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
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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
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
:blink::blink::blink::blink: Blink!!!
http://i458.photobucket.com/albums/q...YM20072008.png
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.
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
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/q...8022014VIX.png
Article from Seeking Alpha 10th March 2014
http://static.cdn-seekingalpha.com/i...png?1320175459 Cam Hui
Mutual fund manager, bonds, ETF investing
Profile| Send Message| Follow (4,735)
New All-Time Highs = Secular Bull Market?
Mar. 10, 2014 5:56 AM ET | 6 comments | Includes: BXDB, BXUB, BXUC, CRB, DIA, EPS, FEZ, IVV, QQQ, RSP, RWL, SDS, SFLA, SH, SPXU, SPY, SSO, TRND, UPRO, VOO
Five years after the market bottom in 2009 (also see my cautiously bullish Phoenix rising? 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/u...SPX_thumb1.png
Elevated valuation
The technical evidence is certainly there, but my inner fundamental investor remains conflicted because valuations are elevated. Doug Ramsey 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.He went on to qualify those valuations on the basis of the low interest rate regime:
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.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.Whither corporate margins?
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.
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 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/u...GDP_thumb1.png
There have been a number of warnings on this so-called favorite valuation metric of Warren Buffett. As an example, Forbes 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.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.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.
Jesse Felder (via Business Insider) 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."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.
-Warren Buffett
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 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?):
(click to enlarge)http://static.cdn-seekingalpha.com/u...ADP_thumb1.png
Eurozone equities remain in an uptrend:
(click to enlarge)http://static.cdn-seekingalpha.com/u...X5E_thumb1.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?):
(click to enlarge)http://static.cdn-seekingalpha.com/u...CRB_thumb1.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. ("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."
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 (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/q...ar21112013.png
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.
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 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
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/...cture-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 Article 04/21/2014 The Adaptive Genius of Rigged Markets Article 04/17/2014 Dr. Ben Hunt: How Sentiment and Narratives Shape the Crowd Newshour, Guest Expert 04/08/2014 The King Is Dead, Long Live the King Article 03/24/2014 Two Shifting Narratives Article 03/17/2014 Panopticon Article 02/12/2014 Goldilocks and the Dog That Didn’t Bark Article 12/10/2013 The Stuka Article 12/02/2013 A Dogmatic Slumber Article 11/19/2013 When E.F. Hutton Talks Article
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:
An update chart from "Chart of the Day"
http://www.chartoftheday.com/20140604.gif
.........http://i458.photobucket.com/albums/q...Untitled-3.png
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? ...
How to spot a bull market top
by The Investor on June 20, 2013
- http://www.sharetrader.co.nz/newrepl...streply&t=5171
- http://www.sharetrader.co.nz/newrepl...streply&t=5171
http://monevator.monevator.netdna-cd...ear-market.jpg
Veteran UK investor Jim Slater is known for his penchant for high-flying growth shares. But that doesn’t mean he’s always optimistic.
Slater has lived through many market cycles 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 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, here are Jim Slater’s signs of the top of a bull market.
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 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.
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.
Want to learn more from Jim Slater? Check out his superb guide for small cap stock pickers, The Zulu Principlehttp://www.assoc-amazon.co.uk/e/ir?t...2&a=B004G8QHOU.
An Article from The Short Side of Long
Another Look At Margin Debt
June 22, 2014
Chart 1: Margin debt peaked in Feb while the market continues higher…http://i1.wp.com/shortsideoflong.com...size=625%2C456 Source: dShort.comAs 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 as well as in other asset classes, while the technical perspective is showing the US index at a very much overbought 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...size=625%2C476 Source: J Lyons FMI
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
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.
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/q...arJune2014.png
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 :)
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.
Attachment 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.
Attachment 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.
Attachment 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.
Attachment 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.
Attachment 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.
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.
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.?
http://davidstockmanscontracorner.c....mpaign=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."
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.
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..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/d...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? 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/r...point-logo.png
Note from dshort: Yesterday Political Calculations posted a fascinating article entitled Dividends: A Resurgence of Recessionary Conditions, 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, 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.
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.
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.
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 that a new recession is underway, a view which, I would counter, is not supported by the Big Four economic indicators.
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.
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.
I second that
Good stuff 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/q...014overlay.png
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/il...arkets-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.
Can we see beginning of bear market in 2015 or strong correction as predicted by Prof. Siegel?
http://www1.realclearmarkets.com/201...15_160941.html
December 9, 2014
Prof. Siegel: Expect a Big Stock Market Correction in 2015
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
The Tell
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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“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. (Just Google Robert Shiller bubble 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 over the previous 10 years. In Shiller’s New York Times 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 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
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
Euro-Area Deflation Risks Mount with Falling Consumer Prices
DYOR
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/fron...sunami-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
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//Multimedi...5-e286f69b8633
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
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
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.
Very good post that was Hoop
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.
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.
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?
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?
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
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/q...28112014-1.png
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.
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).
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?
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/jp...s-chart-2015-1
By JP Morgan so must be true
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/q...0017012015.png
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."
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?
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
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
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
Percentage Loss Percent Rise To Breakeven 10% 11% 15% 18% 20% 25% 25% 33% 30% 43% 35% 54% 40% 67% 45% 82% 50% 100%
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/q...0portfolio.png
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.
Phew ,how can he sleep ?
http://www.stuff.co.nz/business/worl...e-nz52-million
Interesting article.Food for thought
http://www.nzherald.co.nz/best-of-bu...ectid=11520783
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.
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/Top...PMH99OGMQ9D2AA
http://www.sharetrader.co.nz/images/misc/quote_icon.png Originally Posted by Hoop http://www.sharetrader.co.nz/images/...post-right.png
... Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall...
..
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/q...15%20chart.png
http://ei.marketwatch.com//Multimedi...7-0015c588e0f6
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/doc...esentation.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.
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..."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/d...-Indicator.gif
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
Major Stock Bear Awakening
Adam Hamilton January 15, 2016
http://www.zealllc.com/2016/mstbeara.htm
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/q...GNPoverlay.png
This secular bear market cycle has been very unusual according to its hypothesis....The main obvious point is it's CAPE indicator being reluctant to oscillate down towards 10 as it should be doing..
I've spent some time lately on trying to figure out why the today's market (secular Bear) is so reluctant to "do its natural thing" and cycle back down to <10 in its normal (historic trend) oscillating fashion...Obviously Central Bank has a part to play in the todays world but secular movements are usually trader behavioural and not overly affected by business or economic behavioural scenarios..In other words when there is a secular Bear market cycle in progress (as it has been on Wall St since the year 2000), the very long term falling PE trend is not due to deteriorating economic conditions but due to Investors attitudes changing in wanting better value for their money invested..They as a herd have become more fussy.
So why in his today's world with a secular bear market cycle in progress do we have an unusually very high PE, market earnings uncertainty, investor anxiety, and a lack of investor sense in wanting better value for their money??
An Article written on Seeking Alpha by Lawrence Fuller seemed just another one of these doomsday articles with dramatic headlines SELL EVERYTHING!..I nearly didn't read it.
Writing about crashes during an exhilarating Equity boom party is analyst suicide...Sticking ones reputation on the line is usually only done when ones reputation is not that good to start with...It doesn't matter how fundamentally overvalued the market is..if all the market participants are exuberant and making money they will not see the market as overvalued and will present any evidence they can find not matter have scarce to justify their reasoning..they post it and others find it..so with most market participants having the same reasoning, it is mass self perpetuating justification that the market is in their eyes not overvalued and the market will keep on rising ..nearly everyone agrees, the market is making record highs, so it must be true, so lets us crucify anyone who disagrees with us ..because... how dare they!!! try to destroy our nice financial investments way of life with their "unfounded" pessimism..
So back to this Article written by Lawrence Fuller who says sell everything a day after Wall St reaches another record breaking high..Do read the comments below as some people are cautious (comments longer than the article:))
He basically mentions ....
Individual and institutional investors have been forced to go from money markets to bonds to high-yield bonds to high dividend-paying stocks with ever- increasing levels of risk to achieve their income requirements. The potential for downside is seemingly irrelevant....which seems to answer my question above why investors are not investing for value as they should be..
Moral Hazard
I think that while all of these fundamental issues are major concerns, what worries this elite group of investment minds even more is the issue of moral hazard. There is a lack of incentive for an investor to guard against risk, because he believes that he is being protected from any adverse consequences. In this instance the protector is our Federal Reserve....
.........It is clear that central banks around the world, led by the Federal Reserve, have borrowed from the future, in terms of forward market returns, in hopes of presenting a better today...........
......This is how moral hazard leads to reckless behavior, which ultimately results in bubbles. It has happened over and over again, and this time is no different. The smartest investment minds know this, which is why they are so sternly warning all of us.
Hmmm this time no different...Question:- Have we seen another secular bear market cycle act strangely but similar to the 2000 to now Secular Bear Cycle?..The 135 year S&P500 Shiller PE chart below shows 1929 - 1950 with a similar abnormal peak with following disruptions to the secular cycle oscillation...
Being very basic and excluding all noise (FED QE and all) one can see a theme between the two periods...Both 1929 & 2000 had massive bubbles that burst creating huge financial destruction, a few years later the Great Depression 1932 -35 and the Great Recession 2008-2009 happened...
With an eye on Market physics, the chart below shows the force of the bubble bursting (1929/2000) followed by disruption to the market causing volatile ripples (aftershocks) of fundamental over-correcting/ under-correcting for years until the market finally settled down back again into it's natural ordered rhythm (cyclic oscillation) again..
Similar type of physics to that of a major earthquakes and the following aftershocks, lasting until the pressures are finally equalised.
https://staticseekingalpha.a.ssl.fas...2155_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)
Hoop, great post and - as usual - to very high standard. As well - you clearly know more about market theories than I do, but I still have some questions.
Correct me if I am wrong, but all the market theories are based on observations collected during the most recent say 100 to 150 years. People make observations about correlations and than form a theory about how the market is supposed to behave in future.
Actually - this is similar to climate theories (and I hope that this does not open up another battle field over climate change ... anybody keen to discuss climate change - here is your thread: http://www.sharetrader.co.nz/showthr...climate+change). Scientists took measures over the last 100 to 150 years and are drawing conclusions from them how the climate is supposed to behave in future. And yes, they discovered a lot of correlations - be it with sunspot activity, (de-)forestation or the CO2 concentration in our atmosphere (and many other factors, some we know and others we don't). Now - obviously we don't know, which factors will be the most important to influence the climate in the future (because we are not there yet), but we do know with the climate that there have been in the past huge changes in the climate caused by other things than the factors we are assessing to predict tomorrows climate. Example: Vulcanic eruptions, huge storms (bringing dust into the atmosphere), meteorites crashing into Earth, increase and or decrease of other atmospheric components (like water). Some of the changes enforced as well some positive feedback like e.g. ice ages: more snow coverage caused lower temperatures due to higher sun light reflection.
My question (now back to market theories) is - why do we think that we fully understand the markets based on a quite short period of observations? Maybe the current low interest period is something like a global ice age - basically freezing the market mechanisms for a long time? Looking at the data for the Japanese market over the past 20 years or so might support this idea. Obviously - all sort of equivalents of meteorite crashes or volcanic eruptions can happen in the markets as well, and I don't think that we have a method to predict what might happen and how markets will react medium term to them.
One other question ... markets are obviously influenced by fundamentals, but at least as much by normal human behaviour. Now - it is not always easy to believe for people monitoring the political scene, but humans are capable of learning and of changing their behaviour. If they would not, we still would all swing ourselves from branch to branch through some central African forests.
Which begs the question ... why would we think that things are not different this time? It is different people running the markets - and they do have the knowledge of the last 150 years ... actually, it would be highly unlikely that they don't use this knowledge and with that change the market physics.
What I want to say is - I don't think it is possible to predict the market behaviour based on the last odd 100 years. And sure - given that the market seems to move in waves, it will go down at some stage. Always up is no wave. However - I think we better prepare if we accept that anything can happen - and that there are just certain likelihoods for each scenario.
Personally - I think that a crash a la 1929 is possible over say the next decade, though it would need in my view a massive trigger which I don't see at current. On the other hand ... if we look into the dynamics of dumb mobs supporting in more and more countries populists over moderate politicians - Yes this might bring us at the brink of another large war, and this might upset markets at some stage. Interesting though, that the 1929 crash was not caused by WWII, but actually just triggered it.
I think however that we need to prepare as well for some other scenarios.
One of them would be a financial ice age with low interest rates for decades and very high PE's. Why is this an option? Well, given all the QE's we have ways too much money in the system (meaning no need to pay high interest rates to borrow it), and given that the world population is likely to peak soon - and afterwards likely to shrink is there as well no growth to reduce the money supply (per capita). Another reason for long low interest periods is obviously that no fed wants to bankrupt their own country, which they would do in most of the industrialised countries given their huge debt loads if they rise interest rates more than a couple of base points. I am sure that they all work towards a common goal (keep the interest rates very low).
Last not least do I think that we still need to be prepared (as one possible option) for some years (or decades) of healthy growth to come. Despite the quote "never underestimate human stupidity" (falsely attributed to Einstein) did humans so far always manage to improve lives and living conditions (at least in the long run).
I am sure that this time it is different (it always is), but I don't know in which way ... i.e. I try to be prepared. Sometimes it pays off to adhere to the old boy scout motto.
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/q...%2090%20yr.png
A Crestmont Research PE tool from dshort.com chart showing the relationship between Inflation and Annualised PE Ratios (145 years of data) from a Advisor Perpectives article
Note:.. the Crestmont PE is similar to Shiller PE (PE10) ...not to be confused with the standard PE Ratio
https://www.advisorperspectives.com/...54f7ec5c09.png
A new research paper shows that investors like Buffett and Soros are essentially factor investors.
It's possible to replicate their investing strategies using quantitative models.
https://www.aqr.com/library/aqr-publ...star-investors
A lot of new updated stuff from Crestmont
http://www.crestmontresearch.com/recent-additions/
Still says US in a secular bear market but we are currently in an unusually long cyclical bull market. Summary of 2016
2016: market valuation (P/E) increased further, volatility subsided, and reported earnings increased. P/E is above sustainable levels and beyond the level that is appropriate for a low inflation environment. Regardless of whether the current environment is designated as a secular bear or secular bull, an elevated P/E means that returns over the next 5-10 years will be below-average and years with excess returns (like 2016) simply pull-forward future returns and increase the magnitude of subsequent corrections
This a good article re structuring portfolios in these times
http://www.crestmontresearch.com/doc...-Half-Half.pdf
For me it's still about picking winners and running with them until the merry go round inevitably stops
This merry go round is still working (so as Winner rightly says we should be all in reaping its benefits) but for the last few of years the FED mechanics and others within the US Brains trust have helped to keep it alive against the fundamental odds, hoping it will stay alive long enough to see the next round of the earnings cycle and so let earnings correct the market rather than a large fall in share price.....so full marks to them they have done a good job up to now...but with all Crisis Management there are times when large fundamental chunks fall off the fragile structures that make up the economic network..I think there's been a big chunk fall off recently, and now discovered how will the FED and other react to it.
The FED Beige report was released today (US Time)..Basically it shows an US economy at the mature end of it's cycle...tight labour market pushing up business costs (wage increases) and not enough supply to meet demand (price inflation)..Oil related products have risen in price..Also property prices are higher and rents have increased ..Overall the FED have classed the situation as moderate and it shows inflation (2.7%) is in a rising trend and at a level not seen for the last 5 years...Consumer spending was a bit choppy in some of the 12 FED districts but overall positive..
The fundamental chunk that's fallen off?
Inflation is now outside that 0.5 - 1% Equity sweet spot...History has shown very low inflation can raise the PE value without it being called overvalued...Higher inflation can not raise the PE value without it being called overvalued..Crestmont currently says the PE(10) 27.7 (30th Dec 2016) and together with very low inflation the market price is unjustified and "significantly overvalued...so with the latest data showing a rapid increase in the inflation rate and the current PE(10) of 28.15 The situation has got much worse..
Why hasn't the market corrected?
The market with a current PE Ratio of 25.5 is forward looking.....There is a belief that 2017 earnings will significantly increase....S&P500 forward 12 month earnings ($133.49) lowers the forward PE down to 17.0...which in theory would start to see a lowering of the very high PE(10) and ease the pressure back down from "significantly overvalued"...Again in theory this would show that the S&P500 index price will fail to keep pace with its earnings increase..there is a chance of a fall in the S&P500 in 2017 including the stella earnings results confounding the investor layman into thinking the market is irrational by not appreciating together with that large earnings increase...As Crestmont says current high PE(10) predicts future market underperformance.
John Mauldin has written a great article dated April 9th 2017..
The greatness is the way he wrote it..He took a complex array of stock market metrics (Most of which is already mentioned on this thread) and wrote about it in a way that most readers from Newbies upwards would easily understand...
Due to his strict copyright it may be unwise for me to copy and paste this article in full with reference to the author..Instead go to his www.mauldineconomics.com home page and from there click on "Stock Market Valuations and Hamburgers"...This article is mainly intact but has bits missing urging you to sign up to receive his articles in full via email....Subscribing to these articles is free and all his emails are of high value info....
John Mauldin's article is good starting point for anyone who could never fully grasp the understandings of this Investing Strategies and Secular Bear Market thread... and...also helps learn more about Stock Market Physics (Theory)..
Is a good article on a fascinating subject
This an interesting bit - If there is no recession by 2020, we will have lived through the first decade in 120 years without one
But as in most articles these days these words appeared "this time it is truly different"
I would hazard a guess that many on this forum have only lived through the recent good times and not through a complete secular bull / bear cycle - current conditions are the norm eh.
But as they say bull markets go out with a bang ......and inevitably there will be a bang one day
So watch those charts
Good thread dredge. Been 4 years!
Strategies,there is no right or wrong one
https://www.nzherald.co.nz/business/...+21+March+2020
Five Charts On Investing To Keep In Mind In Rough Times Like These
https://www.sharecafe.com.au/2020/03...es-like-these/
When do markets bottom during a crisis?
https://finance.yahoo.com/news/marke...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/st...more_headlines
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.
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.