Ghost of Igloi wrote:
agip wrote:
Ghost of Igloi wrote:
Sure. My view is the market (World Equities) have likely peaked this cycle. Fair value is around 60% lower with a range of 20% either way depending on the market or capitalization. Of course you can’t be sure of the timing but that won’t matter since the downside will be significant and historic.
so you think the market right now should have a PE of around 10, if people were rational?
You use non-GAAP and Foreard PE. $122.48 (LTM GAAP S&P 500 EPS ) x 16.5 (historic multiple) = 2,020 (fair value), or about 35% lower than today’s close. The $122.48 number is inflated by high margins from low cost of funds, tax cuts, low labor costs, and low material costs. Those tail winds have likely peaked. Lastly, markets don’t just mean revert, they mean invert. I believe central bank liquidity driven speculation has so distorted the market the end will likely drive the S&P 500 down to 900-1,100.
J. Hardy wrote:
Ghost of Igloi wrote:
agip wrote:
Ghost of Igloi wrote:
Sure. My view is the market (World Equities) have likely peaked this cycle. Fair value is around 60% lower with a range of 20% either way depending on the market or capitalization. Of course you can’t be sure of the timing but that won’t matter since the downside will be significant and historic.
so you think the market right now should have a PE of around 10, if people were rational?
You use non-GAAP and Foreard PE. $122.48 (LTM GAAP S&P 500 EPS ) x 16.5 (historic multiple) = 2,020 (fair value), or about 35% lower than today’s close. The $122.48 number is inflated by high margins from low cost of funds, tax cuts, low labor costs, and low material costs. Those tail winds have likely peaked. Lastly, markets don’t just mean revert, they mean invert. I believe central bank liquidity driven speculation has so distorted the market the end will likely drive the S&P 500 down to 900-1,100.
Would you mind explaining the genesis of that 16.5 number? Thanks.
Ghost of Igloi wrote:
Sure. The way you want to think about it is during a Bull Market people are extrapolating higher growth well into the future driving multiples to extremes. At some point the weight of expectations is a mismatch with reality. We saw that recently with AMZN falling in a relatively short period of time from 2,050 to 1,490. At the moment the market is re-rating a proper multiple, so at the lower price the stock is still expensive, but obviously quite a bit less expensive than a few weeks ago. Of course this same dynamic functions in reverse in a Bear Market.
Brick Lee wrote:
Ghost of Igloi wrote:
Sure. The way you want to think about it is during a Bull Market people are extrapolating higher growth well into the future driving multiples to extremes. At some point the weight of expectations is a mismatch with reality. We saw that recently with AMZN falling in a relatively short period of time from 2,050 to 1,490. At the moment the market is re-rating a proper multiple, so at the lower price the stock is still expensive, but obviously quite a bit less expensive than a few weeks ago. Of course this same dynamic functions in reverse in a Bear Market.
I’m gonna go out on a limb and guess that J. Hardee knows how the market works.
Ghost of Igloi wrote:
Brick Lee wrote:
Ghost of Igloi wrote:
Sure. The way you want to think about it is during a Bull Market people are extrapolating higher growth well into the future driving multiples to extremes. At some point the weight of expectations is a mismatch with reality. We saw that recently with AMZN falling in a relatively short period of time from 2,050 to 1,490. At the moment the market is re-rating a proper multiple, so at the lower price the stock is still expensive, but obviously quite a bit less expensive than a few weeks ago. Of course this same dynamic functions in reverse in a Bear Market.
I’m gonna go out on a limb and guess that J. Hardee knows how the market works.
OK, then this is for those who post here frequently that evidently do not.
Ghost of Igloi wrote:
Oh, go suck a lemon DD.
Ghost of Igloi wrote:
OK, then this is for those who post here frequently that evidently do not.
agip wrote:
Racket wrote:
agip wrote:
Ghost of Igloi wrote:
"The worst of the stock market panic, in my opinion is over." - B.C. Forbes, 10/30/29. This was just after Black Tuesday - the "1929 Crash." After yet another -23% in the next 8 sessions & bounce into 1930, DJIA fell -84% from its 10/30/29 *post-crash* level by July 1932.
this correction wasn't even as bad as the average annual drawdown. (which is 14%)
The weird thing about this one and the February one is the quickness. That's different. I ascribe it to ETFs and a whole lot of fear in the markets. Which is bullish, not bearish.
agip, I'm open to a Monday morning learning session. If people are fearful and looking for an excuse to sell, wouldn't that be bearish?
usually the way stock jockeys look at this sort of issue is to ask where the weak hands are. They say to themselves 'we know that around 10% of the money invested in the stock market is owned by people who aren't good at this - these people are flailing about, buying and selling by gut reaction rather than any kind of strategy.'
What usually pulls that money into the market is fear of missing out - when the market feels 'safe.' When those weak hands have fear of missing out. That's when these bad investors throw money at the market. When there is little fear in the market. Often they are the last dollars into the market and it falls afterwards, because when the market feels safe...then those are pretty much the last dollars to be invested. The market is unlikely to go up more because there isnt' enough money on the sidelines to keep things moving upward. There's a classic saying: 'every good investment should inspire fear and terror because the timing seems bad.'
Conversely, when there is a high amount of fear in the markets, stock jockeys think that that 10% of money thrown about by the weak hands is on the sidelines, not invested, because it's too scary. They think that all those who are going to sell have already sold. So a few earnings disappointments or whatnot might not drive down the market...there's no one left to sell, so the market is likely to rise.
I think the key thing here is to figure that in times of high fear the weak hands have already sold. Of course this only works for short term moves. In a 3 year bear market there will be long lasting periods of fear.
The VIX is a good measure of the kind of fear I"m talking about - historically a good time to invest is when the VIX is very high - lately in the high 20s or low 30s. Because when it gets that high, we can be pretty sure that all those weak hands have already sold out of sheer terror, and there is likely little more mass waves of selling that drive down the market. You can track spikes in the VIX (meaning periods of high fear) to good short term trading moments.
yeah the 10% thing is just to help make the argument understandable. Not science.
Racket wrote:
agip wrote:
Racket wrote:
agip wrote:
Ghost of Igloi wrote:
"The worst of the stock market panic, in my opinion is over." - B.C. Forbes, 10/30/29. This was just after Black Tuesday - the "1929 Crash." After yet another -23% in the next 8 sessions & bounce into 1930, DJIA fell -84% from its 10/30/29 *post-crash* level by July 1932.
this correction wasn't even as bad as the average annual drawdown. (which is 14%)
The weird thing about this one and the February one is the quickness. That's different. I ascribe it to ETFs and a whole lot of fear in the markets. Which is bullish, not bearish.
agip, I'm open to a Monday morning learning session. If people are fearful and looking for an excuse to sell, wouldn't that be bearish?
usually the way stock jockeys look at this sort of issue is to ask where the weak hands are. They say to themselves 'we know that around 10% of the money invested in the stock market is owned by people who aren't good at this - these people are flailing about, buying and selling by gut reaction rather than any kind of strategy.'
What usually pulls that money into the market is fear of missing out - when the market feels 'safe.' When those weak hands have fear of missing out. That's when these bad investors throw money at the market. When there is little fear in the market. Often they are the last dollars into the market and it falls afterwards, because when the market feels safe...then those are pretty much the last dollars to be invested. The market is unlikely to go up more because there isnt' enough money on the sidelines to keep things moving upward. There's a classic saying: 'every good investment should inspire fear and terror because the timing seems bad.'
Conversely, when there is a high amount of fear in the markets, stock jockeys think that that 10% of money thrown about by the weak hands is on the sidelines, not invested, because it's too scary. They think that all those who are going to sell have already sold. So a few earnings disappointments or whatnot might not drive down the market...there's no one left to sell, so the market is likely to rise.
I think the key thing here is to figure that in times of high fear the weak hands have already sold. Of course this only works for short term moves. In a 3 year bear market there will be long lasting periods of fear.
The VIX is a good measure of the kind of fear I"m talking about - historically a good time to invest is when the VIX is very high - lately in the high 20s or low 30s. Because when it gets that high, we can be pretty sure that all those weak hands have already sold out of sheer terror, and there is likely little more mass waves of selling that drive down the market. You can track spikes in the VIX (meaning periods of high fear) to good short term trading moments.
Sounds kind of like the old "when the [insert blue collar occupation here] recommends stocks, it's time to sell." Makes sense but 10% of the money in weak hands sounds a bit high in my opinion.
Ghost of Igloi wrote:
You use non-GAAP and Foreard PE. $122.48 (LTM GAAP S&P 500 EPS ) x 16.5 (historic multiple) = 2,020 (fair value), or about 35% lower than today’s close. The $122.48 number is inflated by high margins from low cost of funds, tax cuts, low labor costs, and low material costs. Those tail winds have likely peaked. Lastly, markets don’t just mean revert, they mean invert. I believe central bank liquidity driven speculation has so distorted the market the end will likely drive the S&P 500 down to 900-1,100.
Jose Canucee wrote:
Ghost of Igloi wrote:
You use non-GAAP and Foreard PE. $122.48 (LTM GAAP S&P 500 EPS ) x 16.5 (historic multiple) = 2,020 (fair value), or about 35% lower than today’s close. The $122.48 number is inflated by high margins from low cost of funds, tax cuts, low labor costs, and low material costs. Those tail winds have likely peaked. Lastly, markets don’t just mean revert, they mean invert. I believe central bank liquidity driven speculation has so distorted the market the end will likely drive the S&P 500 down to 900-1,100.
I don’t understand “mean invert”. I googled it, but came up empty. Can you explain?
agip wrote:
Jose Canucee wrote:
Ghost of Igloi wrote:
You use non-GAAP and Foreard PE. $122.48 (LTM GAAP S&P 500 EPS ) x 16.5 (historic multiple) = 2,020 (fair value), or about 35% lower than today’s close. The $122.48 number is inflated by high margins from low cost of funds, tax cuts, low labor costs, and low material costs. Those tail winds have likely peaked. Lastly, markets don’t just mean revert, they mean invert. I believe central bank liquidity driven speculation has so distorted the market the end will likely drive the S&P 500 down to 900-1,100.
I don’t understand “mean invert”. I googled it, but came up empty. Can you explain?
I'm sure he means that markets will not just go back to a median level of valuation but go well below it. Meaning the market will drop far more than just enough to get to normal valuations.