ERICOPOLY Posted July 29, 2014 Share Posted July 29, 2014 I decided that Walmart is a bubble stock. It's at 15x earnings and those earnings are inflated by government welfare programs. Essentially, they pay less than a living wage, then the government buys food for their employees "the working poor", and the Walmart shareholders pocket the difference. Not sure when that market distortion is going to end. It would take a big political change to get the federal minimum wage raised up to the "living wage" level. That would be the level at which Walmart would be feeding and clothing their own workers, rather than having the government essentially make payroll for them. But I dunno... those kinds of obvious bubbles can go on for a long time. Link to comment Share on other sites More sharing options...
giofranchi Posted July 29, 2014 Share Posted July 29, 2014 I have macro ideas, which are much like Parsad’s. Anyway, my way of investing is little affected by them. I always have some ready cash at hand. Period. Either it is a cash reserve, or it is new free cash generated by my businesses. In my experience, when I have under performed, it was never due to cash, and always due to the fact my investments did poorly. Instead, ready cash at hand has been useful many times, even in the midst of a bull market, because I run a relatively concentrated portfolio (5 to 10 positions), and opportunities might present themselves when none of my other investments is overvalued nor even fully priced. Probably, my macro ideas make me hold a little bit more cash today, than it would be the case if dark clouds weren’t on the horizon… Gio Link to comment Share on other sites More sharing options...
Myth465 Posted July 29, 2014 Share Posted July 29, 2014 I decided that Walmart is a bubble stock. It's at 15x earnings and those earnings are inflated by government welfare programs. Essentially, they pay less than a living wage, then the government buys food for their employees "the working poor", and the Walmart shareholders pocket the difference. Not sure when that market distortion is going to end. It would take a big political change to get the federal minimum wage raised up to the "living wage" level. That would be the level at which Walmart would be feeding and clothing their own workers, rather than having the government essentially make payroll for them. But I dunno... those kinds of obvious bubbles can go on for a long time. I was reading this on my phone, and thought it was a very asute analogy. Was really wondering who posted it, now it all makes sense. .... Link to comment Share on other sites More sharing options...
jouni1 Posted July 29, 2014 Share Posted July 29, 2014 are all the next crashes/bear markets going to look like the historic one in 2008/2009 from now on? or is it more likely we'll get more of the usual 15-25% corrections till the next big one? i remember some grumpy old man saying that people are investing like it's going to happen again but that's not very probable. man what i'd give to be able to time the market ::) Link to comment Share on other sites More sharing options...
bmichaud Posted July 29, 2014 Share Posted July 29, 2014 Not at the party. I'm just now dealing with the noise from a few houses down versus calling the cops. Teenagers will be teenagers, and I just need to let it run its natural course - I just hope it's not from an overdose that lands them in the hospital, rather just a slight hangover. Link to comment Share on other sites More sharing options...
bmichaud Posted July 29, 2014 Share Posted July 29, 2014 Buffett was worried about the market in 1960...it didn't crash until 1974 (quick 20% decline in 1962 was all he got). Buffett said in his 1986 and 1987 letters that there was limited opportunity in the market....the market went in a straight line until 2000. Go back and read this article from 1990: http://fortune.com/2012/11/21/are-these-the-new-warren-buffetts/ Look at how many guys are worried about the market in 1990. We have the easiest money policy in history coupled with an improving economy. I'm actually surprised the likes of MCD, MMM, JNJ, etc aren't trading at Nifty Fifty types of valuations. And this is not new thinking. I did not all of a sudden switch. I was discussing the possibility of us being in a new secular bull at the end of last year, in the thread Secular Bull. The leading authority on bubbles, Grantham, says we need to get to 2 stdev to have this defined as a bubble. He says that's 2250 on the SPX. He came out in 2007 saying there were bubbles everywhere in all asset classes. So he doesn't just throw that term around freely. So the fact that we are not even technically in a bubble while amidst "reckless" policy, is rather impressive, IMO. And to Liberty's point, Barry Ritholtz has been harping on how this is the most hated market run in history - we hit record highs and the "news" is buried not even on the front page of the Finance section of the Journal... I had two relatives who kind of pay attention to the markets come up to me the other day, separately, and ask when we are finally going to get a 10% correction. Hmmm.... Link to comment Share on other sites More sharing options...
Guest Posted July 29, 2014 Share Posted July 29, 2014 bmi and Liberty, I agree with you guys that this time feels different than 2007. That's one reason I haven't been overly concerned. There is still a good amount of talk about another crash and yeah, plenty of people are waiting for a correction. I got smacked around 2007 because I used the same kind of logic - it didn't feel like 2000. There wasn't this massive euphoria (in the stock market) and there was a lot of chatter about how oil would throw us into a recession. I didn't buy a house and lived with my folks just saving up a bunch. I figured we'd have a housing correction, people would realize that housing isn't all that great of an investment and that money would flow to the markets. I was wrong - big time. haha I looked at the market in normal recession (1990) and though "even if we go through a recession, it probably wouldn't be terrible." After all, the market was only down a couple points or so in 1990 for the year. This wouldn't be like 2000, since there wasn't tons of euphoria! Needless to say...I was wrong. I'm keeping a closer eye on it now. And, I think a lot of other people are too. Obviously, when people are more focused like that, it reduces risk. A friend of mine has had almost his entire 401k in cash over the past year in a half. So he's missed out on 2013. In regards to Hussman, perhaps the following will be true. A quote from Liberty's favorite book: "So the last will be first, and the first will be last." Matthew 20:16 ;) Link to comment Share on other sites More sharing options...
Myth465 Posted July 29, 2014 Share Posted July 29, 2014 Not at the party. I'm just now dealing with the noise from a few houses down versus calling the cops. Teenagers will be teenagers, and I just need to let it run its natural course - I just hope it's not from an overdose that lands them in the hospital, rather just a slight hangover. Be honest - You are the old guy yelling get off my lawn, back in my day ..... JK. I remember our posts back in 2010 / 2011. Amazing we still are at this point. Also really good point on everyone wanted a pullback. I watch BNN Market Call and I hear it in every other call. People are hyper aware of 2008-2009 and looking for the next fall. Link to comment Share on other sites More sharing options...
Palantir Posted July 29, 2014 Share Posted July 29, 2014 Even if market is overvalued does that necessarily mean a massive correction? Couldn't it just be a few years of mediocre returns? I think the bearish arguments qr no different than the ones argued for the past five years, then why is this time different? Link to comment Share on other sites More sharing options...
yadayada Posted July 29, 2014 Share Posted July 29, 2014 Also if everyone is afraid it is a bubble all the time, shouldn't that mean we are not in one? Look on SA and reddit investing, everyone is afraid the market will crash. Talked to someone who doesnt know much about investing, and when I told him Im investing he asked if I wasn't worried the market is overheating. It seems you need the opposite ingredients for a bubble. Where everyone and their mother talks about investing in stocks, or some asset class, and how they will go up. Link to comment Share on other sites More sharing options...
bmichaud Posted July 29, 2014 Share Posted July 29, 2014 It's interesting to read the LA Times archives leading up to the 1987 market crash. There was a headline not a week before about how dangerous the market was. So there is likely always some skepticism in a big market run. However, there were many more signs of excess leading up to that peak, many if not all of which are not present now. Link to comment Share on other sites More sharing options...
Valuebo Posted July 29, 2014 Share Posted July 29, 2014 It's interesting to read the LA Times archives leading up to the 1987 market crash. There was a headline not a week before about how dangerous the market was. So there is likely always some skepticism in a big market run. However, there were many more signs of excess leading up to that peak, many if not all of which are not present now. Correct. Do most here believe that a correction is unlikely to happen because there is a lot of talk about corrections/overvaluation out there? I'm sure there was a lot of talk about a possible correction by mid 1936 as well (and many likely have predicted it publicly) yet the correction in 1937 happened nonetheless. Link to comment Share on other sites More sharing options...
Guest Posted July 29, 2014 Share Posted July 29, 2014 Even if market is overvalued does that necessarily mean a massive correction? Couldn't it just be a few years of mediocre returns? I think the bearish arguments qr no different than the ones argued for the past five years, then why is this time different? Yeah, that could certainly be the case of just a few years of mediocre returns. However, let's look at the other side of the coin. Is the risk that the Fed (and all the other world reserve banks) be able to handle the unruly beast that is the world's economy? Are you being compensated for that risk based on projected returns? I'm not so sure of that. Link to comment Share on other sites More sharing options...
yadayada Posted July 29, 2014 Share Posted July 29, 2014 looking at this: http://www.multpl.com/s-p-500-earnings/table We should have an earnings correction soon. Usually after 5-6 years of growth like this... Allthough it does seem that a lot of cyclical industries have been holding off on replacing since 08-09. So there still might be some pent up demand out there. Link to comment Share on other sites More sharing options...
Gamecock-YT Posted July 29, 2014 Share Posted July 29, 2014 Also if everyone is afraid it is a bubble all the time, shouldn't that mean we are not in one? Look on SA and reddit investing, everyone is afraid the market will crash. Talked to someone who doesnt know much about investing, and when I told him Im investing he asked if I wasn't worried the market is overheating. It seems you need the opposite ingredients for a bubble. Where everyone and their mother talks about investing in stocks, or some asset class, and how they will go up. That's pretty much how I feel as well. It's always when you least expect it. Link to comment Share on other sites More sharing options...
oddballstocks Posted July 29, 2014 Share Posted July 29, 2014 We've been spoiled coming out of the crash with the abundance of good ideas. You could run a screen and within the first five or ten names you'd find a good investment. There are ideas out there, I revisited my investment in Hammond Manufacturing yesterday, they're still at 54% of BV and 6x earnings. These companies are floating out there, but it takes more work to find them. Maybe you only find an idea once a month instead of once every two days. Is that terrible? My impression is most people on this board own about 6 stocks. If you have a 25% turnover you have 12 months to find two stocks. Yes, there are fewer opportunities but there are at least two cheap stocks out there over the course of a year. Link to comment Share on other sites More sharing options...
VAL9000 Posted July 29, 2014 Share Posted July 29, 2014 We've been spoiled coming out of the crash with the abundance of good ideas. You could run a screen and within the first five or ten names you'd find a good investment. There are ideas out there, I revisited my investment in Hammond Manufacturing yesterday, they're still at 54% of BV and 6x earnings. These companies are floating out there, but it takes more work to find them. Maybe you only find an idea once a month instead of once every two days. Is that terrible? My impression is most people on this board own about 6 stocks. If you have a 25% turnover you have 12 months to find two stocks. Yes, there are fewer opportunities but there are at least two cheap stocks out there over the course of a year. Was just about to post on this topic. The probability of finding a bargain in this market is much lower than 2009. If you weren't good then, you might want to think about playing it safe now. I chose very well over the past 5 years and I'm basically tapping out now. All new funds or all divested assets are moving into very safe, boring businesses. In short I am turning over my wins into low probability losers. The real market (meaning american business) is heating up like crazy. The stock market forecastsed this behavior. Chances are if you're spending a lot of time value investing right now, you are missing out on earning potentially greater sums by working/doing business/making moves. That's one of the major reasons I have personally been inactive on the board. When work slows down, I know it's time to bargain hunt. When work speeds up, it's time to do real work. Link to comment Share on other sites More sharing options...
CorpRaider Posted July 29, 2014 Share Posted July 29, 2014 Bonds seem likely to be distorted, unless you buy this "new neutral", its different this time, long period of slow to no growth and inflation, which I suppose is plausible given demographic trends in the developed world. Link to comment Share on other sites More sharing options...
enoch01 Posted July 29, 2014 Share Posted July 29, 2014 We've been spoiled coming out of the crash with the abundance of good ideas. You could run a screen and within the first five or ten names you'd find a good investment. There are ideas out there, I revisited my investment in Hammond Manufacturing yesterday, they're still at 54% of BV and 6x earnings. These companies are floating out there, but it takes more work to find them. Maybe you only find an idea once a month instead of once every two days. Is that terrible? My impression is most people on this board own about 6 stocks. If you have a 25% turnover you have 12 months to find two stocks. Yes, there are fewer opportunities but there are at least two cheap stocks out there over the course of a year. Was just about to post on this topic. The probability of finding a bargain in this market is much lower than 2009. If you weren't good then, you might want to think about playing it safe now. I chose very well over the past 5 years and I'm basically tapping out now. All new funds or all divested assets are moving into very safe, boring businesses. In short I am turning over my wins into low probability losers. The real market (meaning american business) is heating up like crazy. The stock market forecastsed this behavior. Chances are if you're spending a lot of time value investing right now, you are missing out on earning potentially greater sums by working/doing business/making moves. That's one of the major reasons I have personally been inactive on the board. When work slows down, I know it's time to bargain hunt. When work speeds up, it's time to do real work. This has almost been my exact experience as well. I work in the engineering services field. Backlog is growing by leaps and bounds, and we are hiring the people we should've been hiring probably last year (we were still too scared to hire much last year). Link to comment Share on other sites More sharing options...
Liberty Posted July 29, 2014 Share Posted July 29, 2014 Correct. Do most here believe that a correction is unlikely to happen because there is a lot of talk about corrections/overvaluation out there? I'm sure there was a lot of talk about a possible correction by mid 1936 as well (and many likely have predicted it publicly) yet the correction in 1937 happened nonetheless. I think there's a big difference between a correction and a bubble bursting. I don't think anyone here is saying that a correction is unlikely at basically any time. You just need some random event to want to make everybody hit sell at the same time. But a bubble bursting usually takes years to sort itself and wipes out whole sectors of the economy, and it scars people about a certain asset for a long time. I think we could have a correction tomorrow, but I doubt that we're in a bubble/mania. I don't remember who said it, but there was a quote in another thread about how we're the bubble generation and seeing bubbles everywhere because we had 2 in a decade, but for most of the past century, bubbles weren't really a frequent problem. There were corrections and recessions, but it's not a given that there's going to be a bubble every 5 years. Link to comment Share on other sites More sharing options...
Guest Posted July 29, 2014 Share Posted July 29, 2014 Correct. Do most here believe that a correction is unlikely to happen because there is a lot of talk about corrections/overvaluation out there? I'm sure there was a lot of talk about a possible correction by mid 1936 as well (and many likely have predicted it publicly) yet the correction in 1937 happened nonetheless. I don't remember who said it, but there was a quote in another thread about how we're the bubble generation and seeing bubbles everywhere because we had 2 in a decade, but for most of the past century, bubbles weren't really a frequent problem. There were corrections and recessions, but it's not a given that there's going to be a bubble every 5 years. In the past though, has the Fed manipulated the market like it has over the past 15-20 years? Link to comment Share on other sites More sharing options...
Liberty Posted July 29, 2014 Share Posted July 29, 2014 In the past though, has the Fed manipulated the market like it has over the past 15-20 years? There's always something that is blamed when things go wrong. Price controls, the cold war, OPEC embargoes, hedge funds, HFT, globalization/outsourcing, wars, politicians, etc.. Personally I'm not as down on the fed as you are. I used to be, but the more I learn from smart macro guys like Dalio, the more I realize that deflation is bad and that when credit goes "poof", you need someone to step in and add liquidity or you get in a downward spiral that is very hard to get out of. If the fed wasn't doing what it's doing, we might be wishing it was (see the great depression when monetary policy was tight at the wrong time). Link to comment Share on other sites More sharing options...
Hielko Posted July 29, 2014 Share Posted July 29, 2014 I don't know a whole lot about macro, and I don't think it helps a lot to spend a lot of mental energy on it, but http://www.philosophicaleconomics.com/ is absolutely worth reading if you want some counter arguments against what John Hussman is saying. Link to comment Share on other sites More sharing options...
Liberty Posted July 29, 2014 Share Posted July 29, 2014 I don't know a whole lot about macro, and I don't think it helps a lot to spend a lot of mental energy on it, but http://www.philosophicaleconomics.com/ is absolutely worth reading if you want some counter arguments against what John Hussman is saying. Agreed. I've been reading his blog for a while and have posted a few of my favorite pieces in the Macro Musing discussion thread. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted July 29, 2014 Share Posted July 29, 2014 I decided that Walmart is a bubble stock. It's at 15x earnings and those earnings are inflated by government welfare programs. Essentially, they pay less than a living wage, then the government buys food for their employees "the working poor", and the Walmart shareholders pocket the difference. Not sure when that market distortion is going to end. It would take a big political change to get the federal minimum wage raised up to the "living wage" level. That would be the level at which Walmart would be feeding and clothing their own workers, rather than having the government essentially make payroll for them. But I dunno... those kinds of obvious bubbles can go on for a long time. I was reading this on my phone, and thought it was a very asute analogy. Was really wondering who posted it, now it all makes sense. .... Good to hear from you Myth. Link to comment Share on other sites More sharing options...
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