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James A. Kostohryz

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  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Brad:

    I did not think you were being disagreeable. I just wanted to know where you got the idea that I was selecting data to confirm my assumptions.

    I do think we are in mid-cycle but that is for objective reasons that I did not expound upon in this article. However, if it turned out in retrospect that we weren't in mid-cycle and we were late-cycle, it would not make a major difference to my analysis. Why? Because that suggests that current earnings were peak earnings. And if that were the case, then the case that the market is expensive becomes even stronger.

    Cheers!
    Apr 22 05:56 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Brad:

    1. Where or how do you infer that I select data "on the basis of supporting our assumptions in the first place."? How do you even know what my assumptions were? And what makes you think that I selected data to support those assumptions?

    2. The fact of the matter is that if I selected data outside the mid-cycle stage the peak PE ratios would be much higher.

    3. EPS outside of the selected ranges would either be depressed (recession or early stage) or have already declined significantly from their peaks (late stage). None of these situations are relevant for comparison to the current situation.
    Apr 20 11:50 AM | 1 Like Like |Link to Comment
  • Economic Outlook For The Rest Of 2014: Stuck In Neutral [View article]
    Nimble:

    Just some quick observations and I will let your readers take it from here:

    1. Not if they became more risk averse and liquidity preference rose. That is the point, really. As risk aversion and liquidity preference normalize, the people that have this money will spend it at a greater rate. At best, you can argue that relatively wealthier people have a larger share of this excess liquidity and that the wealthier cohort will not increase its spending by as great a rate as those that are less wealthy. But the point is that if liquididity preference normalizes, there will be more spending by everybody that has any liquidity -- wealthy, middle class, working class, etc. And on the margin this will boost spending and GDP.

    2. When you get a job that merely pays bills, it is still net stimulative to the economy as long as your disposable income is greater than it was when you were relying soley on government assistance.

    3. Your argument regarding the denominator (labor force) is largely addressed by U-5 and U-6. These measures of unemployment include (i.e. add back) to the labor force all "marginally attached" workers. This includes a category called "discouraged" workers. Also, we must also consider that a larger share of the population is of retirement age and therefore the labor force has naturally shrunk. I think you are correct that the denominator in all of these measures has shrunk somewhat for reasons not entirely covered by U-5 and U-6 or voluntary retirement. However, there is no way to deny that employment is improving substantially and unemployment claims are falling. In some ways, the denominator does not really matter. What matters is that more people have jobs. When more people have jobs, regardless of the denominator, this means increased income and spending.

    Cheers!
    Apr 16 05:15 PM | 3 Likes Like |Link to Comment
  • Economic Outlook For The Rest Of 2014: Stuck In Neutral [View article]
    Nimble:

    I appreciate your fair and thoughtful commentary on my 2014 Economic Outlook.

    I would only make a few observations:

    1. There is an incorrect impression (and I am not saying that you have it) that the fact that bank reserves are high somehow diminishes the degree of liquidity possessed by household and businesses and available to them for spending. This impression is not correct. All of that liquidity is possessed by households and businesses in the form of deposits. That money is not "trapped" in some way by the banks in some immobile category called "reserves." That money is fully available to the depositors (household and businesses) that own that money. Therefore, as liquidity preferences decline, consumers and businesses will tend to spend this available money at a faster pace. For reasons I have explained elsewhere, this will not actually cause excess reserves to decrease. The excess liquidity will remain, but velocity will increase -- i.e. a hot potato effect.

    2. Your income distribution data is quite dated -- 2010 and 2011. It does not fully reflect improvements that have undoubtedly occurred in the past few years. Unfortunately, the indicators you point to are not updated on a yearly basis. However, I think it is fair to say that employment gains have significantly helped those in the middle and working classes in the past 2-4 years (most of the jobs have been going to them since the upper and upper middle classes did not suffer from much unemployment as a result of the crisis).

    3. Your data on the labor force neglects the fact that the chart I provided includes U-5 and U-6, which include discouraged workers and so forth. In fact, as I point out, U-5 and U-6 have been improving more rapidly than the traditional unemployment rate (U-3).

    I differ with your interpretations on a number of other points, but reasonable people can disagree on these matters. I highlight the above points because I believe they are factors that objective diminish some of the strength of some of your specific arguments and counter-arguments.

    Great work, and I again appreciate your thoughtful review.

    James Kostohryz
    Apr 16 03:22 PM | 7 Likes Like |Link to Comment
  • ICoin: Why Apple Should Open A Bitcoin Bank [View instapost]
    Galileo:

    This deserves to be an article, not an instablog.

    I like the out-of-the-box thinking here. I don't think Apple will do this, nor do I think they should. But you make some very interesting points about how Bitcoin could become more mainstream if big pockets got behind it to stabilize its value.

    I liked your idea of stabilization although there could be potential legal issues with that. Price manipulation, etc.
    Apr 14 08:37 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    I appreciate the comment, MGI.
    Apr 14 09:44 AM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    decatur60:

    The best research I have read on the subject suggests the following:

    Many people will pay higher premiums / deductibles under Obamacare. But many people will pay lower premiums and deductibles the healthcare bills of many people will be lowered via better coverage. So, net, net the impact on healthcare expenditures appear to wash out in the aggregate.

    Notwithstanding the above, the short-term effects on non-healthcare consumption expenditures are a bit unpredictable. It is not clear how spending will be affected in those that are hurt versus those that are helped. Will the impact on spending also wash out? There is some doubt about that. It is possible that it could have a negative OR a positive net impact on consumption. I assume it will be a wash. But there is some uncertainty.
    Apr 13 11:36 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Just did ps677: I had not seen it earlier.
    Apr 13 09:12 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    fliper2058:

    I agree with 90% of what you said there. My philosophy is that if you do not have strong conviction about something, then don't do it and be in cash until you find the right opportunity.

    Cheers!
    Apr 13 09:11 PM | 1 Like Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    ptetteroo:

    I have been transparent in my data sorting process. If a person agrees with the criteria, they will agree with my thesis. If not, they will not.

    What I do believe however, is that it is mistake to think that indiscriminate use of data is somehow a superior method to one which sorts data carefully in ways that make sense.

    I understand what you mean about bias, data snooping and etc. I am aware of the problem. I am also aware of the opposite problem. It's a matter of cost/benefit and choosing the best method to explore a particular subject.

    Cheers!
    Apr 13 09:06 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Contrarianadvisor:

    I agree that getting the macro right is crucial. And, yes, we do disagree regarding deflation. I see very little prospect of that. But if that is your view, then you definitely do not want to be in stocks.
    Apr 13 09:02 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Christopher:

    1) Do you recognize that it possible that bonds are expensive AND stocks are expensive?

    2) If bonds are indeed expensive -- as they almost certainly are -- what makes you think that stocks have to rise in order to yield as little as bonds?

    Again, I am going to address the interest rate issue in another article. But the bottom line is that simplistic comparisons between bond and equity yields don't make sense theoretically and they don't work empirically.
    Apr 13 03:24 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Physical Reciept:

    1) Please provide your source for the trading floor with the 1,100 full-time Fed employees.

    2) And what makes you think they trade equities rather than treasury bonds and mortgage backed securities as disclosed? Is it the number of employees? Well first, please confirm the source with the number of employees, then please explain why it is that this number is to high relative to what the Fed has disclosed that it does.
    Apr 13 03:15 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Readers:

    Some investors have expressed concern that my methodology might be "too selective" or bias the result in some way.

    Well, if I included the two periods of 80-82 and 75-80, it would only STRENGTHEN the conclusion that the market is expensive, because PE ratios during those periods were MUCH lower.

    The ONLY period in which mid cycle valuations were significantly higher than the samples selected was the bubble period of 1998-2000.
    Apr 13 12:48 PM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Richard:

    1) "I'd be interested in your take on the shape of the downside and why you seem to think it will be steep and deep initially."

    I did not say the downside would be steep and deep. Where do you get that?

    2) I didn't say that current valuations indicated a bubble. I said that we are on a sort of threshhold. Valuations right now are about as high as they have ever been in comparable conditions, with the exception of the 1998-2000 bubble. If we start to see valuations like we did in 1999, then we may be in a bubble. Until then, the market is merely expensive.

    3) People can do all of those things -- trailing stops, hedging, etc. Can the average investor execute those strategies effectively? I will let them be the judge. But the fact of the matter is that 80%+ of individual investors either don't know how to implement that sort of risk control, won't do it, or will do it poorly. Again, I said in the article that some people that are confident about their skills to capitalize on momentum, might choose to ride the market higher.
    Apr 13 12:44 PM | 1 Like Like |Link to Comment
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