Down goes the Dow

And this LGLOI....JERK

Ghost of Igloi wrote:

agip,

Ted Berg in the Office of Financial Research report "Quicksilver Markets" gives a balance view of predictive ability of Forward PE, Shiller CAPE 10, Tobin's Q, and the Buffett Indicator (see link below). Berg's piece provides citations in support of his analysis.

http://financialresearch.gov/briefs/files/OFRbr-2015-02-quicksilver-markets.pdf

Igy

re; a cape in the region of 25 predicting a median return of 7.5% - your own cited research, page 5.

I don't give people credit just for making predictions - in fact I look down on people who make short term stock market predictions. Making short term shtock market predictions suggests that the predictor is drunk on theory and not cautious enough - not aware that the market is utterly unpredictable over 1 year time frames.

OK, Buddy.

Why you picking on Iggy?

agip,

Fair enough. I guess we will see who is correct overvthe next year. And by the way you are on record for all your Bullish bets including SHAK.

Igy

Ghost of Igloi wrote:

agip,

Fair enough. I guess we will see who is correct overvthe next year. And by the way you are on record for all your Bullish bets including SHAK.

Igy

my only meaningful bullish bet is that over 7+ years you make more money by being in the market than out. Esp if you have some bonds and real estate mixed in. I have no idea what the market will do over the next 0-5 years.

SHAK is just play money - less than 0.1% of my assets. I'll own up to it but it doesn't mean anything to my finances.

agip,

I am not trying to make an enemy, but more to make a point. Many in our profession are more than willing to accept the predictions of Dr. Kelley or some other Wall Street analyst. Why, because it is easy to accept conventional thinking and it eliiminates the need to challenge the conventional. How is Dr. Kelley better than I? The typical Wall Steet call is to multiply the previous years call by 10% and make it their target. I am sorry, but after seven years of this they reach the law of large numbers. The earnings numbers JPM quotes as fact are estimates and far from actual reported earnings. Look for yourself there is a spreadsheet on the S&P site. Most advisors, present company excluded of course, are too lazy to look them up.

You look at a median valuation of the CAPE 10 and extrapolate that is the future. You ignore Robert Shiller, the author of CAPE 10, feels the market is extremely overvalued (I posted this as well). Tobin's Q and the Buffett Indicator are near two standard deviations above the norm. I find it hard to see why you and so many others cannot see the challenges we face after a tripling of the S&P 500. Do you believe that we continue to grow the market in the face of what will be higher interest rates and near full employment? Do you believe that a China rebalance, falling commodities and energy do not signal something amiss? How 'bout them central banks and all their accommodation yet economic growth is at stall speed? Yet our market and bonds are at record high. Do you not see the contradiction here? Icahn, Bill Gross, John Hussman, Jeremy Grantham, John Bogel, Sam Zell, Rick Santelli, to name a few see the contradiction. These are all serious people with reputations few can match.

Igy

Ghost of Igloi wrote:

...Icahn, Bill Gross, John Hussman, Jeremy Grantham, John Bogel, Sam Zell, Rick Santelli, to name a few see the contradiction. These are all serious people with reputations few can match.

Igy

But clearly not representing "conventional thinking".

So it's crazy to listen to Kelley, but wise to listen to Icahn, et. al.? Yours is the classic example of confirmation bias.

And listening to Kelley while ignoring the others is not?

no enemies here, except the dark one. I've lost my temper a couple times and felt bad about it, but you never have.

First off, Kelley isn't really a predictor - he is a numbers guy. His main job is to put out the guide to the markets and talk about changes in the macro numbers. He will say, in his own words, 'green light, red light' but he's not a traditional pundit. I like his work because it is the best collection of numbers that I am aware of.

There isn't really a law of large numbers when we're talking about the globe. something like 1/3 of the sp500 profits come from overseas - that can climb a whole heeck of a lot.

I agree Kelley should at least ALSO look at trailing 12 month numbers - his main reliance on estimates is regrettable. Estimates are important but you need both.

Re; Shiller.

1) Even Shiller says investors should be exposed to the US stock market. He sure is. He may think it is expensive but he owns US stocks. You might be putting even more emph on the CAPE than even he does.

2) As I have pointed out, the CAPE 10 has been far above its 100+ year average for 25 years. Yet markets have steamed ahead. Clearly it is not much of a predictor. In fact, even when it is at 25, as it is today, the medin return in the market has been 7.5%/yr.

Right now the CAPE is below its 25 year average. As are virtually all other measurements of valuation.

You seem to be saying we should be on hair triggers and sell all stocks when they are expensive. I say it doesn't work like that.

Icahn, Gross, grantham, Zell all own lots of US stocks, I can virtually guarantee it. I think you are taking a little advice and running an ultramarathon with it.

as for china, commodities, etc...look, there are always lots of reason not to own stocks. it's not possible to consistently predict when the reasons will actually result in a bear market.

this rally is looking A WHOLE LOT like the 'sovereign wealth funds were selling at any price' theory was correct

it's like a coiled spring - emerging markets up 13.6% in just 9 trading days

that's more than whole year's return right there.

Good luck market timers.

agip,

All good points that I generally agree with. However, my view is that we are at one end of the extreme just like March 9, 2009 was the other end of the extreme.

In regards to the ultra marathon analogy, I like running but not that much. Even training for a marathon requires a commitment of time that can be a total waste if the race does not go well. So, with my short position, if the market continues to go up there is a limit to the pain I am willing to endure. I will cover to fight another day.

Have a good weekend.

Igy

Igy, you may believe that your use of certain indicators and metrics is "rational", but is it?

Efforts must be related to a goal. What is your investing goal, on the resources you invest? Cash flow? Capital appreciation? Moral satisfaction? Hedging and stability? etc? Some combination of different things?

And considering the very multifaceted market and exchanges, how do your considerations of your indicators and metrics rationally promote the outcomes you seek?

The answer is that because the markets and exchanges are so complicated, there is no way that you could possibly make out a scientifically rational case for your investment strategy, and yet you decry others for their lack of rationality. IMO there might actually be a more rational argument to be made for technicals (!) than for fundamentals, because the technicals are what describe the aggregate behavior of those participating in the markets (depending on your desired outcomes, that is).

So try not to overstate the "rationality" of what amount to your beliefs.

Having said that, I agree with much of what you are saying. I also know that many don't give a rat's axx about even trying to be rational, and that is one reason the DJIA topped out at over 18k.

People are hopeful, optimistic, and wiling. The point is not rationality, but whether the markets are an irrational game that you are willing to play, and to what extent, and for what reason(s).

Have a good weekend. I'm going where there are no lawns to be mowed!

Maserati,

The lawn is mowed so I am good for the weekend. I am going for a run this afternoon and Saturday morning. We have some foothills in and around Boise that are good on these aging joints.

In principle I agree with your point of view with one important exception. Technical market indicators describe the short term market environment, which could change at the snap of a finger. On the other hand, fundamental market indicators give investors a metric on which to gauge risk-on or risk-off, which may be wrong in the short run but correct in the long run. I disagree that market action is just a "random walk," or the market has "priced in all available information." Market history proves as much.

You have a good weekend too.

Igy

The Dow Jones Industrial average is back up to early July 2014 level.

random,

The Dow has recovered a little over half of the 2,000 points it lost in the correction. Historically that indicates there is still risk to the downside. No all clear signal yet.

Igy