Down goes the Dow

Maserati wrote:

Randy--

How are you YTD? Do you actually use technical analysis?

I don't manage a portfolio, I rely on other people. I do have a Reuters terminal on my desk, so I have the capability to do technical analyis.

Anyway, this will cheer you up.

The S&P 500's .SPX Shiller P/E is currently 25.4, according to data from ConvergEx Group, far above the long-term median reading of 15.9. The ratio has only been above 25 twice since 1880: before the start of the Great Depression in the 1920's, and in the 1990's, before the bursting of the dot-com bubble.

The ratio "shows that U.S. equity valuations are pushing towards crash-worthy levels, Nicholas Colas, ConvergEx's New York-based chief market strategist wrote to clients. It "is a clear voice in the wilderness calling for investor caution."

I've done a lot of work on shiller's cape - there is no final word, but keep in mind that accounting changes make comparing the CAPE across eras meaningless.

profit is much tougher to achieve than in the past - if we try to use old accounting standards and recreate a CAPE comparable to olde tymes...today's CAPE is more like 19.

This from Meb Faber, who is a firm believer in the usefulness of CAPE.

Plus, believers in the usefulness of CAPE have to deal with this problem: CAPE has shown the US market to be massively overvalued since, oh, 1990. When do we admit this thing doesn't work? If 25 years aren't enough, then 30 years? 40 years? 50?

agip, what we are saying is not mutually exclusive. Rarely is there something that contradicts one's most basic views. What I'm mostly talking about is things that are either less important, or things over which one feels (sometimes rightly) that one has no control.

The thing is, if things are important, and if you feel you have some sort of control, you can, and do, act on your beliefs. When proven wrong, you pay a price. Not fun, unless the price is trivial.

OTOH if things are unimportant or if you feel a lack of control, you rarely act if you don't have to--and if you have to, you only act enough to satisfy the requirement to act. When proven wrong, you either pay no price other than that of surprise, or you pay only the minimum price you are forced to pay. Although unavoidable, not fun in the second case. Fun, and amusing, in the first case.

This is the type of thing I can't stand about internet conversations, they always require further explanation. In future I will try to stick to the topic at hand.

Thanks, I was already aware of that, it is one of the major things that I consider. Add to the P/E the increasingly long-term use of P/S where there is no E, and the situation deepens.

However, it is only one factor. P/E doesn't tell the whole story, especially relative to the "P/E" of other types of possible investments.

I would say it is very note-worthy, if not crash-worthy. I think I even posted a link somewhere earlier in this thread to some very graphically nicely-presented P/E charts.

It does, to some extent, warm my cockles.

DJIA down 94 today, well into the day. fiddle-faddle.

is there a particular sector that is doing poorly, or that is particularly volatile? Anybody follow the industry indices?

Oil & gas is the only one up at .31%, Financials is the worst at down 1.03%

this is a cool site - graphically shows the various sectors -http://www.marketwatch.com/tools/stockresearch/marketmapyou can switch YTD/26 weeks/52 weekstoday financials/consumer/financials are weakthis is another site that gives a good picture of the market:http://news.morningstar.com/fund-category-returns/shows various market sectors/countries/slices and how they are doing.

Maserati wrote:

DJIA down 94 today, well into the day. fiddle-faddle.

is there a particular sector that is doing poorly, or that is particularly volatile? Anybody follow the industry indices?

Oil & gas is the only one up at .31%, Financials is the worst at down 1.03%

agip, thanks for the links. Here's another one for sector ETFs.

http://stockcharts.com/freecharts/candleglance.html?

[SECT]

In spite of today's correction, the charts are still short term bullish for the SP500 and the DJIA. One more down day might change this signal. GDX is still in a narrow trading band. I'd like to see a few more days in this range and then see a move up, but I'll just watch for now.

Stocks fell across the board with Twitter and AIG leading the way.

Re Paulson:

http://www.institutionalinvestorsalpha.com/Article/3337321/The-Rich-List-The-Highest-Earning-Hedge-Fund-Managers-of-the-Past-Year.html

and

http://dealbook.nytimes.com/2014/05/06/hedge-fund-moguls-pay-has-the-1-looking-up/?_php=true&_type=blogs&_php=true&_type=blogs&hp&_r=1&

while John A. Paulson of Paulson & Company took home $2.3 billion, ranking No. 3.

Mr. Paulson, who made his name betting against the housing market, generated returns of 63 percent in his Paulson Recovery fund after betting on the housing recovery and on unloved financial services stocks. His merger fund also made strong gains from smart wagers on deals in the telecommunications, biotechnology and health care sectors. The firm correctly anticipated that Sprint Nextal would be acquired, and it generated triple digit gains in investments in T-Mobil US and Leap Wireless International. It also cashed in when Life Technologies agreed to be acquired by Thermo Fisher Scientific.

Paulson & Company takes a 1.5 percent management fee and 20 percent performance fee. A spokeswoman for Mr. Paulson declined to comment.

December 1995: Schiller CAPE goes over 25; S&P500 at 615.93. March 24,2000,S&P500 hits intraday high of 1552.87. CAPE 43.22

March 2003, S&P500 bottoms; monthly intraday low of 788.90. CAPE bottoms the month before at 21.21. September 2003, CAPE over 25 again, S&P500 closes September at 995.92. October 11,2007, S&P500 intraday high of 1576.09; CAPE tops out at 27.31. Since December 1992, CAPE has averaged 26.27; the median is 24.87. Only 7.8% (20 out of 256) months have CAPE under 20. Here's a chart from Ben Carlson

http://awealthofcommonsense.com/wp-content/uploads/2014/04/CAPE-rolling.png

of the 10 year rolling average 1900-2014. The chart is from this blog post The CAPE Ratio and a Range of Historical Outcomes

http://awealthofcommonsense.com/cape-ratio-range-historical-outcomes/

,which is Carlson's take of this Meb Faber post

http://awealthofcommonsense.com/cape-ratio-range-historical-outcomes/

.

I would also recommend reading

http://philosophicaleconomics.wordpress.com/

especially:

http://philosophicaleconomics.wordpress.com/2013/12/13/shiller/

;

http://philosophicaleconomics.wordpress.com/2014/01/10/cape/

;

http://philosophicaleconomics.wordpress.com/2013/12/20/the-single-greatest-predictor-of-future-stock-market-returns/

;

http://philosophicaleconomics.wordpress.com/2013/12/23/valuation-and-returns-adventures-in-curve-fitting/

. Faber sums it up nicely:

"Most investors like to think in binary terms. Stocks are either cheap and a buy, or expensive and a sell (or crash!!!). I’m convinced they think this way along the same lines they like to cheer for sports teams (it’s more fun). I tell investors using valuation is a spectrum of future possibilities. While buying expensive markets generally will produce lower future returns, you will have positive outliers. The same for cheap markets, it’s usually a good idea but they can always get cheaper".

Follow up to Institutional Investor's Alpha's 2013 hedge fund compensation rankings by Matt Levine at Bloomberg View http://www.bloombergview.com/articles/2014-05-06/billionaire-hedge-funders-made-money-the-old-fashioned-way .

Gente, te amo como un hermano. (hermana?) but would it kill you to use a topic sentence every once in a while? I will personally give doctors without borders $5 for every topic sentence you use. Seriously.

Interesting about paulson- after some tough years and losing a lot of assets, it sounds like he had a great year. Too bad in a way- I have been using him as An example of a lucky hedge fund manager and to show how chasing returns can kill you. If you had invested with him in 2010, after his huge 2009, you would have done very poorly.

Lemons wrote:

4% growth for Q2 here we come! Please stay out of the market just a bit longer. We'll need a few folks to buy back in at DOW 17K to push it further up the chart.

Thanks for your support.

http://www.cnbc.com/id/101642225

Yellen joins the choir of solid growth for Q2. Putin's talking peace. We may yet have a positive year ahead...

I personally don't hold out hope for the entire year, but I do believe the Q2 and Q3 could do OK, even with what looks like overpricing. Q1 did exactly squat, and Q4 is too far out and has elections and winter.

Yellen is a funny one. The impression I get is that she is not her own boss, and that she is following marching orders. Politics, not economics, is now ruling the day, if that distinction can even be made. Having said that, I don't find much value in anything she says, as it is essentially a translation of what is coming out of the White House.

But that's a potentially good thing because it's stable and consistent. The problem will come if and when there is a disconnect between the fed and other agencies/offices. Then you will see people running for the hills.

As it stands, nothing to see here folks, keep moving...

Maserati wrote:

I personally don't hold out hope for the entire year, but I do believe the Q2 and Q3 could do OK, even with what looks like overpricing. Q1 did exactly squat, and Q4 is too far out and has elections and winter.

Nothing negative will come out of the government prior to the November elections. They're already sitting on their glands and trying not to make waves. Who knows what the election results will bring, but it will be holiday the shopping season.

Anybody thinking of buying into Alibaba at the IPO?

BAM! DJIA up 40 in the first minutes, and climbing.

16,557

Oh, wait, there's still a couple of hours left until close.

Nobody going to bite on Alibaba?

I'm not an IPO kind of guy - I generally refuse to buy anything above 2 x sales, and I suspect this thing will be up around 7x. tesla is at 12x sales. Hah. That one will be a heartbreaker.

meanwhile, another all time high for global stocks.

but they are up just 2.5% for the year...not too exciting.

FYI for those worried about market manipulation:

http://www.infowars.com/nsa-to-control-the-stock-market/