Down goes the Dow

agip and everyone else,

Good to see you back agip.

I guess it depends on which narrative you think is the correct one. Let me reiterate, I am not against stock investing. However, I believe the current Bullish story that everything is looking up, is incorrect. I feel the drop in energy, commodities, China growth, GDP, is telling you the global economy is sick. And that sick growth is after Trillions of dollars in central bank accommodative policies. Our market has been driven by stock buybacks and goofy Non-GAAP accounting and other gimmicks. All the merger and acquisition activity is late cycle in nature, turn to Kelly's slide deck and see for yourself. Look at the market activity in Tesla. The company is forced to raise cash through an dilutive equity offering and the stock goes up. On this morning's Squawk Box there was a thirty something host touting his social media companies and their "mindshare." Oh, they are not like the companies during the Tech Bubble. They are making money, but are losing money. Get the logic! The gentleman was probably fifteen during the Tech Bubble. I could go on about this insanity.

Buy if you like, but I think you are being naïve.

Igy

well that's the thing - you have one story and you tell it relentlessly. I'm suggesting the Kelly calls would be a good way for you to check your enthusiasm for your investment thesis against a different set of facts, privided by a smart guy.

agip,

I am sure Kelly is much smarter than I am, but he is a Wall Street strategist which has its own set of conflicts. What I lack in smarts, I make up with common sense. I will say this, there is plenty of information out there that counters Kelly's view. To a certain degree, it is what you want to believe. I know I have personally more to gain from a continuing Bull. Unfortunately my experience tells me that is not our future.

Igy

agip,

I am sure Kelly is much smarter than I am, but he is a Wall Street strategist which has its own set of conflicts. What I lack in smarts, I make up with common sense. I will say this, there is plenty of information out there that counters Kelly's view. To a certain degree, it is what you want to believe. I know I have personally more to gain from a continuing Bull. Unfortunately my experience tells me that is not our future.

Igy

There's no such thing as a "continuing Bull", at least not in perpetuity. With time, anyone predicting a correction, or crash, will be proven right. It's not rocket science.

Dog,

I think the market has peaked with substantial downside from here. Wall Street consensus is that the Bull market continues. Valuation are stretched and investors have been more risk adverse lately. I find it hard to believe that we go up substantially from here. In fact I believe the market is more likely to hit S&P 1,200 than 2,200.

Igy

Big Dog Investments wrote:

There's no such thing as a "continuing Bull", at least not in perpetuity. With time, anyone predicting a correction, or crash, will be proven right. It's not rocket science.

hello Big Dog - I hope you have been well.

Do you remember an exchange we had on the foolishness of dollar cost averaging in stocks? It had a big impact on my thinking - grazie for that.

So the question now is this - does the same thinking apply to non-stocks? Let's say I want to take advantage of low prices in commodities. I'm thinking dollar cost averaging would make more sense in commodities because there is no long term rise in that asset class. They go up and down but there is no long term upward swing as in stocks.

D'ya think that is right thinking?

Ghost of Igloi wrote:

agip,

I am sure Kelly is much smarter than I am, but he is a Wall Street strategist which has its own set of conflicts. What I lack in smarts, I make up with common sense. I will say this, there is plenty of information out there that counters Kelly's view. To a certain degree, it is what you want to believe. I know I have personally more to gain from a continuing Bull. Unfortunately my experience tells me that is not our future.

Igy

i'm not sure exactly what you are trying to say

are you saying you don't want more information? that you are done accumulating info? that you don't want to challenge your conceptions with facts?

seriously? that's not good, if true.

agip,

I work for a major wirehouse, Kelly does not say anything different than what comes from the firm or the wholesalers that pass thru the branch. I get the JPM "Guide to the Markets," I just don't think there is much in the way of original thinking.

During the period of the Tech Bubble we had an internal wholesaler tell us sell our positions in a dividend income fund that was the largest internal fund by dollars at the firm. His recommendation was to swap it into a new fund offering the Technology Fund. At that time the fund performance was at opposite ends of the spectrum. A year later the positions were reversed. Fortunately I did not take his advice.

From the Wall Street, recently, I heard the story of MLPs and how they were a toll road. MLPs were a way to get income and capital appreciation and since they were a toll road, they would not be affected by the price of oil. Well they are and they are also correlated to the bond market. There was something that stunk about the investment, and the smell is just permeating investors senses.

I get plenty of Kelly like research and I have CNBC in the background all day long. In the evening I am religious viewer of CNBC Asia. I have read Benjamin Graham to Andrew Ross Sorkin and everything in between. I seek out contrary market opinions from John Hussman and David Stockman primarily because it is such a contrast from the other media that dominants business news.

In the end, I put trust in myself and my ability to make sense of this market.

Igy

ok

I withdraw my last post - I understand what you were saying now.

Kelly is mainstream, sure, but I get a sense from him that he is data driven, not theoretical. Which I like. That comes across in the calls more than the actual guide to the market.

agaip,

My business partner is a big fan of Kelly. I have nothing but generally good things to say about his slide deck, commentary and style. I think it is more healthy to seek out the contrarian view at this stage of the cycle. Sure, I understand that it supports my point of view, just as the Kelly's view supports those on the other side.

At times I am sure my business partner cringes at what comes out of my mouth. One advantage of getting older is saying what you really think. I do try to be diplomatic.

Igy

That authors conclusion is that his paper is must reading? A paper which references the author's other papers? Seriously?

Maserati,

Thanks. I read a summary of the paper earlier in the day.

Ultimately, the equity markets will be determined by valuation. If you believe some analysts the market is at fair value and stocks represent a better value than bonds. The evaluation metric these analyst use is the Fed Model or Dividend Discount Model, which uses a comparison of the Ten Year Treasury to the dividend of the S&P 500. The more narrow the difference the more attractive stocks look. However, since 1985 interest rates have been in decline and tracking a general rise in the market. Therefore, if interest rates are more likely to rise from here the predictability of this modelmis limited.

Many more academics point to Tobin's Q, Schiller Cape 10, and the Buffett Indicator as more reliable models. John Hussman uses another model, memory is a bit foggy here, but you can go to his recent weekly commentary, that shows even better predictability when back tested. Using any individually or collectively shows the market at extremes that have been hit only a handfull of times in a hundred years of history.

As I have mentioned before I am of the belief that we are on the precipice of something historic, and not of the good variety. There are far too many market factors that point in a downward direction.

Take a serious hint from the St. Louis Fed report you posted. Also, Google "Quick Silver Markets" from the Treasury's Office of Financial Research. Even the government agencies in the best poition to advise are telling you: BEWARE!

Igy

POTO>0,

You can ignore and discount if you wish, but it will be at your loss.

Igy

Maserati,

John Hussman's Market Cap/GVA is explained in this weekly commentary:

http://www.hussmanfunds.com/wmc/wmc150518.htm

Igy

Hussman is an idiot. I'm frankly surprised that you give him any credence.

Maserati,

Idiot he is not. He figured out a long time ago what your St. Louis Fed writer finally came to realize. If you don't believe me go to Hussman's weekly commentary there is a record that goes back over a decade.

Hussman is the most original market thinker today. No one is close.

Igy

Ghost of Igloi wrote:

Many more academics point to Tobin's Q, Schiller Cape 10, and the Buffett Indicator as more reliable models.

Igy

I don't think that is an accurate representation of academic thought on valuation.

agip,

Well they were the three models used by the OFR in"Quick Silver Markets." Actually they have bettter reliability than the Fed Model over a longer time horizon. Market Cap/GVA has even greater reliabilty. Dr. John Hussman has done quite a bit of work in this area.

My views of course.

Igy