I Worry About "The Shot Heard Around The World"

[willie2013]

Deep in the money calls on HDGE are a way to gamble/trade on a "SHOT".

[valueorama]

I have 60% cash. I changed my mind.

 

This is what worries me.  You had a ton of cash in Q1 and then you changed your mind and invested...not based on fundamentals, but market psychology. 

 

 

I havent invested yet. I just changed my opinion on market correction. Regarding cheap stocks. Yes there are far and few. But the good old BAC, AIG, SD and MBIs are still cheap.

[longtermdave]

I'm extremely concerned with the real estate market. Two weeks ago i was looking at a multi family property that has listed on the market for 12 days. Within 12 days it had 2 offers and one of the offers was from an international buyer! This market has NEVER been a market where there are international buyers! I had a convo about this with a president of a local bank and he said that its a dangerous time to invest in real estate due to rent rates have not increased really since 2007. But asset prices have increased 25 plus percent since the lows.

 

What market are you in? I've been funding some people who are flipping residential properties and the term is nearly up on the loan. I've been considering whether I should continue funding their next project since prices are up so much and so quickly.

[SharperDingaan]

The worry is that unrealized gains to date might evaporate?, & you could get burned if you sold too early? So ... dump as soon as XYZ falls X% off its peak, or XYZ starts raising cash through a bond/equity issue. In the meantime enjoy; the most you can lose is the X%, & it is entirely an opportunity loss.

 

SD

[hyten1]

actually for some perspective (for myself as well)

 

After inflation the S&P 500 is 22.4% below its March 2000 high.

[Parsad]

actually for some perspective (for myself as well)

 

After inflation the S&P 500 is 22.4% below its March 2000 high.

 

But that was an extremely overvalued high to begin with.  Cheers!

[Guest wellmont]

actually for some perspective (for myself as well)

 

After inflation the S&P 500 is 22.4% below its March 2000 high.

 

and what relevance does the march 2000 high have to where stocks are today?

[hyten1]

my entire point is, all the talk about ALL TIME highs (on CNBC etc), with inflation adjusted we are not at all time highs, that is all. also  it also shows that stocks overall have not gone anywhere for over 10 years for some perspective.

 

i understand parsad's point

 

 

actually for some perspective (for myself as well)

 

After inflation the S&P 500 is 22.4% below its March 2000 high.

 

and what relevance does the march 2000 high have to where stocks are today?

[rohitc99]

BAC puts have an implied vol of around 20 now. if i recall correctly, 6-9 months back it used to be 30+ and even higher earlier

 

maybe buying these puts could be a less expensive hedge against a long position in BAC and the market too ?

[vinod1]

 

  Europe has a Shiller P/E below 14, and you can read everyday articles in FT and other serious publications warning of an impending eurozone break up, half of Europe is in deflation, etc. We haven't had any QE yet, only austerity and more austerity. The indicators show that all that pessimism is baked into stock prices.

 

Which market do you think has more upside?

 

As James Montier has pointed out, Europe is certainly cheap but only if you assume low probability of a bad Euro scenario. Basically his point is that there is more fundamental risk in Europe and stocks are pricing in a low probability of a major crisis (Euro breakup, etc). They are not cheap if you assume a Euro breakup or long period of Japanese style stagnation.

 

Vinod

 

 

[txitxo]

 

Is it fair to compare these two markets like that?

 

Say you have two companies, EuroCorp and AmeriCorp.  They are exactly the same in every respect except that EuroCorp is based in Paris, and AmeriCorp is based in Chicago.  Which would you rather invest in, given equal valuations?  Doesn't that say something about why the European market looks so cheap on paper?

 

This shouldn't become a political thread, but I think we can all agree that the American capitalistic system is significantly more efficient than the European capitalistic system.  Which system you operate in will impact your business' fortunes.

 

  Sure, the Shiller P/E has been on average 20% higher in the US than in Europe since 1990 (although it was lower before). But now it is about >70% higher. If the Euro doesn't blow up soon (and it doesn't look like it will), EU stocks should outperform significantly. 

 

[vinod1]

This market is making me uncomfortable. Reminds me of the song:

 

"I'm only happy when it rains

You know I love it when the news is bad

Why it feels so good to feel so sad "

 

Vinod

[plato1976]

Are we looking for a 30% correction ? lol

this will erase this rally from last year...

 

actually for some perspective (for myself as well)

 

After inflation the S&P 500 is 22.4% below its March 2000 high.

 

But that was an extremely overvalued high to begin with.  Cheers!

[hyten1]

but i have to say personally,  i tend to buy early (when its going down) and sell early (when its going up)

 

trying to adjust this, wait longer than i usually would, re calibrate my internal gauge (I could just be fooling myself)

 

hope it works

 

also selling is no fun, the massive tax hit, not fun at all (even with long term cap gain, after you add federal plus state etc)

 

i am 40% cash

[txitxo]

 

As James Montier has pointed out, Europe is certainly cheap but only if you assume low probability of a bad Euro scenario. Basically his point is that there is more fundamental risk in Europe and stocks are pricing in a low probability of a major crisis (Euro breakup, etc). They are not cheap if you assume a Euro breakup or long period of Japanese style stagnation.

 

Vinod

 

The Euro break up is certainly an scenario which is not fully excluded yet. But the probabilities are now much lower than 2 years ago. Everybody has done the numbers, and they know the costs. It is cheaper for Germany to let the BCE handle the debt problem by helping with a debt restructuring, than to allow a disorderly euro dissolution.

 

I don't think that a long period of Japanese style stagnation is in the cards. Japan had an enormous asset bubble, there are countries like Spain or Italy which had something similar, but not the eurozone as a whole. The EU Public Debt/GDP is 85%, vs 105% in the US.

 

  Most of the Eurozone economic woes are self-inflicted, because of internal political issues in Germany (which is afraid of inflation) and France (which does not want to relinquish budgetary control). The most likely scenario by far is that  eventually things will get solved, as Warren Buffett said a few days ago. And then stocks should take off.

 

[bmichaud]

Here is Cullen Roche's recent tweet about this market....

 

https://twitter.com/cullenroche/status/332219781895819264

 

 

 

It's unreal to say the least.

[Yours Truly]

 

  Europe has a Shiller P/E below 14, and you can read everyday articles in FT and other serious publications warning of an impending eurozone break up, half of Europe is in deflation, etc. We haven't had any QE yet, only austerity and more austerity. The indicators show that all that pessimism is baked into stock prices.

 

Which market do you think has more upside?

 

As James Montier has pointed out, Europe is certainly cheap but only if you assume low probability of a bad Euro scenario. Basically his point is that there is more fundamental risk in Europe and stocks are pricing in a low probability of a major crisis (Euro breakup, etc). They are not cheap if you assume a Euro breakup or long period of Japanese style stagnation.

 

Vinod

 

Anyone know of James Montiers and Cullen Roche's investment track record? they seem to be quoted a lot which means their opinions seem to matter

[enoch01]

I may buy market puts for the first time in my life.  Could be a bad idea as I probably have no advantage here, but it's an indication of my worry.

 

I have a lot of cash.

 

Cash is a market put

 

Very true.  Plus, the yield on cash isn't that much below yields on junk, so I've got that going for me:

 

http://www.reuters.com/article/2013/05/08/us-bond-junk-idUSBRE9470P620130508

 

"Investors in general are pretty desperate for yield and there's been a lot of money pouring into the market," said Michael Collins, senior investment officer at Prudential Financial.

 

Fearful when greedy, etc.

 

[JBird]

Can you comment on what the indexes should logically be priced at? Given the earning power of say the S&P 500 and where we are with interest rates, what is your calculation of the intrinsic

value of the index (or even a broad range)?

 

And if your answer is that the indexes are overvalued by x, I would ask why that changes your behavior in actively picking individual stocks?

 

 

[LC]

 

While some of our investments remain undervalued, there are several we have sold and are getting out of.  I'm looking at the companies on my watch list, and virtually all that I watch are far above prices I would pay...that's about 200 stocks. 

 

I don't expect 2008/2009, but the faster capital flows into stocks, and the faster that risk premium shrinks, the larger the eventual correction will be...and it will be quick with all of these HFT's kicking in.  I'm happy to wait for a fat pitch with alot of cash on the side.  Cheers! 

I am taking the same position...just recently sold a large position in my Roth...now at about 32% cash. Call it instinct or just the upswing in market prices, but I want to have dry powder now (when the market doesn't want it) versus needing it later when the market may be screaming for it.

[bmichaud]

Roche ran a fund for several years in through the mid 2000s without a down year. He was too all to have to publicly disclose info, but I've seen him post some stuff. His market risk "algorithm" he discusses periodically via the blog, but now through his form Orcam. It has been in risk off mode since early this year, hence his tweet today.

 

My guess is the longer the market stays as irrational as Roche's model or Tixito's says it is, the harder and further it will fall probably in the not so distant future.

 

Montier I have no idea other than he's an awesome writer :D

[ubuy2wron]

Great minds think alike or fools seldom differ you choose...  I have sold pretty much all but three core positions most of them fairly recent buys (ABX) being the most recent. I have as much cash as I have ever had and I am about 25% hedged or short the S&P. I am pretty convinced that both Japan and Europe are going to go down hard the Euro can not work I think it will be a political event that puts them over the edge. I listened to Kyle Bass again on Japan sure wish I had given him some dough in Septemeber.  I will likely start buying SEPT put spreads if this mkt goes up much more

[meiroy]

I'm getting more and more freaked out ..very, very disconcerting ..getting worried? 

 

I think that if you stopped watching TV every day your yearly returns would rise by at least 50%.

 

 

 

 

 

[Uccmal]

I would say I am being more prudent.  I have reached zero cash for the first time in years, as opposed to carrying margin.  Part of this is because I have reached certain financial milestones, and see no reason to carry excess exposure any more, especially with my biggest holdings all closing on short/medium term projections. 

 

Inevitable corrections aside, we are still early in this cycle.  Coming out of a recession always sees financials rally first, which is in process.  Employment is picking up, and the markets, if they are a leading indicator suggest there is much more to come, in Europe and here.  But a 30% correction along the way is never off the table.  I think we go at  least 10 years out before another meltdown the size of 2009 is anywhere in the cards. 

 

Buffett seems fairly optimitic.  Given he has a handle on virtually every sector of the economy he would know.  I think his cash position is the result of not being able to find big enough targets to soak it up. 

 

Klarman always carries cash.  Francis is probably having trouble deploying cash using his asset based style.  I bet he is all in with FFh or Kennedy Wilson on the next Private Equity deal - perhaps NBG.  We all know Prem's position.  I wouldn't read too much into cash positions. 

[Uccmal]

"I think for most people it's been fear ever since the financial crisis and certainly once you add in the early 2000s and the flash crash in 2010.  Never underestimate though that drooling greedy monster that resides in most people."

 

I agree with this from Kraven.  Gen. pub. greed has only just started.