Be Careful Out There

The other consolation would be interest rates near zero.
In a world in which investors have options, stocks at nosebleed valuations make “sense” when the alternative is zip. That’s changing … and in a hurry.

Well, hmmm, maybe only the average since 1998 matters?
Not quite so bad then?

Average ratio since mid 1993 is 108%, so apparently overvalued by only 72%.
Average ratio since Jan 1998 is 114%, so apparently overvalued by only 64%.

I love this site https://apps.automeris.io/wpd/
Converts an image of a graph into a data set

There are probably better metrics, but it’s probably not so bad for something so simple.

Jim

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The other consolation would be interest rates near zero.
In a world in which investors have options, stocks at nosebleed valuations make “sense” when the alternative is zip.

That presumably does go a long way towards explaining why stock prices have been so high.
Low yields on fixed income, low yields on equities. Both are expensive. No big surprise.

But the sting is: low interest rates don’t make equities worth more, just more expensive.
The long run forward returns buying at a high multiple are bad whether interest rates were high or low when you bought.
You’re just paying more money for the same old stream of future value creation.

If interest rates were to stay low forever, and equity prices stay high forever, you’d still do worse.
It’s still a lower forward earnings yield and lower dividend yield on your invested dollar.

Jim

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We’re all hopeful that after 5 months of this bear/correction the end is near. But it may not be. We’re in uncharted waters with a double barreled Fed. 2008-9 lasted 15 months with 3 or 4 of intermediate “whew it might be over” rallies - that failed.

Ken Fisher’s company has a weekly email that I get. In the past few weeks he has posted a couple of things that struck me.

1st was looking at history, the second half of this year will probably be very good. (Can’t find this, probably more than 30 days old)

1.1’th Correction vs bear.
https://www.youtube.com/watch?v=8zMDVr6FdQc (The 4/14/22 email)

2nd was that around the bottom (real bottom) it doesn’t really matter much whether you are early or late getting back in. https://youtu.be/8zMDVr6FdQc?t=270
https://www.fisherinvestments.com/en-us/marketminder/our-per…

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1st was looking at history, the second half of this year will probably be very good. (Can’t find this, probably more than 30 days old)

Ah, found it.
https://www.youtube.com/watch?v=JX0t8kQJ-B0 Jan 21,2022
That was before the Ukraine thing happened. But I expect that situation will be concluded --one way or another-- by 4th quarter–possibly before Q3.

"why 2022 may be a strong year for stocks despite a myriad of investor concerns. Ken believes markets will start 2022 rocky and slow, only to accelerate as the year goes on. Ken explains that the second year of a US president’s term usually begins in a slog,


Ken expects a strong fourth quarter to deliver good returns for the year. While few investors believe 2022 will be a big year for stocks, "

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Thanks Ray. And with all respect, I am fearful enough of Crazy Vlad that I don’t want to expect anything with the “Ukraine thing”. Maybe he nukes Kyiv out of spite. Maybe he declares war and calls up 300K reservists and nukes a base in Poland with both middle fingers in the air to NATO & Biden and says “try me”. Or maybe there’s an uneasy (and temporary) ceasefire called this summer.

Our little signals here have worked pretty well to minimize the damage, at least for me. Will keep watching the signals for a sign of a turn of the tide. Not there yet.

FC

Getting quite off topic here, but …

It’s best to take what one reads about Ukraine with a huge grain of salt. That applies to both sides, pro-U and pro-R. We get bombarded with the former but have to seek out the latter. And you have to closely read between the lines. Remember the immortal words, “The chocolate ration has been increased to 20 grams per week.” (from 30 g/wk)
Every few days I like to review opinion blogs on both sides and try to noddle out which is more likely to be closer to the true happenings on the ground. Whole lotta people are in for a big surprise.

Nobody seems to consider that maybe “Crazy Vlad” is the least crazy candidate of possible Russ leader. I always like the timer travel stories about somebody going back to 1938 and popping Adolf and getting back to the present where all of Europe now speaks German.

Anyway…off topic and I wouldn’t be surprised if somebody will report this and get it deleted.

On topic: I’ve been slowly selling out to book capital losses and replacing them with various ETFs and CEFs that are selling at an unusually large discount to NAV and pay a generous yield. Like: EXD, ETW, NZF, EXG

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NEV is merging nav for nav into NZF. It looks to be about 1 - 1.5% cheaper, so you should work to roll that.

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Anyway…off topic and I wouldn’t be surprised if somebody will report this and get it deleted.

You’re drinking too much Koolaid. :wink:

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