commerce Department’s GDP deflator is actually only running at a 1.4% annual rate. There’s not a chance that’s true for households which consume energy, food, health care, transportation and educational services, not iPads.

So with the global expansion cycle faltering, profit ratios at all-time highs and PE multiples in the nose-bleed section of history—nearly 20X reported earnings for the S&P 500—there is only one thing left for the Wall Street robots to do. Namely, vigorously buy the latest dip because the Fed has yet another new sheriff heading for Jackson Hole purportedly bearing dovish tidings. To wit, after 6 years of pinning money market rates to the economic floorboard at zero, Janet Yellen espies an economy still encumbered by “slack”, and will therefore be inclined to keep Wall Street gamblers in free money for a while longer.

This is just more Keynesian bathtub economics, but the Wall Street Journal does have a pretty cogent take on Yellen’s pending utterances. It seems that after $3.5 trillion of balance sheet expansion, the US economy has not yet achieved the performance metrics—especially in the labour market—that was exhibited during the last central bank fuelled expansion cycle of 2002-2007:

Consensus is that she will likely highlight that the alternative measures of labour market slack in evaluating the ongoing significant under-utilisation of labour resources (eg, duration of employment, quit rate in JOLTS data) have yet to normalise relative to 2002-2007 levels.
Now that is downright insulting! The phony prosperity that the Fed unleashed through the Greenspan housing and credit bubble was the exact cause of the 2008 financial crisis and recessionary spiral which followed hard-upon it. So why in the world would the Fed want to push its money printing campaign to the edges of sanity in order to replicate its last disaster?

The answer is not hard to find. Yellen has no clue that the US economy has stalled out because it has reached a condition of peak debt saturation. Indeed, the 2002-2007 benchmark now being proffered by Yellen was actually fueled by the final blow-off phase of a 30-year national LBO.

Between 2002-2007 credit market debt outstanding—-public and private—soared by the incredible sum of $21 trillion while nominal GDP grew by only $3.5 trillion. And that was the end of the road in terms of the Fed’s patented formula of cheap debt fuelled expansion of domestic consumption and nominal GDP.

Ever since the crisis, in fact, the Fed has been pushing massively on the credit string, but nearly the entire flow of liquidity has never left the canyons of Wall Street. Instead, it is parked in the excess reserve accounts at the New York Fed, having cycled through the money markets and pinned the cost of carry-trade gambling at zero percent.

So the casino is having yet another bullish moment because it expects they new monetary sheriff to keep the gamblers in poker chips for another go-round."

[BIRMANBOY]

Yes I'm about 20% in call a/c's as well. However interesting psychological phenomenon arises, in my case anyway, which I assume is possibly also present in other investors. This is that there is a certain amount of pressure to find something more productive..sooner rather than later. This pressure increases the longer you hold cash etc and the greater the % it is of assets. So one might predict that the income and defensive stocks will be the benefit of this pressure build up not only on an individual but also a global level. So it would seem in a correction the safe/def/income assets drop less which theoretically makes it difficult to pick re-entry points. The further into a correction one waits the possibility of "good buys" could in fact diminish.
Cash is King
http://www.theage.com.au/business/markets/cash-is-king-as-market-braces-for-correction-20140820-1069af.html

I myself am at about 20% cash at present, along with a rotation of capital from growth stocks to income stocks. I think its a good time for a little derisking.

[Hoop]

I hear the call from all corners from financial journals to forum sites that Equities are just correcting so no worries...The big excuse is Equities will bounce back to form new highs because the economy is booming.
This present correction could just do that, fall and bounce to new highs....Hmmm but is it a forgone conclusion?

Crestmont Research says the Equity market and the economy don't correlate very well (http://www.crestmontresearch.com/stock-market/)..The main driver of the stockmarket is the cyclic nature of the PE ratio which is itself driven mainly by inflation...Hence Low inflation supports a higher than "normal" P/E Ratio as we have today.

So we can take logic from Crestmont's point of view that rising inflation due to a booming economy points downward pressure on the stockmarket's P/E ratio ...If the economy is still rapidly growing there is a good chance company earning are growing too, thereby offsetting and possibly negating the downward pressure of the P/E and index prices will still rise...

But what happens when the earnings get affected by rising interest rates to combat inflation and new competitive entrants enter the market to take advantage of the good times and create tighter margins...The share Market will initially be affected by this, yet the economy may not...therefore the sharemarket could be viewed either as a leading indicator or there's no correlation between the two

So...the Million Dollar question.. Is this just a healthy bull market correction and the economy will keep going upwards for years to come ...OR....is the Stockmarket signalling something much more sinister?

We all know or should know by now for those with experience with past recessions that sharemarkets usually don't correlate with the economy when in the depths of recession...The old rule of thumb is the sharemarket will rise after the economy is 66% through its recession..Is Shanghai experiencing is effect?

An old writer Doug Short also observed this pattern His article below is from http://www.advisorperspectives.com/dshort/commentaries/SP500-and-Recessions.php
His website has been operating for 10 years and has some good articles on it..good educating stuff..see http://www.financialsense.com/contributors/doug-short

One of his other must read articles Is the Stock Market Cheap? (http://www.financialsense.com/contributors/doug-short/is-stock-market-cheap-october) it makes for very sober reading

Hoop
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


The S&P 500 and Recessions October 8, 2014 by Doug Short

e The Discussion onhttp://www.advisorperspectives.com/resources/img/action-bar-apviewpoint-logo.png (http://apviewpoint.com/publishing/conversation/activate?id=2458)



Note from dshort: Yesterday Political Calculations posted a fascinating article entitled Dividends: A Resurgence of Recessionary Conditions (http://politicalcalculations.blogspot.com/2014/10/dividends-resurgence-of-recessionary.html#.VDVDVhaK18E), which studies the correlation between recessions and the number of companies per month announcing dividend cuts. The article prompted me to update my long-term look at the S&P 500 and recessions.
What is the relationship between the market and recessions? Is there are causal relationship between the two? Does a recession lead to a decline in the market, or does a market decline foreshadow a recession?
As a first wave Boomer, I've lived through eleven official recessions as determined by the NBER (http://www.nber.org/cycles.html), and I have distinct memories of recession stresses as far back as the 1957-1958 downturn. My father was a painting contractor in Daytona Beach, Florida. A recession forced cuts to our household budget that didn't go unnoticed by a pre-teen (e.g., the food on our table).
For a quick look at the market-recession correlation since the mid-1950s, here is a chart of S&P 500 daily closes stretching back to the launch of the index in 1957. I've also highlighted recessions.

http://www.advisorperspectives.com/dshort/charts/markets/SPX-and-Recessions.gif (http://www.advisorperspectives.com/dshort/charts/markets/SPX-and-Recessions.html?SPX-and-Recessions.gif)
Click for a larger image (http://www.advisorperspectives.com/dshort/charts/markets/SPX-and-Recessions.html?SPX-and-Recessions.gif) The table in the chart above shows the index close on the first day of the months determined by the NBER as cycle peaks and trough for the nine recessions since 1957. Four of the recessions saw the index higher at the end of the recession than the start. In most cycles, the index peaked long before the recession start and bottomed before the end.
To get a better idea of the lag between recession starts and index peaks, I've charted the same index using a "percent off high" technique. In other words, I plot successive new index highs at zero and the cumulative percent declines of days that aren't new highs. The advantage of this approach is that it helps us visualize declines more clearly and facilitates a comparison of the depth and duration of declines across time.

http://www.advisorperspectives.com/dshort/charts/markets/SPX-Percent-Off-Highs-and-Recessions.gif (http://www.advisorperspectives.com/dshort/charts/markets/SPX-and-Recessions.html?SPX-Percent-Off-Highs-and-Recessions.gif)
Click for a larger image (http://www.advisorperspectives.com/dshort/charts/markets/SPX-and-Recessions.html?SPX-Percent-Off-Highs-and-Recessions.gif) Since the inception of the S&P 500 in 1957, there have been 9 recessions and 9 bear markets (20% or greater declines). However, three bears were not associated with recessions, and three recessions happened without a bear market, although the 1990-1991 recession had the ultimate "near" bear with its 19.9%.
Here is a table showing the key data: Recession starts, the index price on the first market day of the recession, the previous index high, the percent off the previous high at the recession start, and the number of weeks from the previous high to the recession start.

http://www.advisorperspectives.com/dshort/charts/markets/SPX-recession-table.gif
Some Observations
Market indexes and recessions are two very different data series. The closing price of the S&P 500 is a real-time snapshot of equities. In sharp contrast, recession boundaries are determined many months, sometimes a year or more, after the fact, for both the starts and ends (peaks and troughs). The NBER makes its call after lengthy deliberations over economic data that has been subjected to extensive revisions.
Economists often make generalizations about business cycles that suggest a substantial commonality among them. But that's true only at a 20,000 foot level (and on a partially cloudy day). Recessions are dramatically different from one another if viewed within their individual economic and market contexts. Exogenous events can play a role, as in the case of the 1973 Oil Embargo. The prevailing inflation rate can be a key difference maker e.g., the double dip recessions in the early 1980s. I would also suggest that demographics can be a determinant in recession's personality. For example, compare the demographics of the Boomer cohort in the 1970s and 1980s, in their earlier careers, with the aging Boomer workforce during the last recession, when an alternative to unemployment was early retirement.
The US economic recovery since the official trough in June 2009 has been weaker than hoped, and there are many financial pundits who agree with ECRI's latest assertion (http://www.advisorperspectives.com/dshort/updates/ECRI-Weekly-Leading-Index.php) that a new recession is underway, a view which, I would counter, is not supported by the Big Four economic indicators (http://www.advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators.php).
We will, of course, eventually slide into a recession. It's an inevitable part of the business cycle. But the data presented here illustrates that the relationship between the market and recessions varies widely. Investment planning based on recession forecasting is definitely not a foolproof strategy.

[BIRMANBOY]

Hoop, I don't know how you manage to absorb and decipher so much information.....I would have given up long ago given your level of engagement.. Admire your work ethic that's for sure.

[Jay]

I second that
Good stuff Hoop

[Hoop]

Hi Everyone
Happy New Year

A post on the 1st day of 2015...Like all investors we try to figure out what 2015 has in store for the Equity markets..

Since 2009 Wall St has seen one of its longest cyclic bull market taking place..and breaking all sorts of Secular Theory boundaries and expectations in the process....So whats happened this time?..Do these Secular Fundamental abnomalities suggest a dangerous invisible bubble that investors don't want to see has formed?? Is the Secular Theory Discipline flawed?? or (the famous last words) It all different this time??
Many answers but nothing really to show one way or the other..

Perhaps the wheels of this 6 year bull market cycles won't suddenly fall off alerting investors to preserve their capital gains...maybe in 2015 a scenario could be that there will just be bits and pieces falling off the cyclic wheel until the Bull market cycle no longer functions causing a very slow and painless evaporation of the complacent investors capital...

The chart below shows shows the S&P500 overlayed with the NYA200r showing at the moment there is less stocks now contributing to their index's rallies than for the whole 6 year Bull Market Cycle that is currently in progress...Is this a sign that the "bits and pieces" are starting to fall off ???

Normally 70+% and mostly about 80% of the stocks are in the bull zone (above their MA200) and contribute to their index rally's.

Since October an abnormality has happened, only 58% of the stocks are in the bull zone and contributing to the latest index record highs..What this suggests is that 42% of the stocks
within the S&P500 are in a primary Bear tide.

Is this a sign of S&P500 index cyclic deterioration??....Time will tell

http://i458.photobucket.com/albums/qq306/Hoop_1/SampP50031122014overlay.png (http://s458.photobucket.com/user/Hoop_1/media/SampP50031122014overlay.png.html)

[winner69]

Interesting chart in this article.

Doesnt show the secular bull and bear cycles but graphically shows why you want to be out when the bears take over

http://www.businessinsider.com.au/illustration-of-bull-and-bear-markets-2014-12


This Is The Best Illustration Of History's Bull And Bear Markets We've Seen Yet

[Hoop]

Interesting chart in this article.

Doesnt show the secular bull and bear cycles but graphically shows why you want to be out when the bears take over

http://www.businessinsider.com.au/illustration-of-bull-and-bear-markets-2014-12


This Is The Best Illustration Of History's Bull And Bear Markets We've Seen Yet

Winner..I don't think the chart is accurate....A quick look at that chart and I see 2 bull markets which are too long..I think there was a bear market cycle 1946 to 1949 and there was a 30% drop in 1981-1982..I could be wrong but I don't think I am....Most commentators say an average lifespan of a bull cycle is about 4.7 years long so that lifespan figure makes sense if I'm right.

I do agree with the author in saying that overall the market is more often in a bull cycle than a bear cycle...and that is the major point I think that he is making.

[Valuegrowth]

Can we see beginning of bear market in 2015 or strong correction as predicted by Prof. Siegel?

http://www1.realclearmarkets.com/2014/12/09/prof_siegel_expect_a_big_stock_market_correction_i n_2015_160941.html

December 9, 2014Prof. Siegel: Expect a Big Stock Market Correction in 2015

[Hoop]

The chart below is up to the 2nd Jan 2015..So the CAPE for the S&P500 at the time of this post is at 27.02...That is considered extremely high and very risky from the risk v reward point of view..

Interesting thing is that these secular indicators such as CAPE can defy gravity for some considerable time (That is the meaning of Secular, a long period of time)...The CAPE was around 26.5 to 27.5 for 3 years between 2004 and 2007...Anyone leaving the market because CAPE was at the dangerous 26+ bubble point would have been frustrated for 3 years...Its true that CAPE identifies overvalued markets but the market can stay irrational for a long time upsetting the timing of any rational analysis...

Also of interest is the Secular Bear Market Cycle which has been running since the year 2000 has a down trending CAPE signature as did all previous Secular Bear Market Cycles...so at some point in time the market will unseize itself and correct downwards (not upwards) because that is its secular signature... What will be the factor that finally triggers the market reversal? Hoop thinks it could be anything... a range from a large event such as a crisis to that of an individual insignificant grain of sand dropping on to an Equity pile collapsing that structure due to the sheer overall weight of downward pressure..The butterfly effect...

When will the Market correct (secularwise- using CAPE)?....As you can see from the chart below, around CAPE 27 seems to be crash point downwards..however these CAPE tops are made up of many years ..long enough for the investor/analysis/broker/media to convince themselves that the secular theory doesn't work, they know more about market behaviour as it is very different this time...So...one can see how complacency appears at the tops of cycles sucking in the most conservative and fearful investors and causing the incumbents to stay in and accumulate more on market weakness, even doing so in a state of denial when a new cyclic bear cycle commences...You hear the more experienced investor say they will exit when the Bull cycle reaches its top point...I (Hoop) say this will never happen and most will stay in and crash and burn as it has happened over and over again in the past...History repeats and most don't learn from it..that non-learning is why history repeats..eh!!

Below the chart is an article from MarketWatch dated 18 August 2014 (http://blogs.marketwatch.com/thetell/2014/08/18/robert-shiller-tries-to-understand-why-stocks-are-very-expensive/)



Shttp://i458.photobucket.com/albums/qq306/Hoop_1/CAPE02012015.png (http://s458.photobucket.com/user/Hoop_1/media/CAPE02012015.png.html)



The Tell (http://blogs.marketwatch.com/thetell)

The Markets News and Analysis Blog


Robert Shiller tries to understand why stocks are ‘very expensive’

August 18, 2014, 11:04 AM ET

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http://si.wsj.net/public/resources/MWimages/MW-CQ888_shille_MG_20140818110024.jpgBloomberg
“The United States stock market looks very expensive right now.” And with that, Yale professor Robert Shiller is at it again, telling us to worry.
He’s got plenty of company these days among those who fear this bull market can’t possibly keep going. Shiller’s particularly uncomfortable about the CAPE ratio (cyclically adjusted price-earnings), a stock-price measure that he helped create. He said something similar in June. (http://finance.yahoo.com/blogs/daily-ticker/-it-looks-like-a-peak---robert-shiller-s-cape-is-waving-the-caution-flag-004753218.html) (Just Google Robert Shiller bubble (https://www.google.com/search?q=robert+shiller+bubble&oq=robert+shiller+bubble&aqs=chrome..69i57j0l3.2756j0j1&sourceid=chrome&ie=UTF-8) for more instances of his bubble theories.)
Otherwise known as the Shiller P/E, the ratio basically takes average inflation-adjusted earnings for the S&P 500 SPX (http://marketwatch.com/investing/stock/SPX) over the previous 10 years. In Shiller’s New York Times (http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?module=Search&mabReward=relbias%3Ar%2C%7B%222%22%3A%22RI%3A16%22 %7D&abt=0002&abg=0) article from Saturday, he notes that when he touched on this topic over a year ago, that ratio stood around 23, far above its 20th-century average of 15.21. It now stands at 25, a level that since 1881 has only been surpassed in three other periods — the years surrounding 1929, 1999 and 2007. And we all know what came next after the market peaks in those years.
Shiller says the CAPE was never intended to indicate timing on when to buy and sell, and that the market could remain at these valuations for years. But given that this is an “unusual period,” investors should be asking questions, he says.
His question: Given that the ratio shows valuations have been elevated for years, are there legitimate factors that could keep stock prices high for decades longer? He points that his own questionnaire surveys show investors are getting more worried. Other than that, unfortunately there is no “slam-dunk” explanation for these high valuations, says Shiller.
“I suspect the real answers lie largely in the realm of sociology and social psychology — in phenomena like irrational exuberance, which, eventually, has always faded before,” says the Nobel-Prize winner. “If the mood changes again, stock market investments may disappoint us.”
Analysts at Bank of America Merrill Lynch (http://www.marketwatch.com/story/these-stock-market-experts-are-overlooking-one-big-risk-2014-08-13/?link=instory) said they remain constructive on the S&P 500, which is trading at a forward P/E multiple of just over 15. They said that’s not out of whack with its historical average, though, of course, they don’t address the Shiller P/E.
On Main Street (otherwise known as the reader comments attached to the New York Times article), theories abound:
“…The liquidity pumped in by the Fed is making valuations based on fundamentals impossible…” — Ashwin Kalbag.
“…Many are concerned that they might lose their jobs to cost-cutting, or that they might eventually be replaced by a computer or robot or website. Such anxiety might push them to try to make up for these potential shortfalls by investing in stocks and bonds — even if they worry that these assets are overvalued.” — david
“…Stocks are all we have. And there is a lot of cash on the sidelines to support values.” RBA
And one reader pointed out that really, what on earth do you do with Shiller’s type of analysis if you’re a truly long-term investor, thinking 10 to 40 years ahead?
“…I had a friend who, in around 1997, looked at ratios like Shiller’s and cashed out of stocks when the Dow approached 6,000. He was absolutely right, the market was severely overvalued — but meanwhile, the Dow zoomed to 11,000 — and even in the great correction of 1999-2000 never sniffed 6,000 again. ” — Tom

[Valuegrowth]

Actually the ultra-low interest rate environment has brought both good and bad. In the Euro Zone, Germany is doing well compare with other countries. Growth in Russia and Ukraine also will slow down further. Russia’s next option is raise money selling part of their gold reserve to overcome their economic woes as they have affected from falling oil prices and RUBLE. In every situation some sectors will benefit and some sectors will affect badly. Overall we can expect more volatility in asset prices in 2015 and we may see bottom for some assets in 2016 provided we don’t see the long depression. Demand driven stocks, currencies, commodities and other assets will go up in the long run. Moreover, some things are necessary such and food and drink. Demand for hard commodities may drop due to slower growth in some sectors in China but demand for some food and beverages will go up in the coming decade due to increased population in Asia. It is time to identify emerging commodities, currencies and stocks and other assets. Finally some gurus also make mistakes. Only thing we can learn is what happened in the past will repeat in the market in a different manner. Boom will end with bust and bust will end with boom. Early identification of business cycles, market cycles, currency cycles and commodity cycles are very important.

http://www.bloomberg.com/news/2015-01-07/e...ral-mounts.html (http://www.bloomberg.com/news/2015-01-07/euro-area-prices-seen-falling-as-risk-of-deflation-spiral-mounts.html)

Euro-Area Deflation Risks Mount with Falling Consumer Prices

DYOR

[winner69]

Mauldin still not too sure where we are but whatever we be OK by 2020 if not wiped out in e anytime

5. I do not believe that the secular bear market in the United States that I began to describe in 1999 has ended. Secular bull markets simply do not begin from valuations like those we have today. Either we began a secular bull market in 2009, or we have one more major correction in front of us. Obviously, I think it is the latter. It has been some time since I’ve discussed the difference between secular bull and bear markets and cyclical bull and bear markets, and I will briefly touch on the topic today and go into much more detail in later letters. For US-focused investors, this is of major importance. The secular bear is not something to be scared of but simply something to be played. It also offers a great deal of opportunity. If I am right, then the next major leg down will bring on the end of the secular bear and the beginning of a very long-term secular bull. We will all get to be geniuses in the 2020s and perhaps even before the last half of this decade runs out. Won’t that be fun? Let’s call the end of the secular bear a 90% probability in five years and move on.

http://www.mauldineconomics.com/frontlinethoughts/a-five-year-global-financial-forecast-tsunami-warning

[Hoop]

Mauldin still not too sure where we are but whatever we be OK by 2020 if not wiped out in e anytime

5. I do not believe that the secular bear market in the United States that I began to describe in 1999 has ended. Secular bull markets simply do not begin from valuations like those we have today. Either we began a secular bull market in 2009, or we have one more major correction in front of us. Obviously, I think it is the latter. It has been some time since I’ve discussed the difference between secular bull and bear markets and cyclical bull and bear markets, and I will briefly touch on the topic today and go into much more detail in later letters. For US-focused investors, this is of major importance. The secular bear is not something to be scared of but simply something to be played. It also offers a great deal of opportunity. If I am right, then the next major leg down will bring on the end of the secular bear and the beginning of a very long-term secular bull. We will all get to be geniuses in the 2020s and perhaps even before the last half of this decade runs out. Won’t that be fun? Let’s call the end of the secular bear a 90% probability in five years and move on.

http://www.mauldineconomics.com/frontlinethoughts/a-five-year-global-financial-forecast-tsunami-warning

Ouch!!! Mr Mauldin...CAPE (presently at 27) has to fall below 10 to end the secular bear cycle that means if earnings remain strong and earnings for example double in the next 4 years then the S&P will still have to be under 1500 to trigger a new Secular Bull Cycle Market......Hmmmm ...if earnings loses its trend momentum then...:p..



For the "no worries" people.. (pays to be prepared)
I'm not a great fan of Mark Hulbert but I totally agree with what he says in his article on Marketwatch (http://www.marketwatch.com/story/the-stock-market-is-overvalued-any-way-you-look-at-it-2015-01-13)

With reference to his article ..Ask any Secular Cycle analysts a few years back if they thought these current levels could be achieved 14 years into a secular bear market cycle and they would probably stare back at you wondering if you have rocks in your head for brains

This diagram in the Article speaks volumes and these subjects have been the focus on this thread since day 1
http://ei.marketwatch.com//Multimedia/2015/01/12/Photos/MG/MW-DD089_overva_20150112105111_MG.jpg?uuid=e0d35a76-9a72-11e4-8445-e286f69b8633

[Hoop]

Methinks the bear market call in the US is a bit premature. Does this look anything like a market in bear territory? (or more like a pullback to the 50 week MA?)...

KW..Secular cycle pressure is invisible on a chart

Secular cycles shows group behavioural state of traders and investors. Their attitudes towards Stocks dictates the trend of CAPE which is the primary driver of secular cycles..Attitudinal shifts are long term trending behavour actions.. and is cyclic.

You get a generation of savers..conservative investors who demand higher yields/less risk from their investments..This behaviour lowers PE (Secular Bear Market Cycle) ..then the next generation are different they are consumers, live in debt, and opt for a more risky, high growth stocks rather than high yield low growth stocks..This behaviour raises the PE (Secular Bull Market Cycle)

The Secular cyclic trend from one to the other (bull/bear/bull,..etc is usually a very slow progression...like the old phrases say "you can't teach an old dog new tricks".. and.."re-inventing the Wheel"

When Secular Bear cycle pressure is at an extreme level (like it is now)...behavioural undercurrents form..such as investors as a group get this uneasy instinctive feeling that something not nice is going to happen..The more the pressure, more people within the group become anxious...There will be a point when a safety discipline surpasses exposure and this is when the market loses momentum and can no longer trend up... when this will occur and what form the cyclic downtrend takes is anyone's guess..But it will happen..because the market runs in cycles...both shorter term cyclic bulls and bears and the much longer secular bulls and bears..

There is a misconception about Secular Bears...it is not bad news as economic growth is similar whether its a secular bull or bear and there can be many cyclic bull markets within a Secular Bear Cycle

[winner69]

Kw ...to show what hoop is on about have a look at this chart of the S&P PE ratio over time
http://www.multpl.com/shiller-pe/

Secular cycles from low PE to high PE and conversely

I have a chart of the ASX PE over time - same problem, was 2009 the start of a secular bull (end secular bear) and if so how much more to go .....or are we in the latter stages oft secular bear cycle which started at turn of century? I post that chart when on areal computer

[winner69]

Fair enough comment KW ....so this time things are really different and we will be doing Ok for years to come.

We are discussing different things though, never mind

[Hoop]

I'm not sure that a trailing 10 year P/E is of much use .......

Fair enough comment KW ....so this time things are really different and we will be doing Ok for years to come.

We are discussing different things though, never mind
KW the reason why Shiller created the trailing 10 year P/E (CAPE) was due to the false signals that P/E and forward P/E produced...

History has seen P/E over and under reported due to the volatile E swings..

How often have you observed investors (including the so called Gurus) unable to answer why the Market went into a cyclic Bear Cycle when the P/E was still under 20..They dimisses it as saying it was a totally unexpected event.

Example:...With the slow process of cyclic reversal in 2008 the early downturn was shallow and as with most cyclic reversals it went undetected until stage 2 when the first capulation wave hits..During the early stages (1) investors couldn't figure out why their portfolios had gone stagnant with more losses than gains..the media keeps pumping out past reports from analysts that PE is still around the average , the business cycle was healthy and so they looked for excuses or blame the market being irrational..
KW.. that scenario sucks in the educated investors to buy on weakness and they were bewildered and pissed off when the "unexpected" first wave hit....Earlier on Shiller developed CAPE as a barometer to measure if the PE and forward PE was falsely under-signaling the real nature of the market...but most investors and commentators at this time did not take much notice of Shiller until his predictions came true.

The cons of CAPE..being a long term indicator it can signal danger..problem is it can signal danger years too early because investor attitudes always lags the market secular trending fundamental data..The market being overvalued (secular=wise) may go unnoticed as volatile variables may sway investor attention and momentum into pushing the markets higher above this so-called theoretical limit..e.g investors attentions are taken up by a sudden upward value surge of reported earnings due to the favourable effect of those volatile variables thus pushing down reported PE.....and going unnoticed is the CAPE which still rises ..creating a platform for CAPE critics to dismiss CAPE as an effective indicator tool.

The classic example is recent history (shows you how quickly people forget..eh?) CAPE fell back from a dizzy crazy 42 during the 2000 bubble but it plateaued around the dangerzone (25-26) back in 2003 to 2006 Secularists see that as a pause before the next leg down because 25 is where most cyclic bull die...with the PE falling to 17 in late 2006..CAPE got criticised by the media as useless for the every day investor and investors continued to accumulate ignoring the invisible risk... when the PE was at 17 and CAPE was 26 history tells us that the S&P500 was only 10% away from its top..

Back to 2015 we have a similar scenario as late 2006, PE around 17 CAPE around 26....

CAPE is not a timing indicator it just shows the theoretical underlying value of the market ...at 26 it is deemed the S&P500 as extremely overvalued...

So when will the bull market end?.. who knows...but the warning bell has rung as long ago as 2013...The smart investors would after the secular warning continue to ride out this Bull market and when that reversal time arrives and the market flops, by being secular aware those smart investors would not suffer denial behaviour and would not be influenced by a still rosy media.

[winner69]

Very good post that was Hoop

[winner69]

I often wonder how 'wrong' forward earnings are in reality? Like does a $1 forecast end up as 90 cents in reality one year later?

I was always intrigued with a US study that came to the conclusion that nearly 20% of today's profits are 'written' off in the subsequent 5 years, But if one keeps normalised earnings outlook that doesn't matter does it.

[Biscuit]

...at 26 it is deemed the S&P500 as extremely overvalued...



Is it extremely overvalued? Back when it was at 23 Shiller said: "...the lesson there is that if you combine that (CAPE) with a good market diversification algorithm, the important thing is that you never get completely in or completely out of stocks. The lower CAPE is, as it gradually gets lower, you gradually move more and more in. So taking that lesson now, CAPE is high, but it’s not super high. I think it looks like stocks should be a substantial part of a portfolio.

.....The other thing is, you don’t have to go into the whole market. You can go into a low-CAPE sector.
http://www.businessinsider.com/robert-shiller-on-stocks-2013-1#ixzz3OwTOipsG


So, I guess we should be relatively light on shares now or at least be mostly in low CAPE markets. Any idea what the CAPE for NZX is?

[winner69]

I think earnings are always revised down as they get close to reporting date, so there will be some fat trimmed for sure. However, this year will be the first year that the US sees any meaningful economic growth. So I would be interested in knowing if there have been any market crashes during a period of expanding economic growth post a recession.

This is an interesting chart that gives some insights to your question
http://www.aheadofthecurve-thebook.com/04-01.html

[winner69]

I think earnings are always revised down as they get close to reporting date, so there will be some fat trimmed for sure. However, this year will be the first year that the US sees any meaningful economic growth. So I would be interested in knowing if there have been any market crashes during a period of expanding economic growth post a recession.

Here is a chart showing estimates (S&P500) turn out over time

[Biscuit]

This is an interesting chart that gives some insights to your question
http://www.aheadofthecurve-thebook.com/04-01.html

Interesting curve. They say: "Note that bear markets (shown here in the vertical yellow shaded bars) almost always begin when the rate of growth in real GDP is at or still close to its peak" Do you think that is what the chart shows? It seems to me that there are a lot of "peaks" and that any vertical line drawn at random would likely be at or close to a peak?

[Hoop]

Interesting curve. They say: "Note that bear markets (shown here in the vertical yellow shaded bars) almost always begin when the rate of growth in real GDP is at or still close to its peak" Do you think that is what the chart shows? It seems to me that there are a lot of "peaks" and that any vertical line drawn at random would likely be at or close to a peak?

Thats because your mindset isn't tuned in..no offense to you Satan and KW...I struggled to grasp the whole secular thing when Winner first PMed me with the links many years ago...There's a lot to take on board and some of the reading can be hard going..but once you start getting that knowledge the stuff which is written in the articles and charts become easier to understand and the charts jump out at you...That's probably the problem Winner and I have when we try to explain it to others on ST.....As we have learn't the methodology we see secular related things as clear and simple and inadvertently expect others to see likewise..

Lets do baby steps (I did this method :))of Lesson 1 of many Lessons)...Take Winners posted chart for example. Apply this one small piece of secular knowledge to your brain The primary driver of the sharemarket secular cycles are the trends in the P/E ratio. .... a primary driver of the stock market is inflation..The link here is that Inflation affects the value of PE Ratio..e,g a PE Ratio of 20 on the S&P500 could be considered fairly valued with 1 to 2 % rate of inflation but a PE of 20 would be considered extremely overvalued if inflation was say at 10% or there was deflation at say 3% ..There are other underlying drivers which switch on and off but lets keep it simple here..and you have to believe me when I say that Economic growth (business cycle) is not a primary driver. Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall, sometimes good sometimes not good..Having this knowledge your question about those peaks on Winners posted chart become clearer and answer themselves..

One piece of consistency gained from knowledge is the fact that the sharemarket nearly always bottoms out and is in stage 1 of a bull market cycle before the recession ends..this fact reinforces your knowledge that the Country's economy does not drive its Sharemarket...not convinced then look at that chart again and ID those bottom points...can you now start seeing that chart from a different viewpoint??..if so you mindset is already adjusting to this new knowledge...and.....with this one piece of knowledge you can confidently question :cool: the wisdom and accuracy of many those so-called "Market Analysts" who by this time in the latter stage of a painful recession would be exhibiting pessimistic near future views..

Gaining pieces of secular knowledge is fun, you gain insight to market behaviour..long term predictability becomes easier to master and you gain confidence...after a while you get totally fascinated by the whole Secular thing and the many possible futures.

Hope this post helps

PS ...try reading the thread ..lots of secular info on it

[Hoop]

In Jan 13 Australia had a low CAPE - wonder what it is now?

Highlighted and 15.8 is considered unattractive by Star Capital Research (their table post below)

Note Greece's PE of 2.8 is considered unattractive!!!....why??? same theory applies... inflation is the driver and affects PE Ratio...with core inflation at -3.93% (deflation) the PE ratio figure has shrunk accordingly...Now you can understand why the FED will do whatever it takes to prevent persistent deflation...

http://i458.photobucket.com/albums/qq306/Hoop_1/CAPEbycounties28112014-1.png (http://s458.photobucket.com/user/Hoop_1/media/CAPEbycounties28112014-1.png.html)

[winner69]

Another couple of good posts Hoop

Secular implies long term. History shows long term returns when PEs are high are generally pretty low (if not negative) and conversely long term returns are above average when the starting point is a low PE. The markets do cycle between high (>20) PEs and low (<10) PEs

My investment strategy outlined in the first post of this thread many years ago still holds. I essentially still follow that strategy.

On a day to day basis it is similar to KW's strategy in that it is not a long term buy and hold strategy but a strategy where one holds up trending stocks and where one is not embarrassed to sell when the uptrend ends.

The amount I have set aside for equities is all in equities at the moment. But I know that one day the market will be a lot lower than it is today. So keep monitoring those charts like KW does and when sell signals happen I act on them (well mostly). Worked in the past and usually out before the big market correction/crash happens.

Preservation of capital is the game and avoiding the corrections/crashes is key, you then come back and play again.

[Lizard]

Winners investment strategy is:


Because long term market returns will probably be very low become a stock picker and pick long term growth prospects based on fundamentals.
As market sentiment is stronger than fundamentals and hope only hold stocks that are trending upwards. During times over real market weakness tighten up trailing stops (essentially the Phaedrus long term trading strategy)
To maximise returns while retaining some degree of diversification perferable number of stocks is 5, but no more than 10 at any one.
Don't worry about portfolio weights - because all stock picks will be trending up
Because I understand NZ and Autralia markets and economies restrict stock picks to these markets
Do not be embarassed to be 100% cashed up if necessary



Have you stuck with the "5-10" stocks or been tempted to diversify further?

[winner69]

Have you stuck with the "5-10" stocks or been tempted to diversify further?

Yes

Generally less than 5 core holdings and play around with a few specs with petty cash for a bit of fun

[BlackPeter]

Great discussion - and very thoughtful input from a number of posters (but particularly Hoop) - Thank You!

Not sure, whether I can add a lot to this in-depth historic market analysis, though one sentence sprang to mind (not sure, who used it): "This time everything will be different". I believe it was used ironical ... but it might be worthwhile to just stop and ponder on it.

Have we ever before had such low interest rates - and such strong interest from powerful parties (like nearly all governments of the world) to keep the interests low for a long time?

The US are still the strongest economical player (unless you count the Euro zone as one country, than they are already larger than the US economy) ... but in 2013 the US GDP represented only 23% of the world economy ... and I am sure it will have been (as percentage) less in 2014 and still less in 2015. The Chinese are already snapping their heels ... and will takeover the race within the next decade or so. A US economic crash (this time due to their inability to repay their debts?) will hurt less, than it still hurt 8 years ago.

So what I am saying is - maybe things are really different this time? I don't expect the bear / bull cycle to end, but a CAPE of 30 (representing a 3.3% annual long term interest rate) might still look quite good if you compare it e.g. with a roughly 1.1% return on long term US debts ... i.e. I could well imagine shares becoming still much "dearer" before the bears start doing their job. I could as well imagine that some of the emerging markets (with still much lower PE's) will takeover the economic lead ... and keep the bull running.

My strategy is to stay in shares with lower (long term) PE's (unless the growth really justifies a higher PE), to diversify and to avoid too much exposure to US stocks. I try to be vigilant, but am not too scared about the prospect of the next market crash being imminent (though bubbles obviously can lurk anytime).

[winner69]

Here is my long term chart of the PE for the ASX All Ords (historical earnings)

If there is no major disaster and the PE rises from the current 15 one could say that this would tentatively confirm an uptrend since 2009 and we are in a secular bull market at present. (otherwise a continuation of the secular bear that started about 2000 and would see PE go sub 10 sometime so take you pick)

Even the ASX has secular cycles - note rising trend in PE from early 1980s to 2000 followed by falling PEs through to 2009 and then rising PEs since (hence the start of a possible secular bull)

Interesting?

[winner69]

Here is a view of the S&P500 with some notes about the PE ratio (forward earnings KW) when the market turned up and down

http://www.businessinsider.com.au/jpm-sp-500-inflection-points-chart-2015-1

By JP Morgan so must be true

[skid]

Here is a view of the S&P500 with some notes about the PE ratio (forward earnings KW) when the market turned up and down

http://www.businessinsider.com.au/jpm-sp-500-inflection-points-chart-2015-1

By JP Morgan so must be true

http://online.barrons.com/articles/storm-warning-for-the-stock-market-1421461711

[dingoNZ]

Here is a view of the S&P500 with some notes about the PE ratio (forward earnings KW) when the market turned up and down

http://www.businessinsider.com.au/jpm-sp-500-inflection-points-chart-2015-1

By JP Morgan so must be true


However, given the current P/E this still implies it isn't overvalued and has still got plenty of headroom. Will be worth keeping an eye on

[Hoop]

However, given the current P/E this still implies it isn't overvalued and has still got plenty of headroom. Will be worth keeping an eye on

My logic from your quote would imply that the PE (forward) of 15.2 on the 9th October 2007 (see chart) wasn't overvalued either and would have me saying "no worries and keep buying stocks..."

Also.... at over 18 around the 1st Q of 2004 many PE forward effected investors would miss the entry of the decade opportunity by assuming the bear market is still operating when in fact it was in a bull market cycle correction.



PE (forward) shows little to no relevance as an indicator with the index when I overlaid it on the SP500 chart ...eh?..but what does a simple kiwi know compared with the big US financial gurus ..eh?


http://i458.photobucket.com/albums/qq306/Hoop_1/sp50017012015.png (http://s458.photobucket.com/user/Hoop_1/media/sp50017012015.png.html)

[Biscuit]

... Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall...

Thanks for you post Hoop, was slow to reply - busy weekend! I've analyzed Winner's chart and, contrary to my original assessment, I think it does show that sharemarket bearmarkets start close to when the rate of growth of GDP is close to its peak. Which doesn't seem to fit your statement above, or are you saying they have a poor positive correlation? I gather that you are saying what it also says on that web page ( http://www.aheadofthecurve-thebook.com/04-01.html), that: "Businesses and investors must instead focus on leading indicators of rates of economic growth, particularly drivers of consumer spending, which represent the front end of the economic cycle."

[winner69]

Oops, maybe the forward looking eps is a bit optimistic.

In one report today For the moment, Wall Street is in the process of reworking its spreadsheets to price in slower global growth and lower corporate earnings for U.S. companies that do a large bulk of their business abroad

[Hoop]

Oops, maybe the forward looking eps is a bit optimistic.

In one report today For the moment, Wall Street is in the process of reworking its spreadsheets to price in slower global growth and lower corporate earnings for U.S. companies that do a large bulk of their business abroad

Hmmm..yes I think so..Is the increasing rate of E in the PE Ratio finally becoming unsustainable???

This last 6 years of rapid rate of earnings growth deemed by many commentators a couple of years ago as "unsustainable" has up to now defied the laws of gravity ...

So.. this is something new in this 6 year old cyclic bull market cycle ...eh?

[winner69]

Hoop - I think that the ASX is now in a confirmed secular bull cycle. The previous secular bear looks like it did end in 2009

If RBA cutting interest rates indicates a stuffed economy than earnings may be under pressure. However unless the All Ords falls significantly that could see the PE rise even more .... confirming a continuation of this secular bull.

Thoughts

[Hoop]

The NZ Stock market has been in a correction since 18th March...Looking at the NZX50 index chart it is not noticeable due to the dividends and weightings (smoke and mirrors)..but believe me there is a correction going on. There are lesser and lesser stocks holding the NZX50 index up and increasing stocks numbers are starting to bust their MA200 lines (one bear cycle measurement)...

Notice the many investors on ST wondering why their favourite shares are not meeting their perceived "realistic" values at the moment..


Using a Capital only index... The NZX50 portfolio capital index has lost 5% since 18th March.....The 2009 - present bull market cycle has been so strong that the chart below says it will have to fall another 15% to kill the bull.
I assume many NZ investors on ST have not experienced a bear cycle yet...If you feel pain at the moment with -5% then imagine the start of a bear cycle with another -15% ..This would make 5%+15% = 20% loss and would need a 25% gain to breakeven again...however a bear market doesn't end at the beginning they usually retreat an average of 50% which to a buy and hold investor would have to see a 100% gain to breakeven again...which in this example would take 7 years



Percentage Loss
Percent Rise To Breakeven


10%
11%


15%
18%


20%
25%


25%
33%


30%
43%


35%
54%


40%
67%


45%
82%


50%
100%


Another interesting thing is Investor behaviour..most new investors would never enter a market in doom and gloom and full of fear (near the bottom) but will wait and wait until all fear is gone and replaced by exhuberance and well being then enter the market when its party time (near the top) and apply a long term investment strategy as perscribed by the Gurus such as Buffett and Co
If you invest solely for the dividends (which are very attractive when the economy is humming) then entering the stock at party time an investor never expects or thinks about not to making any capital gain for the next 5 to 7 years as their mind is occupied by the possible (not guaranteed) future dividend stream and rosy looking forward looking Fundimentals .. The long term investor thinks of the "now" and fails to recognise the invisble long term cycle of events. If the Stock Market is in a generation long secular bear cycle then buying into boom will result in the long term portfolio suffering long term capital damage..

Is NZ stockmarket in a secular bear cycle? ...unfortunately for the NZ investor there is a lack of data due to the unhealthy protective nature of Stock brokers and analysts..Also, there has been so many switches and changes to indexing in NZ that a long term freely available historical indexing such as those overseas e.g DOW S&P500 FTSE etc is sadily unavailable for most NZ Stockmarket investors......

Why should we care about secular cycles?..If NZ stockmarket is in a Secular bear market then the chart below shows an ominious sign of a possible top event when it failed to push through a secular resistance at 1975..Although secular cycles use PE Ratio's not prices..Market price indexes during a secular bear cycle often (but not always) show a classic flat top cycle symptom...
Why use this chart below?...Its capital methodologies are closer to the DOW S&P etc therefore giving a truer comparision when working with Capital indexes..

http://i458.photobucket.com/albums/qq306/Hoop_1/NZX50%20portfolio.png (http://s458.photobucket.com/user/Hoop_1/media/NZX50%20portfolio.png.html)

[Joshuatree]

A snippet from Cam Watson at Craigs on NZ Super Fund reference Portfolio review
4. Recent returns have been exceptional. Over the past five years the Fund has returned 14% a year, “considerably ahead” of the 8.5% annual return they expected. In fact, the actual return of 14% is in the 85th percentile of the range of expected returns, i.e. it is very high. They concluded their discussion on past returns with a candid health warning that probably applies to all investors; “Along with these abnormally good periods, we also expect that there will be periods of abnormally low returns and we remain focused on the Fund’s returns over the long-term”.
5. They have cut their forecast long-term returns. The Fund last reviewed their expected returns in 2013. At this time their midpoint expected long-term return for the reference portfolio was 8.9%pa. They have reduced this expected return to 7.7%pa, due principally to a reduction in their expected return on cash from 6.0% to 5.0%. This lower cash rate also reduces the expected return on shares as the Fund uses a formula that calculates returns on shares by adding a return premium to the return from cash, so a lower cash return leads to lower returns on shares as well. This is another takeaway for all investors – the smart people are factoring in a period of lower returns ahead, perhaps we should too.

[kiora]

Phew ,how can he sleep ?
http://www.stuff.co.nz/business/world/71561258/while-market-panicked-this-day-trader-made-nz52-million

[kiora]

Interesting article.Food for thought
http://www.nzherald.co.nz/best-of-business-analysis/news/article.cfm?c_id=1501241&objectid=11520783

[macduffy]

Interesting article.Food for thought
http://www.nzherald.co.nz/best-of-business-analysis/news/article.cfm?c_id=1501241&objectid=11520783

Interesting indeed!

A thought from the future? Article is dated 30 Oct 2015!

[RRR]

Just noice, are they not? Population growing, people living longer - are these not simple logical reasons to remain positive and have a long term view? Now is the best time to live as Homo sapiens! I am investing on a regular basis and not concerned about short term oscillations.

[kiora]

Phew ,now anyone can make money from the sharemarket. You don't have to be an expert or have any experience
http://www.start-up365.net/Pages/Top10/Ultimate4Trading/1.php?AffiliateID=9028&SubAffiliateID=wAAP5D8G9KPMH99OGMQ9D2AA

[Hoop]

http://www.sharetrader.co.nz/images/misc/quote_icon.png Originally Posted by Hoop http://www.sharetrader.co.nz/images/buttons/viewpost-right.png (http://www.sharetrader.co.nz/showthread.php?p=526147#post526147)

... Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall...


Thanks for you post Hoop, was slow to reply - busy weekend! I've analyzed Winner's chart and, contrary to my original assessment, I think it does show that sharemarket bearmarkets start close to when the rate of growth of GDP is close to its peak. Which doesn't seem to fit your statement above, or are you saying they have a poor positive correlation? I gather that you are saying what it also says on that web page ( http://www.aheadofthecurve-thebook.com/04-01.html), that: "Businesses and investors must instead focus on leading indicators of rates of economic growth, particularly drivers of consumer spending, which represent the front end of the economic cycle."..

Biscuit wrote this post a year ago...

The best thing for me was to wait use a current example...

Employment rate is a driver to consumer spending..

OK.... If I had a time machine and went from Jan2015 (time of biscuit writing the post) to Jan 2016 collected up this employment data chart below and returned to Jan 2015 with it...how would you think investors would react to this future news?..What prediction would they give to the S&P500 between 1/1/15 to 1/1/16.....eh?....I would assume as those investors are already bullish with the Bull Market rising rapidly in 2014, this future news would've made them ecstatic...

OK.... we have got to 1/1/16 and sadly the S&P500 for the year ended 2015 about the same level as it started 2015... with a 2015 high only 5% above those points...
Yet the chart below showed a growing economy..

Those investors would be scratching their heads saying "What went Wrong?"...probably blame all sorts of things..eh?

Proof Biscuit.... that the Economic cycle and the sharemarket have a poor correlation

http://i458.photobucket.com/albums/qq306/Hoop_1/SampP%20500%202015%20chart.png (http://s458.photobucket.com/user/Hoop_1/media/SampP%20500%202015%20chart.png.html)


http://ei.marketwatch.com//Multimedia/2016/01/08/Photos/MG/MW-EC916_mw_201_20160108095314_MG.jpg?uuid=8b2d48b8-b617-11e5-9b37-0015c588e0f6

[winner69]

Hoop said - ... Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall...

The very good presentation linked below said

Real GDP Rose Equally During Both (bull and bear) Secular Periods, Averaging Near 3% Annually

http://www.crestmontresearch.com/docs/Financial-Physics-Presentation.pdf

Is worthwhile looking through this presentation on a regular basis - even just to remind oneself what you read in the paper isn't always the full story.

[Hoop]

While reading some historic newsletters today (My mission...to date my list finding out who are the best people and firms to believe in what they write about) I came across Equity Compass Strategies who issued this newsletter in March 2009.....Remember...Hindsight now tells us this period marked the bottom (death) of the last cyclical Bear Market cycle...
The newsletter tells not to sell now (March 2009) ...a very courageous move considering the market irrationality and its extreme doom and gloom behaviour among those remaining wounded and blooded investor survivors...The reasoning and subsequent summary was secular cycles and the cyclic cycles within them..Theres a very good easy to read summary of how Secular cycles operate and the average age one can expect these cycles to last (Bull.. are you reading this:))) It lists the 10 most severe DJIA declines since 1900..and Stock Market as % of GDP Table....

A quote from the Newsletter PDF file (http://www.equitycompass.com/pdf/File/EquityCompass_Mar2009.pdf)..."However, secular bear markets produce the most powerful cyclical bull markets..........".

(On the ST Black Monday thread I said Buffett listens and probably acts to cycles....e.g Buffett Indicator (His favourite supposedly) to gauge how over or undervalued the Wall St Stocks are...
Notice... the strong correlation of the Wall St stock market cyclic reversals of 2000 2007 and 2015!!!!!!
Also notice... how overvalued the equity market is in 2015 (2nd highest in 65 years chart)...We all now in hindsight that the 2000 market was extremely overvalued.

If the media publishes tomorrow that Buffett is fully invested at this moment in time and it turns out to be true then I'll eat my hat.

Ditto to those that try to tell us the 2015 and current Wall St market is not overvalued


http://www.advisorperspectives.com/dshort/charts/valuation/Buffett-Indicator.gif

[winner69]

Good post above hoop

This is good advice from Jarred -

1 - Always have a fair percentage of cash in your portfolio to make the most of opportunities (at market/cycle bottoms)

2 - Trends take a lot longer to play out than you think.

http://www.mauldineconomics.com/the-10th-man

Always worth reading is Jarred

[Baa_Baa]

Major Stock Bear Awakening
Adam Hamilton January 15, 2016

http://www.zealllc.com/2016/mstbeara.htm

[BIRMANBOY]

Anyone done anything similar to NZX? Or what relationship can be drawn between overseas markets and local. My feeling (admittedly unsubstantiated), is that there has been a growing and substantial gap between "us" and "them". In fact. I could lay down a hypothesis that overseas investors fleeing US markets may look to other more stable markets like NZX to park funds at favourable exchange rates as well.
While reading some historic newsletters today (My mission...to date my list finding out who are the best people and firms to believe in what they write about) I came across Equity Compass Strategies who issued this newsletter in March 2009.....Remember...Hindsight now tells us this period marked the bottom (death) of the last cyclical Bear Market cycle...
The newsletter tells not to sell now (March 2009) ...a very courageous move considering the market irrationality and its extreme doom and gloom behaviour among those remaining wounded and blooded investor survivors...The reasoning and subsequent summary was secular cycles and the cyclic cycles within them..Theres a very good easy to read summary of how Secular cycles operate and the average age one can expect these cycles to last (Bull.. are you reading this:))) It lists the 10 most severe DJIA declines since 1900..and Stock Market as % of GDP Table....

A quote from the Newsletter PDF file (http://www.equitycompass.com/pdf/File/EquityCompass_Mar2009.pdf)..."However, secular bear markets produce the most powerful cyclical bull markets..........".

(On the ST Black Monday thread I said Buffett listens and probably acts to cycles....e.g Buffett Indicator (His favourite supposedly) to gauge how over or undervalued the Wall St Stocks are...
Notice... the strong correlation of the Wall St stock market cyclic reversals of 2000 2007 and 2015!!!!!!
Also notice... how overvalued the equity market is in 2015 (2nd highest in 65 years chart)...We all now in hindsight that the 2000 market was extremely overvalued.

If the media publishes tomorrow that Buffett is fully invested at this moment in time and it turns out to be true then I'll eat my hat.

Ditto to those that try to tell us the 2015 and current Wall St market is not overvalued


http://www.advisorperspectives.com/dshort/charts/valuation/Buffett-Indicator.gif

[Hoop]

Anyone done anything similar to NZX? Or what relationship can be drawn between overseas markets and local. My feeling (admittedly unsubstantiated), is that there has been a growing and substantial gap between "us" and "them". In fact. I could lay down a hypothesis that overseas investors fleeing US markets may look to other more stable markets like NZX to park funds at favourable exchange rates as well.

The NZX50 chart with the NZ GNP overlay copied from the "Are NZ Stocks too Expensive?" thread....shows a similar relationship to the Buffet indicator chart.. Both charts measuring Equities with their SD boundaries .... also comparing Equities growth with the Country's Economic growth..

How much bleed over of investors from Wall St to NZX I have no idea

http://i458.photobucket.com/albums/qq306/Hoop_1/NZX50%2008082016%20GNPoverlay.png

[Hoop]

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 (http://seekingalpha.com/article/3999178-sell-everything?lift_email_rec=true) 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.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2016/8/7375661_14710145712155_rId13.png


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)

[BlackPeter]

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/showthread.php?10500-Global-Change-Are-we-stuffing-up-the-planet-enough-to-be-a-global-problem&highlight=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.

[Hoop]

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/showthread.php?10500-Global-Change-Are-we-stuffing-up-the-planet-enough-to-be-a-global-problem&highlight=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..
https://upload.wikimedia.org/wikipedia/commons/thumb/c/c9/Co2_glacial_cycles_800k.png/320px-Co2_glacial_cycles_800k.png
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 (https://en.wikipedia.org/wiki/List_of_human_stampedes)
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):scared:..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 (https://en.wikipedia.org/wiki/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.

............

[Hoop]

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...

http://i458.photobucket.com/albums/qq306/Hoop_1/SP500%2005122016%2090%20yr.png (http://s458.photobucket.com/user/Hoop_1/media/SP500%2005122016%2090%20yr.png.html)

[Hoop]

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 (https://www.advisorperspectives.com/dshort/updates/2016/12/01/crestmont-market-valuation-update) article

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

https://www.advisorperspectives.com/images/content_image/data/73/731e4d2a83ca741d4ce8ed54f7ec5c09.png

[Grunter]

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-publications/alternative-thinking-superstar-investors

[winner69]

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/docs/Stock-Half-Half.pdf

For me it's still about picking winners and running with them until the merry go round inevitably stops

[Hoop]

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 (https://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201701.htm) 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 (http://www.marketwatch.com/story/inflation-climbs-in-2016-at-fastest-pace-in-5-years-cpi-shows-2017-01-18) and the current PE(10) of 28.15 (http://www.multpl.com/shiller-pe/) 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 (https://www.factset.com/earningsinsight)...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.

[Hoop]

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 (http://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)..

[winner69]

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 (http://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

[Hoop]

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


Made it ....2010-2019 decade....no recession.

BANG!!!!!

[winner69]

Made it ....2010-2019 decade....no recession.

BANG!!!!!

BANG indeed

NZX heading to 4,000 I reckon

[Sideshow Bob]

Good thread dredge. Been 4 years!

[kiora]

Strategies,there is no right or wrong one
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12318420&utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Saturday+21 +March+2020
Five Charts On Investing To Keep In Mind In Rough Times Like These
https://www.sharecafe.com.au/2020/03/17/five-charts-on-investing-to-keep-in-mind-in-rough-times-like-these/

[kiora]

Too true
https://www.stuff.co.nz/business/money/120436148/budget-buster-how-to-profit-from-stock-market-carnage

[kiora]

When do markets bottom during a crisis?
https://finance.yahoo.com/news/markets-bottom-during-crisis-reducing-deep-tail-risk-morning-brief-102025539.html
Buffett Indicator (the ratio of GDP to the total value of all stocks; GDP is a lot less volatile than the stock market)
https://www.marketwatch.com/story/stocks-arent-bargains-yet-but-a-buying-opportunity-will-come-heres-how-youll-know-its-here-2020-03-16?itm_source=parsely-api&mod=mw_more_headlines

[Aaron]

A lot less Kiwisaver funds entering the market during the lockdown. No more share buybacks in the US. Maybe more downside? Central banks buying everything? Earnings drop not yet quantified. Is it still too early to enter the market?

[BlackPeter]

A lot less Kiwisaver funds entering the market during the lockdown. No more share buybacks in the US. Maybe more downside? Central banks buying everything? Earnings drop not yet quantified. Is it still too early to enter the market?

We only will know when it is too late :):

Best strategy might not be to wait until a recovery is confirmed ... I suspect the initial relief rally might be as difficult to catch (for buying) as the initial drops have been (for selling).

Plan some scenarios how you think this will play out (say somewhere between 4 months and 18 months duration) and spread your buying around these scenarios. That's what I am doing - and obviously trying to avoid any high growth negative earnings companies - this is the time to buy solid and well established companies making stuff (or providing services) people need.

Hint 1: I did start already some limited buying, but keep most of my powder still dry. BTW - looks like I am not the only one who started buying - just look at the recent SSH's e.g. for OCA and SML.

Hint 2: If people feel that it is the time to buy ... don't forget your conservative or balanced Kiwi saver account. When stocks are down, there will be an amazing opportunity for fund managers to pick up cheap quality stocks ... if investors give them the powder to do so. I started this process as well ... obviously - not spending all my powder (in this case conservative part of the account) at once.

[peat]

A lot less Kiwisaver funds entering the market during the lockdown. No more share buybacks in the US. Maybe more downside? Central banks buying everything? Earnings drop not yet quantified. Is it still too early to enter the market?

Hey Aaron
weren't you the person waiting for the crash?
If so you have to buy something! :p

[Aaron]

Hey Aaron
weren't you the person waiting for the crash?
If so you have to buy something! :p

Too right. Some shares are at a nearly 50% discount to recent values. No major crisis has finished within a month though, so I am still waiting for a bottom. Looks like we might have hit bottom yesterday. I should take Blackpeters advice and get serious about some limited buying of some shares but I am mindful of Phaedrus's advice on using TA to time an entry. Prices are all over the show and maybe QE infinity has stopped the drop but if Covid-19 has pricked the debt bubble then there could be worse to come. The moves in the sharemarkets are historic (c.f. 1929 and 1987) so surely not all over before the end of April, although it feels like it today.

[dobby41]

No major crisis has finished within a month though, so I am still waiting for a bottom. Looks like we might have hit bottom yesterday.

Two competing statements right there.

[Joshuatree]

Snippet from Craigs , thankyou.

10 US recessions since 1960.
Number of months from peak to trough average, 14
Number of months to recover from previous peak 39
Returns from bottom
1 month 12.2%
6 month 29.4%
12 month 39.1%

[Aaron]

Two competing statements right there.

I'm still waiting for a bottom but I am watching some 10% jumps in prices today so wonder if yesterday was the bottom. I need to go away and calculate value rather than watch prices.

Thanks JT if I take the average 14months then I have twelve left before the bottom. Are we really not going to have ANY businesses fail due to Covid-19?

[Valuegrowth]

Black Peter said.
This is the time to buy solid and well established companies making stuff (or providing services) people need.

In a 12 month horizon, they could give quite a good return for patient investors. In a situation like this we can postpone lot of things but we can’t postpone day to day things that we need. Globally, strong Demand for these types of stocks began from last week. Some of them have rebounded by 30% now.

[peat]

Too right. Some shares are at a nearly 50% discount to recent values. No major crisis has finished within a month though, so I am still waiting for a bottom. Looks like we might have hit bottom yesterday. I should take Blackpeters advice and get serious about some limited buying of some shares but I am mindful of Phaedrus's advice on using TA to time an entry. Prices are all over the show and maybe QE infinity has stopped the drop but if Covid-19 has pricked the debt bubble then there could be worse to come. The moves in the sharemarkets are historic (c.f. 1929 and 1987) so surely not all over before the end of April, although it feels like it today.

Don't worry there will be a bell ring and then we can all safely pile in again.

[peat]

While I have a great deal of respect for Phaedrus I suggest you also contemplate what Ben Graham said. Always have 25% in equities but no more than 75%.
Because sadly most of us just aren't as good as Beagle.

OF course it depends how you want to position yourself , as a trader or an investor.

[Joshuatree]

I'm still waiting for a bottom but I am watching some 10% jumps in prices today so wonder if yesterday was the bottom. I need to go away and calculate value rather than watch prices.

Thanks JT if I take the average 14months then I have twelve left before the bottom. Are we really not going to have ANY businesses fail due to Covid-19?

This one is unprecedented though so those figs may be meaningless and the drop has been so swift, im reading the velocity has been -37% (fall per month)so far , the 87 crash velocity was -16% the GFC -4 %. I guess the recovery when it comes(who knows) may be similarly paced to the upside.

[Saamee]

I'm still waiting for a bottom but I am watching some 10% jumps in prices today so wonder if yesterday was the bottom. I need to go away and calculate value rather than watch prices.

Thanks JT if I take the average 14months then I have twelve left before the bottom. Are we really not going to have ANY businesses fail due to Covid-19?


Beware of the Bear Market Rally....


A very good read >> https://www.zerohedge.com/markets/one-thing-playing-bear-market-rally

[Aaron]

While I have a great deal of respect for Phaedrus I suggest you also contemplate what Ben Graham said. Always have 25% in equities but no more than 75%.
Because sadly most of us just aren't as good as Beagle.

OF course it depends how you want to position yourself , as a trader or an investor.

If you could ring the bell for me that would be great. So far it has been historically big with central bank responses historically big but this has been the cycle since 1987.I am not saying this crisis will be like all the others but this article had an interesting chart at the bottom.

https://www.zerohedge.com/markets/one-thing-playing-bear-market-rally

Unsure if that is useful or not. looking at it, if it is a process then there could still be a way to go for the US and therefore possibly the NZX. Big rallies overnight so the bottom might already be in, I don't know. Not a trader, I kept my Mercury, Sanford, Spark and MMH shares on the NZX as I have currency trust issues and don't really know what is going to happen so diversity helps me sleep. Also for my small portfolio I would be described as overweight Aussie gold producers. I s**t my pants a few days ago with them but hung tough although I did not buy any more (sadly) as my gut was telling me to. It looks like gold is really catching a bid.(the financial market equivalent of toilet paper, don't want to be caught without any) It has been easy holding as prices have fallen from a great height but as the arrows on my portfolio go from green to red I imagine it will get tougher. ideally I want to be a lucky investor and to build a portfolio that will help me in retirement (if I get there)
My biggest problem is laziness. I don't enjoy reading company annual reports and then trying to figure out the business and whether they have too much debt etc etc so I will be relying on dumb luck mostly.
Thanks for the chart Saamee

[BlackPeter]

Don't worry there will be a bell ring and then we can all safely pile in again.

:t_up: Classic ... :t_up:

[Bjauck]

This one is unprecedented though so those figs may be meaningless and the drop has been so swift, im reading the velocity has been -37% (fall per month)so far , the 87 crash velocity was -16% the GFC -4 %. I guess the recovery when it comes(who knows) may be similarly paced to the upside.
This crash may affect the averages for the crashes. it is also a sort of deliberate crash as government's have exacerbated it by forcing close downs.

I think the OECD had initially forecast a V recession although now they anticipate it may be more of a typical U recession. That may effect the time taken for a stock recovery.

Disc: I have doubled my KiwiSaver voluntary contributions. I am considering a switch back from Conservative to Growth.

[Aaron]

With the sheer quantity of stimulus globally this could be a great reflation already. Wish I knew.

[BlackPeter]

With the sheer quantity of stimulus globally this could be a great reflation already. Wish I knew.

Expect equity prices to steeply go up after the volatility has settled in some weeks or months. So, yes - high inflation ahead for property and stocks. The seed for the next bull run has been planted. Lets hope it will have a long life and does not die early of some congenital conditions (like too much private and public debt, for starters).

[SBQ]

While I have a great deal of respect for Phaedrus I suggest you also contemplate what Ben Graham said. Always have 25% in equities but no more than 75%.
Because sadly most of us just aren't as good as Beagle.

OF course it depends how you want to position yourself , as a trader or an investor.

Warren Buffet studied under Benjamin Graham so i'm quite certain Buffet is NOW putting his cash into working order. Tell me who in the investment community has the patience to sit on 75% - 25% cash for years and years and years?

Unfortunately... your Kiwi Saver funds don't. These managed funds would look like a fool if they held all the incoming cash flow contributions to accumulate so instead, these funds put the onus on the investor by presenting something like 3 options and MAKE THE INVESTOR CHOOSE when to move between conservative to aggressive growth. That way they can't be put to blame if the managed funds underperform or make a mistake. Yet they can charge the nice management fee as what Warren Buffet says, "for literally breathing air".

[kiora]

Worth reviewing
https://www.investopedia.com/articles/stocks/09/buffett-bear-market-strategies.asp?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral&yptr=yahoo

[Hoop]

Saamee you are the only recent poster that comes close to being on topic on this thread (Zero hedge article)...Folks this is the Investment strategies and Secular bear markets thread..Discussion should relate to the secular topics..A secular bear cycle is not the same as a cyclical bear market cycle...

At the moment we are experiencing another cyclical bear market cycle within the present secular Bear Market cycle.

A secular cycle is measured by the long term trend of annualised PE (rising trend Secular Bull / falling trend Secular Bear)..The recent sudden reversion to the Bear Cycle is a cyclical cycle reversion which is measured by the stock Exchange index falling more than 20%..

Wall St has been in a Secular Bear Market cycle since year 2000 ..yes, this current secular bear cycle is 20 years old,

Secular Bears are not feared as the economic growth rate between Secular Bull and Bear cycles are similar but investor behaviour is different..Investors demand "more bang for their buck" during a secular Bear Market causing the stockmarket index growth to be slower than Company growth averaged over the long term..

Basic strategies change with secular cycles..for example did you ever wonder why Life Insurance Salesmen which were prolific during the 1950 1960's went out of favour in the 1970's, the reversion to a secular bear had a lot to do with it...Same thing with superannuation funds over an individuals 40 year working life..The lucky workers that have 2 secular Bull market cycles and one secular bear market cycle during their 40 year working life received a better superannuation than a worker that had 2 secular bear Market cycles and only one Secular Bull Market Cycle
Investors studying Secular Cycles can more accurately predict a future outcome, such as a long period of poor capital growth compensated by higher yield rates during secular bear cycles ..and..long periods of good capital growth with poor yield rates during secular bull market cycles..

Now for the seemingly paradoxical scenario to the investor with no knowledge of what a secular market is....When a secular cycle nears it's end it is the Cyclical Bear that kills off a Secular Bear and a Cyclical Bull that kills off a Secular Bull.

It would be nice if this thread discusses the effect this Cyclical Bear has on this Secular Bear and whether the long term investing strategies should remain the same...

[SBQ]

Saamee you are the only recent poster that comes close to being on topic on this thread (Zero hedge article)...Folks this is the Investment strategies and Secular bear markets thread..Discussion should relate to the secular topics..A secular bear cycle is not the same as a cyclical bear market cycle...

At the moment we are experiencing another cyclical bear market cycle within the present secular Bear Market cycle.

A secular cycle is measured by the long term trend of annualised PE (rising trend Secular Bull / falling trend Secular Bear)..The recent sudden reversion to the Bear Cycle is a cyclical cycle reversion which is measured by the stock Exchange index falling more than 20%..

Wall St has been in a Secular Bear Market cycle since year 2000 ..yes, this current secular bear cycle is 20 years old,

Secular Bears are not feared as the economic growth rate between Secular Bull and Bear cycles are similar but investor behaviour is different..Investors demand "more bang for their buck" during a secular Bear Market causing the stockmarket index growth to be slower than Company growth averaged over the long term..

Basic strategies change with secular cycles..for example did you ever wonder why Life Insurance Salesmen which were prolific during the 1950 1960's went out of favour in the 1970's, the reversion to a secular bear had a lot to do with it...Same thing with superannuation funds over an individuals 40 year working life..The lucky workers that have 2 secular Bull market cycles and one secular bear market cycle during their 40 year working life received a better superannuation than a worker that had 2 secular bear Market cycles and only one Secular Bull Market Cycle
Investors studying Secular Cycles can more accurately predict a future outcome, such as a long period of poor capital growth compensated by higher yield rates during secular bear cycles ..and..long periods of good capital growth with poor yield rates during secular bull market cycles..

Now for the seemingly paradoxical scenario to the investor with no knowledge of what a secular market is....When a secular cycle nears it's end it is the Cyclical Bear that kills off a Secular Bear and a Cyclical Bull that kills off a Secular Bull.

It would be nice if this thread discusses the effect this Cyclical Bear has on this Secular Bear and whether the long term investing strategies should remain the same...

Secular Bear? Cyclical Bull? Not buying that logic for a moment of breath. Let me show you a chart:

https://virtueofselfishinvesting.s3.amazonaws.com/uploads/reports/2017/4675/history_of_market_corrections2-hires.png

You say 20 years of bear market? Looking at the graph that level is around 12,000 for the DOW. Roughly we're around 21,000 (+/- 2000 on any given day). If you started investing in 2008, you would be still sitting with considerable gains (roughly x 3 times at today's valuation). You can frame your results by cherry picking any time on the chart. But to claim you can time markets based on when they're in a bullish or a bearish run is hog wash. No one with a degree of certainty can time when the stock market can crash. You'll get lucky ones but they have no ability than to make predictions like throw darts on the board.

We should be clear that this global crisis has been caused by man (just as Buffet always speaks about in stock market crashes, a product of human misbehaviour).

Wise investing strategy? Just buy on the dips and forget about in 10 or 20 years time.

[winner69]

Secular Bear? Cyclical Bull? Not buying that logic for a moment of breath. Let me show you a chart:

https://virtueofselfishinvesting.s3.amazonaws.com/uploads/reports/2017/4675/history_of_market_corrections2-hires.png

You say 20 years of bear market? Looking at the graph that level is around 12,000 for the DOW. Roughly we're around 21,000 (+/- 2000 on any given day). If you started investing in 2008, you would be still sitting with considerable gains (roughly x 3 times at today's valuation). You can frame your results by cherry picking any time on the chart. But to claim you can time markets based on when they're in a bullish or a bearish run is hog wash. No one with a degree of certainty can time when the stock market can crash. You'll get lucky ones but they have no ability than to make predictions like throw darts on the board.

We should be clear that this global crisis has been caused by man (just as Buffet always speaks about in stock market crashes, a product of human misbehaviour).

Wise investing strategy? Just buy on the dips and forget about in 10 or 20 years time.

SBQ - both you and Hoop are right but you are talking about completely different things.

Hoops was discussing a secular cycle as measured by the long term trend of annualised PE (rising trend Secular Bull / falling trend Secular Bear).. secular stock market cycles are valuationcycles.


you are talking just about bull/bear cycles ....price cycles

Secular cycles are an interesting study ...but SBQ traders such as yourself are better off not even trying to understand them.

[winner69]

SBQ

Good chart that shows why both you ard Hoop are right

You were commenting on the top part ... price action

Hoop was commenting on the bottom part ...the trend in the PE ratio

Note how the PE ratio is still trending down from its 2000 high ...meaning still in SECULAR BEAR MARKET

That implies that long term expected returns (on US markets) from here are very low

[kiora]

There are indications that NZ will get through the level 4 in around a month with different areas being opened up at different times
Auckland slower to free up
Regions faster which should benefit our exports to pay for it all
Less imports so trade balance shouldn't look too bad
Thank goodness China is getting going again relatively quickly,this should benefit NZ exports

With our exchange rate lower than 2 months ago will we see an influx/flood of money looking for relatively safe investments in NZ?
https://www.stuff.co.nz/the-press/opinion/120612702/where-is-all-the-money-coming-from

[kiora]

Creating options=opportunity
At this juncture, their publicly traded investment vehicle, Berkshire Hathaway US:BRK US:BRK seems to offer investors three ways to win.
https://www.marketwatch.com/story/quiet-warren-buffett-has-three-ways-to-win-in-this-market-2020-04-02?siteid=yhoof2&yptr=yahoo

[kiora]

Often when you don't know what you should do then do nothing but sit on your hands but read,listen & be ready to buy.
In hindsight, you may have missed some good opportunities but don't kick yourself,we all do that but there will a better one around the corner
https://www.marketscreener.com/business-leaders/Warren-Buffett-6/news/When-Buffett-s-Phone-Stops-Ringing-WSJ--30430858/?countview=0
"Mr. Munger, vice chairman of Berkshire Hathaway Inc. and Warren Buffett's longtime business partner, likes to say that one of the keys to great investing results is "sitting on your ass." That means doing nothing the vast majority of the time, but buying with " aggression" when bargains abound."

[kiora]

"Some of the lessons from the current situation were that businesses should not be over-leveraged, and shouldn't rely on just one debt provider, Orr said."
Good advice !
How many businesses stick to one banker?
"Given the Government had made it clear it did not want to be a long-term owner of existing privately-owned commercial enterprises, that implied "bringing in skills" and more partnerships, he said."
As long as its not the banskters!
https://www.stuff.co.nz/business/121162343/business-and-government-will-need-to-join-hands-to-steer-clear-of-dark-places?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Wednesday+2 2+April+2020

[kiora]

Are you allowing algorithms to beat up your portfolio?
https://finance.yahoo.com/news/a-view-from-the-trading-floor-algorithms-having-outsized-impact-amid-coronavirus-panic-160248892.html
A view from the trading floor: Algorithms having 'outsized impact' amid coronavirus panic
"Computer-driven trading algorithms — often faulted for volatile markets even during the best of times — certainly aren't helping now, Aronowitz explained.The algorithms feed off of each other, creating an environment with less liquidity.

"When market volatility increases, liquidity decreases as market makers reduce the inventory they are allowed to carry within their portfolio," the investor explained."
"Often times, prices need to go far beyond "value" before institutional money is willing to step into this type of market. "This ultimately leads to a cycle of calm and market normalcy,"

[kiora]

For you Hoop
"So now, we are going to have even more zombie companies standing in the way of progress, and Potemkin markets whose prices are meaningless.

That scheme will reward some people. But probably not you.?

https://www.interest.co.nz/opinion/104699/mauldin-economics-patrick-watson-bemoans-massive-central-bank-intervention-financial

[SBQ]

For you Hoop
"So now, we are going to have even more zombie companies standing in the way of progress, and Potemkin markets whose prices are meaningless.

That scheme will reward some people. But probably not you.?

https://www.interest.co.nz/opinion/104699/mauldin-economics-patrick-watson-bemoans-massive-central-bank-intervention-financial

Another person who wrote that article, who thinks they're smart. No one audits these goons because what they say today, will never be verified later on in a year or 10 years time. Like Robert Kyosaki has been saying for the past 7+ years that there will be a mega stock market crash... sooner or later as each year goes buy he will guess it right.

What ever happened to the zombies that formed from the 2008 crisis?

Equities are rebounding because the world gov'ts can't let it fail. You're not going to beat them by going against them so might as well joint them. Oh.. cash in the bank? bonds? = nope. What is left then? No wonder the smart money keeps fueling the stock markets.

[kiora]

Oouch I bet they though their money was safe too!
"Franklin Templeton will wind up $4.1 billion of Indian debt funds after a liquidity crisis compelled the firm to freeze investor withdrawals."
"At least 76 European mutual funds with $40 billion in assets suspended redemptions last month, according to Fitch Ratings.
https://finance.yahoo.com/news/franklin-freezes-4-1-billion-035101159.html

Templteton promoted in NZ by a certain broker
I am pleased I got out years ago yudk

[kiora]

Another person who wrote that article, who thinks they're smart. No one audits these goons because what they say today, will never be verified later on in a year or 10 years time. Like Robert Kyosaki has been saying for the past 7+ years that there will be a mega stock market crash... sooner or later as each year goes buy he will guess it right.

What ever happened to the zombies that formed from the 2008 crisis?

Equities are rebounding because the world gov'ts can't let it fail. You're not going to beat them by going against them so might as well joint them. Oh.. cash in the bank? bonds? = nope. What is left then? No wonder the smart money keeps fueling the stock markets.
Are you suggesting here all companies are too big to fail regardless of performance & management?
Really sad

[SBQ]

Are you suggesting here all companies are too big to fail regardless of performance & management?
Really sad

This is not an issue of 'too big to fail'. These companies were completely viable before the virus escaped China. All the gov'ts around the world had no choice but to ramp up the printing press while forcing everyone in quarantine.

Really sad is those financial advisors and analysts that get paid for 'merely breathing air'. The NZ gov't implemented an investment scheme that does not account for such crisis so no one else but the NZ gov't should be held accountable for the stock market crash. On the radio today they talked about 1st time home owners can get funds from their Kiwi Saver fund. Not a word was mentioned how bad it is to sell shares in a crash and the when the person walks in the office to their financial advisor that talks about their Kiwi Saver fund, they're not going to disagree about using the funds for a deposit on a home. Is this to say, the investments in a residential home is BETTER than investments in managed funds? Get real here! No wonder the rich get rich.


Templteton promoted in NZ by a certain broker I am pleased I got out years ago yudk

My father living in Canada had invested in John Templeton's Mutual Funds from the late 80s to shortly after 2000. His returns? Nothing to rave about and despite their fancy charts in their prospectus, they did not show how much the fund was paying in commissions to the financial advisors that sold their clients to buy their managed funds. Hindsight my father should of bought Berkshire Hathaway. I think it's fair to say in N. America where you have over 3,000 different managed funds you can choose to invest in, the vast majority of them DO NOT WORK for the average investor (meaning your working class folk that makes routine contributions every week or month). Yet, over many decades these funds continue to exist and Warren Buffet has demonstrated how Wall Street and gov't regulatories have been effective at promoting it.. selling it ; no different to how auto makers promote their vehicles.

If you sense my tone, a person living in NZ wanting to invest should look at residential properties. If the hassles of dealing with rental payments, upkeep, etc deter the person, then they would be paying huge price by choosing the managed fund route or taking their $ to Craigs, MacQuires, Jarden, etc.

[GTM 3442]

True enough. In the New Zealand environment, successive governments have ensured that property is the most rational choice.

[kiora]

SBQ
Bold statement that they where completely viable before the virus escaped ......

Which companies from the 80's have gone now,all for different reasons?
The point the article makes is
" Financial markets don’t work when people feel no consequences for bad decisions"

[SBQ]

True enough. In the New Zealand environment, successive governments have ensured that property is the most rational choice.

From a NZ perspective, this is not to say there are no OTHER investment choices. It seems successive NZ governments have pulled the wool over the public eyes. Bill English brought in Kiwi Saver without even addressing the tax benefit of investing in residential houses. At this was during a time where we had no 'ring fencing' or 'Brightline Test' on real estate assets.

I would encourage those to check out what Canada has done to make houses affordable or address getting 1st Time Home Owners into a home. Today's radio talk on this subject made no mention what Canada has done and instead, just talked about changing the LDR deposit ratio on a mortgage. They talked about loosening up the Foreign Buyer's ban but the caller didn't seem to understand the reason why we had it in place. In Canada the Federal gov't will loan up to 10% on the value of a NEW home for 1st Home Owners. This loan effectively means the person isn't stuck with trying to save 20% for a mortgage when the housing prices over years keep going up (in effect, never getting into a house at all). It boosts the person immediately by meeting their deposit on the mortgage. Re-payment is due WHEN the hold is sold or in 25 years (and is not tagged on as part of the mortgage repayment); the savings to the home owner in terms of compound interest saved is immense and I applaud the Cdn gov't for promoting this scheme. For existing 2nd hand older homes the gov't only puts up 5%. Anyways, a little off topic.



SBQ
Bold statement that they where completely viable before the virus escaped ......

Which companies from the 80's have gone now,all for different reasons?
The point the article makes is
" Financial markets don’t work when people feel no consequences for bad decisions"

You do realise that it was the gov'ts that caused all this mess? They've destroyed the most critical, productive, part of the economy ; the Working Class. The rich don't need to work, the poor don't work, so what effectively happened? For the majority, all in the effort to save the deaths of the elderly and sick. But no gov't around the world wants to look like a fool, well there were exceptions like S. Korea and Sweden that didn't do a full scale lockdown.

I'll reiterate again, don't blame the financial markets for the collapse of the global economy. We're not talking about an Enron (financial accounting fraud), or the GFC in 2008 where banks misbehaved so how is this an issue of 'accountability' ? No one was misbehaving until this virus broke out and the article is completely missing the point that consequences don't apply if it COULD of been avoided. I have friends in America that are quite pissed off at China for not containing it ; China just played ignorant until it was too late. Now everyone is looking at their gov't to see what they're going to do next. How much $ are they going to dish out and how many of those are going to fight over that money like hungry animals. So in response, the gov't is taking the position that the financial markets must not fail at all costs, even racking up debt exponentially. and gold? lol we're a lot closer to fighting over food than to worry about buying gold.

[kiora]

"The NZ equity market and the potentially the NZ dollar FX market are not pricing-in a prolonged economic recession. However, here in New Zealand there appears to be a weird competition amongst the various economists as to who can have the most doom and gloom in their forecasts for unemployment and GDP growth."
"It is near time for the medico’s, politicians and bureaucrats to step aside and allow our innovative and smart business entrpreneurs shape the new economy with private capital from whereever we can get it"
https://www.interest.co.nz/currencies/104714/roger-j-kerr-says-economic-prospects-have-now-changed-positively-enough-government

[SBQ]

"The NZ equity market and the potentially the NZ dollar FX market are not pricing-in a prolonged economic recession. However, here in New Zealand there appears to be a weird competition amongst the various economists as to who can have the most doom and gloom in their forecasts for unemployment and GDP growth."
"It is near time for the medico’s, politicians and bureaucrats to step aside and allow our innovative and smart business entrpreneurs shape the new economy with private capital from whereever we can get it"
https://www.interest.co.nz/currencies/104714/roger-j-kerr-says-economic-prospects-have-now-changed-positively-enough-government

Let me pick some quotes from the article: "However, China is back to work and very soon Australia and New Zealand will largely be back to work. For this reasons it is difficult to be negative on the NZ dollar outlook, as in relative terms we are just so far ahead in the recovery stakes than Europe and the US."

The numbers i've seen for China do not imply they are back to work and the public there has lost confidence in Xi Ping Pong. Their central gov't basically is forcing the people back to work while trying to impose some level of normality. I'm surprised that Mr Kerr is not looking from the US perspective, specifically that the US is the BIGGEST economy in the world. What does being the largest economy in the world mean? It means they have the biggest wallet and buying power, in terms of disposable income per individual, no other nation is greater. Paraphrasing, "The nation that holds the wallet demands where the products are to be made". Think about it. How does that affect NZ? Well for the past 30 or so years NZ has benefited from Made in China products because the many brands we see at the retail shops are American brands (or Chinese knock offs stolen from western technology). If the US goes on a trend to move production away from China, perhaps say nearby Vietnam or closer to the US say Mexico, then NZ is not going to get the benefit. Certainly not the benefit that we have a Free Trade Agreement between NZ & China. Earlier in the year GM announced to exit the NZ & Australian markets by winding up Holden. Many big American names could do the same as these corporations scale down and focus on their core markets. On the other hand, if China is on a path of decline, so will their demand for NZ products such as our dairy. Remember, NZ on a whole is only a 2 trick economy. 1) being our agriculture exports and 2) our tourism.

"In my view, it is always preferable to take more note of what the financia/investment markets are telling us about likely future economic conditions than what economists and politicians are telling us."

He has a point, but he's not saying much. The fact is NO ONE knows the state of global financial markets at any given time. But the obvious is that they are lower than their Feb peak and by that metric, if you're investing for the long run (10+ years), you're never going to lose by investing now. However he does speak a bit about the NZ exchange rate but makes no mention of NZ's monetary balance sheet, and in relation to NZ's massive drop in GDP. Investors don't want to hear what happened - as his graphs show and no one cares if so and so could of done this or that - that's just 20/20 hindsight waffle.

"New Zealand has a unique opportunity to sell itself as a safe-haven sanctuary for global businesses – a “Switzerland of the South Pacific”.

Not gonna happen. Just look at the nations with favourable tax haven status? They're usually developing economies or a nation known for shady practices. Switzerland historically use to be a tax free haven but the recent introduction of CRS (Common Reporting Standard - by the OECD group) has essentially stripped their bank secrecy laws. Even tax free havens in the Carribean islands have lost that status due to CRS. Also NZ's image has always been on the liberal socialist side and paying taxes so happens to be part of that model. PM Ardern would know (coming from the socialist Labour camp) and if you want NZ investment, then you need to start thinking more American like. For example, "The deaths of Americans lives over COVID19 do not amount to the cost of the economic loss in society". For the past 2 centuries the US came out #1 because of their model of attracting wealth and skilled migrants. Very hard for any other nation to achieve that status today.

I'm no expert, but I do find the NZ local view only paints a partial picture when it comes to investing. Follow where the rich go in terms of investing? They're investing in the US equity markets.

[Saamee]

Another very good reminder about The Bear Market personality...

>> https://www.zerohedge.com/markets/lessons-forgotten-are-relearned-during-bear-markets <<

[Snow Leopard]

...I'm no expert...

Distilling your post down to the releveant bit.

[SBQ]

Another very good reminder about The Bear Market personality...

>> https://www.zerohedge.com/markets/lessons-forgotten-are-relearned-during-bear-markets <<

The lessons of bear markets have not been forgotten. They're just reflected in the state of the economy meaning, in times of euphoria with record high stock prices, investors tend to have funds for investing. Why is that not a surprise? Hindsight thinking says one should sell at record highs and buy at record lows. Yes the layman person gets that but that's not what happens. In major recessions or depressions, there is simply no $ around for those to invest. If unemployment is at 20 or 30%, that's a fair amount of workforce that won't have the $ to invest. I mean you can't blame people for not having $ to start buying at times when they should. This is no different to the managed funds that make similar claims telling people their managed fund is top performing when their inflows of cash are directly tied to the # of those that contribute on a regular basis.

I use to follow a lot of Zerohedge reporting but their quality shifted towards more sensationalism than being factual. Listen to someone more credible here with Ray Dalio doing a TED discussion online on the impact of the COVID19: (and not some fluff from NZ based websites)

https://www.youtube.com/watch?v=yrxYhv2O3wU

[Hoop]

Current status of the Wall St Secular Market Cycle (see Chart) and a very simplistic over-review of what the Secular Cycle is all about...

The current Secular Bear Market has been operating since the year 2000.
Even though it is 20 year old it shows no signs that it is near its end..Although this Secular Bear seems unusually old, Secular Cycles are not time dependent. This Secular Bear has to fall below PE(10) and then do a trend reversal before it is considered dead..this indicates the secular cycles are dependent on distance traveled, not length of time..

Because the cycles are secular (very long term), the crises (both booms and busts) during any secular cycle are considered oscillation noise which establishes the downward trend line points..This suggests the GFC and Covid-19 market crises are just corrective actions helping to confirm the long term (secular) downward trend of this current Secular Bear Market Cycle....Debating and forecasting day by day events or any other major medium term period events in length are not relevant on this forum thread..Its OK to mention them (e.g covid-19) as a possible deciding factor in the long term so we can monitor what effect it could have on a secular level going into the future...The GFC did have a delaying effect on the PE(10) primary downward sloping trend and possibly helped to extend the age of the secular bear..However major noisy events are better written up in detail else on the forum site..

So what's the use of Secular Cycles to the average investor?
Its no use at all for short term investor...It is a long term generational behaviour thing. In saying that many investors consider themselves as long term using Buffett type strategies, but in reality many end up not being so..Many are emotionally driven and unintentionally use the unsuccessful conservative buy near the top (perceived safe to enter due to all the good news and employ a long term investment goal only to sell near the bottom suffering losses and rescue what's left of their capital then precede to repeat the whole thing again ...So the secular cycle stuff is no use to these investors either..This is the reason why Secular Cycles are not on most investors radar and by not focusing on secular theme they don't learn or understand how secular works..

Secular cycles are useful to investors that want to understand stock market physics. It helps answer questions that seem paradoxical or a perception that the market is asleep at the wheel..Questions such as of why investors can be so optimistic/pessimistic/ conservative/speculative consistently over a long periods of time causing the valuations to be (perceived) over or undervalued at the time.. like why the PE ratio can stay so low during an economic boom in relation of the PE ratio being a lot higher during the previous economic boom.
Secular cycles are most of the time a generational thing and the behaviour is not confined only to investors but evident throughout the population as a whole. such as being conservative during the 1930's yet were daredevil risk takers during the 1920's..
1....So its about generational behaviour ,,Daredevil behaviour occurs during the height of secular bull market cycles...an interesting correlation is when PE(10) trends up so does the hem line and song and dance go informal .eg roaring 20's the late 60's and the 90's etc.
2...During periods of conservatism, speculation and risk taking are lowered and this lowers the PE Ratio..This behaviour becomes ingrained and can last up to a generation or longer.
3...To better understand the chart below we know with hindsight that it is not all bad news when the PE(10) line is primary down trending..a lot of Cyclical Bull Markets occur causing PE(10)secondary up trends within the primary down trend such as the recent longest Cyclical Bull market in modern history (2009 - 2020)..Just as many cyclical bull market cycles occur in either bull and bear secular cycles..
Understanding Secular cycles helps expose inaccuracies, such as when a long term normal PE Ratio Chart is displayed and the writer draws an median line through the middle then says that the market is overvalued because the PE Ratio is above the median line..
Also a secular understanding helps an investor creating there own superannuation fund or invest in the equivalent like Kiwi-saver..Basically put, these last 2 decades has not been the optimum time to start superannuation type portfolios. Theoretically the optimum time is at the beginning or during a Secular Bull Market cycle...
3...Predicting the future...How many times how you heard "this time its different"..actually it can be true if that time coincides with a Secular cycle reversion..This time may be different, but not unique as it has happened many times before in history but not during the investor adult lifetime..The secular cycle analysis can confirm this and because it is a cycle future investor behaviour can be predicted to reoccur..As this secular bear cycle is still got along way to fall you can predict that the population ( & investors) will continue to increase their bias on the conservative side (conservatism era)..Conservative investors will be wanting more value/less risk for their money therefore the PE Ratio will trend lower creating that invisible underlying downward pressure on stock prices..Stock price will still rise rises but will have an element of under-performance in relation to their fundamental performance..
4...Predicting the future....Secular Bear cycles that continue to have higher than normal PE(10) as time passes on tend to forecast a period (maybe a decade) of low equity growth..Secular cycles whether bull or bear have no significant effect on economic cycles..The economy performs equally as well under either secular cycle..
5...Although stock prices and Secular cycle PE(10) rises and falls often coincide, you can not look at a price index and indicate an end to a Secular Cycle..Cyclical cycles and Secular cycles are determined by different factors/variables..


11567

[kiora]

Thanks Hoop
For a minute there I thought we might be getting another bowl haircut like in the Quarantine
http://timothypower.dreamhosters.com/2013/02/02/super-bowl-haircut/

But apparently not since that was the start of the 80's & bull territory

[Hoop]

Thanks Hoop
For a minute there I thought we might be getting another bowl haircut like in the Quarantine
http://timothypower.dreamhosters.com/2013/02/02/super-bowl-haircut/

But apparently not since that was the start of the 80's & bull territory
Kiora.. :)
I googled The 3 Stooges.. they started at the beginning of the Roaring 20's (secular bull)...I was amazed they entertained us for 48 years!! (1922 - 1970)..must had been Mo's Bowl haircut..eh :D.
The Beatles likewise beginning early 60's (secular bull)...:)
The Mullet became famous with David Bowie, Rod Stewart in the early 70's (secular bear)..:p I'll say no more.

[kiora]

Kiora.. :)
I googled The 3 Stooges.. they started at the beginning of the Roaring 20's (secular bull)...I was amazed they entertained us for 48 years!! (1922 - 1970)..must had been Mo's Bowl haircut..eh :D.
The Beatles likewise beginning early 60's (secular bull)...:)
The Mullet became famous with David Bowie, Rod Stewart in the early 70's (secular bear)..:p I'll say no more.

You'right Hoop,mullet is still in so definitely secular bear
https://www.rnz.co.nz/news/sport/401319/scientific-evidence-that-shows-mullet-makes-goodhue-faster

AND whats more he is a Taniwha. Taniwhas are always right
https://www.youtube.com/watch?v=SiwISjvX3mM

:cool:

[kiora]

Blackrock at it again
https://finance.yahoo.com/news/why-world-largest-asset-manager-170000680.htmlt
If IFT drops again like it did will it get a new bankster?
Hopefully not.Tightly held & managed?
https://app.companiesoffice.govt.nz/companies/app/ui/pages/companies/597366/shareholdings
133
Twenty largest shareholders
as at 31 March 2020
Citibank Nominees (NZ) Ltd 43,571,042
Accident Compensation Corporation 39,075,418
Tea Custodians Limited 38,905,639
JPMORGAN Chase Bank 36,236,013
HSBC Nominees (New Zealand) Limited 35,536,795
Forsyth Barr Custodians Limited 28,149,999
HSBC Nominees (New Zealand) Limited 27,185,751
FNZ Custodians Limited 26,980,840
New Zealand Permanent Trustees Limited 18,105,636
JBWERE (NZ) Nominees Limited 15,984,268
Cogent Nominees Limited 14,493,930
National Nominees New Zealand Limited 13,193,541
Robert William Bentley Morrison & Andrew Stewart
& Anthony Howard 11,748,820
BNP Paribas Nominees NZ Limited 11,386,872
New Zealand Depository Nominee 8,630,299
New Zealand Superannuation Fund Nominees
Limited 8,480,666
Premier Nominees Limited 8,220,701
Custodial Services Limited 6,315,800
Custodial Services Limited 6,095,255
Investment Custodial Services Limited 4,170,845
Spread of shareholders
as at 31 March 2020
Number
of shares*659,678,837
Number
of holders
Total
shares held %
1-1,000 2,729 1,428,934 0.2
1,001-5,000 7,118 19,597,364 3.0
5,001-10,000 3,636 26,272,067 4.0
10,001-50,000 4,225 85,597,118 12.9
50,001-100,000 413 28,426,700 4.3
100,001 and
Over 239 498,356,654 75.6
Total 18,359 659,678,837 100.0
* 303 shareholders hold less than a marketable parcel of Infratil shares
Twenty largest infrastructure bondholders
as at 31 March 2020
JBWERE (NZ) Nominees Limited 173,096,913
Forsyth Barr Custodians 161,145,338
FNZ Custodians Limited 110,687,978
New Zealand Central Securities 52,633,625
Investment Custodial Services 38,501,105
Custodial Services Limited 38,158,333
Custodial Services Limited 38,003,016
Custodial Services Limited 29,149,818
Lynette Therese Erceg & Darryl Edward Gregory
& Catherine Agnes Quinn 24,120,000
Custodial Services Limited 14,496,990
Forsyth Barr Custodians 9,413,000
Custodial Services Limited 7,026,500
Rgtkmt Investments Limited 6,250,000
Custodial Services Limited 5,289,000
FNZ Custodians Limited 5,196,500
Sterling Holdings Limited 5,130,000
Tappenden Holdings Limited 3,770,000
FNZ Custodians Limited 2,767,930
JBWERE (NZ) Nominees Limited 2,630,000
Garth Barfoot 2,500,000
Spread of infrastructure bondholders
as at 31 March 2020
Number
of Bonds
Number
of holders
Total
bonds held %
1-1,000 5 4,373 -
1,001-5,000 1,266 6,292,194 0.5
5,001-10,000 3,363 32,342,784 2.5
10,001-50,000 8,636 245,452,601 18.8
50,001-100,000 1,406 115,220,657 8.8
100,001 and
Over 810 904,506,916 69.4
Total 15,486 1,303,819,525 100.0

[BlackPeter]

Blackrock at it again
https://finance.yahoo.com/news/why-world-largest-asset-manager-170000680.htmlt
If IFT drops again like it did will it get a new bankster?
Hopefully not.Tightly held & managed?
https://app.companiesoffice.govt.nz/companies/app/ui/pages/companies/597366/shareholdings
133

...


wrong thread?

[kiora]

Right thread for investment strategies :)

[Hoop]

Right thread for investment strategies :)
Wrong thread

[Hoop]

Kiora have a look here ..This weeks' John Mauldin Thoughts from the Front Line (https://www.mauldineconomics.com/frontlinethoughts/valuation-inflation) just about summarizes what this Investment Strategies and Secular Bear Markets Thread is all about. As you read this article remember that the current Wall St Market is in a Secular Bear Market Cycle and has been since the year 2000..Yes this secular bear is 20 years old..

John Mauldin's article shows the possible risks of investing for the long term from now on using the Secular models (charts). His quote (ambiguously mentioned within his Tech sector paragraph) "...At the very least, now looks like a terrible time to buy stocks if your intent is to hold them a long time...."
Another Mauldin's quote which Winner 69 has been mentioning on ST for a while now...
".. The current level of P/E is very high, which portends a decade that will likely deliver low compounded returns...."

Enjoy the read


I have a feeling Crestmont Research updates (https://www.crestmontresearch.com/stock-market/) yesterday prompted John Mauldin to publish this article..From past commentaries it seems to me John has high regard for Ed Easterling's work.

This Investing strategies and Secular Bear Markets thread revolves around much of Ed Easterlings work.

[Hoop]

Seriously!!! ..We have been in a Secular Bear Market for 20 years !!!!..Look around we have been in a Bull Market these last 10 years !!!
Understanding Secular Stock Market Cycles (https://www.crestmontresearch.com/docs/Stock-Understanding-Secular.pdf)

[bullfrog]

Seriously!!! ..We have been in a Secular Bear Market for 20 years !!!!..Look around we have been in a Bull Market these last 10 years !!!
Understanding Secular Stock Market Cycles (https://www.crestmontresearch.com/docs/Stock-Understanding-Secular.pdf)

Thanks Hoops, so all schools of thought agree that we are, and have been in a secular bear market due to the high P/E, well above the historical average, and not the bull market which I thought we were in. An interesting philosophy that maybe is a little disconnected from reality...

Do you think that the more the P/E increases above it's historical av, the more likely that stocks are becoming seriously overvalued, and may need a sharp correction, or is a high P/E the new normal?

[Hoop]

Thanks Hoops, so all schools of thought agree that we are, and have been in a secular bear market due to the high P/E, well above the historical average, and not the bull market which I thought we were in. An interesting philosophy that maybe is a little disconnected from reality...

Do you think that the more the P/E increases above it's historical av, the more likely that stocks are becoming seriously overvalued, and may need a sharp correction, or is a high P/E the new normal?

".... An interesting philosophy that maybe is a little disconnected from reality..."
No No not at all, its very much connected to reality. PE Ratio values are determined by investor behaviour. Reality dictates the cycles and the trends record the changes.

Us Investors are focused on Cyclical cycle investing, so our investment brains are conditioned to cyclical cycle investing.We (de)invest accordingly often dismissing Stockmarket Theory to the stuffy Academics..

Secular Cycle doesn't have events, it has periods....Our Investor brains are not conditioned to Secular cycle investing..Secular market cycles are driven by annualised PE(10) trends (inflation adjusted). Secular cycles relate much better with Stock Market Theory... PE is governed by investor behaviour so with secular cycles the behavior could be generational. Remember your grandparents telling you it pays to save before you buy something so not to have debt...Nowadays anyone will tell you it pays to borrow to buy something,,In a decade or two it will pay to save before you buy again...This is an example of a Behavioural Secular Cycle..
The Stock Market Secular cycle is similar behaviour..A Secular Bear sees increasing conservative investing behaviour and investors wanting less risk and more bang for their buck..This sees a slow down trending of the Annualised PE(10) Ratio.
A Secular Bull cycle sees a slow generational change from low risk conservation to increasing speculative risk taking liberal attitudes and an upward trend of annualised PE Ratio values..

Yes we have seen rising PE Ratio values for a number of years now but on a secular level the overall annualised PE value is down trending starting PE(10) of 47 from the huge 2000 Dot-Com bubble to the now PE(10) of 30 (Secular Bear Cycle)...

[winner69]

".... An interesting philosophy that maybe is a little disconnected from reality..."
No No not at all, its very much connected to reality. PE Ratio values are determined by investor behaviour. Reality dictates the cycles and the trends record the changes.

Us Investors are focused on Cyclical cycle investing, so our investment brains are conditioned to cyclical cycle investing.We (de)invest accordingly often dismissing Stockmarket Theory to the stuffy Academics..

Secular Cycle doesn't have events, it has periods....Our Investor brains are not conditioned to Secular cycle investing..Secular market cycles are driven by annualised PE(10) trends (inflation adjusted). Secular cycles relate much better with Stock Market Theory... PE is governed by investor behaviour so with secular cycles the behavior could be generational. Remember your grandparents telling you it pays to save before you buy something so not to have debt...Nowadays anyone will tell you it pays to borrow to buy something,,In a decade or two it will pay to save before you buy again...This is an example of a Behavioural Secular Cycle..
The Stock Market Secular cycle is similar behaviour..A Secular Bear sees increasing conservative investing behaviour and investors wanting less risk and more bang for their buck..This sees a slow down trending of the Annualised PE(10) Ratio.
A Secular Bull cycle sees a slow generational change from low risk conservation to increasing speculative risk taking liberal attitudes and an upward trend of annualised PE Ratio values..

Yes we have seen rising PE Ratio values for a number of years now but on a secular level the overall annualised PE value is down trending starting PE(10) of 47 from the huge 2000 Dot-Com bubble to the now PE(10) of 30 (Secular Bear Cycle)...

Well explained Hoops

Secular cycles are indeed a fascinating subject

[kiora]

Thanks Hoop
The last 10 years.Wow,what a great time to be invested in the SM
Next 10 years agh???
Watching out for inflation
Investments spread over other asset classes a bit of a hedge I hope.(These other asset classes have seen pretty poor returns over last 10 years due in most part to low inflation but also investment behavior I would assume)

[bullfrog]

" Reality dictates the cycles and the trends record the changes." Ah ha, got it.

Great explanation, actually understood it! Gives me a better understanding of a bigger picture that I was only dimly aware of. I've got a couple of new things to think about now, helps with the "why".

And as a bonus, I can "entertain" people at parties with my new found knowledge...secular, interesting word...did you know... :)

[Hoop]

Alice's Adventures in Equilibrium by John Hussman (https://www.hussmanfunds.com/comment/mc210614/)

Quote: ".....Presently, every one of these deciles is at the most extreme level in history (unlike the 2000 peak, when there was far more dispersion across valuations). This is breathtaking, and I don’t expect it to end well...."

A huge educational read...I have a lot of respect for John even though his fund investment under-performed for a while due to investing in "theory" rather than the crazy world of "practice"..As with other Fundamental Gurus there is a media perception that John is a "perma-bear"

John's fundamental orientation is the basis of his article and skimming through it is very scary....My god look at the size of the Equity Bubble...it is enormous and it's still inflating...

Personally it seems we have slowly moved away from the "real" world and have been happy & content to slide down the rabbit hole into Wonderland where our investment needs are satisfied in the most strangest of ways...

Times up for me to stop typing, and go to lunch ..What a great day, there's a table with a few inhabitants sitting around it..and there's the Mad Hatter....he brews a good cup of Tea.....nice.:)

[BlackPeter]

Alice's Adventures in Equilibrium by John Hussman (https://www.hussmanfunds.com/comment/mc210614/)

Quote: ".....Presently, every one of these deciles is at the most extreme level in history (unlike the 2000 peak, when there was far more dispersion across valuations). This is breathtaking, and I don’t expect it to end well...."

A huge educational read...I have a lot of respect for John even though his fund investment under-performed for a while due to investing in "theory" rather than the crazy world of "practice"..As with other Fundamental Gurus there is a media perception that John is a "perma-bear"

John's fundamental orientation is the basis of his article and skimming through it is very scary....My god look at the size of the Equity Bubble...it is enormous and it's still inflating...

Personally it seems we have slowly moved away from the "real" world and have been happy & content to slide down the rabbit hole into Wonderland where our investment needs are satisfied in the most strangest of ways...

Times up for me to stop typing, and go to lunch ..What a great day, there's a table with a few inhabitants sitting around it..and there's the Mad Hatter....he brews a good cup of Tea.....nice.:)

Interesting lecture - thanks for sharing.

Good to know, however that John has as well only some understanding (well, more than me) about a quite small part of a very complex system following chaos theory.

What he - I think - does not want to see is that human history is not driven by the reality (the small bit of the system I was talking about) he is describing, but by the "incoherent mental formations" he mentioned.

Large parts of human history have been driven by religions and religious conflicts and by ideas and stories about nationhood. Many security prices are driven by stories, and more often than not these stories have no link into reality. Markets don't assess securities according to their earnings potential, but according to their value in a story the individual buyer likes or believes.

A kilogram of gold does not earn me a cent of earnings over time (unless i sell it), and still it has long term a growing price. A Bitcoin does not even look good and has no earnings potential, and it still might have a higher value than the gold I can at least touch. Gold is as well a good example to show that this incoherent value does not necessarily disappear over time.

I think this is the problem of all analysts - we can argue about valuing securities until the cows come home, but what really matters is what another irrational individual is prepared to pay for it. Impossible to predict.

I understand that at Martin Luther's times rich roman catholic individuals paid huge sums of money to receive so called indulgence letters issued by the holy church, promising them forgiveness of their sins for paying money. Just another sort of security supposed to make sure they have a pleasant afterlife and sit close to the creator at the dining table. Would people be these days as stupid? Of course, they are - they are still happy to pay huge amounts of money for something which is - in a system of coherent thinking - absolutely worthless and senseless: Cryptocurrencies, unrealistic valued growth shares, anything where markets pay for a story not linked into reality - and yes, some are still paying money to lying preachers as well.

Johns problem is that he wants to bring everything back to the coherent rules ... and considers the reminder as anomality. It is not. Humans are not made for rationality and happy to value senseless lies. Nobody though found yet a method to predict the irrational valueing behaviour.

Value based on incoherent thinking is not following any coherent rules - which means that nobody is able to predict the future of markets or, to be more specific - the future price of securities. Oops, didn't Ben Graham tell us already that nobody can predict them ... I think this is true not just for an individual security, but as well for the sum of all securities (the market).

I think that John's view of what is going to happen is as good as anybody else's view, but still - a good reminder that the next crash might come (I am sure, it will) - and that it might be the big one (well, for our life times, anyway).

[BlackPeter]

Duplicate (created thanks to insufficient server performance) deleted

[Hoop]

Great post Black Peter...your first one not the second one ;);). Yeah I nearly doubled up on my post too thinking it hadn't gone through..

[Entrep]

Interesting lecture - thanks for sharing.

Good to know, however that John has as well only some understanding (well, more than me) about a quite small part of a very complex system following chaos theory.

What he - I think - does not want to see is that human history is not driven by the reality (the small bit of the system I was talking about) he is describing, but by the "incoherent mental formations" he mentioned.

Large parts of human history have been driven by religions and religious conflicts and by ideas and stories about nationhood. Many security prices are driven by stories, and more often than not these stories have no link into reality. Markets don't assess securities according to their earnings potential, but according to their value in a story the individual buyer likes or believes.

A kilogram of gold does not earn me a cent of earnings over time (unless i sell it), and still it has long term a growing price. A Bitcoin does not even look good and has no earnings potential, and it still might have a higher value than the gold I can at least touch. Gold is as well a good example to show that this incoherent value does not necessarily disappear over time.

I think this is the problem of all analysts - we can argue about valuing securities until the cows come home, but what really matters is what another irrational individual is prepared to pay for it. Impossible to predict.

I understand that at Martin Luther's times rich roman catholic individuals paid huge sums of money to receive so called indulgence letters issued by the holy church, promising them forgiveness of their sins for paying money. Just another sort of security supposed to make sure they have a pleasant afterlife and sit close to the creator at the dining table. Would people be these days as stupid? Of course, they are - they are still happy to pay huge amounts of money for something which is - in a system of coherent thinking - absolutely worthless and senseless: Cryptocurrencies, unrealistic valued growth shares, anything where markets pay for a story not linked into reality - and yes, some are still paying money to lying preachers as well.

Johns problem is that he wants to bring everything back to the coherent rules ... and considers the reminder as anomality. It is not. Humans are not made for rationality and happy to value senseless lies. Nobody though found yet a method to predict the irrational valueing behaviour.

Value based on incoherent thinking is not following any coherent rules - which means that nobody is able to predict the future of markets or, to be more specific - the future price of securities. Oops, didn't Ben Graham tell us already that nobody can predict them ... I think this is true not just for an individual security, but as well for the sum of all securities (the market).

I think that John's view of what is going to happen is as good as anybody else's view, but still - a good reminder that the next crash might come (I am sure, it will) - and that it might be the big one (well, for our life times, anyway).

Amazing post. Interesting that Michael Burry posted the same thing as Hussman just today. https://twitter.com/michaeljburry/status/1404803383589060618

[SBQ]

Amazing post. Interesting that Michael Burry posted the same thing as Hussman just today. https://twitter.com/michaeljburry/status/1404803383589060618

Mr Burry is still short on Tesla (and by a LARGE margin) - wonder when he will cover his position or will he end up like these hedge funds sensationalists such as Bill Ackman's (his massive loss in Herbalife) ?

Buffet appears to be doing far better than these jolos.

[Entrep]

Burry doubling down https://twitter.com/michaeljburry/status/1405602913318178816

[winner69]

Hey Hoops, did you see Crestmont’s latest update

Ed’s stuff is interesting. Secular stuff is intriguing …secular trends remain.

Still in secular bear market he says

A couple of quotes from his email:

The current market environment can be summed up in two words: incongruity and divergence

However, the endurance, persistence, and general consistency of reported EPS over several years calls into question whether the normalized measures are no longer relevant. It could be that This Time is Different... {the finger ache from typing those four words lasted for days}

Either way, the next few years for the markets are unlikely to be boring.

With so much incongruity and divergence, it's a good time to diversify risk in this environment, not simply to diversify asset classes.


https://www.crestmontresearch.com/

[Joshuatree]

https://hotcopper.com.au/threads/negative-real-interest-rates.6528473/?post_id=58814963&embed=1
$10Triilion in bonds paying negative int rates,will keep the Equity markets going.

[BlackPeter]

https://hotcopper.com.au/threads/negative-real-interest-rates.6528473/?post_id=58814963&embed=1
$10Triilion in bonds paying negative int rates,will keep the Equity markets going.

Obviously - this argument only holds until the capital markets crash. Sure - increasing inflation will rapidly remove buying power from the holders of low or negative interest bonds. However - as soon as they have nothing (material) to buy anymore for their bonds (look at historical examples for hyperinflation), stock prices will normalize as well ... which brings us back to the theme of this thread.

[kiora]

This could be quite nasty for these investors & the rest of the listed markets
"Billions in Capital Calls Threaten to Wreak Havoc on Global Stocks, Bonds"
https://finance.yahoo.com/news/billions-capital-calls-threaten-wreak-010512447.html

A bit like having a leaky apartment & getting a call for a $1m to fix?

[kiora]

"The top 1% invest 61% of their wealth in one asset"
https://www.livewiremarkets.com/wires/the-top-1-invest-61-of-their-wealth-in-one-asset

[Valuegrowth]

https://corporatefinanceinstitute.com/resources/equities/bear-market/

[Valuegrowth]

https://www.skagenfunds.fr/topic/investment-philosophy/value-investing-in-the-next-decade-is-it-time-to-retire-the-price-book-metric/

[Hoop]

https://www.skagenfunds.fr/topic/investment-philosophy/value-investing-in-the-next-decade-is-it-time-to-retire-the-price-book-metric/

The writer seems to be using the "now" experience to attempt to value 10years into the future...When one starts using secular charting it shows the metrics haven't changed over the last 1000 years or more..Yes they oscillate within differing degrees of efficiency and shows up using shorter long term charts. But this writer is using today's experiences to deduce that some valuation metrics (not operating efficiently now) will become obsolete in 10 years time..This is a dangerous assumption..Looking ahead in say 10 years time that same writer might an article saying that those old metrics are back in vogue..Nearly every reader will not remember what he wrote 10 years ago.. There are many writers out there doing this stuff and fall in the same trap that this time is different..It is amazing the amount of economic data that has been produced over the years..In the UK there is valid economic date (e.g inflation rate) stretching back to the Magna Carta in 1215 which by law demanded Authorities to keep data records. Before that some data records were kept going back to 1066..Some metrics used then are still valid today such as inflation and various assert valuations.. Record of markets were sketchy but I remember seeing a PE ratio assessment chart dating back to those days..the data is probably dodgy but the metrics used were very basic but still in use today...especially used in long term comparisons.

Anyway each to their own..If it works for him so be it.

Have a look at my post below. It contains a 150 yr chart.. You will see how people get the notion that something doesn't work when in fact it is operating just fine.. The PE ratio is running very high at the moment and yet the market doesn't care..Some people may think the PE model is broken and needs to be thrown away..in reality those people do not understand how complex PE values and other metrics are.

[Hoop]

The optimists who think the bear market is ending and there is great times ahead with the next Bull Market cycle in sight will not like to see my chart below.

The scary thing about this chart is the Annualised PE Ratio value currently sitting at 30.64 and rising. It is easy to see inflation rate being the main driver of Annualised PE (PE10). High inflation or deflation = bad (lower than PE(10) average). Low inflation = good (higher than PE(10) average) Our recent low inflation Era is the reason why the market is "happy" (sentiment) with PE(10) operating at a much higher value than the average 15 -17 area.

However there are moments when the Market goes insane as seen on the charts with the extreme peaks and nadirs..At the moment Wall St market is living off the fumes of the low inflation era and it seems the present market (Wall St) is expecting the recent higher inflation rate to be short lived (in a secular sense)...If the higher inflation rate becomes sustainable and entrenched then expect the PE(10) to fall accordingly.

The PE(10) rule of thumb is anything above 20 is considered overvalued with the red line at >25 considered high risk of a major correction. The blue line< 10 is considered extremely undervalued. However these over and under valued figures depend on the inflation rate of the day of valuation..

For example the 30.4 value from an overall perspective is considered extremely overvalued and the market operating at high risk. Comparing that 30.4 figure two years ago when inflation was near zero % an analyst would have seen that 30.4 figure as being less over valued and a lesser risk than seeing that same figure today with inflation running at around 5%.

The charting of Annualised (inflation adjusted) PE Ratio shows the secular behaviour of the stockmarket (Wall St) which highlights ingrained (generational) investor trading behaviour sentiments which causes the market to be either undervalued or overvalued for very long periods of time.
The chart also highlights the wasted time in trying to determine what is a fair valuation of a market. The chart shows that history seldom sees the market at fair valuation (equilibrium). The Long term PE(10) chart shows the Wall St market is oscillating either between a secular Bull or Secular Bear Market Cycle.


14643

[Valuegrowth]

Thanks Hoop. Your’re absoultely right. Financial ratios are helping me to compare companies and then take better decisions. I prefer five-year average. I also found information overload can lead to poor decisions.

I am really fearful to touch overvalued assets. Intelligent market participants can separate individual attractive companies from the broader market. In other words time to look for hidden gems and out of favour stocks. Of course they should pass my financial ratio test if I decide to buy part of any company(stocks).

The most important information is financial ratios. We can get them from financial statements. For other information we have to do some research. There will be demand for basic necessities or things we use everyday through out the year. People used to drink coffee but they didn’t buy coffee stocks those days. Instead they bought gold stocks and some other stocks. Coffee stocks ended up with muti-baggers.

https://www.bankrate.com/investing/important-financial-ratios/



The writer seems to be using the "now" experience to attempt to value 10years into the future...When one starts using secular charting it shows the metrics haven't changed over the last 1000 years or more..Yes they oscillate within differing degrees of efficiency and shows up using shorter long term charts. But this writer is using today's experiences to deduce that some valuation metrics (not operating efficiently now) will become obsolete in 10 years time..This is a dangerous assumption..Looking ahead in say 10 years time that same writer might an article saying that those old metrics are back in vogue..Nearly every reader will not remember what he wrote 10 years ago.. There are many writers out there doing this stuff and fall in the same trap that this time is different..It is amazing the amount of economic data that has been produced over the years..In the UK there is valid economic date (e.g inflation rate) stretching back to the Magna Carta in 1215 which by law demanded Authorities to keep data records. Before that some data records were kept going back to 1066..Some metrics used then are still valid today such as inflation and various assert valuations.. Record of markets were sketchy but I remember seeing a PE ratio assessment chart dating back to those days..the data is probably dodgy but the metrics used were very basic but still in use today...especially used in long term comparisons.

Anyway each to their own..If it works for him so be it.

Have a look at my post below. It contains a 150 yr chart.. You will see how people get the notion that something doesn't work when in fact it is operating just fine.. The PE ratio is running very high at the moment and yet the market doesn't care..Some people may think the PE model is broken and needs to be thrown away..in reality those people do not understand how complex PE values and other metrics are.

[Valuegrowth]

https://time.com/personal-finance/article/bear-vs-bull-market/


Bear Market vs. Bull Market
(https://time.com/personal-finance/article/bear-vs-bull-market/)

In either type of market, not all stocks move in the general direction of the market. Some stocks by nature move in a contrary direction to the general market. While the terms bull or bear market might be sweeping generalizations, individual stocks may be affected by factors not directly related to the overall movement of the markets.

Long-term investors generally should not change their investing style to accommodate either a bull or bear market. Rather, many experts recommend that they have an asset allocation that reflects their risk tolerance, their investing time horizon, and their long-term goals. Investors should periodically rebalance their portfolio.

[Valuegrowth]

https://macrohive.com/hive-explainers/can-defensive-stocks-protect-your-investment-portfolio/

Benefits of Investing In Defensive Companies

Here are some of the major benefits of investing in defensive stocks:


Defensive stocks are considered some of the safest investments in equities. These companies usually promise decent returns over the long term. Warren Buffet is especially known for preferring defensive stocks. In fact, Berkshire Hathaway (https://www.barrons.com/articles/buy-berkshire-hathaway-stock-warren-buffett-51672341403) in itself is considered a defensive stock by some.
Defensive stocks have a lower beta, which is the volatility of a stock compared to the rest of the market. As such, they tend to be more stable stocks as opposed to cyclical companies.
If the stock pays dividends (https://macrohive.com/hive-explainers/top-5-stocks-with-the-highest-dividends/), they tend to be constant and with a predictable growth rate.
Even if the market is in a bull run, defensive stocks can offer much-needed diversification, even for growth-focused investors.

[kiora]

TNBT
"The next big thing"
"booming market for customer relationship management (CRM) software"
AI increasing exponentialy in this field ?
Listen to Jasons One NZ podcast on Infratil thread

How all customers will be managed?

https://finance.yahoo.com/news/exclusive-google-parent-alphabet-weighs-134439629.html


HubSpot, which listed in the stock market in 2014, provides marketing software to companies that typically have up to 2,000 employees.

"It generated $2.2 billion of revenue in 2023 and posted a net loss of $176.3 million. Despite this loss, investors are excited about the Cambridge, Massachusetts-based company's growth prospects, driving up its shares 50% in the 12 months."