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Euphoria
CUEBALL
Posted: 28 March 2017 19:44:42(UTC)

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..as a result of demand ...for all you ...well 'yer' know
Freddy4Skin
Posted: 28 March 2017 21:43:37(UTC)

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It seems to me that much of the frustration and disdain expressed by those that consider themselves more knowledgeable and shrewd investors is that as a result of QE coupled with historically low interest rates has resulted in all markets (which have been irrefutably proven to be all correlated) have risen.
Of course this is not how these things are supposed to work.
King Lodos
Posted: 28 March 2017 22:16:28(UTC)
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Sara G;45214 wrote:
Those cheap markets are also very high risk (politically) in some cases, so perhaps not as much as a bargain as they first appear? Not sure I would fancy reducing US exposure in favour of Russia for example...

With regard to the US I think it comes back to the difference between companies and markets... For example, my US value holding Dodge & Cox US Stock is on an overall p/e of 17 and p/b of around 2, which feels like reasonable value and if it were to fall any lower I'd be topping up. By contrast, there are a lot of tech companies on extremely high valuations in terms of p/e, but perhaps traditional measures are misleading - the managers of SMT would presumably say so.

It has been an interesting few days. I think even relatively experienced investors got so used to US and UK markets rising that any volatility feels like the beginning of the end. Pessimism is attributed to a whole range of factors and technical indicators (which may or not prove correct) but really the catalyst was Trump failing to get a health care package through. Now the collective view seems to be that he won't be able to deliver on any of his promises, which surely means there is scope for a surprise on the upside? If he were to succeed in implementing any meaningful tax reforms I suspect the mood would shift dramatically once again.

Basically I agree with Keith C and Kwiksave - drip-feeding is the way to go for now.


This is a useful site – regularly updates earnings estimates, relative p/e's, etc.

And you can see how IT doesn't look particularly expensive on a 10 year view, but is coming off that huge bubble in the 90s .. I really can't work out whether tech stocks are cheap or not .. I suspect not, but I think these are the new Consumer Staples, so I'd rather own them long-term than most other sectors.

Also interesting to note how sectors like Real Estate got expensive *after* the financial crisis – as the E part of the equation was hit .. Not sure those would've looked like screaming bargains at PE ratios of 65.

http://i.imgur.com/xQNHMkp.png

http://www.yardeni.com/pub/peacocksp500.pdf



3 users thanked King Lodos for this post.
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King Lodos
Posted: 28 March 2017 22:28:49(UTC)

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I am going on gut feeling here, but hoping I'll work out if/why I'm wrong before too much damage is done..

All year I've been using corrections to sell off expensive stocks, and moving into financials bonds yielding 6-12%.

My rationale is stocks are expensive, and PEs of 20 only equate to around 5% earnings yields against growing downside risk.. If we're overoptimistic on the reflation trade, then we may get fewer rates rise rather than are already priced into bonds .. Maybe a contrarian trade buying bonds going into a hiking cycle.


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john_r on 29/03/2017(UTC), dyfed on 29/03/2017(UTC)
sandid3
Posted: 29 March 2017 06:58:25(UTC)

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Here's a thing: People usually look at how the P part of P/E is changing but tomorrow we get to see the change in the E part. The US Bureau of Economic Analysis will release Corporate Profits figures for 2016 Q4. (It's table 6.16D from the Interactive Tables). The top line figure is 'Corporate profits with inventory valuation and capital consumption adjustments'. This is an annualised figure for the whole of US business in billions of dollars. It is described as 'the best available measure of industry profits'.

By some fluke, the number in billions is very close to the number for the S&P500 index. 2016 Q3 was 2139 billions. The S&P500 index ended 2016 Q4 on 2239. Here's a chart of how they compare over time:

chart

In fact, what I've done is shift the Corporate Profits line to the right by one quarter. The S&P500 line is un-shifted.

For what it's worth, the chart shows how far the S&P500 index strayed from Profits in the dot-com bubble era. Now that's euphoria!

For a long time recently, Profits were above the S&P500 line. But now the index is on top. We can expect the S&P500 to end 2017 Q1 at about 2360. If we don't see a significant increase in Profits for 2016 Q4 compared to 2016 Q3 (perhaps up to a new record of 2216), it's not a good look.
8 users thanked sandid3 for this post.
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john_r
Posted: 29 March 2017 10:09:15(UTC)

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sandid3;45221 wrote:

Here's a thing: People usually look at how the P part of P/E is changing but tomorrow .........


Brilliant sandid !
I shall tune in tomorrow for part II .
King Lodos
Posted: 29 March 2017 14:41:03(UTC)

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sandid3;45221 wrote:
Here's a thing: People usually look at how the P part of P/E is changing but tomorrow we get to see the change in the E part. The US Bureau of Economic Analysis will release Corporate Profits figures for 2016 Q4. (It's table 6.16D from the Interactive Tables). The top line figure is 'Corporate profits with inventory valuation and capital consumption adjustments'. This is an annualised figure for the whole of US business in billions of dollars. It is described as 'the best available measure of industry profits'.

By some fluke, the number in billions is very close to the number for the S&P500 index. 2016 Q3 was 2139 billions. The S&P500 index ended 2016 Q4 on 2239. Here's a chart of how they compare over time:

chart

In fact, what I've done is shift the Corporate Profits line to the right by one quarter. The S&P500 line is un-shifted.

For what it's worth, the chart shows how far the S&P500 index strayed from Profits in the dot-com bubble era. Now that's euphoria!

For a long time recently, Profits were above the S&P500 line. But now the index is on top. We can expect the S&P500 to end 2017 Q1 at about 2360. If we don't see a significant increase in Profits for 2016 Q4 compared to 2016 Q3 (perhaps up to a new record of 2216), it's not a good look.


Point's completely right .. but the chart's massively deceptive.

When you've got two different series of data on the same chart, you can choose whatever scale you want to compare them on – so we could shrink that Blue line down; scale it up; shift it vertically anywhere.

What we tend to do is find a scale that makes them tell a story over a certain period of time ... The story here is that we're still near fair value ... But chose a different scale for the Corp. Profits line and it would look like stocks have got more and more expensive.

King Lodos
Posted: 29 March 2017 15:57:53(UTC)

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Here's the same data, except the guy who made the chart chose different scales – being the corporate profits and the S&P500 are two different sets of data, not directly comparable.

Just a subtle shift and it tells a completely different story.

http://pbs.twimg.com/media/CjeZVT8W0AAl6iF.jpg
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