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21 comments:
I am getting ready to exchange my
various holdings with current losses
for comparable ones (to book the tax
losses).
Can you recommend any websites that
can automatically display comparable
securities to specific ETF's, open
ended funds, and stocks? Thanks.
Your level-headed discourse is helping my hold mine.
Jay Charles
Roger,
I'm the guy who called you out on the 200 DMA.
It seems to me, the determination on when to increase exposure to equities rests on competing investments. From Graham's Intelligent Investor, one should compare the earnings yield to the interest rates of "high quality" bonds. Earnings yield = 1/(P/E)The difficult task is trying to determine earnings for an index.
From Friday's WSJ, the DJIA P/E is 9.85 giving an earnings yield of 10.15%. 10 corp bonds yield 8.7% and 10 year treasuries yield 3.94. Using this metric, stocks are a better investment, with a sizable margin of safety. Maybe this is why Buffett is all over TV saying now is a great time to buy stocks.
My question is, given that we are in what's seemingly going to be a deep recession, how good are P/E forecasts? Do you even consider these comparative valuations?
Anon in CG
Indexuniverse.com has a pretty robust database.
I have written about pe ratios many time before. they measure valuation I do not believe they offer any predictive value at all.
If PEs are low, ok, they can stay low or go lower, ditto on the high side.
also whatver the real PE at spx 940 couldn't the market stay at 940 but the PEs go up?
Jay Charles,
Go to Vanguard's website. Most all of their index funds have a corresponding ETF. If I were going to tax loss harvest your u.s. stock market losses, I would simply purchase the Total Stock Market Index ETF after selling whatever you need to in equal dollar amounts. Vanguard ETFs have low expense ratios and Vanguard probably isn't going out of business soon. You could do the same for international equities too.
Anon in CG
Roger,
I don't really get your comment on P/Es. The same can be said for just looking at the level of a particular index compared to the index' historical levels. Doesn't really mean anything, could go up or down. Seems like you're operating on hunches now.
You just seem to be saying the odds are more on the upside now. I'm just saying objective valuation comparisons seem to confirm that point of view, at least in the long term.
I'm just trying to figure out what is driving your thought processes since you have seemed to change ever so slightly since 1095 was significantly broken.
Have a great day. I appreciate your efforts.
Anon in CG
you can look at the archives for more in PEs if you are interested. PE's versus index levels are not the same thing, IMO, not even close.
i either have articulated that in past posts or not, but they are different by a mile and half.
Hunches is a bit much also IMO. I've never used PEs for predictive reasons and have several years of disclosed trades on this blog of selling after big moves up and buying after big moves down.
An honest post, Roger, thanks.
Just so I'm clear, are you beginning the process of re-equitizing along the lines that you've laid out before, adjusting along S&P segment weightings? Or is this more of a tradeable bounce that's too good to pass up despite the 200 dma discipline?
A bit O/T, but I'd appreciate your insight on gold, Roger. I increased my holding modestly as I got more defensive, but it's fading faster than the Cubs. The world banking system is in tatters and it hasn't proven the safe haven that I wanted. Is it signaling low inflation? Less demand for jewelry in Asia? Correlary declines with other metals?
Thank you very much.
Hi Roger: It's been a while since I've visited, largely because your even-handed analysis over the past few years gave me a substantial base on which to evaluate my own decisions. I see that that there continues to be a cohort of folks who seem to call into question your style.
Though I have no answer, and I'm not really looking for one, I'm wondering if we are at a point where conventional wisdom may be called into question in some very meaningful ways. We are unwinding a huge amount of credit at a rate that is not easily replaced by CB efforts. Conventional wisdom is that such efforts are inflationary. My sense is that they are only manufacturing bricks and putting bricks under a house to keep it from imploding, rather than building an addition!
I'm thinking, too, that historical p/e ratios--again, along the lines of where conventional wisdom says to buy etc--may be distorted as well due to the unwinding.
I dipped my toe in the water Friday before last. I've been mostly cash using some strategic buys in the double longs/double shorts as technicals dictated in addition to a few strategic puts in the utilities area. The utility charts are worth a look for 'some' recovery for folks inclined to do so.
I believe that some of these massive rallies are caused by hedge fund blow ups---the short interest in the market has been very high. For funds that have to liquidate, they have to buy stocks to cover their positions and meet margin calls. This happened in August of 2007 during the first round of blow ups and the first freezing of the credit markets. (Why any thought it was the end, is beyond me).
Anyway, ultimately folks have to find their own styles, make their own decisions and get their information from a variety of sources so that they can way the weight of the evidence against their own time frames and risk profiles. You've always been a lucid communicator of your style and your thinking which I have found valuable in developing my own style.
Thank you for that.
I've pulled all of Paul Krugman's articles on Japan--I plan to read them over my upcoming vacation. I'm feeling the need to wrap my head around that, particularly in light of the status of the Nikkei some 20 years later.
all i've done thus far is remove double short and add back fewer dollars than I sold in one stock. i said in the video i could buy a lot of stock and still have 20% cash.
can't be clearer than that.
if you believe gold is caught up in the deleveraging then it's decline makes sense. that would be the bigger macro at the moment.
Leisa, you could be right of course but I would add that equities as imperfect discounters of future events probably has not changed.
i've mentioned many times that even if the US is turning into Japan, the rest of the world is not.
that would be time to roll 'em up and do some learnin'
Roger,
I agree that the market is an imperfect discounter. Marc Faber captured it perfectly in a recent statement that (paraphrasing) "there is a wide gap between economic reality and the market's perception of reality".
I was stupid earlier on (up until about 12 months ago)and believed that the market was a perfect discounter (as everyone said!) and was early to the short banks/insurer's trade. Best to form a thesis and then wait like a spider for the technicals (market's perception)to confirm them.
My guiding thesis now is that we will have to have deflation first to shrink the balloon in a way to have some meaningful re-flation. I think that is the only way that the CB'ers will be able to do more than spitting in the wind.
The gold bugs and the peak oilers are smarting mightily for missing that. I think that is where common sense and conventional wisdom diverged. There will be likely more divergences. It's like the X Files for the market: question everything!
The other 'saving' thesis for me was believing (rightly so far, but always subject to change!) that the US's response to the near certain collapse of the financial system would be stronger on a relative basis than that of the EU.
Ultimately, in addition to gaging the absolute movement of things (which is rather frightening at times), it makes sense to look at the relative relationships--it's never great to choose between the lesser of evils. And while cash (mm) and bonds are seemingly a safe haven, there still seems to be some danger there.
Sorry to be so long winded!
Roger,
For tax purposes (tax loss selling), are SPY and IVV considered the same financial instrument by the IRS? (i.e. you cannot sell SPY and buy IVV and claim the loss)
Thanks,
CA
anon in CG--If you want to get really depressed, Dr. Brett has a post up today on using some fundamental metrics to value the market. traderfeed.blogspot.com
In my experience the connection between the stock market and the economy is not stable; sometimes in sync but not reliably so except possibly in the long run and everyone knows what John Maynard Keynes said about that.
Personally I believe that once the history of this period is written it will be determined that we have been in recession beginning Q1'08, that the economy continued to worsen right through 2009, with sufficient global impact that no country escapes (forget uncoupling).
I also think we have been a secular bear market since 1998 (2000 if you only focus on large caps and tech) and that this period will be compared to the period from 1966 to 1982 more than any other.
But what matters now is the way the current credit panic eases -- and so far so good -- and what investments appear relatively more compelling as money velocity improves: It may not be a great environment but the wind is now at the back of stock prices rather than in front, at least for a time.
So while I personally continue to think the odds favor this as an intermediate bottom rather than a bottoming process preliminary to a new cyclical bull market the approach remains the same regardless: A measured scaling in to select long equity (and some hard asset) positions that represent good value (based on whatever fundamental and quantitative metrics you favor) even if their price were to fall further.
I say "good value" in the full knowledge that values could drop even further so going all in is simply not in the cards. Nor do I know where the market will be next week, month, or year, and am aware of no law preventing it from dropping another 40% just for the fun of it. But the segment of my portfolio oriented to valuation (momentum is secondary) is ready to grow and sez feed me, feed me sucka: So guess I'll just have to pull one of my dressings off and give it some more blood.
I really hate this part.
I don't find down a lot to be encouraging. Past is prologue. Start from where you are and go forward.
Think of this as Zeno's market paradox: Even after a market has fallen by half, it can still fall by half again.
Between 1929 and 1932 the market lost 89% of its value. Effectively, the market was cut in half three times. Down by 50%, down by 75%, down by 87.5% as each remainder is cut in half.
anon 9:41,
Thanks for the link. BTW, last week's Saturday WSJ had an article saying that 700+ stocks were trading below the value of their cash holdings.
What does this mean? Irrational pessimism or efficient discounting? Or both?
With regard to Fred's comment, those who kept a balanced allocation during the decline were satisfactorily rewarded.
Very interesting comments today by all.
anon in CG
We just got back from taking Pee Wee to the vet, complication with his fixing. Not serious but seriously uncomfortable for him.
The market at perfect discounter has never seemed right to me.
can't give tax advice.
RW quite a few folks thought recession started in q4 2007, personally I don;t know but six to nine months after the stock market started to roll over seems plausible and consistent with your comment.
I tried a couple of times to make the point that we don't need to worry if this is the 1970s because as far as the stock market is concerned it is.
Zeno's paradox? Never heard of it but I do think that collectively we are open to a wider range of possible outcomes. I say possible even if not, IMO, probable.
I don;t know how many stocks are trading at or below cash but getting the business for free (ex-banks) is not the worst thing you'll ever do.
Roger you may just be having us on, but just in case....
Zeno's paradox was the Greek philosopher's attempt to show the impossible is possible, and in fact, trivial (I think he was arguing for a different set of laws of motion, but take from it what you will):
(apologies for filtering it through a now hazy memory...)
An arrow is shot towards a target 30 paces away, but before it can do that, it must first travel 1/2 that distance. But before it can travel that first demi-distance, it must cover 1/2 of THAT distance.
But of course, before it can reach the milestone of THAT distance, it must first cover 1/2 of the distance to that milestone.
In fact, since there are an infinite number of intermediary milestones, there is no way the arrow can ever reach the target during any finite period of time.
(The paradox is also described in the race of a hare and a tortoise; so long as the tortoise is given any appreciable headstart, the hare can never surpass the tortoise in a finite period of time. Same reasoning.)
In the current environment, the paradox may be used to explain why we'll never see SPX 1450 again...
three words for you;
San Diego State University
Roger,
Last week you were very, very tired. Buy signal? You look less tired. Sell signal?
My timing model got a good pop this week pushing my equity exposure substantually higher.
Roger, I know you time the large cycles (and seem to be very good at it from what I've seen) - I'm more comfortable with intermediate cycles. That said, I highly recommend you investigate and adopt a sentiment component to your timing method: 200 day moving average crossovers.
Trend following is great, but sentiment or OB/OS indicators are extremely valuable additions to a timing regime, especially during periods of extreme deviation from the mean.
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