The DJIA dropped a few hundred points this week, taking the average portfolio down about -3%. Enough to spark conversations, but not the kind of hit that generates serious thought. Being a contrarian, I believe this week's market action should prompt at least some reflection.
(a) The DJIA is up +250% from its 2009 low. Is there any historical basis for confidently proclaiming the index will continue to climb without a significant correction?
(b) Who cares about a correction? The stock market will always deliver annualized returns of about 7% over a 15-20 year period, right?
(c) That depends. Let's look at two slightly different 18-year stretches. In both scenarios, a 47-year-old worker decides to fully invest his 401(k) in the SPX (S&P500) until he retires, at which point he switches to a fixed-income portfolio. The first guy (the lucky guy) makes the move in 1982. Needless to say, in the spring of 2000 he retires comfortably- so much so that he advises his younger colleague (who turns 47 in 1991) to remain fully invested in stocks. The younger colleague (who is still working today!) ends his 18-year stretch not so comfortably. Kind of wtf uncomfortably.
(d) The 'recency effect' versus market cycles. The market indexes have been climbing straight up for so long that even a -700 point in the DJIA seems like 'down.' But what does 'down' really look like? Is it DJIA 17,280, or DJIA 9000?
2nd, that's the rub, no one knows.
ReplyDeleteBut if you are over 'Fifty" I'd play defense at this time and space.
1570 dbl top test??
ReplyDeleteThat would match perfectly (~1577) with a 50% retrace of the Primary III wave up from the 1074.77 (2011 low) to the recent 2079.47 high.
DeleteThe above 'reflection' refers to the long-term. What about the short-term?
ReplyDeleteLast week's dramatic selling (especially in the commodities sector) often leads to profitable trades on the long side. Should selling persist and/or accelerate into Monday or Tuesday, set-ups should present in oil services, energy, and emerging markets.
The market loves to frustrate both bulls and bears. From this perspective, a spike lower early in the week would serve to derail bull portfolios and embolden bears. The indexes might then reverse sharply to the upside, squeezing shorts and forcing bulls with seller's lament to reestablish positions at higher prices. The DJIA may easily top 18,000 heading into the final week of the year, only to sell off in earnest in January.
The scenario as outlined appears sinister. Exactly. I've seen it happen too many times to dismiss it.
Seems like to me only a few stocks are responsible for a majority of the upside?
ReplyDeleteLooks to me like "small" traders are the only remaining longs in terms of COT?
ReplyDeletehttp://www.finviz.com/futures_charts.ashx?t=ES&p=d1
http://news.investors.com/business/121314-730507-continental-resources-hedge-bet-oil-price-fall.htm
ReplyDeleteGood thing we didn't step in it....
DeleteELNK - Unbelievable, this pig actually closed higher than it opened, and closed up on the day as well, a 300pt down dow day.
ReplyDeleteHmm, we're getting closer to the holiday season where volume ought to thin out some. Wonder if this isn't just some profit taking, ahead of taking off for the holidays?
ReplyDeleteI dunno you guys, sure seems to me this time of year there's a lot of selling that tends to take place.
Well, here comes the judge:
ReplyDeletehttp://oilandgas-investments.com/2014/natural-gas/the-very-bearish-case-for-canadian-natural-gas/
http://www.ritholtz.com/blog/2014/12/allweather-fail/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
ReplyDeletehttps://www.google.com/search?q=Outlook+2015%3A+Stick+With+the+Bull&ie=utf-8&oe=utf-8
ReplyDeleteOn the surface, this seems like a no brainer contrarian signal that the bull market is going to die. I'll admit the oil leverage thing has me a little concerned in the very short term and I think there's some potential for more downside, this is unquestionably an extremely bullish development for the US economy. Think about how much of a drag this has been on growth for the past 10 years. I've read varying estimates but most suggest this $50 drop in oil could result in a 2% or so boost to U.S. GDP. Think about that. A 5% US GDP with maybe 15% earnings growth as the European economy improves. What if we see EPS around $130 to $135, yields still in the low 2's, and people pay 17.5 times that? 2300 to 2400 or a 15 to 20% year? I wouldn't rule it out.
2nd - Regarding this comment:
"so much so that he advises his younger colleague (who turns 47 in 1991) to remain fully invested in stocks. The younger colleague (who is still working today!) ends his 18-year stretch not so comfortably. "
Let's look at these numbers a little closer:
at the end of 1991, the S&P ended at 417. At the end of 2009, the S&P ended at 1,115. Then let's add in dividends:
1991 12.97
1992 12.64
1993 12.69
1994 13.36
1995 14.17
1996 14.89
1997 15.52
1998 16.2
1999 16.71
2000 16.27
2001 15.74
2002 16.08
2003 17.88
2004 19.407
2005 22.38
2006 25.05
2007 27.73
2008 28.05
2009 22.31
TOTAL: $340.05
Let's add this to the end and get $1,455. Annualized this amounts to a 7.2% return. Not bad considering he went through two 50% corrections.
I'd argue that for the long run, stocks are always the way to go. And if we assume the next 18 years will be bad ones, then what we're implying is that for the period from 2000 to 2032 the US market went through a rough patch. Keep in mind that since the 2000 peak, the S&P 500 is only up 1.76% annualized before dividends or 2.88% after dividends. In order for the period from 2000 to 2032 to average 7% annually, we would need the next 18 years to average 11.26%. Just something to consider...
The S&P 500 consists of the very best run companies in the country. Companies that know how to innovate and drive efficiencies to the max. Think about how inefficient things still are. Shit we still have to dig crap out of the ground to use as energy, we still have to rely on our slow and imperfect brains to remember things, we still have waiters waiting on people and runners bringing orders to kitchens instead of using robots or machines at each table, we still have...you get it, the list goes on and on. Tons of areas for these best run companies to cut costs and improve efficiencies, and thereby drive earnings higher and higher.
DeleteI get the government job security thing well b/c I'm a front-line witness but where will the peasants find employment when MCD reaches complete automation?
DeleteBACML had some estimates of the impact on GDP lower oil prices might have, I think this is the link:
ReplyDeletehttp://www.merrilledge.com/publish/content/application/pdf/gwmol/Equity-Strategy-Focus-Point-November-2014.pdf
JNK - What do you guys think of this, it's been crashing but I don't know what the meaning is. Is this telling us Treasury rates are about to begin moving upward?
ReplyDeleteAside: Had a dream I was being eaten for lunch by some kind of monster I couldn't identify.
I always am surprised when they show market returns over long periods, but the actual returns people got is far lower (3% versus 8% on S&P) because people buy and sell at the wrong times. For the small percentage like us, buying and selling the stocks/markets works, But we pay attention. You have to invest when it is not in the news, so for the average person just casually following the news, they will always be behind and doing the wrong thing at the wrong time. Buy and hold the S&P, or better yet, dollar cost averaging, would do better for probably 95% of people.
ReplyDeleteAnd if I was going to recommend something for a long term investor now, I'd say go 100% stocks and 0% bonds as bonds will almost certainly underperfom over the long term at current rates. I'm tempted to say go 80% stocks and 20% cash to buy a major pullback, but the average person wouldn't buy the pullback anyhow, so may as well get in now and who knows, we may not get the major pullback until we are much higher anyhow.
ReplyDeleteWhy not short bonds, shouldn't rates rise?
DeleteCrickets.... You sure are a one-way guy.
DeleteYou could, but you have to get the timing right in shorting anything and rates looked like a short 2 years ago and still haven't gone up. Maybe this is the year, but easier to buy a good stock with a good business with low rates that will benefit from rising rates (like NWLI).
DeleteAnother way of looking at - current earnings yield on S&P 500 is 6.21%. Earnings yield turns into total stock growth plus dividends over time (it has to go to one or the other). Even if you assume 0 earnings growth because of current high margin rates, $100,000 turns into $450,957 over 25 years. If you can get 2% growth, $615,542 and if you can get 5% growth (which is pretty much nominal GDP growth), you get $1,348,473. The only adjustment is if the terminal p/e is higher or lower than current and with the current at 18 times, it is not too far off average.
ReplyDeleteNFLX recommendation. Broadchurch. Yet another great series out of the UK. I watched the entire season in one day.
ReplyDeleteman i wish i had time to watch more movies/shows. i love em.
Deletewe did manage to get a baby sitter to watch the kids so we could see a movie. we saw Interstellar. Very very good movie. I highly recommend it.
I've got a better show to watch 2nd.. "Don't tell me the Republican party is considering Jebb Bush as their presidential candidate. Oh please..."
ReplyDeleteBut regardless, it's nice to have these discussions.
I agree with BB on shorting bonds...That seems like a really hard thing to do because you have to get timing right. I been thinking some more about leveraged longs in like SPXL. If we go with the assumption that we won't get a 50% correction again for many years, maybe another 15-20 years or so, then the drops in SPXL on 20% pullbacks should be recovered within a year and the upside is pretty significant over time. Just look at how SPXL did from the end of 2010 through the end of 2012: the S&P was up 13% and suffered one 20% drop, one 10% drop, and one 7% or so drop, and still SPXL was up 29%.
ReplyDeleteI bet this would be a really good strategy if you're willing to stomach some volatility from time to time and can buy into a pullback.
I like that idea too, was thinking in a similar way. Such as start off with the 2x and if the entry timing doesn't work exactly lever up to 3x
DeleteDidn't look at the 2X leverage but I'd assume it underperforms. If you're gonna go for it why not go all the way!?
DeletePGAL - If you like Europe, what's not to like about this one?
ReplyDeleteCan't say I know of anyone that wishes to vacation to Portugal over so many other options in Europe...maybe they're hurting because of this?
DeleteGood point, I'd rather go to Peru myself.
DeleteA couple we know (not wealthy) is heading to Portugal for January / February and it is costing them about $25 per day - weather in the 50's / 60's, which is not great but a lot better than here, a nice old village on the sea with a good market.
DeleteMore bad news for oil tonight and it's now up $3 off the low and plus .70 on the session.
ReplyDeleteNoticed that too. Could be the bottom is in. Hard to see oil going much lower for any significant period of time. I'm thinking hard about making some energy buys today. Some of the small caps I follow are down well over 50% this year.
DeleteOrange Capital gets 2 positions on BXE board
ReplyDeletehttp://finance.yahoo.com/news/bellatrix-announces-appointment-daniel-lewis-130000808.html
Someone posted this, maybe it's real not sure how to interpret:
DeleteDaniel Lewis @danielsethlewis · Dec 12
@mark_dow new personal low. Watching women's MMA from hotel bar in Canada waiting to catch redeye home. Some weeks are just that bad
CGI keeps plugging away with business wins - http://finance.yahoo.com/news/postnord-renews-payroll-outsourcing-contract-123000726.html
ReplyDeleteStock is a good growth stock at a reasonable price. A good one to buy and put away for a few years.
Looks headed for $24, in the ST
DeleteWhat is your PT BB.
DeleteI think you either see a fairly quick 30% return as fear comes out and it moves to a more industry standard multiple.
DeleteIf we don't get that, earnings are increasing by about 20% a year, so if it takes 3 years to get an industry type multiple, that would be a return of 125%.
Either way, I am happy.
I always have a tough time buying into these long term charts at these levels:
Deletehttp://finance.yahoo.com/echarts?s=GIB+Interactive#{%22range%22%3A%22max%22%2C%22lineType%22%3A%22combo%22%2C%22indicators%22%3A{%22sma%22%3A[{%22id%22%3A%22sma200%22%2C%22name%22%3A%22sma%22%2C%22params%22%3A[200]%2C%22lineType%22%3A%22line%22%2C%22color%22%3A%22%2338761d%22%2C%22weight%22%3A1}]}%2C%22scale%22%3A%22linear%22}
FRO - Maybe not going bankrupt this year?
ReplyDeleteNLY - Thought it looked weak. My hunch is it takes a big dive as ST rates jump. If I'm right then I might jump back in once the selling is complete.
ReplyDeletePCAR - This one's had a really good run, not sure if all the bullish trucking news is priced in but wouldn't Oct have been a nice entry?
It may be crazy, but I'm reopening positions in Emerging Markets at the 1030 window. EEM -0.5%, EWZ (Brazil) -3%, RSX (Russia) -6%.
ReplyDeleteIf I felt I could trust Russia to follow normal laws, I'd be buying some things there too.
DeleteOil fading again this morning. The hard part is you keep feeling smarter by not buying, so it becomes a reinforcing cycle not to buy. But at some point, it will bounce and you'll be forced to either chase higher or wait and, the way it seems to work, it won't pull back and you miss this pullback.
ReplyDeleteI think you either decide to
1. Just stay away
2. Buy into weakness in stages
3. Wait for a bottom and be willing to buy up 10% and not worry about bottom ticking
I'm generally a #2 guy.
Buying price points while scaling seems reasonable, so #2 for me also.
DeleteWho knows what the real objective of the Saudi's are. Personally surprised we broke 60.
Sold my AHP. Not at its all time highs, but pretty close to the highs for the last couple years and I've got a Canadian hotel stock HLC.TO that I like better, so would rather focus on that one. Will probably sell AHP also. Thinking of redeploying these proceeds into a larger FCAU position given the pullback of last week.
ReplyDeletePCRX long at 90.85
ReplyDeletestuck btw 50 and 200 dma with alot of volume accumulation at these prices 88.75-91.24
Z has held in exceptionally well.
ReplyDeleteCheck out DSKY when you get a chance. They're a gaming platform so they don't have huge development risk like ZNGA / GLUU / KING etc. They basically just take a cut of the games on their platform. My concern would be Tencent / Sina as they are huge platforms but I think this one has a lot of traction. Growth is astounding. Might be worth a trade. I think it could double if it can get out of this IPO base.
I still keep coming back around to TWTR. I think their real time news search function is killing traffic to Google. I used to use GOOGL for news but it pales in comparison. TWTR is the main source nowadays. Wouldn't surprise me to see them get bought out but the market cap is really high. Right now they're trading at around 10X 2015 revenue estimates. I could see that going to 15x at some point in 2015, making it a potential 50% return. I also don't think they've mastered the monetization of their platform yet. When they do that the stock should take off.
F/GM getting crushed today. They're capping everything in the market. Sure feels like a potential panic situation is coming because of the oil drop. PBR looks like it's on the verge of collapse.
What is this Twitter real time news function? I don't really know what you mean.
DeleteThe oil panic trade is quickly approaching consensus sentiment, though. Prob gonna keep the media outlets on today to get a better understanding of sentiment. Having said that, though, I had a family member ask me out the blue on Friday how its possible that the market could sell off with oil going down (and how he thought it was really good for the market) so perhaps average joe isn't even close to panicking?
DeleteBB - TWTR added the ability to search on their site not too long ago and I've been thinking its a game changer. You can search for anything...let's say "ebola" or "Australia hostage" or "$FCAU" or anything and all of the posts from any twitter account with those keywords in it will show up in the search results on Twitter. It's a very powerful real time news feed that no one else offers. I think it's a real threat to a chunk of GOOGL's search ad revenue.
DeleteI'll have to give it a try. Haven't used yet.
DeleteThe beauty of it is that it's real time and gives you access to legit news outlets as well as people instantly. Try the News feed on Google or any search engine. It's not even in the same ballpark.
DeleteRUSS - A near triple since Thanksgiving.
ReplyDeleteHoly crap, no kidding.
DeleteSerious Selling Syndrome
ReplyDeleteRe GIB, hard to buy after such a good up move, but I think it is good based on the fact that the business has also grown, the valuation is good and we are at the point in the market cycle where buying good steady growers do well and get revalued higher.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteFriday's close comparison:
ReplyDeleteThe closes in Europe were certainly ugly. Putting the markets in Dow
equivalent points, France was down 490 points and Germany minus 480.
Spain and other markets faced similar losses.
Today, SP cash breaking 50 dma, people very nervous here.
FCAU - I could see maybe 10.80 or even 10.50 but seriously not $8.40, how can that be possible? Ughhh..... I don't even know the excuse, oil's target is $50 thus might even go slightly under but even low $50's seems unlikely.
ReplyDeleteUnless there's some s__t hitting or about to hit the fan we don't know about till after, as is customary?
The whole market is panicking man.
DeleteHere's a take on oil from Don Coxe which was published in Jeff Saut's article today:
“... By October, it was becoming clear to us and others that Saudi Arabia and its Gulf Emirate allies could not afford to continue petro-pricing business as usual with sectarian wars exploding out of control, threatening the entire region. In particular, they were infuriated that the Shia regime in Syria was being propped up by Iran and Russia. Moreover, Iran seemed to be getting closer to becoming a nuclear power with each month. Amid the chaos, the Islamic State terrorists had suddenly become a formidable challenge to the entire region, and they were getting increasing revenues from oil properties they had seized. The Saudis had long since concluded that U.S. President Barack Obama was a weak reed – at best. So, we believe they felt forced to stop the cash flows to Syria, Iran and the Islamic State and deter Russia.
They decided to keep pumping oil, allegedly to fight fracking, but also to weaken their regional foes. No one knows how long this strategy will continue. The Gulf States have trillions in sovereign wealth funds to back their budgets. Our pal Bob Hardy, who writes the invaluable Geostrat blog, has been talking about oil as a weapon for a longtime – going back to a meeting between Prince Bandar and President Putin late last year. While the meeting was private, sources say the meeting turned contentious when Putin refused to ease back on support for Syria and Iran in exchange for Saudi ‘help’ in maintaining or even boosting the oil price. The reason the Saudis didn't move earlier may have been ‘market conditions’. They needed U.S. fracking supplies to build to a level that would make destabilizing the equilibrium very easy and not require a large and obvious production boost.”"
Don Cox is such a bozo......
Deleteis he? i don't follow him
DeleteBB - Regarding the IRM stock (restaurant stock) I think you'd be more in tune with them since its in your neck of the woods. Hard for me to get a take on how its viewed by consumers as an outsider.
ReplyDeleteDB - Apparently there was some sort of downgrade, I see some references leading me to think that's causing some selling. Probably good for a 50% haircut like BXE enjoyed.
ReplyDeleteper chartlab
ReplyDeleteThe risk to the market keep adding up; we have oil that has yet to stabilize, however, it does seems oil service and energy producers are starting to stabilize. Goldman was out with a note that crude could go even lower and for longer than expected. The high yield market is starting to look unstable here (refer to HYG) and Russia is completely falling off a cliff. For the first time ever High Yield credit spreads broke above 1000 bps with the energy sector. In our opinion this was the catalyst for the equity decline. We certainly do not want Russia sovereign debt to start default as we have no idea who owns that paper. As we mentioned, a close below 2,000 will cause a rather large drop to 1,925. We can be hopeful that today’s close will be above 2,000, but hope never really is a good trading strategy. But for our longs, we need a close above that 2,000, which at the 18 point rally off the lows looks like a high probability. As we mentioned on Friday the services/retails looked as though it was the trade, AZO, ORLY, COST, ROST.
BB, you ever consider ENY, a basket of Canadian energy stocks?
ReplyDelete(a) Germany, France, and the UK off an additional -2%+ following last week's precipitous declines.
ReplyDelete(b) Brazil's Ibovespa -2% (and recovering from an earlier -3.5%). Mexico -3.6%. Argentina -7.9%. RSX (Russia) off an additional -11%.
(c) DJIA -50 to 17230 (but well off a -165 plunge earlier in the day). SPX @ 1996 (bouncing off a 1982 print this morning).
(d) Gold off -25, GDX (miners) -5.63%.
In my opinion, we have panic. I buy panic. It's not always a successful strategy, but my experiences sweeping up with Alice after the ambulances go have generally been positive. If not when blood runs through the streets, when WOULD you buy?
I may be wrong, and global markets crash over the next 24 hours. I don't think they will.
GL man brassy
DeleteTough call here in the very short term. I'm sticking with what I own but am trying my best to prepare for a brief collapse.
DeleteIf I had to bet, I'd say we have not seen panic yet. We haven't seen cascading lower prices outside of the energy sector.
DeleteCanadian energy stocks are sunk and have been for good reason, just look what's been going on in the lower 48 if you need something to go by. Anyone pumping Canadian energy either is totally stupid or is peddling a pack of lies.
ReplyDeleteENY was brought in the context of what BB said
Delete"Oil fading again this morning. The hard part is you keep feeling smarter by not buying, so it becomes a reinforcing cycle not to buy. But at some point, it will bounce and you'll be forced to either chase higher or wait and, the way it seems to work, it won't pull back and you miss this pullback.
I think you either decide to
1. Just stay away
2. Buy into weakness in stages
3. Wait for a bottom and be willing to buy up 10% and not worry about bottom ticking
I'm generally a #2 guy."
No pump, just discussion as a possible scale-in candidate.
T3d, I don't buy ETF's as I like to pick my own stocks.
DeleteThere are a lot of world class energy companies in Canada. Look at the long term charts of SU.TO or CNQ.TO or IMO.TO as companies that have well outperformed XOM or the XLE for example. Many of this happened during the cheap oil times, so they will figure out this new price environment.
That ENY ETF you mentioned is surprising in that the top 3 holdings and 5 of the top 10 are pipelines. Pipelines have been a great investment the last number of years, but I think they will be at risk if rates rise.
Most big Canadian energy stocks trade in the US. On the large cap side, I own SU and CNQ. SU is Canada's largest integrated producer and major oil sands player, so they are less affected by oil prices as they can make it up on the refining side. CNQ is probably the best E&P company with a good mix of nat gas, conventional oil and oil sands.
You could just buy these 2 as a pretty good proxy for the Canadian market. Or IMO (Imperial Oil, 80% owned by XOM) is also a good one, but usually more expensive.
I know you're not pumping, wasn't trying to say that. I know you're going for flip, that's the only way you're gonna make any money off a Canadian play though, these guys have no prayers of competing anytime soon and it's about to get much worse.
DeleteBXE - This thing isn't worth spit, what a disappointment finding out your largest position you thought was a pretty good stock is pure garbage.
ReplyDeleteTOF,
ReplyDeletere IRM, it is having a tough time with sales and haven't had sames-store growth in a while and their overall sales are down. It doesn't hurt IRM so much in the short term because they use a franchise model and make their 5% regardless, but hard to see how this stock goes up unless they can get some growth. They bought a 3 store vegetarian chain in Montreal and I think are looking to expand, so maybe that helps. The problem is people's tastes really are changing. We had an all-you-can-eat Sushi place open up in my city about 10 years ago and now they've expanded to a dozen locations and are almost always busy. We've got Chipolte copycaps up here doing well also.
IRM's restaurants are the more traditional TGI Friday like places, plus a pizza chain
LULU is jumping, most likely another P&D
ReplyDeleteTOF,
ReplyDeleteI don't know that we see a collapse. I think the current period is more just a painful rebalance / transition to a the new economic realities. I think we see utilities and yield stocks down, and financials being the new leader to the upside.
Maybe I'm wrong on this, but I don't think we get a major market dislocation with the economy continuing to improve and no pressure from inflation or interest rates.
My AHT did sell today when I was out curling, so now I just need to decide whether to redeploy now of wait for a bit.
ReplyDeleteThe hotel business cycle is still strong and should run for a while still. Rates and occupancy are going up and, other than in major markets like NYC, Miami, DC, you are not seeing a whole lot of new development.
But it was just too hard to hold AHT and AHP when my Canadian hotel chain is cheaper and seems to be doing a lot of things right to set up well for the future.
One thing that I have to worry about that you guys don't is currency. I've got about half my stocks/cash in US$ and half in Cdn$, so I like to redeploy into the same markets as I make sales as I lose 2% each way on currency conversions.
TOF, it strikes me that Don Cox doesn't know much about Iran, Saudia Arabia, Iran, or much about the middle east period. Where is the mention of ISIS and theirIf he does, he certainly seems confused about how it all ties together except that he's right about oil prices, they've fallen.
ReplyDeleteIf the Middle East is falling apart then why is North American oil crashing, doesn't that seem rather odd?
My suspicion is the developed world will discover a much improved relationship with Iran, going forward and that will bring Iraqi oil to market.
What's your take on FRO's chart, anything?
Gotcha. I don't really pay much attention to political / geopolitical stuff because it's impossible to know what will happen.
DeleteFRO - not a chance i would buy here. Gosh a 100% move in 3 days. Wow. I like seeing longer bases with an obvious area to enter.
I have a friend that probably has a much better understanding of the ME than Cox does, he assures me Iran isn't the threat it's been made out to be, he say's it's all propaganda.
DeleteI took a closer look at the average return of the S&P 500 since 1889 over 10, 15, 20, 25, 30, and 40 year periods to get a sense for what we might expect over the next 5, 10, 15, 20 years. The numbers aren't so hot for the near term. But it's hard to get a sense for what would be an identifiable area to reduce risk. The reason being the average 40 year return has actually increased over time for the past 125 years. It's actually pretty wild how steady the average 40 year return has gone up. Check this out:
ReplyDelete1948 1.76%
1949 1.73%
1950 1.75%
1951 1.78%
1952 1.81%
1953 1.86%
1954 1.88%
1955 1.91%
1956 2.03%
1957 2.19%
1958 2.31%
1959 2.42%
1960 2.53%
1961 2.62%
1962 2.74%
1963 2.88%
1964 3.03%
1965 3.19%
1966 3.36%
1967 3.51%
1968 3.61%
1969 3.71%
1970 3.83%
1971 4.05%
1972 4.26%
1973 4.44%
1974 4.60%
1975 4.71%
1976 4.80%
1977 4.92%
1978 5.01%
1979 5.07%
1980 5.17%
1981 5.29%
1982 5.38%
1983 5.45%
1984 5.52%
1985 5.56%
1986 5.61%
1987 5.69%
1988 5.77%
1989 5.87%
1990 5.96%
1991 6.07%
1992 6.18%
1993 6.34%
1994 6.45%
1995 6.54%
1996 6.57%
1997 6.60%
1998 6.69%
1999 6.82%
2000 6.94%
2001 7.04%
2002 7.09%
2003 7.16%
2004 7.22%
2005 7.22%
2006 7.25%
2007 7.26%
2008 7.21%
2009 7.20%
2010 7.21%
2011 7.19%
2012 7.15%
2013 7.16%
That may be a function of the US just being a much lower risk economy/market than others around the world. That makes sense to me. Would you rather buy real estate where they respect property laws and where crime is low? If so you will probably pay more for that security.
The issue I see, though, is if we need to hit a target of say 7.3% or so by 2018, then the S&P needs to return to the 1,600s. But then the next 5 years would need to outperform averages to get back to a trailing 40 year return of 7.3 or 7.4%. If I assume a -2% return until 2018, in order to get to a 7.35% return by 2023 I would need a 11% return annually from 2018 to 2023.
More realistically, maybe something like 2-3% for the next 4-5 years then 6% for the subsequent 5 years.
I guess my point is the next 4-5 years could be tougher in order to get the market back into equilibrium in terms of 40 year returns.
Sorry...should clarify...to smooth out the 40 year return I took the average 40 year return over a rolling 25 year period to get a sense of how the average 40 year return has been over time. That's what you see above. It has clearly risen over time.
DeleteDid you include dividends in your analysis? It used to be 70% of income went to dividends, now it is 30%, so you would see higher stock prices as the extra money was reinvested in the business.
DeleteIf you want to do more digging into this, I take a look at http://www.philosophicaleconomics.com/
He has done a lot of work on markets over the long term and can basically prove that you will get 6% annual return including dividends assuming a fair value starting point.
Growth is robust - So again today the reason given for the continued energy sector sell off seems to be concern over slowing global growth.
ReplyDeletePETM - Still too expensive? The flea treatment we bought there a few months ago was priced about 2x more than what I found on ebay.
ReplyDeleteYou guys had some great discussions today. TLM up another buck AH's on no news I can find.
ReplyDeleteENY- Wow, very low volume. What's it's NAV?
ReplyDeleteLooks like repsol is a go.
Delete"Global growth at multi-year lows"
ReplyDeleteSPX is sitting centered at strong support around 1985~1991
ReplyDeleteI think demand from India explains why gold hasn't joined other commodities plunging new lows: "Gold Import Surge Widens Indian Trade Gap"
ReplyDeleteAMD - If this one can't be happy, nobody can be happy.
ReplyDeleteper cashin
ReplyDeleteOvernight And Overseas – The world is in shock at the massive rate move by the Russian Central Bank in an effort
to stem the hemorrhaging in the ruble. While it stemmed the selling for a brief moment, the sellers swarmed back
in. Here's how my friend, Peter Boockvar over at the Lindsey Group described it:
Instead of attracting funds into the Russian ruble, the 650 bps spike to 17% by the Russian central bank
in their benchmark rate instead repelled it. After plunging by 10% yesterday, the ruble is down by
another 14% today. The ruble was at 35 to the US$ this summer. Today it takes 75 rubles to buy one
dollar. In ruble terms, the Russian Micex is up by 2.7% but in dollar terms it’s also sharply lower by double
digits. The Russian 5 yr CDS is wider by 47 bps to 600 bps, the highest since ’09. The ruble denominated
10 yr yield is higher by 258 bps to 15.55%. Other emerging market currencies are also down sharply vs
the US$ but the yen is spiking higher as many carry trades get unwound here. Don’t forget the short yen
trade that has been used to finance a lot of other speculative higher yielding activities. The euro too has
been a carry trade currency and its jumping higher also.
DDXS - A chart that's turning up?
ReplyDeleteInteresting
ReplyDeleteBe a Good Loser
http://mebfaber.com/2014/12/12/be-a-good-loser/
PBR at 6.13 day only
ReplyDeleteout at 6.22
DeleteHAL down 48%, buying things down 50% usually pay off especially if you take a scale approach.
ReplyDeleteIMO worst case scenario is 25% drawdown which can be eroded by scaling.
long HAL from 39.47
GS had some PT. changes out yesterday. I quicly scanned them but the most upside seemed to be in...
DeleteSWN- 38
CXO- 122
PXD- 197
I'm long PXD from 1433.22
Deleteseems to rally than give up the ghost, I may let it go today and see if it changes its pattern.
FCAU holding above the 50 dma nicely
Wow, BCS has a ton of PT changes out today too.
Delete143.22
DeleteJONE keeps popping back to/over $10, not sure if that continues but it's been working so far.
DeleteAlmost all of the solar plays are at new lows...except ENPH of course.
ReplyDeleteMark you mention ENPH frequently, is this your favorite solar and if so why?
ReplyDeleteI have to run, but it is my fav. Read up on it and if you still are interested I'll tell you what I know when I get back.
DeleteMark's an insider. It's based right in Petaluma, his home town. Hmmm I smell something fishy...
DeleteBTU is up, LOl
ReplyDeleteChrist, I have to admit even I'm surprised at the premium MOG got for TLM. Shit, I figured he'd get $6.
ReplyDeleteIce cubes to Eskimos apparently, throw in an $80 oil forecast to sweeten the pot.
DeleteChrysler Group becomes FCA US
ReplyDeleteAuto maker Chrysler Group LLC has changed its company name to FCA US LLC, marking the end for one of the more iconic corporate automobile names in the U.S.
The move, effective immediately, follows the naming convention of parent company Fiat Chrysler Automobiles NV(FCAU) , which made its debut on the New York Stock Exchange in October. The company's Italian operation, formerly Fiat Group Automobiles SpA, has similarly changed its name to FCA Italy SpA.
Chrysler, one of the "Big Three" American car companies along with General Motors Co. and Ford Co., was founded in 1925. It merged with German car maker Daimler-Benz AG in 1998 to become DaimlerChrysler, but reverted to Chrysler LLC after the two companies split nine years later. Fiat became Chrysler's majority shareholder in 2011 and in January gained full control of the company in a $4.35 billion deal.
I hope they completely phase out the Chrysler name. I bet sales would improve.
DeleteMany people like to say Chrysler screwed up Mercedes, best I can tell the reality was the other way around.
DeletePCRX offed
ReplyDelete2,014 for 2014 back in play!
ReplyDeleteOk admit it, who went all in RUSL after the open today? Only up 64%.
ReplyDeleteLet me check and see if my stink bid filled.......
DeletePXD offed, want to see how it acts going forward
ReplyDeleteBoy that DSKY looks really good to me.
ReplyDeleteTLM - I guess this deal values BXE somewhere around $3.60 ?
ReplyDeleteDamn that's quite the move for TLM. What was the reason for you guys buying that and why would Repsol be interested in them?
DeleteI'm confident Repsol was looking for a write-off of some sort.
DeleteThe positions I picked up for the in laws account a couple of days ago (ADT, BA, AA) have done pretty well. I'm still backtesting the program I set up to make sure it works in all types of markets but it's looking promising.
ReplyDeletePretty solid day so far for FCAU. I still think there's too much value in the Ferrari brand to get this much lower. Seems like it would take a real market panic to do that.
ReplyDeleteStill my broker offers no research, that's about as bullish as it can get, on the bullometer needle.
DeleteI jinxed it! Well, not really, but the market is all over the place
DeleteGM - Still getting waxed, WTF is up with that......
ReplyDeleteBXE - Dropping rapidly now, no surprise.
ReplyDeleteLarge volume indicates selling into strength.
DeleteI picked up VIP today at $3.29. 3rd largest telecom company in China...headquartered in the Netherlands with no debt due until 2020 and with ample cash flow. Trades at around 1x EBITDA.
ReplyDeleteDamn. I tried grabbing more at market and I think I drove the price up.
DeleteLooks like my avg is up to $3.33 because I stupidly bought too many at the market. Figured it was a really liquid stock.
DeleteThe reason I started looking here is I turned on the television and listened to some interview with a guy that bought a bunch of a Russian stock back in 1998 and flipped it a few years later for a 60-bagger. Got me thinking maybe now is a decent time to look for some beaten down ones in that area. Tough to know which one is safe and offers good upside, but I like that VIP has no immediate debt pmts due, is cash flow positive, and is headquartered outside Russia.
Small position nonetheless.
When Santa laughs backwards it sounds like "owe, owe, owe".
ReplyDeleteThis comment has been removed by the author.
DeleteHey no fair! To my surprise couldn't easily locate a limerick for performing a rumenotomy and since it seemed like a natural match, here's my effort to write a raunchy one:
DeleteIn days of old,
When knights were old,
And rumenotomy was the solution...
You left your load,
upon the road,
And walked away from the pollution.
HA HA, some wild animal left me on of those deposits the day.
Deleteother day
DeleteGDXJ...yep.
ReplyDeleteVIP. Interesting, thanks.
I'm peeling back on all risk going into the close here. No idea what tomorrow brings and it really shouldn't matter but given our need to potentially move and buy a house I'm gonna raise some $$
Deletetrying to get back PCRX on my terms, its hard
ReplyDeletehad to raise it to 90.77 and they gave me some
Deleteso long PCRX
DeleteYou've been trading that one nicely.
DeleteI went 100% to cash. Probably a horrible move and might have to buy back higher but I’d really like to see some stability in the market first
ReplyDeleteFeels bad in the market, so I can understand your selling, especially if your have nearterm cash requirements. But the Russell 2000 was up today as was oil, so at least that is something. Plus we are getting into the Santa Rally time of year and things like the fear and greed survey (http://money.cnn.com/data/fear-and-greed/) are getting fearful,
DeleteWho knows? I've sold a little bit but haven't done any buying, so I'm not bulling up. Most of the stocks I do have though I would be ok holding through a downturn.
Yeah our time frames are completely different. Plus, I happened to be up about 1% when I sold today so I felt like I was given a gift. Today's action seems super bearish to me given the extreme intervention in Russia and the big push up mid day...
DeleteI'm just hoping to grab some stuff lower but willing to pay up if I have to should the market stabilize.
Oh gee, what a surprise we revisit the low.
ReplyDeleteOkay so now I'm getting the sales argument for why the cloud is a requirement.
ReplyDeleteFCAU closed the issurance of the shares and debentures - http://finance.yahoo.com/news/fca-closes-offering-common-shares-190100588.html
ReplyDeleteThat should take some selling pressure off the stock if it wants to go higher.
Yeah I saw that. I wonder if they will at least test $11.
DeleteTend to agree this story might be getting rather long in the tooth.
DeleteCP - I don't think it's getting "long in the tooth" at all. In fact, I'm almost 100% sure that I sold in haste and will have to chase higher. The Ferrari IPO will be a big one.
DeleteTOF, I want you to look into or think about subsea methane hydrates.
DeleteYELP - Can predict with 70% accuracy which restaurants will fail within 3 months?
ReplyDeleteUNH - Because health insurance policies are required by Federal law.
CP- That's because 70% of them will fail in 3 months. Only worst business is construction.
DeleteDang, you're right! Meaning YELP's data is total BS or veritable gold on grounds it can ferrite out the future failures in advance.
DeleteConcrete was soft today.
Median age municipal water pipe in WDC is 79 years. By my calculation that's nearly as great as the median age of Senate members.
ReplyDeleteWhere can we begin streaming the reissued and pre-released Sony releases via semi-secure websites?
ReplyDeleteFUCK THE RUSSIANS.....RELEASE THE SPR!!!!!
ReplyDeleteHELI - Anything to this one, maybe?
ReplyDeleteDB- Mini IHS? I keep coming back to this one.
ReplyDeleteWLL is probably the best mid tire play I can think of.
ReplyDeleteIf fracking hasn't gone global as claimed here by the sell side:
ReplyDeletehttp://www.albertaoilmagazine.com/2014/08/fracking-hasnt-gone-global/
Then what about this?:
http://www.motherjones.com/environment/2014/09/china-us-fracking-shale-gas
BHI - Wondering why this one has come off so much.
ReplyDelete"TOF, I want you to look into or think about subsea methane hydrates."
ReplyDeleteLooks really interesting. What's the play?
Offshore equipment of some sort I think. Perhaps sniffing around Shell Oil might reveal some clues.
DeleteSeems like its too far away for my type of investing (shorter term with near term catalysts).
DeleteMight present some good entries while oil is low (Assuming current prices aren't the new normal), oil might fall some more doesn't feel like the bottom's in to me.
DeleteI keep looking over my shoulder at the 1981 chart and comparing it to the Russell 2000 and continue to see lots of similarities. Back then the huge rally in 1980/81 to new all time highs (above the 1969 and 1973 highs) ended up reversing itself (ie "false breakout") back down to below the prior highs which paved the way for the 1980's bull market. If the Russell 2000 does that as well then it wouldn't be shocking to see a move back to 850 or so for the Russell 2000. I'm still showing a near 20 forward p/e on the Russell 2000 so its not out of the realm of possibility. That would bring it back down to a forward p/e of 15. Probably a bit on the low side. At 16 or 16.5 the RUT would be trading around 900 to 930 which would be fairly close to the prior highs from 2007 and 2011 of about 860 or so.
ReplyDeleteFortunately, now it will be much easier to recognize a porn star from the pizza delivery guy.
ReplyDeleteBased on futures, it looks like I definitely sold my stocks in haste. Oh well. Now for the re-entry spots...
ReplyDeleteTomorrow will be a very interesting day. Really the next few days. Gonna give the bears the benefit of the doubt and wait for some constructive basing first. I suspect if we go higher there won't be much time basing though.
DeleteI think it's worth while shorting top of channel on S&P, not much risk there unless Europe resolves something overnight.
DeleteCUBA - Up today on the news.
ReplyDeleteCould have gotten in at $7.08 Amazing it's so easy to nail some moves.
DeleteNow FCAU is acting weak, look at the CUBA chart and notice the shakeout just prior to today. FCAU's going to follow a similar path IMO.
The question is: how do you know it doesn't go down the rabbit hole (as it's descending down for the double bottom) like the coals for example? Need some sort of reliable signal.
DeleteIt's just bizarre that now Russia's creating waves we begin to hear about Cuba all of a sudden.
Deletehehe
DeleteExactly, now that it seems some sanctions may be lifted, this ETN is only indirectly correlated anyway. Have to review the contents but they're stateside from what I recall.
DeleteLong TZA at $14.06. The Russell is testing the 200 DMA from below. I think it fails.
ReplyDeleteHELI - Have a look at this off shore play, it's pretty beat up although I don't expect anything that most often seems to be the perfect setup.
DeleteSeems like anything oil / energy is kicking ass today. I ended up getting back into EMES / HCLP / VIP and picked up some PWE and GE...all oil/energy related stuff.
DeleteNot really intending to hold long but seems like there's a trading opp in most of these.
From TD - some ideas on how oil could bottom:
ReplyDeleteFrom a technical perspective, we believe that it is worthwhile to view the trading
pattern in WTI oil prices following previous major corrections. In the following
exhibits, we show the price of WTI oil versus the S&P/TSX Energy Index through
the last seven major oil corrections and recoveries covering the past 30 years.
Almost every WTI oil bottom formation follows the same seasonal trading pattern
— a steep fall correction, followed by a late-December bounce, followed by
another decline in January-February, and finally followed by a seasonal recovery in
the spring. The winter double-bottom pattern was observed in 2008–2009, 2006–
2007, 2001–2002, 1998–1999, and 1993–1994. During the 1988–1989 and 1985–
1986 (OPEC supply glut) corrections, we saw the same double-bottom trading
pattern seen in the previous periods, but the seasonal period was different. The
S&P/TSX Energy Index typically follows the same pattern.
Given the consistency of these historical precedents, we believe that oil prices may
be beginning a bottoming formation. We expect that oil prices will likely be
volatile through the December–February period. This would suggest that we start
adding to some energy positions on weakness ahead of the more sustained seasonal
spring rally. As we noted earlier this week, contrarian signals of a steep contango
spread and a reduced speculative position in WTI oil futures would add technical
trading support to this view.
What we do not know at this point is the shape of the recovery. We are of the view
that this will likely be a shallow recovery given the poor demand and excess supply
fundamentals (Exhibit 8 — the 1986 recovery was shallow as well). Also, a
potentially higher trending U.S. dollar could limit the recovery in oil. If so, we
believe that integrateds and refiners may still offer the best relative upside through
the first half of 2015 until fundamentals improve.
The oil stocks are trading as if there's a low quickly approaching.
DeleteCan someone please talk me out of WYNN?
ReplyDeleteI would think it'd test 120.
DeleteI'm thinking of switching to yogurt in the morning . Any favorites?
ReplyDeleteBest I ever enjoyed was home made Persian style. Do you cook with saffron, uuuummm good?
DeleteHopped out of TZA. The moves in the oil related stocks can't be ignored I think.
ReplyDeleteBAS - This f'n thing jumped 14%, this is really pizzing me off.
ReplyDeleteAlright, I'm hamstrung b/c I'm clueless over here.
DeleteCUBA CEF
ReplyDeleteCopa Holdings SA 7.24
Coca-Cola Femsa SAB de CV DR 6.58
Seaboard Corp 5.65
MasTec Inc 5.47
Lennar Corp 5.02
CPA
DeleteKOF
SEB
WYNN - Yes TOF, it's come(ing) to us.
MTZ in CUBA CEF - $18.83 yesterday was the line in the sand, right?
ReplyDelete