Down goes the Dow

Big Dog,

Yes I believe you have hit on a major point. In addition to mergers look at historic data on acquisitions, spin-offs, stock buybacks and you get the picture. All at these levels are near historic levels and are indicative of a market top. The other point to consider is when these activities are not financed through profits but through record covenant light debt issuance!

Unfortunately many are blind to the coming storm. As always has and will happen at a bubble top.

Igy

well that answers that. Thanks.

You all following the terrible year so many hedge funds are having? Some big ones are down heavily this year -

Pershing Sq/Ackman is down 0ver 1o%

Greenlight/Einhorn down 16%

Glenview down 20%

http://www.cnbc.com/2015/11/03/hedge-fund-hitters-underperform--in-a-big-way.html

It's been so easy to step in potholes - while the market is flat for the year many parts of it have been utter disasters.

I've had some of that - I own some IDV, which is supposed to own dividend paying stocks overseas. UNfortunately it owns a lot of Australia, which has been muhdered dead.

Very trick market - hard to keep up with it.

Igy,

We all know the market will recede. The difficult/impossible questions are when and how much? I'm going to keep riding this bull and hope to step off safely rather than be thrown off. Time will tell.

Pershing Sq/Ackman is down 0ver 1o%

Greenlight/Einhorn down 16%

Glenview down 20%

http://www.cnbc.com/2015/11/03/hedge-fund-hitters-underperform--in-a-big-way.html

It's been so easy to step in potholes - while the market is flat for the year many parts of it have been utter disasters.

I've had some of that - I own some IDV, which is supposed to own dividend paying stocks overseas. UNfortunately it owns a lot of Australia, which has been muhdered dead.

Very trick market - hard to keep up with it.[/quote]

Not tricky at all. As I've been saying for months now, just find an industrial commodity and short it. Gold, other metals, oil, gas, lumber....you name it.

Barclay has the average hedge fund up just over 2% at the end of October, compared to the Morningstar US Equity Fund average of 0.42%.

But those that played risky games like EM debt or Latin America have paid the price. There are always those like LTCM that throw caution to the wind, and you know what happens to people like that.

loca,

Your first citation was written around the time the NASDAQ 100 began an 84% slide. Funnily enough it crossed that all-time high again yesterday, 14 years later.

Igy

loca,

The second citation, from Credit Suisse written last year, uses data at a market top and extrapolates it as a snap shot of the future. The next six years are more likely to be quite a bit different than the lastvsix years.

Igy

Another view of PEs:

http://davidstockmanscontracorner.com/76822-2/

loca,

The third citation argues that high amounts of corporate cash and a low interest rate environment argues for higher PE ratios. But Mr. Damodaran assumes that environment continues into the future when he says: "All of the versions of the PE will be "pushed up" by the cash holdings of US companies and the low interest rate environment that we live in." So, how does that assumption change in a rising interest rate environment? And, what is the affect of corporate borrowing on that calculation? Of course, as always the answer is: "this time is different."

Igy

loca,

In the last of your citations the author Aswath Damodaran tackles the cash versus debt issue mentioned in my last post. He admits that "debt can act as a downer." Corporate debt issuance is at or near record levels. Much of this debt has been used in mergers, acquisitions, spin-offs or stock buybacks. When this activity is done at record high market prices (I used prices instead of valuation) leverage has been applied to the stock valuation. Furthermore, what happens when the debt rolls over at higher interest rates?

Igy

agip,

Your thoughts:

http://www.cnbc.com/2015/11/04/mel-karmazin-ive-pulled-my-money-out-of-stocks.html

Igy

coach d wrote:

Pershing Sq/Ackman is down 0ver 1o%

Greenlight/Einhorn down 16%

Glenview down 20%

http://www.cnbc.com/2015/11/03/hedge-fund-hitters-underperform--in-a-big-way.html

It's been so easy to step in potholes - while the market is flat for the year many parts of it have been utter disasters.

I've had some of that - I own some IDV, which is supposed to own dividend paying stocks overseas. UNfortunately it owns a lot of Australia, which has been muhdered dead.

Very trick market - hard to keep up with it.

Not tricky at all. As I've been saying for months now, just find an industrial commodity and short it. Gold, other metals, oil, gas, lumber....you name it.

Barclay has the average hedge fund up just over 2% at the end of October, compared to the Morningstar US Equity Fund average of 0.42%.

But those that played risky games like EM debt or Latin America have paid the price. There are always those like LTCM that throw caution to the wind, and you know what happens to people like that.[/quote]

well actually shorting industrial commodities is very tricky. You have a $4 billion hedge fund...how much of that are you going to put in a short commodity strategy? When that's a losing game long run - it's a pure timing game, whereas stocks have an upward long term swing.

Anyway - keep at it D but I'd be worried that everyone is on one side of the boat on that one.

FB reports tonight - that's a fascinating company and stock - it owns its space like no other - it's going to be a cash machine for decades. But its valuation is cray.

I'm amazed at that company - its clients provide the content and FB sells ads. It's the most amazing biz strategy ever. Their margins must be incredible. And they don't really have a better mousetrap problem - FB's moat is impossibly wide for the foreseeable future.

Ghost of Igloi wrote:

agip,

Your thoughts:

http://www.cnbc.com/2015/11/04/mel-karmazin-ive-pulled-my-money-out-of-stocks.html

Igy

I suspect Mel has a few hundred million dollars - what use does he have for stocks anymore? If I were F you rich I'm not sure I'd own stocks either. One crazy iranian general and the market is down 30%.

He's 72 - I'm sure he had plenty of money in stocks when he was a younger man.

Nothing to add on the content of this comments. Old news.

agip,

Facebook reported after the bell, and naturally highlighted their Non-GAAP "earnings beat" of 0.57 a share. Reality is a different story, because their costs to gain that revenue beat increased by $1.2 billion dollars.

Total Revenue

2014 $3,203,000

2015 $4,501,000

Total Cost and Expenses:

2014 $1,806,000

2015 $3,042,000

GAAP EPS

September 2014 0.30

September 2015 0.31

The year over year earnings per share increase was 3%, yet the stock is up 31% from September 30th one year ago.

The only miracle here is willingness of so many to buy fantasy growth.

Hoodie Boy

Mark Suckerberg wrote:

agip,

Facebook reported after the bell, and naturally highlighted their Non-GAAP "earnings beat" of 0.57 a share. Reality is a different story, because their costs to gain that revenue beat increased by $1.2 billion dollars.

Total Revenue

2014 $3,203,000

2015 $4,501,000

Total Cost and Expenses:

2014 $1,806,000

2015 $3,042,000

GAAP EPS

September 2014 0.30

September 2015 0.31

The year over year earnings per share increase was 3%, yet the stock is up 31% from September 30th one year ago.

The only miracle here is willingness of so many to buy fantasy growth.

Hoodie Boy

40% revenue growth in a giant company is hardly fantasy growth

but yeah the earnings are lagging

He who cites David Stockman should not complain about the citations of others.

He who ignores the facts should not cry for lost Yuan.

You failed to see the relevance of spending $1.2 billion more to generate the growth. I can sell a car for $90k that cost me $110k to build, oh yeah that's Tesla. Both companies have fantasy growth.

Confucius,

I thought you might like to read this article on Valeant Pharma.

http://davidstockmanscontracorner.com/wall-street-financial-engineering-a-work-how-valeant-got-vaporized/

Dave

Mark Suckerberg wrote:

You failed to see the relevance of spending $1.2 billion more to generate the growth. I can sell a car for $90k that cost me $110k to build, oh yeah that's Tesla. Both companies have fantasy growth.

I know little about FB's finances, but usually the way this works is that a young, successful company spends like crazy, sales go through the roof, and they keep spending - investing in the business - to try to vault to the next level.

Only when it becomes clear that the 40% sales growth will fall to single digits will the company start reigning in costs, and then earnings will go through the roof. So investors make models predicting when that turn will come.

It makes sense- why should a young company with the best product among its peers, growing at 40% per year slow down? Why shouldn't they take the opportunity/chance to build something completely collossal?

Your preference would be for them to say 'ok, we're good. We need to produce earnings, so we'll give up on all these promising projects."

Is tht really what you want them to do? so boring.