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  • Autopsy - The Op-Ed [View article]
    "But the policy world has abandoned the notion that we can solve our problems with blowout borrowing, wasted spending, inflation, default and high taxes."

    You mean until the next recession, the next panic?

    This article seems to be utterly devoid of any historical awareness, except for the nods to George Washington's physicians.

    We have been here before: an incumbent Democrat's second term with a stock market boom and rising economic growth with economic crises abroad, Islamist attacks in Europe and the MENA, a nasty little civil war in eastern Europe, and a very hostile Republican Congress at home. And you are telling us that the era of big government is over based on a couple of quarters of good news?

    We are capitalists on the way up and socialists on the way down. Just wait till the next crash before declaring victory.
    Jan 22, 2015. 09:40 AM | 5 Likes Like |Link to Comment
  • A Market Manifesto For 2015 And Beyond [View article]
    Hi, Constant,

    Thanks for the comment. I don't think there's anything in the article that will make anybody rich (unfathomably or otherwise) who was not rich to start out with.

    More generally, I am not sure I understand your precise objection. I am guessing that the problem you are having, because it is the same one I have with my own analysis, is that the relationships I am describing leave very little room for exogenous forces or events, particularly human will. What if the Fed doesn't raise rates? Who is to say that a geopolitical crisis won't hit tomorrow that will upset all the delicately balanced apples on my applecart? What if my fear of a Depression near the end of the decade became contagious and markets crashed in anticipation?

    If that is the nature of your objection, I doubt my reply will be very convincing to you. My impression of historical dynamics is that conscious decision-making plays a relatively small role in things and that it is primarily reactive. Oil shocks are illustrative of this. We have had three that have been directly attributed to Persian Gulf chaos, and yet each of them occurred when they were "supposed to", i.e., during cyclical expansions in all of those things that I talked about in the article (earnings, metals, interest rates, GDP). They all followed inversions of the yield curve.

    What are the possible relationships between the oil shocks, the political crises, and the cyclicality of the market? We already know which came first, the cyclicality.

    If your objection is more along the lines of "you don't really know if the sun will rise tomorrow", then I can only agree.
    Jan 10, 2015. 06:58 AM | Likes Like |Link to Comment
  • A Market Manifesto For 2015 And Beyond [View article]
    Hello, Peter,

    As I tried to point out in the article, there is nothing unique about what is currently happening in the markets, except for the size of certain moves (particularly the rate of earnings growth). What has happened is fully compatible with market history.
    Jan 10, 2015. 05:44 AM | Likes Like |Link to Comment
  • The Shiller Equilibrium: What Is The Relationship Between Growth And P/E Ratios? [View article]
    Hello, James,

    Thanks for the kind comment. I agree with you on what Shiller's explanation is with regards to the relationship between growth and the P/E10. I think that he is just guessing though. How can the present expansion be argued on the basis of optimism?

    I think what I have done is show that it is possible to make Shiller's P/E10 work in a way that bypasses his explanations and make it work even better, especially when it comes to predicting booms, and that suggests something else is going on, although I do not know what.

    I think that as the P/E10 rises over the next 12-24 months, followed, I strongly suspect, by a 1929-style crash, he will have been "proven right" again, and nobody will care that there is no intrinsic connection between "behavioral finance" and the behavior of the P/E10.

    Also, I definitely agree with you that "there is no guarantee that what happened in the past is going to repeat in the future." In fact, I am pretty sure that it will not repeat. The problem that we have is that we don't know what happened in the past. Thanks again for dropping a comment!
    Dec 14, 2014. 01:06 PM | Likes Like |Link to Comment
  • The Shiller Equilibrium: What Is The Relationship Between Growth And P/E Ratios? [View article]
    Thanks, Andrew.

    Semi-retired, maybe! I probably won't write as much as I did in the past, if something is bothering me, I will probably write about it as a way of exorcising the irritation.

    Thanks for noticing my prescience; things have worked out well for the last couple of years; I think the only thing keeping me from batting 1.000 for this year is Thai stocks.

    As for incorporating earnings expectations, I am not sure that there is historical data on this that goes back far enough to make it enlightening.

    I am not sure I agree that what you described as the "main thrust" of the article was indeed that, but then again, I am not sure what the main thrust was. For me, I think it is that Shiller implies a relationship between growth and yields that I found interesting, previously unremarked on (by him or anyone else, as far as I can tell), and worth exploring. And, if we took that as our starting point, then by emphasizing the short-term relationship between growth and yields rather than the gap between them, we end up with a "signal" that is marginally better than Shiller's P/E10.

    The big problem with using a correlation instead of a gap is that the former lacks any theoretical foundation while the latter is attributed to "psychology" (i.e., when the market has a happy face, stocks go up, and when it has a sad face, they go down). And, yet both the correlation-method and the gap-method rest on virtually identical assumptions: that the rate of growth and the raw earnings yield ought to move together.

    Alternatively, if I had written a dogmatic article insisting that the earnings yield and the rate of earnings should always be tightly linked and that the gap between the two at present was alarming (which I thought about doing as a reverse-Sokal social experiment), I think most readers would have thought that was a ridiculous thing to say, and it is possible the editors would not have let me publish it without first "substantiating" the claim somehow.

    In short, I think the main thrust was an attempt to get readers to question what exactly is boiling beneath the lid of Shiller's theories.
    Dec 14, 2014. 12:26 PM | Likes Like |Link to Comment
  • QE Worked, But Not As Advertised [View article]

    I give them credit for being honest about their logic.
    Nov 3, 2014. 01:57 PM | 1 Like Like |Link to Comment
  • Why The Shiller P/E Is Useless [View article]
    Tony, I believe that the peace prize committee is different from the economics one. But, if any Chinese citizen deserves a Nobel prize, it has been Liu Xiaobo.
    Nov 3, 2014. 01:45 PM | 1 Like Like |Link to Comment
  • Why The Shiller P/E Is Useless [View article]
    I'm definitely not a big fan of Shiller P/E (CAPE), but I'm not sure I agree with some of the arguments here.

    1. The article seems to be saying that CAPE was built for a different world, back when the US was not a service economy, but I've found that CAPE has worked best as the displacement of the manufacturing sector by services has progressed over the last century. Compare CAPE with subsequent returns before the Fed learned how to produce smoother growth in inflation and earnings, and you will see that the CAPE tended to be almost perfectly wrong. Instead, CAPE has only worked consistently since earnings became consistently positive, which is also when the service sector took over.

    2. That leads to my second objection, namely to the claim that the only time CAPE produced a buy signal (supposedly in 1974) the market crashed. There was a buy "signal" all the way through the late 1970s. Therefore, it "worked" properly during that period. Historically, CAPE has failed to predict some of the biggest bull markets (the late 1990s, for example), not so much bear markets.

    3. The reason I object to CAPE is that it has only really been at its most effective when earnings growth has been constant. When earnings growth has been constant, as it has been since the Depression, then CAPE just measures the degree to which stocks have departed from their own long-term moving average. CAPE turns out to be a statistical trick, although a comforting one for many.
    Nov 3, 2014. 08:55 AM | 3 Likes Like |Link to Comment
  • The Gold Bull Market Is Not Over [View article]
    If stocks are being determined by the Fed's generosity and the world is slipping into Depression, won't the Fed keep it's foot on the gas, and therefore, by your logic, wouldn't it be better to buy stocks?
    Oct 21, 2014. 04:20 AM | Likes Like |Link to Comment
  • The Gold Bull Market Is Not Over [View article]

    Well, you still haven't shared with us, then, how you define bull and bear markets. It sounded to me as if you were saying 2000's low was the baseline. Perhaps you could be more explicit about your metrics?

    A three-year lull in a 20-year bull market wouldn't be abnormal? I disagree with that. First, the lull you're comparing this market to is the 1975 crash. That was relatively brief, as I recall, so I wonder what makes you think longer breaks are "normal" (in the comments below you kept the door open for further declines, so maybe a 4-5yr lull is what we're talking about). Doesn't it seem more likely that the 1975-style gold correction already occurred in 2008-2009, then recovered and popped in 2011? The same could be said for silver and most other commodities.

    Second, commodities rarely experience 20-year booms. I think the only example of that might be the 1895-WWI boom. The second longest, I believe was the post-Depression recovery which was 15(?) years. Commodity prices generally have been falling for the last sixty years, except for violent reversals in the 1970s and 2000s.

    I'm not sure how to respond to your claim that your article isn't an opinion piece. A quote from someone else's opinion, the IAEA's, is still an opinion, just not an original one. Why should I put any faith in their opinion? Are they ever right? These organizations put their finger in the wind and then forecast from there. Prices start crashing and they say, oh, demand must be falling or there must be an oil glut. These are just guesses.

    Finally, if oil and other commodities really have distinct supply/demand profiles AND those profiles are determinative, why is it that commodity prices are so highly correlated with one another? I think you have to make a much more robust case to convince those who are not perma-bulls that this time is different.
    Oct 21, 2014. 04:15 AM | Likes Like |Link to Comment
  • The Gold Bull Market Is Not Over [View article]

    There's no scientific measure of when bull/bear markets begin, but I don't think we could set the bar as low as you have. By your definition, using the 2000 low, gold could be at $400/oz and still be termed a "bull market". I'm not a technical analyst but I follow commodity prices fairly closely. A lot of them are smashing through their post-crisis lows.

    As for oil prices, I find it ironic that you discount the conventional wisdom of the markets over the last three years as expressed by relative performance but trust that a newspaper knows exactly why oil prices are dropping now. Commodity prices tend to move together over the long run, and oil often leads the way. Moreover, there are not many instances when oil dropped and the rate of inflation didn't drop, too.
    Oct 19, 2014. 02:00 PM | Likes Like |Link to Comment
  • The Gold Bull Market Is Not Over [View article]
    You say it's "ironic" that stocks have mopped the floor with gold for the last few years. So, the gold market is still a bull, but it just doesn't know it? How do you define beginning and end of bull and bear markets? Doesn't the scoreboard say gold is losing?

    And if you're looking for which way inflation is going, look no further than crude oil.
    Oct 17, 2014. 12:42 PM | Likes Like |Link to Comment
  • We Are All Charlatans! [View article]
    "One should remember that the markets always go up given sufficient time."

    What you mean is, they will always go up, and you know that because you think they have always gone up. This is a prediction.
    Oct 5, 2014. 08:05 AM | Likes Like |Link to Comment
  • So Long, Then, Cristina Fernandez De Kirchner [View article]
    Excellent writing style, as always, Mr Grant.
    Sep 30, 2014. 02:59 PM | 1 Like Like |Link to Comment
  • Emerging Markets Are In Trouble [View article]
    Hi, Doug, I see. I would say that that is a straightforward, traditional policy question for which I have no satisfactory answer. If I am right that the dollar strengthens against other currencies at the same time other countries, especially EMs, are in crisis (these tend to entail generalized societal breakdowns in many cases), I am not sure what the ultimate impact would be. A shock administered under such conditions may have the unintended consequence of further strengthening the dollar.
    Sep 30, 2014. 02:29 PM | Likes Like |Link to Comment