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dancing diva

dancing diva
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  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    RD - I can appreciate your frustration, but I have to say I think you are looking at the wrong things as far as your divergences. And I do believe you have some misinformation.

    Eg, we are not at an "all time record interval without a 10% correction". In fact, there have been 4 times previous to this since the early 1960's that the rally has lasted longer. We are now roughly at day 1052 (+/- a couple days).

    Falling commodity prices are more often bullish for the market. Some of the best bull markets have come when they are flat or declining. Look at this continuous commodity price chart. The biggest bull market from the early 80's to 2000 came when the broad trend was sideways to lower.
    Yes, if they are as a result of a sharp GDP contraction that's a negative, but none of the data bears out that's occurring. While there's no doubt world growth is on the weakish side, there's nothing at all to suggest it's rolling over. I was actually more concerned about growth prior to July. I felt consumers were tapped out and the nail in the coffin would be another US drought. Thankfully mother nature was kind and we'll see a bumper crop and no food inflation. And lower energy prices are a big help for both consumers and businesses.

    Regarding the curve flattening. Yes, the 2yr-10yr spread has flattened, but there's lots of weird crap going on. European 10 year rates are so low they are positively impacting the demand for the US 10 year.
    And while I can't buy long bonds at the current level, preferring defensive dividend stocks that pay more and grow dividends each year for that part of my portfolio, there are many companies or more rigorous investors than I that must hold a certain percentage of their portfolio in bonds.

    Regarding the recent relative weakness in junk bonds. It's my guess there's been some money flowing out simply because yields have gotten so low that money is seeking alternatives. While I'm not bearish to junk, the long term risk/reward isn't that favorable at 5.6% (the last months payout annualized). Wouldn't you rather be in a utility that pays over 4% instead (ed, so, ppl 4.4-4.9%) than a junk bond fund? Historically, if the market is about to roll over because of recession defensive stocks actually go up for awhile after the S&P and junk bonds top.

    And while the the defensive sectors were outperforming the S&P earlier in the year, they topped out relatively in April/May.
    Aug 23 06:52 AM | 2 Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    Well, we'll have to agree to disagree regarding what constitutes a good proxy as a fair value for forward p/e, but that's what makes a market!
    Aug 22 03:03 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    Barring the data turning negative I can't see a 10% decline unless there's some major event.

    While the forward p/e is 10% above the levels seen as average since the 1970's, that figure is biased downward by the exceptionally low p/e's early in that period (due to the extremely high interest rates which attracted money into fixed income and out of the stock market). In addition, one could make the case that the multiple should be higher today than prior to 2003 due to the sharply reduced tax rates on dividend income. And there were other changes to the tax code prior to 2003, reducing both marginal tax rates and capital gains taxes that both increased the demand for stocks and raised the multiple.

    I'm not smart enough to figure out what interest rates and changes to the tax code should mean to forward p/e's, but it's clear to me going forward that 13.7 level will be rising as more years are added unless tax policy is reversed. At a more normal 4-5% 10 year treasury rate that level could be as high as 15 or 16, which suggests to me the stock market isn't overvalued at all, but close to fairly priced. Which is what the market may be telling us by its resiliency.

    Of course there could always be some sort of exogenous shock (Europe, China, who knows what) that could send the market tumbling, but that suggests buying put options rather than raising a lot of cash.
    Aug 22 01:56 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    Odds are for some choppy consolidation or a slight dip, but those even considering 2011 as an analog are way off base.

    I remember the summer of 2011 quite well. The economic stats were failing during the spring (the Phil Fed turned negative by the summer) and the ECRI was infamously predicting a US recession. Plenty of articles about a "double dip" recession. Throw the debt ceiling debacle into the mix and the market cratered, losing over 200 points (around 16%) in the space of about two weeks. It wasn't until the Fed announcement of another QE program in the fourth quarter that the market found its footing. Coincidentally, the economic data started to improve by late summer.
    Aug 22 11:56 AM | 1 Like Like |Link to Comment
  • Is The Shiller P/E Broken? [View article]
    You may find this interesting.

    Also an explanation for a permanently higher cape is the changes to the tax code. For much of history dividends were taxed as ordinary income, but since 2003 only taxed at 15% (recently increased to 20% for the top bracket). Obviously a dividend paying company is far more valuable now than when your income from dividends was taxed at a much higher rate and this elevated the multiple.

    Additionally, the top marginal rate has declined from an average near 80% during the late 1923's to 1970, gradually reduced to 35% by 2003 (recently upped to near 40%). With the lower margin rates came a much higher disposable income by wealthier individuals and some of the money was plowed into the stock market increasing the demand for stocks.

    This 2010 article by SA contributor Richard Shaw provides tables of the history of both corporate and individual rates.

    I'll leave this for the math guru's to calculate, but how much more is a $1 of earnings and dividends worth today to someone in the top bracket (39.6% ordinary income rate, 20% capital gains and 20% dividend tax rate) versus 1960 when the top marginal rate was 91%, the dividend was fully taxable at your marginal rate (with only $50 exempt) and capital gains taxed at 25%.
    Aug 22 07:08 AM | 2 Likes Like |Link to Comment
  • Why The Wealth Effect Doesn't Work [View article]
    The wealth effect isn't a myth and we saw a prime example of it during the housing boom in the 2004-2006 period. Many homeowners believing the escalation in their home values were permanent took out home equity loans or second mortgages to finance current consumption. I remember reading numerous stories in 2007/2008 about now former homeowners who annually took equity from their homes to finance new cars, home additions, vacations, etc - only later to be stuck with a mortgage ultimately much higher than the value of the home. I also remember a mortgage broker telling David Faber (in his excellent 2009 documentary "House of Cards") that some of his clients called him every year for several years to refinance just to pay off their huge credit card bills.

    Why the wealth effect isn't working well now is that those of us who survived the stock market debacle realize how fleeting our gains can be and aren't that inclined to spend them. Additionally the great bulk of stock market wealth is concentrated in the hands of the already well off - and they really won't change their consumption patterns in the same way as those in the lower middle or low end might when faced with a windfall.
    Aug 21 02:56 PM | 6 Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    Thanks! I'll take a look at it.
    Aug 21 02:16 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    I agree most of the discretionary stocks aren't that attractive. However there should be specific instances - such as companies whose revenues have been fairly flat that have been actively reducing their share count over the past few years - that should benefit most by any increases in revenues.

    Know any screens for a case like that?
    Aug 21 12:27 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    Some brokerage houses won't allow you to trade options with unlimited risk - like selling puts - unless you tell them you have experience with options. This is also true of futures trading. This is to cover their own asses.

    I had to jump through hoops initially with Fidelity to get their highest options clearance. And like an idiot I was honest with Interactive Brokers and was barred from trading currency futures since I said I had no experience with them (despite my almost two decade experience with futures trading).
    Aug 21 12:13 PM | 1 Like Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #37 [View instapost]
    Impressive US economic stats today. I'm getting more convinced the wage gains will be coming soon; good for the consumer. That said, there aren't too many bargains in the consumer space - although the cruise lines look attractive from the standpoint their energy costs are coming down, their p/e's fairly low and pricing is solid. I put on an initial small position on CCL - but it was a tossup whether to buy it, rcl or ncl.

    I also note KSS appears in the process of breaking out of a multi-year sideways pattern. I have a small position in the stock purchased in late July and am kicking myself I didn't but more.

    The biggest negative to me at this point is the fact the US economy is obviously looking so much better and I don't know how much bullishness has been already factored in.
    Aug 21 11:26 AM | Likes Like |Link to Comment
  • Don't Be Left Holding The Bag: A Kate Spade, Michael Kors Pair Trade [View article]
    No way! You can't compare the Kors/Coach trade to Kate/Kors.

    Market cap comparisons is meaningless. Kate is far more expensive on every metric. Only if you know for a fact consumers will shun Kors in favor of Kate products do you have a chance of it working from this level. But you already stated consumers were "fickle" - so you can't possibly know.
    Aug 21 09:25 AM | 2 Likes Like |Link to Comment
  • Great News: The Fed Is Likely To Raise Rates Sooner Rather Than Later [View article]
    Agreed; but don't hold your breath looking for changes in Washington. All else equal I have a difficult time seeing higher rates as a positive for the economy. The only good thing I see is that the rate increases are likely to be so slow that at least in the initial phases it shouldn't do any damage.
    Aug 21 09:00 AM | Likes Like |Link to Comment
  • Wall Street Breakfast: BofA Expected To Pay $16.5B Mortgage Settlement [View article]
    It wasn't just the yen boosting Japanese stocks. Their manufacturing PMI showed solid gains.
    Aug 21 08:45 AM | Likes Like |Link to Comment
  • Great News: The Fed Is Likely To Raise Rates Sooner Rather Than Later [View article]
    Since the 2010 rebound GDP hasn't shown any acceleration despite the abnormally low rates. Yet you think higher interest rates will be good for the economy? Despite the sluggish pace of new first time home buyers, lousy median household income growth and generally sluggish retail sales? I wish I was as confident.
    Aug 21 05:37 AM | 6 Likes Like |Link to Comment
  • There Isn't $10.8 Trillion 'Stuffed Under Mattresses' Because Of QE [View article]
    "...the record low spreads in junk relative to Treasuries..."

    Not quite. There were two periods of history during the past 20 years the spread was lower by another 100 basis points - the late 1990's and 2005-2007.
    Aug 21 03:28 AM | Likes Like |Link to Comment