I Worry About "The Shot Heard Around The World"

[Kraven]

I predict nothing other than people will make a bunch of predictions that don't make sense to me.

 

You can always count on Kraven to make you laugh.

 

You mean, let me understand this, 'cause, ya know maybe it's me, I'm a little fucked up maybe, but I'm funny how? I mean funny like I'm a clown? I amuse you? I make you laugh, I'm here to fuckin' amuse you? What do you mean funny? Funny how? How am I funny?

;D  !!

 

Why that line isn't in AFI's Top 100 Movie Quotes of all time, I'll never know.

 

Seriously, it isn't?  I would have thought top 10 at least.  I mean it's classic.  Right after Bogart says "here's looking at you, kid" to Bergman in Casablanca, this is what he says to her.  Seems as if they've really messed things up here.

 

Yep classic, right up there with "I think you're going to need a bigger boat".

 

I am partial to "General, would you care to step outside?" myself.

[PlanMaestro]

You mean, let me understand this, 'cause, ya know maybe it's me, I'm a little fucked up maybe, but I'm funny how? I mean funny like I'm a clown? I amuse you? I make you laugh, I'm here to fuckin' amuse you? What do you mean funny? Funny how? How am I funny?

 

You're one tough jew. :)

[Kraven]

You mean, let me understand this, 'cause, ya know maybe it's me, I'm a little fucked up maybe, but I'm funny how? I mean funny like I'm a clown? I amuse you? I make you laugh, I'm here to fuckin' amuse you? What do you mean funny? Funny how? How am I funny?

 

You're one tough jew. :)

 

Lepke, Lansky, Siegel, Rothstein . . . we don't talk about these things.

[Guest longinvestor]

Why do you care about the market if your stock picks are well below their intrinsic value?

 

Fear of missing out on a market bottom. You know, don't want to regret later! Then, when the market eventually corrects, being able to say, "Told you so"!

[valueorama]

one more guy worrying about S&P 500 valuation(he is a gold bug).

 

http://zealllc.com/2013/spxtopval.htm

[bmichaud]

He actually has a pretty darn good record tracking this secular bear market if you go back and look at his essays since 2001.

[WarrenWatsa]

Twitter - from marketfolly:

 

From London Value Conference: James Montier said GMO are now 50 per cent in cash.

 

From London Value Conference: Montier also said that their 7 year asset allocation forecast is now negative for the S&P 500

[Packer16]

An interesting chart for all the current bears:

 

http://www.multpl.com/s-p-500-price/

 

It shows the inflation adjusted S&P and doesn't appear to show overvaluation in real terms.

 

 

Packer

[bmichaud]

With GMOs 7 year forecast at -1.1% per year, I'm going to go out on a limb and say the burden of proof is on the bulls....

[WarrenWatsa]

An interesting chart for all the current bears:

 

http://www.multpl.com/s-p-500-price/

 

It shows the inflation adjusted S&P and doesn't appear to show overvaluation in real terms.

 

 

Packer

 

How can looking at a chart of inflation-adjusted prices alone tell you whether something is cheap or expensive?

 

A comparison to normalized earnings (or, to be even more conservative, replacement cost) makes a lot more sense.

What that shows as at the end of 2012 (good bookmark to keep): http://www.smithers.co.uk/images/150313115226.jpg

[no_free_lunch]

WarrenWatsa,

 

It is an interesting chart but I am not sure how you would trade on it.  It looks like valuations are extremely high, looking back over the past century, but then again they have been at these levels since mid 90's.  Would it have been smart to sell out of the market in 1995? 

 

Another way to look at it is that to get to historical levels, even the 08/09 bottoms would have been way too high and you would have kept your money on the sidelines.

[leftcoast]

An interesting chart for all the current bears:

 

http://www.multpl.com/s-p-500-price/

 

It shows the inflation adjusted S&P and doesn't appear to show overvaluation in real terms.

 

Packer

 

I don't know... draw a straight line through that chart, and you actually get a "fair value" for the S&P 500 today around 1,000. (Assuming that you're modeling fair value by assuming a constant growth rate over the past ~140 years.) See attached.

 

[WarrenWatsa]

WarrenWatsa,

 

It is an interesting chart but I am not sure how you would trade on it. 

 

Well, it's not a timing indicator. It does give you an idea of potential downside were a new cyclical bear market to begin sometime soon.

[constructive]

An interesting chart for all the current bears:

 

http://www.multpl.com/s-p-500-price/

 

It shows the inflation adjusted S&P and doesn't appear to show overvaluation in real terms.

 

Packer

 

I don't know... draw a straight line through that chart, and you actually get a "fair value" for the S&P 500 today around 1,000. (Assuming that you're modeling fair value by assuming a constant growth rate over the past ~140 years.) See attached.

 

True, but this is acceleration is explained by the fact that the dividend payout ratio has declined and buyback yield has increased. Companies are reinvesting more these days instead of paying out dividends as in past decades.

 

http://www.prospercuity.com/images/PayoutRatio.png

 

http://investorplace.com/wp-content/uploads/2012/12/buybacks.jpg

[Guest hellsten]

Closing Arguments: Nothing Further, Your Honor

Secular bear market lows have typically taken the Shiller P/E below 8 before durable secular bull market advances have taken hold. Valuations are a long way off from that, though I would expect at least one or two more complete bull-bear cycles to emerge before the market achieves valuations that would support a durable secular uptrend. There will be plenty of significant opportunities to periodically accept market exposure even if a secular bull market is nowhere in sight.

 

The perception that investors are “forced” to hold stocks is driven by a growing inattention to risk. But Investors are not simply choosing between a 3.2% prospective 10-year return in stocks versus a zero return on cash. They are also choosing between an exposure to 30-50% interim losses in stocks versus an exposure to zero loss in cash. They aren’t focused on the “risk” aspect of the tradeoff, either because they assume that downside risk has been eliminated, or because they believe that they will somehow be able to exit stocks before the tens of millions of other investors who hold an identical expectation that they can do so.

 

Examine market conditions. We have a Shiller P/E of 24, 52.1% bulls versus just 19.8% bears, the S&P 500 pushing into its upper Bollinger bands (two standard deviations above its 20-period moving average) at daily, weekly, and monthly resolutions, the S&P 500 at a multi-year, overbought high, and the 10-year Treasury yield above its level of 6-months prior. Identify similar periods in history (even on less restrictive thresholds), and you’ll find a Who’s Who of major market tops: 2007, 2000, 1987, 1972, and 1929 (on imputed sentiment data).

 

http://www.hussmanfunds.com/wmc/wmc130513.htm

[valueorama]

couple of links for the bulls....

 

http://finance.yahoo.com/news/bear-market-checklist-goes-perfect-181933478.html

 

http://www.cnbc.com/id/100718511

 

My issue is if Roubini is bullish may be it is time to get bearish. ;)

 

Valueorama.

[Packer16]

I think the best bull bottoms up argument is from Joel Greenblatt below:

 

http://video.ca.msn.com/watch/video/joel-greenblatt-says-apple-google-are-bargains/2h9oou9r4

 

Packer

[WarrenWatsa]

I think the best bull bottoms up argument is from Joel Greenblatt below:

 

http://video.ca.msn.com/watch/video/joel-greenblatt-says-apple-google-are-bargains/2h9oou9r4

 

Packer

 

He's only referring to data from 1980 and later.

 

I think that is highly misleading given that between 1982 and 2000, stock prices rose at historically unprecedented rates and traded at extremely rich valuations in America.

[Parsad]

The other statistic I pay attention to is margin debt.  It is at the highest level since October 2007.  The two previous times it was this high was in 2007 and early 2000.  That being said, another statistic I pay attention to, railcar loads is flat or improving in many areas.  So it may be a bit of time before we see any correction, but the spring is compressing.  Cheers!

 

http://www.yardeni.com/pub/ECOINDRAILCAR.pdf

[merkhet]

http://www.reuters.com/article/2013/05/04/berkshire-agm-markets-idUSWEN008VN20130504

 

Thoughts?

[OracleofCarolina]

Ok..anyone notice the bullish magazine covers from Barron's and the Economist this week?

 

And then I see this article

http://m.washingtonpost.com/business/meet-dylan-the-daytrader/2013/05/09/00786200-b5d6-11e2-b94c-b684dda07add_story_2.html

 

If my mom calls me and wants to buy stocks..then I am out! Lol

[Parsad]

http://www.reuters.com/article/2013/05/04/berkshire-agm-markets-idUSWEN008VN20130504

 

Thoughts?

 

Buffett is saying that stocks are not overvalued relative to the risk free rate.  That doesn't mean that stocks on a historical basis, especially when considering the risk premium investors are willing to accept at the moment, aren't high.  Risk premiums on both equities and corporate bonds are now at the same levels they were at in late 2007.  Margin debt is as high as then.  I don't think investors need to bail on stocks, but they should be careful in what they buy, and holding significant cash shouldn't feel like an anchor.  Cheers!

[Packer16]

I think using since 1980 is not misleading because it includes both inflation and declining inflation periods and increasing (1982 to 2000) and flatline periods (2000 to 2012).  If we have a large amount of inflation the period does not make sense but I think the deflationary forces are such that inflation will not become an issue for awhile.  The only other issue is that if you think flatline will continue but I think at some point flatline will breakout to the upside I just don't know when and his period includes both periods.

 

I think Greenblatt's observation is what many of us have seen here.  There are alot of undervalued securities folks have found despite the market averages appearing to be high.

 

Packer

[merkhet]

 

Buffett is saying that stocks are not overvalued relative to the risk free rate.  That doesn't mean that stocks on a historical basis, especially when considering the risk premium investors are willing to accept at the moment, aren't high.  Risk premiums on both equities and corporate bonds are now at the same levels they were at in late 2007.  Margin debt is as high as then.  I don't think investors need to bail on stocks, but they should be careful in what they buy, and holding significant cash shouldn't feel like an anchor.  Cheers!

 

 

Was the Reuter's quote out of context then? Is there some place where Buffett said that he's only talking about relative to the risk-free rate?

 

Additionally, I know I've asked this elsewhere before, but I'm immensely curious as to why everyone has seemingly jumped on the bandwagon of an "imminent crash" happening.  Is this just because we've had a "summer selldown" in the each of the last three years? (April-June '10, July-September '11, April-June '12)  Is this because people are still burned from the '08-'09 years?

 

Also, why does this matter when we can buy GM @ $31.42?

[Parsad]

 

Buffett is saying that stocks are not overvalued relative to the risk free rate.  That doesn't mean that stocks on a historical basis, especially when considering the risk premium investors are willing to accept at the moment, aren't high.  Risk premiums on both equities and corporate bonds are now at the same levels they were at in late 2007.  Margin debt is as high as then.  I don't think investors need to bail on stocks, but they should be careful in what they buy, and holding significant cash shouldn't feel like an anchor.  Cheers!

 

 

Was the Reuter's quote out of context then? Is there some place where Buffett said that he's only talking about relative to the risk-free rate?

 

Additionally, I know I've asked this elsewhere before, but I'm immensely curious as to why everyone has seemingly jumped on the bandwagon of an "imminent crash" happening.  Is this just because we've had a "summer selldown" in the each of the last three years? (April-June '10, July-September '11, April-June '12)  Is this because people are still burned from the '08-'09 years?

 

Also, why does this matter when we can buy GM @ $31.42?

 

No one said imminent crash...just that prices are getting more and more speculative.  And yes, the Reuters quote was out of context, but do you really need to know that, or can people figure that out rationally and what is quoted becomes irrelevant.  Overall asset prices are always influenced by interest rates and the assumption becomes that rates will stay low forever...it never happens.  Here is an article with Buffett discussing equities...how he sees no imminent crash...that stocks are reasonably priced based on interest rates.  Cheers!

 

http://www.moneynews.com/StreetTalk/Warren-Buffett-Fed-Stock-Market-Bernanke/2013/05/06/id/502897

 

"When interest rates are low, and people expect them to stay low for a while, it pushes up the value of all other assets," he said. "Interest rates act like gravity for all other asset prices."