Down goes the Dow

It's hardly nonsense. He's obviously quite knowledgeable about investments. You don't have to agree with his investment strategies, but you have to admit he has a very good of what he is doing and why he is doing it. I, for one, look forward to reading his insights.

Pointing Out the Obvious wrote:

Big Dog Investments wrote:

It's hardly nonsense. He's obviously quite knowledgeable about investments. You don't have to agree with his investment strategies, but you have to admit he has a very good of what he is doing and why he is doing it. I, for one, look forward to reading his insights.

There are no insights on this thread. There is only lunacy and non-lunacy.

Agip squarely falls in the non-lunacy camp.

Huah!

In March of 2000 the S&P 500 crossed 1500 for the first time, it did not return to that level until October of 2007. On March 9th of 2009 the S&P 500 hit an intra-day low of 666, and did not cross the 1500 level again until the spring of 2013. Even with the S&P recent all-time high of over 2100, the compounded return in the last 15 years was only 4.3%. The market today is being driven stock buy backs, non-GAAP acounting, and other gimicks used to beat the earnings hurdle. At the same time the Wall Street casino uses low interest borrowing to curn the market higher, while the average investor is sucked into buying at ever higher prices. Don't kid yourself, it is not average Joe with an E*Trade account that moves the market, it is the big money.

I would never advocate not owning stocks, but you must consider the cash flow not the hype of story stocks, and the CNBC cheerleaders. A healthy skepticism is essential to making the right choices...in anything...but in investing it is critical.

Now on the topic of the Fed, sure they did a good job in the fall of 2008 and 2009. However the continual supression of rates, Operation Twist, QE 1, 2, and 3. The net result is a bloated Fed balance sheet of $4.4 trillion. How does that happen? Well the Treasury issues bond to cover government spending, and the Fed buys those bonds and inventories them on their books. Bizarre! Some of these policies have never ever been tried before. It is all theory of what is suppose to happen, but I fear the Fed is making up the rules as they go.

So, in summary the Cult of Equity is not an insurance policy for investment success.

Be careful my friend.

first of all, looking just at big cap US companies is just one sliver of the market and not a true measurement. So your data may be true if you invest just in the sp 500, but that is unwise and undiversified. You would have done far better had you owned small cap, emerging, europe, reits, etc. So those long gaps you describe don't really mean much.

I'll agree with you on the strangeness of the fed right now. But the way these things usually work is this: they work...until they don't. So as long as the economy keeps chugging along, it will work out. If there is a pothole, then the weird fed will probably make it worse.

But if you want to look at earnings...US corporate earnings are at an all time high. massive numbers. Which is not the same thing as the cash flow you cited, but close. That massive powering of earnings is the big part of the market's upward drive - low interest rates are a much smaller factor.

I think.

But sure always be careful and skeptical and understand the market can go down very fast.

Yo dude, you sound like agip's latest foil. But if you really want to liven up this thread you'll have to go full bore psycho (ala K5, maserati).

At any rate, welcome aboard (unless of course you are maserati, in which case Welcome Back!).

Last quarter US corporations bought back $240 billion of their own stock by issuing debt. The record corporate earnings are not driven by demand or increasing profits, but accounting gimicks. So corporate balance sheets are burdened with this debt while buying their stock atvrecord high prices. Actual investment in plant and equipment has declined since the financial crisis. One only has to look at the Schiller PE to see our market is stretched. The small cap and mid-cap indices have never been higher and the same can be said for the many international markets. The distortion in European soverign debt is shocking with $2 trillion trading at negative yields.

Why? What is causing this? Central banks around the world are following the lead of our Fed by opening a floodgate of quantitative easing. It is as if we can all be reassured by increasing sovereign, corporate debt and record low interest rates. We are living in a time of unprecedented experimental fiscal policy. But Mario Draghi has told us that the European Central Bank will "do what it takes." And Janet Yellen will be "patient." Well I am not confident that the rock stars of cetral banking really have a plan to unwind this mess.

Lastly, what policy tools do they have left? Record amounts of liquidty and zero negative rates are here now!

By nature I am an optimistic person, but the facts that are there if you look for them, lead me to be very worried about where we are historically from a monetary and market perspective. Which can be, divorced totally from an improving economy.

Ghost of Igloi wrote:

Last quarter US corporations bought back $240 billion of their own stock by issuing debt. The record corporate earnings are not driven by demand or increasing profits, but accounting gimicks.

Those aren't gimmicks. That's smart business. Borrow money on the cheap to buy back stock and enhance the value for stockholders. It's a win-win.

Ghost of Igloi wrote:

Last quarter US corporations bought back $240 billion of their own stock by issuing debt. The record corporate earnings are not driven by demand or increasing profits, but accounting gimicks. .

I'm no accountant, but I think you have some basic accounting facts wrong.

Buybacks don't increase earnings. They do increase earnings PER SHARE, but that isn't what I am talking about here - in absolute terms, corporate earnigns are rising quickly and at all time highs.

the schiller PE is a deeply questionable way to value the stockmarket. It has shown the market to be dramatically overvalued since around 1990, I believe. So you can keep waiting for it to work...I've disregarded it since 25 yrs is too long to wait.

if you are worried about central banks running out of tools, you should be glad the US is about to raise rates. If they can get rates back up to a historically average number, then they will have that tool again.

There's another reason to be glad the FED is about to raise rates:

AFTER the last tightening cycle started at the end of 2003, QQQ almost doubled. It went up for THREE YEARS.

In 1998, after the FED Funds futures bottomed after the Asian Currency Crisis in October of that year and the FED started the previous tightening cycle, the Nasdaq 100 went from 1300 to 4800 in less than TWO YEARS!!!

Listen to Flagpole and Me (again):

GET LONG AND STAY LONG.

What's are the feelings here about the upcoming European stimulus program?

Big Dog Investments wrote:

[quote]Ghost of Igloi wrote:

Seven years ago a retiree could find a 4% CD generating $4,000 in income from a $100k investment. Where can that retiree find that income today? The Fed has exactly said they want investors to take more risk.

And thirty years ago they were paying 13%. Should we go back to those days?

Actually yes.

What matters is the difference between what safe investments are paying and inflation and this has historically been positive 1% to 2%.

The Fed's action over the past decade has resulted in inflation running 1% to 2% over what you can get in return on a safe investment like FDIC backed CDs and savings accounts.

Savers and those retirees living off of 401(k) accounts and personal savings have been screwed by the Fed

What matters wrote:

Big Dog Investments wrote:

[quote]Ghost of Igloi wrote:

Seven years ago a retiree could find a 4% CD generating $4,000 in income from a $100k investment. Where can that retiree find that income today? The Fed has exactly said they want investors to take more risk.

And thirty years ago they were paying 13%. Should we go back to those days?

Actually yes.

What matters is the difference between what safe investments are paying and inflation and this has historically been positive 1% to 2%.

The Fed's action over the past decade has resulted in inflation running 1% to 2% over what you can get in return on a safe investment like FDIC backed CDs and savings accounts.

Savers and those retirees living off of 401(k) accounts and personal savings have been screwed by the Fed

It's true that CDs and savings used to edge out inflation, but it's not true that retirees living off 401k accounts have been screwed.

A perfectly white bread retirement mutual fund from Vanguard, VTINX, has returned 5.4% per year for ten years with only one down year. That is well above the inflation rate.

The yield on the fund is now 1.8%, which is probably right around the inflation rate, so you would have to realize some gains to get income above the inflation rate, but so what.

The fund is around 40% stocks, 60% bonds.

What matters wrote:

Big Dog Investments wrote:

[quote]Ghost of Igloi wrote:

Seven years ago a retiree could find a 4% CD generating $4,000 in income from a $100k investment. Where can that retiree find that income today? The Fed has exactly said they want investors to take more risk.

And thirty years ago they were paying 13%. Should we go back to those days?

Actually yes.

What matters is the difference between what safe investments are paying and inflation and this has historically been positive 1% to 2%.

The Fed's action over the past decade has resulted in inflation running 1% to 2% over what you can get in return on a safe investment like FDIC backed CDs and savings accounts.

Savers and those retirees living off of 401(k) accounts and personal savings have been screwed by the Fed

It's true that CDs and savings used to edge out inflation, but it's not true that retirees living off 401k accounts have been screwed.

A perfectly white bread retirement mutual fund from Vanguard, VTINX, has returned 5.4% per year for ten years with only one down year. That is well above the inflation rate.

The yield on the fund is now 1.8%, which is probably right around the inflation rate, so you would have to realize some gains to get income above the inflation rate, but so what.

The fund is around 40% stocks, 60% bonds.

actually it is just 30% stocks

agip wrote:

What matters wrote:

[quote]Big Dog Investments wrote:

[quote]Ghost of Igloi wrote:

Seven years ago a retiree could find a 4% CD generating $4,000 in income from a $100k investment. Where can that retiree find that income today? The Fed has exactly said they want investors to take more risk.

And thirty years ago they were paying 13%. Should we go back to those days?

Actually yes.

What matters is the difference between what safe investments are paying and inflation and this has historically been positive 1% to 2%.

The Fed's action over the past decade has resulted in inflation running 1% to 2% over what you can get in return on a safe investment like FDIC backed CDs and savings accounts.

Savers and those retirees living off of 401(k) accounts and personal savings have been screwed by the Fed

It's true that CDs and savings used to edge out inflation, but it's not true that retirees living off 401k accounts have been screwed.

A perfectly white bread retirement mutual fund from Vanguard, VTINX, has returned 5.4% per year for ten years with only one down year. That is well above the inflation rate.

Hindsight being 20-20 and all. Nasdaq has a negative return for the past ten years if you want to use other cherry picked data. When the market craters the next time, the "white bread" Vanguard Fund will also be under water.

The point is safe returns are no longer available except for those returning less than the inflation rate. This is an inversion of the historical relationship and indeed screws savers.

Selective data wrote:

The point is safe returns are no longer available except for those returning less than the inflation rate. This is an inversion of the historical relationship and indeed screws savers.

The latest inflation rate for the United States is -0.1% through the 12 months ended January 2015 as published by the US government on February 26, 2015. 10-year Treasuries are paying 2.24% as of March 6. I don't see a problem.

look, there were two points made: one was correct, the other wasn't. They aren't the same point made twice. pls acknowledge.

the first point was that CDs and savings pay less than the inflation rate. That is correct.

the second point was that retireees living off 401ks have been screwed. That is not true - retirement income accounts have done quite well. And that is a conservative fund meant for people in retirement - just 30% stocks. It lost just 11% in 2008, and made it all back plus some extra the next year.

Big Dog Investments wrote:

Selective data wrote:

The point is safe returns are no longer available except for those returning less than the inflation rate. This is an inversion of the historical relationship and indeed screws savers.

The latest inflation rate for the United States is -0.1% through the 12 months ended January 2015 as published by the US government on February 26, 2015. 10-year Treasuries are paying 2.24% as of March 6. I don't see a problem.

well that's not really fair, is it? we jsut had a flukish 50% drop in oil, which brought inflation down to much lower levels than it has been.

And the poster is talking about CDs and savings, not long term bonds. those are different animals.

agip wrote:

Big Dog Investments wrote:

The latest inflation rate for the United States is -0.1% through the 12 months ended January 2015 as published by the US government on February 26, 2015. 10-year Treasuries are paying 2.24% as of March 6. I don't see a problem.

well that's not really fair, is it? we jsut had a flukish 50% drop in oil, which brought inflation down to much lower levels than it has been.

And the poster is talking about CDs and savings, not long term bonds. those are different animals.

No doubt the price of oil has contributed to that, but it is a 12-month figure. And the talk mentioned "safe ireturns" which certainly includes Treasury bonds. The short term ones are at slightly under a 2% yield. So, I think it's fair.