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Guest cherzeca

 

  A correction is healthy and probably inevitable after such a strong start to the year. But basically we've just retraced the 2018 gains and are back to where we were at the end of 2017. And predictably we are already starting to see the "buy the dips" mentality kick in. After strong returns in 2016 and 2017 it wouldn't be surprising if the S&P 500 went sideways this year with more volatility than we've been used to. But unless inflation really kicks off or growth really disappoints it is difficult to see anything resembling a market crash. Even if interest rates drift up towards 4-5% that would still support a PE ratio of around 20 and by the time interest rates get there S&P 500 earnings will probably be more like 120-130 so I can't see us drifting too far from the current level of 2600-2700.

 

 

 

 

I agree with this but i would simplify.  economy is in best position in over decade.  yes valuations got stretched but i use a relativistic measure since i think cape is exaggerated by FC, and my time horizon is longish.  plus, i am pleased to see bitcoin etc has shaken out, not that i was in that.  so yes i'm buying the dip here (SPYs)

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For me, the best part of what's going on right now, is that I've finally managed to get mentally free and detached to these swings. They don't bother me one whit any longer. A condition for taking advantage of them.

 

John, take a deep breath, and make sure to ask yourself if this is because you yourself are ready to take advantage of them, or is it because the market has shown little to no volatility (beyond a week or two) over the last 6 years (since the 2011 drop)? I'm only asking you to take a moment because I respect your insight, and the help you've given me on many Danish names that popped up for me in the past, and I want to know your thoughts tomorrow and beyond as we find a floor or continue to build a top.  :)

 

Sharad,

 

As you already know, I always appreciate your posts. [ : - ) ]

 

Everything is relative, depending on what you hold, and what you want to buy. [Please see attached file # 1].

 

Last night I studied with great interest a Danish company, that has just reported nothing less than minus 9,044.1 percent ROIC. [Please see attached file #2].

Peoples_Perspective_is_key_-_20180205.PNG.94b0dd8169f7cf4c9391575af7794031.PNG

Guess_Who_-_Last_Five_Years_Return_on_Invested_Capital_-_2017-2013-_20180208.thumb.PNG.ee11d3876aca873bbed175a0e8cf3efb.PNG

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  A correction is healthy and probably inevitable after such a strong start to the year. But basically we've just retraced the 2018 gains and are back to where we were at the end of 2017. And predictably we are already starting to see the "buy the dips" mentality kick in. After strong returns in 2016 and 2017 it wouldn't be surprising if the S&P 500 went sideways this year with more volatility than we've been used to. But unless inflation really kicks off or growth really disappoints it is difficult to see anything resembling a market crash. Even if interest rates drift up towards 4-5% that would still support a PE ratio of around 20 and by the time interest rates get there S&P 500 earnings will probably be more like 120-130 so I can't see us drifting too far from the current level of 2600-2700.

 

 

 

 

I agree with this but i would simplify.  economy is in best position in over decade.  yes valuations got stretched but i use a relativistic measure since i think cape is exaggerated by FC, and my time horizon is longish.  plus, i am pleased to see bitcoin etc has shaken out, not that i was in that.  so yes i'm buying the dip here (SPYs)

 

If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x. Hardly an improvement and still very much elevated. The beauty of the CAPE ratio is that it doesn't allow for any one year's bad results to impact the measure too much.

 

I've never bought the argument that market multiples can be inflated because yields were low - but many seem to have bought into that. What do they say when yields are at 2014 levels but equity multiples are dramatically above the 2014 comparables? 

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Guest cherzeca

"If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x."

 

i would say FC adversely affected multiple years past 2008 but i take your point.

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"If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x."

 

i would say FC adversely affected multiple years past 2008 but i take your point.

 

That is likely true, but a CAPE is intended to adjust for the economic highs and lows. I'm sure 2001-2003 had an effect on the CAPE at that time, 1990 around its timeframe, etc.

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Wake me up in 6-8 months, then we'll make the big bucks baby

 

Exactly what I was thinking... expecting to invest a big bonus by then ^^.

 

But if you two are saying it many others are thinking the same thing...... so it is a contrarian indicator.... I would bet the opposite of this, whatever it is.

 

 

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Guest cherzeca

"If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x."

 

i would say FC adversely affected multiple years past 2008 but i take your point.

 

That is likely true, but a CAPE is intended to adjust for the economic highs and lows. I'm sure 2001-2003 had an effect on the CAPE at that time, 1990 around its timeframe, etc.

 

all correct.  it's just that if i think the economy in the next 5 years will more closely resemble the economy of the last 5 years than the 5 years previous to that, then i use a different analytic tool

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"If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x."

 

i would say FC adversely affected multiple years past 2008 but i take your point.

 

That is likely true, but a CAPE is intended to adjust for the economic highs and lows. I'm sure 2001-2003 had an effect on the CAPE at that time, 1990 around its timeframe, etc.

 

all correct.  it's just that if i think the economy in the next 5 years will more closely resemble the economy of the last 5 years than the 5 years previous to that, then i use a different analytic tool

 

Given I'm taking the opposite point of view, and see the next 5 years as being more rocky than the last 5 (similar to the 1987 to 1992), I'd like to understand your arguments (I need to be able to understand all points of view to remove all bias I have). I have been reviewing margin levels, the amount of unwinding the Federal Reserve would like to do simultaneously to the Treasury increasing new debt auctions, and I feel that the market will continue to correct when the 10 year hits 3%, and then will do another round of corrections as the 10 year moves up to 3.25%, etc. With the amount of debt already in the system, and the central banks all trying to let their toddler economies ride their bicycles on their own, I think there will be a number of bumps and bruises on the way, even if GDP remains strong. To me, the equities market will have a much more difficult time, even if the economy does well.

 

I am more than willing to hear all counterarguments, because my opinion and thoughts are always malleable.

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Just to add some food for thought.

 

We know that the markets are primarily driven by algorithms, and that optimization includes backtesting against prior data. As long as the future resembles the past, or does not change QUICKLY, everything's beautifull. But when there's a 'market discontinuity' - the algorithms make the wrong decisions, and exaggerate their errors. As was shown this week.

 

So why not simply trade against them via a bar-bell?.

A core of rolling treasuries, and a rapid move to futures everytime a algorithm blows up. The underlying premise being that in a rising rate environment, and unwinding of QE, there will be reliable FU's - the only question is frequency, and your ability to exploit them. Furthermore, while you're sitting in your treasury ... there's very little risk.

 

SD

 

 

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