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RobertCampbell

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Reply with quote  #1 
Laughing is good for you, so I thought I would share this video

RobertCampbell

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Reply with quote  #2 
Oh my.  At first I thought this was a Bitcoin chart ...

bitcoin chart.jpg

RobertCampbell

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Reply with quote  #3 
After a 3 SD price move, how much longer will this bull market last?

Months?  Days?

standard deviation chart2.jpg

RobertCampbell

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Reply with quote  #4 
After last week's 3.7% sell-off, are the bulls still in charge? 

While an an extremely “overbought” condition, since 1950, high readings like this have not coincided with major downturns in S&P 500 prices.    

overbought.png

RobertCampbell

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Reply with quote  #5 
Another reason not to panic ...  

sf_fed_chairman.png

SFL

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Reply with quote  #6 
Practically everyone agrees that the main US stock indexes currently are at very high levels by historical standards.  At least some of this can be attributed to low interest rates, and some of this can be attributed to the recent reduction of the corporate income tax rates.

Jeremy Grantham of GMO regularly publishes much-followed predictions on future prices of various market indexes, using the assumption that there will be a full reversion to the historical average P/E ratios in seven years.  At this point, these predictions are suggesting either very low or negative average returns for most US indexes over the next seven years.  (I haven't double-checked this recently but it is not difficult to do so for anyone who is interested).

There are at least three schools of thought about these GMO predictions: 

1)  The market will soon have a significant drop down, after which there will be a nice rise over time back to wherever it ought to be.

2)  The market will remain highly priced, but grow extremely slowly (or gradually drop somewhat) over coming years until economic reality (compounding growth) catches up with the market.

3)  Same as 2) but with the additional caveat that higher-than-normal P/E ratios will prevail for a long time to come (perhaps decades), rather than just for the 7 years which GMO typically allow for a mean reversion.  

Bob - you're the market timer - what is your view on this, and what if any actions are you taking based on your views?

I am most intrigued by scenario #1.  Intuitively, if a 1987 scenario were to occur, I wouldn't be at all surprised.  Here is a NYT article regarding the 1987 drop, which caused the S&P to drop by 1/3 in just a few months, and the P/E of the S&P 500 to drop from 23 to 15:

http://www.nytimes.com/1987/11/27/business/economic-scene-taking-a-look-at-p-e-ratios.html

I think I remember reading some credible research whereby unusually high PE levels don't usually last for many years - either earnings rise or the market drops.  After such a drop, subsequent market returns could be expected to be much better.  However, I haven't been able to find that article again.  

Here is a link from a 1994 Peter Lynch speech, which in many respects is timeless.  Lynch points out that the market on average has 10+% drop every two years on average, and a 25+% drop every 6 years on average.  He also points out that the market historically has doubled every 8-9 years on average (not sure if he's including or excluding dividends; it would make sense to include dividends in this calculation).    



Finally, here's a concise summary of 11 historic bear markets:

http://www.nbcnews.com/id/37740147/ns/business-stocks_and_economy/t/historic-bear-markets

Two of the biggest ones were recent: 2000 - 2002 (-49.1%) and 2007 - 2009 (-56.4%).  

As has always been the case after the great depression, the market has recovered quite nicely after these drops.  (The great depression was such a mess that it has been pointed out that it wasn't until the mid-1950's that the DJIA again reached its 1929 peak, but it is usually forgotten that stocks had unusually high dividend yields during much of the interim period.)



RobertCampbell

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Reply with quote  #7 

SFL, 

Hello again good sir, its been a long time.


Thank you for your post.  It was interesting to hear your thoughts - and you asked about mine.   

My view is that GMO's forecast will probably turn out to be right.  Or maybe I should say "more right" than any other forecaster who tries to predict returns seven years out.

Like Grantham, I believe in the principle of "reversion to the mean."  This as you know is the tendency for things in life to return back to a range we identify as "normal."

Everybody knows trees don't grow to the sky - nor do markets.*  Stock and most other asset prices are highly elevated right now, and when market psychology changes from risk taking to risk aversion - and it will - what will follow is not likely to be pretty.  

Which of course is why I choose to be a trend follower - as opposed to an investor who buys and holds for the long-pull.    

* Except with Central Bank intervention, yes? 



RobertCampbell

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Reply with quote  #8 
If you want a quick look at what's going on in the stock market this morning, here ya go ...

RobertCampbell

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Reply with quote  #9 
Bitcoins rose from $1,000 to $19,000 in less than a year. 

Based on the current angle of descent, Bitcoins may experience a "mean reversion" all the way back to $1,000 in half the time. 

[BN-XI473_Dshot_NS_20180206001515]

RobertCampbell

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Reply with quote  #10 
If we put the 10 day hysteria aside, here's some longer-term perspective on the recent "carnage"

carnage.png

RobertCampbell

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Reply with quote  #11 
The market is expecting inflation (and thus interest rates) to rise. 

The breakeven rate between inflation and the 10-year note has been rising steadily for the last two years, and it made a 3.5 year high in Feb 2018.

Can the stock market keep going up if rates keep going up?

Can property values keep going up if rates keep going up?

We're gonna seeee ...

10-year2.png

RobertCampbell

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Reply with quote  #12 
This crypto thing is getting really nutty ...

bitcoins3.jpg 


RobertCampbell

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Reply with quote  #13 
Bill Dudley is the President of the New York Fed - and he's claiming the Fed won't let the market to dictate it's monetary policies

Uh-huh.  We'll see about that.

dudley.jpg

MJohnson

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Reply with quote  #14 
That's easy to say when the Dow is still over 23,000.  If they actually keep raising rates, I wonder how long it will be before Uncle Sam starts to feel the pinch from paying higher rates on Treasuries?  With $20 Trillion in debt (and obviously neither party has any kind of plan to pay it back), how long can this go?

Saw an interesting article today; Rhode Island just cut their employee pensions, and of course the unions sued.  The court ruled the state had no obligation to honor them, so the "legislature should be able to change laws, even retroactively, whenever it suits them".  The article makes the point that Social Security is scheduled to be insolvent by 2034 (only 16 years away), and there is now case law saying government can change their minds on a whim.   

https://www.sovereignman.com/trends/this-tiny-corner-of-rhode-island-shows-us-the-future-of-social-security-22908/

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RobertCampbell

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Reply with quote  #15 
re:  rising interest rates.  Completely agree Matt.  

I've read that government pensions in the U.S. are underfunded by 30-35% on a national basis.  A ticking time-bomb for sure
RobertCampbell

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Reply with quote  #16 
Investors are currently fixated on interest rates.  Will they keep rising?

Based on monthly data, the 30-year T-Bond is "oversold" and now sits near a three decade line of support.

Bonds.png

RobertCampbell

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Reply with quote  #17 
After falling over 2000 points during the week, and over 400 points in early trading today, CNBC was telling investors to stay calm and not to panic.

Easier said than done ...

RobertCampbell

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Reply with quote  #18 
From article titled Hooked on Smartphones:  "We are spending far too much of our time doing things that don’t really matter to us.  People have become disconnected to what really matters."

Interestingly, I feel the same way about investors.  They spend too much time looking at data that "doesn't really matter."

facebook2.jpg

RobertCampbell

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Reply with quote  #19 
"Honey, I just got through blowing up your pension plan."

vix trade.jpg 

RobertCampbell

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Reply with quote  #20 
Look at where the puck is going, not where it's at

mortgage_rates.png

RobertCampbell

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Reply with quote  #21 
His work is pretty brainy, but this is what Nassim Taleb is best at: Analyzing (and illustrating) MARKET RISK, which is a topic most investors pay far too little attention to.

taleb.png

RobertCampbell

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Reply with quote  #22 

Fair warning:  According to the Global Real Estate Bubble Index that UBS publishes every year, San Francisco and
Los Angeles are over-valued.

RobertCampbell

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Reply with quote  #23 
Colors that increase the selling price of your home.  Source: Zillow

Not sure how "scientific" this study is, but Zillow claims it was based on more than 32,000 homes sold.


house colors.jpg

RobertCampbell

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Reply with quote  #24 
The "wealth effect" in action ...

With equity and housing prices at record highs, households have stepped up their use of debt to fund their expenditures. 

Consumer spending is up 47% since 2013 - but household debt is up 245%. 

consumer debt.jpg

RobertCampbell

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Reply with quote  #25 
John Maynard Keynes was arguably the most influential economist in the last 100 years, however few people know that he was also a shrewd investor. 

To Keynes - who did not believe in trying to guess how well an investment would perform years and years
into the future - success in the markets was about investing for a shorter period of time and "beating the
other fellow to the gun" when buying and selling.


keynes quote.jpg

RobertCampbell

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Reply with quote  #26 
All eyes are now on the implications of rising interest rates ...

ten_year.png   
   

RobertCampbell

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Reply with quote  #27 
Lloyd Blankfein on the possibility of a recession ...

lloyd.png 

 


RobertCampbell

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Reply with quote  #28 

"Don’t ask whether it makes sense, ask does it work" - Nassim Taleb

I love this guy.  No nonsense.


anti-fragile.jpg 


RobertCampbell

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Reply with quote  #29 
Since late 2008, global equities and property values have risen to record highs with the help of Central Bank easing.

With the CB's now tightening, let's see if they stay there.

rising rates.jpg

RobertCampbell

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Reply with quote  #30 
From the Land of La La ...

California is suing Exxon and other big oil firms claiming that by 2050, their towns will be destroyed and under water because of fossil fuels.

What a great story this would be to tell my great grand-kids - how I used to run in the sand on San Diego's beaches.


rising sea level.jpg 

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