giofranchi Posted December 7, 2013 Author Share Posted December 7, 2013 I'm more concerned about a recession than an inflated stock market. I don't own an inflated stock (actually, it's an already deflated one) but the value of the stock would be impacted if the economy were to get significantly worse. In part because of defaults, in part because of loan growth, and in part because of yield curve. So I might be more interested in the macro picture of the economy (it's feeds back into value of the companies) rather than the price picture of the S&P500 (which I don't own). You could say that undervaluation always ends in the same way -- inflation. I'm not sure if that's accurate, but it's the flip side of your claim that overvaluation always leads to deflation. Generally, I agree. Though, it seems a bit difficult to believe that a huge bank could escape the popping of asset bubbles unscathed… Of course, you may say that asset bubbles are still years away, and you’ll worry about them, when you see them. That’s fine! I was not arguing about timing. Instead, I was trying to point out what I think might be the single largest limitation Keynesian policies suffer from. Gio Link to comment Share on other sites More sharing options...
giofranchi Posted December 7, 2013 Author Share Posted December 7, 2013 As far as I am concerned, I think that Mr. Shiller’s definition of stock market bubble is very much understandable and agreeable with, and it is summed up in Figure 11 on page 5: another 20% rise in stock prices and finally will get to the “Red Zone”. Gio EVA+12.6..2013+NA.pdf Link to comment Share on other sites More sharing options...
giofranchi Posted December 7, 2013 Author Share Posted December 7, 2013 This is the full letter by Mr. Hendry and imo a must read. Enjoy! Gio Hugh-Hendry-Eclectica-December-2013-Letter.pdf Link to comment Share on other sites More sharing options...
Guest Posted December 7, 2013 Share Posted December 7, 2013 How much does Hendry manage if it's talking about a $300,000 trade (page 11)? Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 7, 2013 Share Posted December 7, 2013 Though, it seems a bit difficult to believe that a huge bank could escape the popping of asset bubbles unscathed… It's already in the price of the stock. The general consensus is for $1.80 per share of earning in two years. That's a $21.60 stock price at 12x earnings -- that's 38.4% higher than today's price. You get to that price even if every dollar of capital generated between now and then goes towards loan losses -- that's more than $20 billion per year of capital generation, multiplied by two years... in addition to their loan loss reserves! That's a tremendous amount of safety discounted in the price. Link to comment Share on other sites More sharing options...
Guest ajc Posted December 9, 2013 Share Posted December 9, 2013 John Hussman: The Truth Does Not Change According To Our Ability To Stomach It "Our estimate of prospective 10-year nominal S&P 500 total returns has eroded to just 2.3%, suggesting that equities are likely to underperform even the relatively low returns available on 10-year Treasury bonds in the coming decade. Those estimates have had a correlation of over 85% with subsequent 10-year S&P 500 total returns since 1940, and a higher correlation with subsequent returns more recently. We don’t rely on any single estimation method, and some are more complex discounting models, but a number of very good shorthand methods with similar historical reliability are reviewed in the Valuation section of Investment, Speculation, Valuation, and Tinker Bell. Note that these same valuation measures were quite favorable in 2009, and gave us sufficient room to shift to a constructive stance after the 2000-2002 bear market plunge, while warning of overvaluation at the 2000, 2007 and present instances. Despite other considerations that have been unique to this cycle, our valuation measures haven’t missed a beat..." http://www.hussmanfunds.com/wmc/wmc131209.htm Link to comment Share on other sites More sharing options...
giofranchi Posted December 9, 2013 Author Share Posted December 9, 2013 Though, it seems a bit difficult to believe that a huge bank could escape the popping of asset bubbles unscathed… It's already in the price of the stock. The general consensus is for $1.80 per share of earning in two years. That's a $21.60 stock price at 12x earnings -- that's 38.4% higher than today's price. You get to that price even if every dollar of capital generated between now and then goes towards loan losses -- that's more than $20 billion per year of capital generation, multiplied by two years... in addition to their loan loss reserves! That's a tremendous amount of safety discounted in the price. I am covering some short positions today and I will use the proceeds to buy BAC. I still think I don’t understand BAC, but it is just too much difficult to stay short right now… And I respect Eric’s work and point of view very much. Let’s see how this will play itself out! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted December 11, 2013 Author Share Posted December 11, 2013 "A New Widow Maker?" by Mr. Charles Gave GioDaily+12.10.13.pdf Link to comment Share on other sites More sharing options...
Guest ajc Posted December 11, 2013 Share Posted December 11, 2013 Arnold Van Den Berg keynote address at Century Management 2013 review The Century Management CEO & Co-Chief Investment Officer, delivers the keynote address at Century Management's 2013 Client Review. This video shows his talk in its entirety. Some of the topics he discusses include positive indicators for investing, current areas of concern, as well as how to invest in today's environment. The review was held on October 26, 2013, at the Westin Hotel at the Domain in Austin, Texas. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 20, 2013 Share Posted December 20, 2013 It is hard to believe we're on the same planet as two yeas ago: The age of austerity may be nearing an end. After three years of belt-tightening, governments from Washington to Madrid are easing up. That may be good news because one of the forces tempering recoveries in the U.S. and Europe is what economists call the fiscal drag. ... The improving fiscal health of U.S. state and local governments also bodes well for the economy. Their $1.74 trillion in inflation-adjusted spending is 50 percent higher than the federal sector, and they employ seven times more people, according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank. Having declined for three consecutive years, state and local government spending jumped 1.5 percent in the third quarter of 2013, the most since the second quarter of 2009. “The positive incremental effect from stronger state and local activity is considerable,” says LaVorgna, who predicts the U.S. will expand 3.2 percent next year after 1.8 percent this year. http://www.businessweek.com/articles/2013-12-19/austeritys-fiscal-drag-nears-end-as-europe-u-dot-s-dot-go-for-growth?campaign_id=yhoo Link to comment Share on other sites More sharing options...
dcollon Posted December 20, 2013 Share Posted December 20, 2013 Housing “Bubble 2.0″; Same as “Bubble 1.0″, only different actors by Mark Hanson http://mhanson.com/archives/1546?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MarkHansonAdvisers+%28Mark+Hanson+Advisors%29 Link to comment Share on other sites More sharing options...
fenris Posted December 20, 2013 Share Posted December 20, 2013 Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau http://philosophicaleconomics.wordpress.com/2013/12/13/shiller/ Adjustment for goodwill impairments (and other items though not discussed by the author): "With the S&P at 1775, the GAAP CAPE is currently at 24.51, a frightening 60% above its historical (130 year) average of 15.30. The Pro-Forma CAPE, in contrast, is currently at 20.63, a more modest 19% above its historical (59 year) average of 17.35. To be fair, the Pro-Forma data doesn’t extend past 1954, and so the Pro-Forma CAPE average doesn’t include the depressed valuations of WW1, the Great Depression, and WW2, as the GAAP CAPE average does. But in terms of accuracy, that’s a good thing. As we’ll see later, the market dynamics of those eras are of little relevance to the present era." Impact of dividend payout ratio: "The structure of the Shiller CAPE unfairly penalizes the corporate sector for reinvesting profit into EPS growth instead of paying dividends. But that is exactly what modern corporations do in comparison to corporations of the past: they provide a return to their shareholders by reinvesting profit rather than by distributing it. From 1954 to 1995, the S&P 500 dividend payout ratio averaged 52%, while the real EPS growth rate averaged 1.72%. From 1995 to 2013, the S&P 500 dividend payout ratio averaged 34%, while the real EPS growth rate averaged 4.9%." Link to comment Share on other sites More sharing options...
fenris Posted December 21, 2013 Share Posted December 21, 2013 From the same blog: The Single Greatest Predictor of Future Stock Market Returns http://philosophicaleconomics.wordpress.com/2013/12/20/the-single-greatest-predictor-of-future-stock-market-returns/ "The metric in this chart takes no input from any variables traditionally associated with valuation: earnings, book values, profit margins, discount rates, etc. It consists only of a simple ratio between a few numbers that can easily be calculated in FRED. Yet, as a predictor of future stock market returns, it dramatically outperforms all other stock market valuation metrics commonly cited" Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 21, 2013 Share Posted December 21, 2013 What do you suppose will happen next? Pigs flying backwards? Textile Work Winds It Way Back to the U.S. One Chinese Yarn Maker Finds Savings in South Carolina Hard to Resist http://online.wsj.com/news/articles/SB10001424052702304202204579256120230694210?mod=WSJ_hp_LEFTWhatsNewsCollection U.S. Economy Begins to Hit Growth Stride Stronger-Than-Expected Increase in GDP Fueled by Consumer Spending http://online.wsj.com/news/articles/SB10001424052702304367204579270003162012122?mod=WSJ_hp_LEFTWhatsNewsCollection Link to comment Share on other sites More sharing options...
rijk Posted December 25, 2013 Share Posted December 25, 2013 mc/gdp > 115% "significantly overvalued", pe10 > 26 regards rijk Link to comment Share on other sites More sharing options...
giofranchi Posted December 25, 2013 Author Share Posted December 25, 2013 What do you suppose will happen next? Pigs flying backwards? Maybe, the economy will do just fine… I don’t know. What keeps me worrying is a CAPE that doesn’t stop getting higher and higher… Now, like rijk has just pointed out, it breached above 26. If it doesn’t stop increasing, it means that my fear Keynesian policies stimulate prices more than the underlying economy is not yet proven unfounded… Because it simply means that prices keep increasing faster than earnings. If we get to Mr. Shiller’s bubble threshold, a CAPE of 28-29, no matter what the economy does, only two outcomes will be plausible: 1) prices stay flat for a long time, 2) a crash. Of course, I have never seen 1) happen before. Gio Link to comment Share on other sites More sharing options...
giofranchi Posted December 25, 2013 Author Share Posted December 25, 2013 Does the CAPE still work? Giodoes-the-cape-still-work-december2013.pdf Link to comment Share on other sites More sharing options...
Guest Posted December 27, 2013 Share Posted December 27, 2013 http://money.cnn.com/2013/12/26/investing/stock-inflows/index.html "As memories of the financial crisis fade, the amount of money flowing into stock funds in 2013 has reached an all-time high." "Many small investors have been wary of stocks after being burned in the 2008 financial crisis. But the stock market has been on a bull run since 2009 and individuals now seem more afraid of missing out on the rally." Link to comment Share on other sites More sharing options...
Packer16 Posted December 27, 2013 Share Posted December 27, 2013 If you look at flow of funds from Bloomberg this trend began a few Qs ago and is accelerating into year end. Most of the flows YTD have been into international funds. In counterbalance pension funds (per H. Marks) have historic low allocation to stocks and the net inflows into stock funds have not erased the withdraws since 2008. Packer Link to comment Share on other sites More sharing options...
Guest Posted December 27, 2013 Share Posted December 27, 2013 Thanks, packer. I'm listening to you guys still and very close to being fully invested! :) Just starting to get a little cautious here. haha Link to comment Share on other sites More sharing options...
Packer16 Posted December 27, 2013 Share Posted December 27, 2013 It is getting more expensive. I am having to go to Greece to find bargains. Packer Link to comment Share on other sites More sharing options...
obtuse_investor Posted December 28, 2013 Share Posted December 28, 2013 2014 Review and Insight from Gary Shilling => https://www.dropbox.com/s/22w225tfis633h4/131227_TFTF.pdf As I understand, he exercises a modicum of influence over Fairfax Financial and Prem Watsa. Link to comment Share on other sites More sharing options...
Guest ajc Posted December 28, 2013 Share Posted December 28, 2013 Brian Rogers (T. Rowe Price Chairman & Chief Investment Officer) - Wealthtrack Interview “What if nothing is cheap” in today’s market? In a rare interview, Brian Rogers, longtime portfolio of the T. Rowe Price Equity Income Fund, a Morningstar favorite, tells us why he’s worried about risks and “pockets of craziness” in the market and where he is finding value in an expensive world... http://wealthtrack.com/recent-programs/brian-rogers-nothing-cheap/ Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 29, 2013 Share Posted December 29, 2013 2014 Review and Insight from Gary Shilling => https://www.dropbox.com/s/22w225tfis633h4/131227_TFTF.pdf As I understand, he exercises a modicum of influence over Fairfax Financial and Prem Watsa. Bullshit! Cough... Bullshit! Cough... Last year Gary Shilling called for a recession in 2013. Now he's saying that the 2% growth was in line with his predictions in his book. Call it both ways and you've covered yourself. Link to comment Share on other sites More sharing options...
obtuse_investor Posted December 29, 2013 Share Posted December 29, 2013 "Prediction is very difficult, especially if it's about the future." --Nils Bohr, Nobel laureate in Physics Link to comment Share on other sites More sharing options...
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