Down goes the Dow

POTO,

Each client is different first of all. If you are reducing risk you are giving up some upside. My experience has been that clients appreciate someone that has a balanced view of risk versus reward.

Igy

Do they not get a little anxious when they see the market going up while you advise them to hold cash?

POTO,

Yes, that should be expected. At this stage of the business cycle risks are increasing, not declining. It is not my theory. Even the most optimistic market analysts recognize this and include an alternative view. I present both views. After the market gains over the past six and a half years most investors are inclined to de-risk. Institutional money has more incentive to use coach d's phrase "ride the tiger." That is not my style.

Igy

agip,

Speaking on the trend in earnings read this section from Ben Levisohn's weekly Barron's column Streetwise: " Darby (Jefferies strategist Sean Darby) notes that cash flow-the money remaining after a company has paid its expenses and carried out any capital spending-has been falling, and was negative in the first half of this year. It dropped to -1.45% of gross domestic product in the quarter ended June, the lowest percentage since 2008. Companies have been compensating by taking on debt. They are using the borrowed cash for buybacks, dividends, and the like. The combination has raised questions about the creditworthiness of U.S. corporations, and increased the possibility of earnings disappointments."

Igy

Overvalued stocks eventually come back to earth. Look at the earnings and aftermarket trades on GPRO, PYPL and BWLD. We will see if Street analysts come back to defend some of their favs.

How do you wrote:

Say wha? wrote:

Given those choices, I'll have to take "something".

Now please answer my question. Thanks.

The answer is right here in your copy and paste. You dummy.

Since I'm a dummy, help me out and tell me who said it. Thanks.

From S&P 500 Reporting via Capital IQ as of 10/23/2015: “While 120 of 172 have beaten on an Operating basis (70%) , only 71 have beaten on an As Reported basis (41%; fewer contributors for As Reported). “

My commentary: It would be foolish to think that this nonsense continues. The market is more dangerous the longer this foolishness continues.

It is good to see you agree your position is only a theory and that it is borrowed from elsewhere (Stockman, et. al.).

Even though you "present both views", you do advise them to be more in cash now, yes?

Igy I'm a broken record here but you are focusing way too much on the past and not enough on the future.

when we lap the oil collapse and dollar surge, we'll get back to solid earnigns and sales growth. You can go on and on about the falling earnings, sales, cash flow, and wonder at the fools buying stocks...but the obvious fact is that they are looking out into 2016 and realizing that an oil collapse and dollar surge are temporary problems and they want to own companies for their earnings a few years down the road, not for what they did in 2015

POTO,

Yes, theory and so is the easy money policies of the global central banks theory. Any position that you hold is also theory. I would advise even the most aggressive investor to scale back risk, and that would include an increase in cash. Cash is an asset class.

Igy

agip,

If that is the way it plays out, you will be correct and I will be wrong. I just do not see the evidence to support that "theory."

Igy

Fact versus theory:

http://www.zerohedge.com/news/2015-10-27/durable-goods-orders-tumble-yoy-6th-consecutive-month-core-capex-collapses-most-2009

You don't need evidence to support a theory.

note use of quotation marks "theory"

High Yield Debt:

http://www.bloomberg.com/news/articles/2015-10-29/bofaml-markets-are-once-again-mispricing-tail-risk-in-the-credit-market

Bank of America: Stock Market Looks Cheap Again:

http://www.cnbc.com/2015/10/28/bank-of-america-stock-market-looks-cheap-again.html

Standard and Poors Capital IQ on the benchmark-level buying opportunity we had 1 month ago. Sam Stovall's numbers would suggest a DOW close to 19000 a year from now:

https://www.youtube.com/watch?v=VqBrldab9kE

And who cares about bonds when there are all these juicy commodities to short? I added gold to the list yesterday after the FED made its statement.

coach d,

Good call on your trades. I have covered roughly half my shorts with the recent rise in the markets. I remained unconvinced that we are seeing anything fundamental in the recent market rise. BOA analysis is a case in point: "In September, the S&P 500's forward price-to-earnings ratio contracted to its lowest level in nearly two years, and at just over 15 times, sits in line with its historical average." Forward price-to-earnings ratio has less than 50% predictability on future returns. The CAPE 10 PE on the other hand has close to 90% reliability, and those numbers are rising as reported earnings come in lower than expected. Based on CAPE 10, Tobin's Q and the Buffett Indicator the market is at one of most extreme levels of valuation. All when earnings and fundamentals are deteriorating and not improving. Latest data shows quarterly earnings are down 4.4% from expected earnings. S&P Capital IQ calculates a 4% tailwind to earnings through stock buybacks. Sam Stoval is wildly Bullish as are most Wall Street analyst, to be otherwise is bad for business. The market actions as well as Wall Street explanations are very similar to the summer of 2000 and spring of 2008.

Igy

ok

but at this CAPE level the expected return on the SP500 is 7% per year

agip,

You can believe that assumption if you wish. Hey Sam Stoval thinks we will be at 19,000 in a year, that's 8.5%. I wonder what the CAPE 10 will be with falling earnings.

One can believe in fantasy earnings. Like CNBC cheering LNKD earnings. The news is a beat of .74 cents (adjusted = non-GAAP) a share. Reality is the company had another quarterly GAAP loss, this time -.31 a share. A company with negative earnings is up 6% in the after market at $238.

I am not blind to reality, but many are. Good luck, you will need it.

Igy