Down goes the Dow

I think bigdog means that the indexes are higher on Aug 11/2015 than they were on Aug 11/2014.

Although yes, the DJIA is down since Dec 31/2014, and the SP500 is essentially the same.

Chemical Reagent must be making good money off these swings. Or some traders must be, at any rate. ALMOST makes me want to day trade.

The Chinese tinkering with the yuan is the currency move that I had posted about quite some time ago, but it took longer than I had anticipated. I didn't play it, but I know some who did, and it has turned out extremely well for them.

Strange days. I'm not sensing any confidence, still sitting here on the sidelines. I have cashed out of other positions leaving me free to do as I wish in the markets, and so far I have done absolutely nothing. I'm looking at an RE opportunity over the next 3-4 month period, which just came available, on which I will also no doubt beat the markets.

For me, flexibility and responsiveness are key, being able to harvest the opportunities from the garden that I have cultivated. This, like other different projects, will require some work, but will VASTLY outperform the US markets.

Maserati,

In my view none of this is surprising. We have an overvalued stock market if viewed from Shiller CAPE 10, Tobin's Q, and Buffett Indicator. Investor risk preferences are changing and moving away from speculation. Economic growth is muted. Central bank policies have reach a point where they are ineffective.

We are approaching the end of the third bubble in fifteen years.

Igy

Ghost I have probably asked this before, but any idea what the current fraction of, say, US equities, is held in 401k's? And has that fraction changed significantly since the last large correction, and if so, will it be likely to affect the trajectory of the next correction?

Sorry for the inarticulation, busy day...

Maserati,

Average 401k balance in 2015 $91,300 up from $69,400 in 2010. There is about $7 Trillion dollars invested in 401k which represents 43% of the mutual fund industry.

I would assume that at the minimum those balances will approach the 2010 level before this cycle is completed.

Igy

Ghost of Igloi wrote:

Maserati,

Average 401k balance in 2015 $91,300 up from $69,400 in 2010. There is about $7 Trillion dollars invested in 401k which represents 43% of the mutual fund industry.

I would assume that at the minimum those balances will approach the 2010 level before this cycle is completed.

Igy

So, you expect another 24% or so drop? That would be interesting. Right now we're down about 5.5% from the all time high (Dow). Why do you think it will go down that far? I haven't seen anything to suggest that.

To be clear, with still 10+ years left to work, I don't care either way other than I find it interesting. If it does go down that much, anything I buy then will just swell back up like cankles on a fat chick, so that's fine with me. Once you get too far from the 52-week range high though, certain investors begin to buy. I think we would need a big thing to happen for it to drop another 24%. I actually just hoping it will get into correction territory, which it hasn't yet.

Igy,

Yearly high and lows are still strongly in the high area for the S&P and NASDAQ, and above the midpoint for the DOW. What do you mean they're swinging in favor of the lows?

Btw, flipped CMCSA for STX and cash.

Flagpole,

My comments are concerning equity valuation, and are not meant as a timing mechanism.

I believe the median domestic stock has never had a higher valuation. I believe equity valuations will adjust downward to account for the overvaluation. I believe poor equity returns are priced in for the next eight to ten years. I believe that investors will search for an event as cause, but I believe the overvaluation determines the future return.

As a reminder we have had drops of 54% and 59% in the S&P 500 in the last fifteen years.

Igy

Sally V,

I was noting more stocks were hitting 52 week lows than there were stocks hitting 52 week highs. This divergence is often referred to as the breadth of the market. You also see several indices moving in a different direction than the general market, i.e., small cap value, utilities, energy, and basic materials. This points to investors changing risk preference, or in other words, the stock market is not moving in one direction. Typically this shows a move toward risk aversion.

Igy

Ghost of Igloi wrote:

Flagpole,

My comments are concerning equity valuation, and are not meant as a timing mechanism.

I believe the median domestic stock has never had a higher valuation. I believe equity valuations will adjust downward to account for the overvaluation. I believe poor equity returns are priced in for the next eight to ten years. I believe that investors will search for an event as cause, but I believe the overvaluation determines the future return.

As a reminder we have had drops of 54% and 59% in the S&P 500 in the last fifteen years.

Igy

1) Ok...so you DO think we will see a 24% drop minimum from where we are today.

2) Yes I know of the drops...I just don't see that on the horizon right now...again, I think something big would have to happen, and that's not in the cards at the moment (nothing foreseeable anyway).

You are less optimistic than I am. Here's what will happen:

[actually, I'm not interested today in this, so I'll just take what you said and say, "interesting"]

"Death Cross", LMAO

Well, I (and you) have to pay attention to this, because some people think it actually matters--and because of that, it just might actually matter.

lol

BTW, here is something on "Death Cross" from Bloomberg:

http://www.bloomberg.com/news/articles/2015-08-11/death-cross-forms-in-dow-industrials-down-5-since-record-high

So many people I know rely on technicals of one sort or another, it's ridiculous. It can be a prime driver of the markets.

Flagpole,

The argument that I make is the market valuation drives the outcome, and not the market event. If stocks were very cheap from a valuation basis, an event may drive prices lower, but not for long. On the other hand, in a highly valued and leveraged market it does not take much to drive prices lower. And the higher the valuation, and the higher the leverage the greater potential downside movement.

Igy

Higher valuation is not necessarily a bad thing. Often it is a sign that investors are anticipating growth.

Maserati,

Didier Sonnier wrote "When Markets Crash." Central to his theories are the log-periodic pricing model. Investors pile on in ever larger numbers until the momentum cannot be maintained and the market topples. Other theories like the Dow Theory based on a fall of the Dow Transport and its relation to the broader Dow Industrials give cause for concern. I would encourage you to look into the writings of John Hussman, his theories are thought provoking and he is entertaining to read.

Igy

Yes Big Dog that is why I asked earlier about P/E, and about what future E prospects were looking like, given the funny E accounting that seems to have been in vogue for a while now.

Are earnings catching up, if so in what sectors, and is it just due to accounting and not real growth?

Big Dog,

Agreed, but if the company can't deliver the punishment by Mr. Market is unrelenting. In the last six months we have seen several high multiple stocks get punished not so much on their outcome but their outlook.

My analogy would be housing, amazingly there are many people buying and flipping houses again. The ability to make a profit today is more difficult than thee years ago. The valuation is such that there is little room for error. Stocks are no different.

Igy

No doubt the market is a gamble. Some will win, some will lose. Invest wisely.

Maserati,

You hear some Wall Street analyst theorize the the earnings can grow into the prices. I am skeptical that there is a historical record to support that theory. Furthemore, there have been significant revenue misses as well as outlook downgrades. Revenue has been a better gauge than earnings for future market movements. Wall Street typically downgrades earnings projections as the year goes on even though they typically maintain their index targets. Profit margins are at record levels and the cost of money is likelybto increase.

For the next 6-10 quarters I find it hard to come up with a compeling investment with growth at an attractive price.

Igy