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  • Retirement Strategy: Is It Time To Panic Based Upon The Most Widely Used Valuation Metric? [View article]
    Broadly speaking, valuations are lower for the mega-caps than for the average stock--that's why the market cap-weighted S&P 500 dramatically outperformed equal-weighted indices, the Russell 2000, etc. last year. Small-cap valuation multiples are at an all-time high much like junk bonds were until recently.

    However, even mega-cap multiples are still historically quite high particularly when adjusted for cyclically-elevated margins. Margins are most definitely cyclical, and we've likely just hit a cyclical peak. Stocks looked reasonably priced at the 2007 peak as well but also had cyclically toppy margins which disguised the high multiples.

    The big thing propelling these markets and sustaining high valuations is ultra-low interest rates and TINA--it's no coincidence that the huge multiple expansion happened in 2013 (continued through 2014) after long-term interest rates collapsed through 2012.
    Feb 15, 2015. 10:41 PM | 3 Likes Like |Link to Comment
  • The Outlook For Silver In 2015 [View article]
    That's what I mean--the gold/silver ratio suggests that we are likely late in the metals bear market and that there will be explosive upside in the metals over the next few years (upside and downside are always explosive in the metals), with silver outperforming gold. Timing is tricky, but I would say that if this is not the bottom, then there's only one more quick leg down (maybe 20% in gold, tops), and that would be a terrific buying opportunity (and now is a good entry point as well, even if we do get that one last flush-out). We may or may not get it. I wouldn't worry about mining fundamentals or whether there's a "reason to rally".

    Emerging markets as a group (EEM) were slightly down this year. The relevant macro correlation is gold and emerging markets as an asset class, not individual markets, which may vacillate up and down over limited periods on their individual fundamentals and "stories".
    Jan 3, 2015. 12:59 PM | 1 Like Like |Link to Comment
  • The Outlook For Silver In 2015 [View article]
    Note that the gold/silver ratio, now at 74, is similar to the 75-80 extreme highs reached the last two ratio peaks (Dec. 2008; late 2002/early 2003). Both of these preceded major bull moves in both metals, and it did not take several years of waiting. Did you see a good reason in Dec. 2008 or early 2003 for silver to explode higher in the near term?

    What is intriguing is that these were also close to stock market bottoms. In other words, this period is highly unusual in that US stocks have been acting like Treasury bond proxies the past couple of years (because people are so yield-starved)--rising sharply when they should have fallen.

    I think that at some point, we will see a period where metals and emerging markets stocks strongly outperform US stocks. With the consensus convinced that the USD will continue to soar (based on market (mis)-perceptions of large-scale European and unending Japanese QE), it's possible that could happen this year. That would shock a lot of people, just as most missed the huge decline in long rates this year.
    Jan 2, 2015. 10:28 PM | Likes Like |Link to Comment
  • My Predictions For 2015 - Part II [View article]
    Hi Bret

    On your view about improving US economic growth--why are long bond yields continuing to fall if US growth trajectory is supposedly accelerating? Seems like a disconnect here.

    Also, why are utilities/defensives/h... leading the recent rally? Another disconnect.

    Finally, why are credit spreads widening (even outside of energy high-yield)? This typically isn't what you see on the cusp of economic acceleration.
    Dec 29, 2014. 04:10 PM | Likes Like |Link to Comment
  • Chinese Stocks: Short-Term Buy, Long-Term Sell [View article]
    "A large drop in oil prices is exceedingly bullish for Chinese equities and US small cap value portfolios."

    It's funny, there was a large drop in oil in 1997-98, yet I don't remember that as being a good time for emerging market equities (in the short and intermediate term). Also, the Russell 2000 underperformed the S&P 500 by a whopping 30% in 1998.

    Small-cap are undeniably at nose-bleed levels--top 3% of historical valuation levels. If stocks do well next year, they will be led by high-quality large-caps (try QUAL) much like this past year, with small-caps lagging badly.
    Dec 12, 2014. 08:07 PM | 1 Like Like |Link to Comment
  • Another day of pain for energy stocks [View news story]
    I see a bad moon arisin'
    I see trouble on the way
    I see earthquakes and lightnin'
    I see bad times today

    Don't go around tonight
    Well, it's bound to take your life
    There's a bad moon on the rise

    I hear hurricanes ablowin'
    I know the end is comin' soon
    I fear rivers overflowin'
    I hear the voice of rage and ruin

    Don't go around tonight
    Well, it's bound to take your life
    There's a bad moon on the rise

    Hope you got your things together
    Hope you are quite prepared to die
    Looks like we're in for nasty weather
    One eye is taken for an eye

    Well, don't go around tonight
    Well, it's bound to take your life
    There's a bad moon on the rise

    Don't go around tonight
    Well, it's bound to take your life
    There's a bad moon on the rise
    Dec 10, 2014. 02:02 PM | 6 Likes Like |Link to Comment
  • Canadian Oil Sands: Sorry, But We Told You To Stay Away [View article]
    Trailing P/E and current yield are meaningless. With tanking oil, the earnings and cashflow will dry up. All this said, I'm a long-term bull on oil prices, but not for the next 2-3 years.
    Nov 29, 2014. 08:14 PM | 1 Like Like |Link to Comment
  • Canadian Oil Sands: Sorry, But We Told You To Stay Away [View article]

    Hat tip to you, sir. Excellent call. I actually exited my small COSWF position early in the year partly on the basis of your article and after further studying the budget numbers on the COSWF website. My reasoning was, around 20, it was an OK investment assuming oil prices stayed buoyant, but there were other OK investments without the commodity price risk. Stuff with commodity price risk needs to trade at low multiples to be investable.

    In the same vein, what do you think of Russian stocks once oil stabilizes (I'm not thinking of the Russian state-owned behemoths (other than perhaps SBRCY), but rather, stuff like YNDX, QIWI and LUKOY)? Low oil prices and crashed ruble aside, those seem cheap and well-run with excellent organic growth runway, and Russian macro (balance-of-payments and debt situation appears very strong, i.e. no Venezuela/Argentina).
    Nov 29, 2014. 05:03 AM | Likes Like |Link to Comment
  • The Fall In Oil Bears Watching Closely [View article]

    Nice article. Just one question: what's the basis for your view that demand has not declined? Note the obvious macroeconomic deterioration in Europe, Japan and China, etc. Surely that impacts demand for oil.
    Nov 15, 2014. 09:51 PM | Likes Like |Link to Comment
  • Stocks finish well off intraday lows, but still ugly [View news story]
    Prediction is hard, especially about the future. This guess seems as good as any though.
    Oct 15, 2014. 09:21 PM | Likes Like |Link to Comment
  • Look At The MLP GP Companies For An Alternate Path To High Total Returns [View article]
    Yes, was thinking more of those late to the party or retirees counting on the ridiculously strong performance (the biggest part of it unsustainable multiple expansion) of the past few years to continue. It's painful even for long-term holders. High-quality large caps not at outrageous multiples should be OK and beat the S&P 500 long-term, but definitely not getting 20%+ annual returns going forward from these elevated levels.

    A lot of the hot growthy small-caps are dicey. TRGP dropping 1/4 of its value in a few days illustrates the risks.
    Oct 14, 2014. 02:12 AM | 1 Like Like |Link to Comment
  • Look At The MLP GP Companies For An Alternate Path To High Total Returns [View article]
    ETE, SXL, etc. Even my faves EPD and MMP to a slightly lesser extent. Interestingly, KMI is holding up well on a relative basis because it never got bid up to very high multiples.

    As someone who sold all his MLPs a few months ago (time-stamped, check my comments) and locked in mid-teens returns for the year while sitting in 100% cash since then, I feel sorry for all of you. Valuation always matters in the end.
    Oct 13, 2014. 03:55 PM | 1 Like Like |Link to Comment
  • Look At The MLP GP Companies For An Alternate Path To High Total Returns [View article]
    The problem is that no one paid attention to valuations on the way up. As a result, high-fliers like TGRP, EQM, PAGP etc. were bid up to extremely high multiples. As a result, they are now tanking severely.
    Oct 13, 2014. 02:11 PM | 3 Likes Like |Link to Comment
  • Overvaluation Pervasive Among The Industrial Cyclicals - A Survey Of Timely Short-Sale Candidates [View article]
    I thought it might be worth checking in for a follow-up on how the industrial cyclicals are doing vs. the S&P 500 since the date of this article:

    S&P 500: +1.8%;

    CAT: -8.3%;
    CMI: -13.7%;
    NAV: -5.6%;
    AA: +11.9%;
    MTW: -31.9%;
    TEX: -31.2%;

    Five out of six, not bad (in fairness, I was too lazy to write about MTW and TEX though they were also part of my short position--a six-stock basket). Overall, a major alpha-generator, plus very profitable on an absolute basis (and likely to become far more profitable as the bear market continues). Alcoa showed some traction in their turnaround efforts recently hence the outperformance.

    In addition to the representative names mentioned, most other industrial cyclicals have also significantly underperformed since May (and are likely to continue to do so).
    Oct 10, 2014. 10:42 PM | Likes Like |Link to Comment
  • Why The Market Topped Out [View article]
    "I do not think we get a full-blown "bear" market, which consists of a 20% decline from highs on the major indexes."

    Any particular reasoning behind this?
    Oct 10, 2014. 09:52 PM | Likes Like |Link to Comment