Down goes the Dow

Ghost of Igloi wrote:

“Old ways of valuing stocks are outdated. A technological revolution has created opportunities for continued low inflation, expanding profits and rising productivity. Thanks to these factors, the United States may be able to enjoy an extended period of expanding stock prices. Jumping out now would leave you poorer than you might become if you have some faith.”

Los Angeles Times, May 11, 1999

"Technological revolution" is a meaningless term. What counts is social revolution. Where tech is concerned, it is how tech changes our social relations that matters.

The world of 2016 is not the world of 2000. Really, it isn't, even if you just look at something as simple as demographics.

And yes, faith is what it's all about. If enough people who matter have it, nothing else is required.

Sorry for not quoting relevant passages in previous emails, I will re-post them.

Ghost of Igloi wrote:

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.”

Chicago Tribune, April 1890

The required assumptions are that "profit" is the motive, and trade the vehicle.

Neither of those assumptions applies to those I'm talking about.

Read more:

The sole stated basis for the rise in prices is speculation, which has a profit motive.

There is a lot more to these price rises than mere speculation, and a great deal of motivation that does not have profit as its goal.

The only remaining question in my mind is whether the group I'm talking about is sufficiently large, sufficiently influential, sufficiently geographically diverse, and whether it will be permitted, to exercise a controlling influence on the markets.

For a few years now, the answer appears to have been yes. The thing that could change it would be national and international capital controls, but people seem to find ways around even those--look at what has happened to Chinese efforts.

Revolution in critical places could also change it, but I can't see it happening soon in any critical nation.

Read more:

...few could have predicted ZIRP and NIRP distortions promulgated by Central Banks.

Sounds like a case for "this time is different."

Ghost of Igloi wrote:

I assume you know I'm right since you've resorted to insults.

Right about what? That you know how to read data.

Obviously, you don't know what that data will mean for the market.

OK, my response to all of the above, is you had better hope "this time is different," because 125 years of market history is on my side.

Good luck though folks.

We'll see where this ends up.

Igy

http://www.multpl.com/shiller-pe/

But you're on record as supporting the "the time is different" narrative. At least when it supports your doomsday position.

Ghost of Igloi wrote:

OK, my response to all of the above, is you had better hope "this time is different," because 125 years of market history is on my side.

Good luck though folks.

We'll see where this ends up.

Igy

http://www.multpl.com/shiller-pe/

Say wha? wrote:

The last time you posted that link, you got bitch slapped pretty good. You must be a glutton for punishment.

Masochist.

Mr. Say Wha,

Man of letters, philosopher of the troll. Add to your list of immature and overused troll clichés "bitch slapped." You really should work on your ability to communicate. Oh, that's right, you really don't have anything thoughtful to post.

Igy

there are many problems with the Shiller PE but the main one is that a) it hasn't worked for a long long time - if you sold when it was above the median you would have been out of the market since oh the Reagan administration.

And also

the average shiller PE for the last 25 years is what...20-25? We are a little above that, Ok.

agip,

A couple of points, CAPE 10 becomes most meaningful at extremes, which we are. The 25 year average is higher, for a reason, and that reason should not give comfort (Tech Bubble, Central Bank policies). The record of the market at today's level is pretty poor. Revisionists find reasons at market extremes to debunk stock valuation metrics. And there are others: Tobin's Q, Buffett Indicator, Market Cap/GVA; all approaching or exceeding two standard deviations from the norm.

Lets move on and take it to the stock level. Here you can see the individual component distortions. One can believe that a stock has no relationship to earnings, we have many good examples of that today (TSLA, MU, NFLX, AMZN). There has never been a stock that maintained a PE of 100 over a full market cycle; my short list is multiples of that. One can even look to a stock like Kellogg (K) where prior to the election had a 44 multiple. One of the TINA stocks that have little intrinsic value at this level. Bond proxies hammered, same for XLU and VNQ.

The stories and yarn spun by the investment firms is really so typical. Most who post here have not been thru two market cycles. Well by my retirement it will be three for me.

Hey, my time in this business is short. If I am wrong, over the remaining cycle, my clients will earn 2-6%, while most investors will earn 6-10%. On the other hand, if I am right, my clients will lose 5-15% while most investors will lose 25-50%.

So many who post here miss the point, that if you lower the portfolio volatility you compound a greater rate. That is not an Igy theory, it is math.

Igy

CAPE 10 article supports caution at current level:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2876644

Igy

Ghost of Igloi wrote:

Oh, that's right, you really don't have anything thoughtful to post.

Igy

Oh, the irony!

Ghost of Igloi wrote:

Most who post here have not been thru two market cycles.

And you know this how? Again you make up shit to fit your narrative and you wonder why people here don't take you seriously.

Stock futures traded in a tight range on Wednesday as investors waited on the outcome of the Federal Open Market Committee meeting,with the Dow industrial's 20,000 milestone just in reach.

Investors will be looking for clues on future monetary policy from the Federal Reserve Wednesday, with an interest-rate hike all but assured, according to most economists and analysts.

Dow Jones Industrial Average futures eased 19 points to 19,840. The Dow industrials closed up 114.78 points, or 0.6%, to finish at 19,911.21 on Tuesday. During that session, it tapped an intraday high that was less than 50 points away from the key 20,000 level. The index also marked its 7th straight closing high.

The S&P 500 index and Nasdaq 100 index also finished at record highs Tuesday. Futures for the S&P 500 traded up 0.2 point to 2,267.75, while Nasdaq 100 futures inched up 3.25 points to 4,940.50.

Investors will be watching bonds after the yield on the U.S. 10-year Treasury traded near a two-year high on Tuesday.

Fed in focus: The rally for equities kicked off after Donald Trump won the U.S. presidential election last month, lifted by hopes he will bring in stimulative policies. Analysts have urged Fed Chairwoman Janet Yellen to not dodge questions on Trump's plans for the economy at the central bank's press conference later on Wednesday.

The Fed is widely expected to announce an increase in the target range for its federal funds rate to between 0.5% and 0.75% when its two-day meeting wraps up later.

Otherwise, analysts expect a Yellen will convey a message of calm and indicate investors shouldn't expect a flurry of interest rate rises. The rate decision will be announced at 2 p.m. Eastern Time, followed by a press conference with Yellen at 2:30 p.m. Eastern.

"Central bank officials are probably looking to avoid a communication misstep like the one they made exactly 12 months ago, when they projected four rate increases for 2016, while traders had priced in just two," said Ilya Spivak, senior currency strategist, at DailyFX.com.

A year ago, markets balked at that Fed rate-hike projection, "triggering a violent deterioration in sentiment and committing the Fed to a clean-up effort that occupied most of the subsequent year," Spivak said in a note to clients.

Record low dividend yields and record high market-to-book ratios in recent months have led many market watchers to conclude that these indicators now behave differently from how they have in the past. This paper examines the relationship between traditional market indicators and stock performance, and then addresses two popular claims that the meaning of these indicators has changed in recent years....We conclude that, even after adjusting for these factors, the current level of market indicators is a cause for concern.

-- New York Fed

Quote of the Day wrote:

Record low dividend yields and record high market-to-book ratios in recent months have led many market watchers to conclude that these indicators now behave differently from how they have in the past. This paper examines the relationship between traditional market indicators and stock performance, and then addresses two popular claims that the meaning of these indicators has changed in recent years....We conclude that, even after adjusting for these factors, the current level of market indicators is a cause for concern.

-- New York Fed

Oh no! Maybe, just maybe "the big fat ugly bubble" will burst....

Igy

That paper was written in 1995 when the Dow was at about 6,000. It's never been that low since then.

today's econ

yield curve steepest since nov '15

prod price index up a pretty much perfect 1.5-2.0% depending

indust production still negative but firming up

biz inventories scary low - lowest since early 2015 and falling fast. That should give a kick to gdp this Q

retail sales steady if unspectacular

it all adds up to fairly positive stuff, but not massively.