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  1. #11
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    Quote Originally Posted by Kaspar View Post
    According to http://www.multpl.com/ the S&P500 PE is approx 19.31, which compared to the historic mean of 15.50 doesn't seem like 'meltdown' territory. It seems there is room for the bull market to go much, much higher.
    Kaspar...be careful when dealing with PE Ratios...reported earnings can be distorted to create lower equity valued mirages ....To try and create a better gauge through PE normalisation, Shiller is the most famous producing his Annualised PE Ratio which is at a high 24.6 now...this is at the top of Crestmonts Research scale of fair value and is reaching the area where crazy things start to happen....very low inflation is the factor (driver) that is still making that 24 look fairly valued...any rise in inflation or Equity prices and Wall St becomes a red alert area.

    Quote Crestmont Research in their 30th June report
    "...P/E based upon reported earnings is near 18; it remains distorted below the normalized P/E of 23 due to currently high profit margins....."

    High Profit margins is the other main worry John Hussman from Hussman Funds in his weekly newsletter outlines this problem...... quote ..."....that profit margins are about 70% above their historical norms, making raw P/E ratios (particularly those based on “forward operating earnings”) seem fairly reasonable. Understand that the use of raw forward operating P/E ratios implicitly assumes that these profit margins will remain at the most extreme levels in history forever...."


    Not mentioned is the fact that the the S&P500 has been in a Secular Bear market Cycle (down trending normalised PE ratio period cycle) for 13 years now....with the current normalised PE Ratio figure of 24.6 (normally seen at the start of the Secular bear cycle) this would be considered as unusually very high

  2. #12
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    US corporate profits are abnormally high due to the effects of stimulus.....just one more reason why tapering is way over the distant horizon. (Another excuse will be: Govt shutdown impacts on ecomomy......just one more reason why stimulus will roll on).

    If stimulus were to end, abnormally high corporate profits would decline, and then when those corporates start to post results that dissapoint the market....what happens to stocks across the board? And then what would that do to Bernacke's fantasy that "confidence" - as per confidence engendered by a huge stock market bubble - will kick-start consumer spending and get a broader economic recovery happening? In my view Bernacke is divorced from reality: even with a sustained stock market bubble happening, the underlying economy is rooted. Or he knows what the reality is but is caught in a trap of his own making. This is a 'recovery' that benefits the 1% when spending power is desperately needed in the hands of the wider US population. Wage growth is not happening, employment is stagnant.

    The Fed is hopelessly trapped - they've blown up the balloon but this balloon is dependent on the Fed stimulus to stay up. So when can 'stimulus' = 'money printing' end? This is all creating massive distortions in the US economy that are begging for a correction. The longer the money printing continues, the bigger the balloon grows, the bigger the correction.
    Last edited by Logen Ninefingers; 04-10-2013 at 09:59 AM.

  3. #13
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    I would equate the Fed 'strategy' to driving down a highway and your wheels are falling off? How do you fix the problem and ensure a safe outcome for you and your fellow road users? Step harder on the gas!! Get that baby up to 220 mph!!!!

  4. #14
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    Quote Originally Posted by Hoop View Post
    Kaspar...be careful when dealing with PE Ratios...reported earnings can be distorted to create lower equity valued mirages ....To try and create a better gauge through PE normalisation, Shiller is the most famous producing his Annualised PE Ratio which is at a high 24.6 now...this is at the top of Crestmonts Research scale of fair value and is reaching the area where crazy things start to happen....very low inflation is the factor (driver) that is still making that 24 look fairly valued...any rise in inflation or Equity prices and Wall St becomes a red alert area.

    Quote Crestmont Research in their 30th June report
    "...P/E based upon reported earnings is near 18; it remains distorted below the normalized P/E of 23 due to currently high profit margins....."

    High Profit margins is the other main worry John Hussman from Hussman Funds in his weekly newsletter outlines this problem...... quote ..."....that profit margins are about 70% above their historical norms, making raw P/E ratios (particularly those based on “forward operating earnings”) seem fairly reasonable. Understand that the use of raw forward operating P/E ratios implicitly assumes that these profit margins will remain at the most extreme levels in history forever...."


    Not mentioned is the fact that the the S&P500 has been in a Secular Bear market Cycle (down trending normalised PE ratio period cycle) for 13 years now....with the current normalised PE Ratio figure of 24.6 (normally seen at the start of the Secular bear cycle) this would be considered as unusually very high
    I also read Hussman. It is very sobering.

    I have brought put options to protect my portfolio (they are cheap ATM as volatility is still quite low). I hope they expire out of the money.
    Last edited by noodles; 04-10-2013 at 10:53 AM.

  5. #15
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    Quote Originally Posted by Hoop View Post
    Kaspar...be careful when dealing with PE Ratios...reported earnings can be distorted to create lower equity valued mirages ....To try and create a better gauge through PE normalisation, Shiller is the most famous producing his Annualised PE Ratio which is at a high 24.6 now...this is at the top of Crestmonts Research scale of fair value and is reaching the area where crazy things start to happen....very low inflation is the factor (driver) that is still making that 24 look fairly valued...any rise in inflation or Equity prices and Wall St becomes a red alert area.
    Interesting, thanks Hoop.

    Quote Originally Posted by Logen Ninefingers View Post
    I would equate the Fed 'strategy' to driving down a highway and your wheels are falling off? How do you fix the problem and ensure a safe outcome for you and your fellow road users? Step harder on the gas!! Get that baby up to 220 mph!!!!
    Hi Logen, so you believe there is huge underlying problems with the US economy and there is going to be a huge correction at some point. May I ask what steps you have taken to protect your investments? What assets do you see as being well positioned to ride out a storm?

  6. #16
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    Well I'd like to get a wider range of opinions on this forum as to what people see as going on with the us economy....the US nation in general really. I'm intrigued by some of the posts urging me to cut my stress levels or buy a gun and some baked beans.
    I don't believe I should be alone in seeing that it is an inconvenient truth that the US economy is in a dire state. I guess I'm watching this play out with a sense of incredulity and unreality. When major cities in the US go bankrupt, when the US is 2 weeks from default, when government becomes totally dysfunctional, when real unemployment is 23%, when the fed actively 'prints money' to keep the interest on govt debt low, when it starts to fund the US govt overspending via bond buying, when it Irresponsibly continues Its dangerous Interference In order to props up inflated equities markets, when the US economy is on the verge of deflation while the central bank is supposedly 'stimulating' it...........what aren't other people seeing?
    Is anyone curious about the kind of world we may be living in in 2 years time, when the world's cornerstone economy and currency may well have completely thanked?

  7. #17
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    Logen Ninefingers, stress can shorten one’s life dramatically if you allow it too, my advice for you is twofold, firstly cash up and take out a nice fixed term deposit, assuming that you trust banks, then take a five day hike in the mountains and forget about the financial world for a while, this will help you no end.

    If the above doesn’t help you try seeking out some advice from a friendly financial advisor.
    Last edited by MAC; 04-10-2013 at 06:58 PM.

  8. #18
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    When the stock market crashes, and with the underlying economy already rooted, huge wealth will be destroyed but the massive debt from the years of easy money and low Interest rates wIll still be on the books. With revenues collapsed, leaving the US unable to pay it's debts, and anarchy, panic and social chaos becoming the order of the day, what kind of a world will we be living in? Surely one that is vastly different from how we live today.

  9. #19
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    But how does commenting on the unfolding events and stating facts indicate someone is suffering from stress? I'm trying to understand your mindset. I'd say I'm actually incredibly calm. As to the fundamentals of the situation in the US, I'd say that the actions of the fed are unprecedented in US hIstory.This is an interventionist
    experiment that now has both the US government and the US corporate complex addicted to QE. When the fed simply talked about tapering, share and bond markets were rocked by the suggestion. If this is the situation when tapering is merely suggested, how can actual tapering actually happen?

  10. #20
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    Hmmm...can't see that I've been ranting and raving every day about the sky falling in. It's funny to read in other posts in other threads about people who "knew the GFC was coming". Now they shout it from the roof-tops, but won't ever be able to prove they actually did know. Obviously the reason they told no-one at the time is they would have been lambasted as paranoid.
    And others seem to be 'doomsday prepping' but are obviously keeping it on the down-low.

    Just for the record, I'm not hiding under my desk or crazed with fear. I'd say the concensus seems to be the chance of another GFC happening is remote, and it's pointless even discussing it any case. Fair enough.

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