Secular Bull?

[ERICOPOLY]

How about if the data he shows is not flawed, but rather he is just putting up accurate data that doesn't actually support his conclusions?  Take a look at twacowfa's comment about the profit margins in the domestic non-financial sector.

 

This I don’t understand… If you know better valuation models, I mean models that from 1948 until 2003 have a track record of predicting stock market returns better than the ones on page 8 and 9, very well then I would like to see them… But I don’t understand how they could lead to different conclusions… Once again, either the data are flawed, or this time is different.

 

Gio

 

Okay, how about somebody makes a model that shows that every time the employment level has been this lousy, it has been followed by an economic recovery?

 

Or how economic recoveries have always followed periods when housing construction has been this poor?

 

Or market returns following forward P/E multiples of 15x.

 

There are many things that could be presented, but Hussman is only putting in ones that support his conclusions.

 

There are many value screens that work great when backtesting against data, as Hussmann is doing -- but they aren't necessarily predictive.  How did the ECRI guys get it so wrong these past two years?

[ERICOPOLY]

Yet, great wealth builders of the past have achieved extraordinary goals simply being more sensible and self-controlled than other people…

 

Were the self controlled ones the people who were buying well capitalized banks at 1/4 book value, tripling their money in two years, or were they the academics hiding scared under their thoroughly backtested charts?

 

It's not always clear who the one with self control is  ;)  Hussmann is not too modest either -- his paper starts out telling us how he's a credentialed academic, then on to saying how he's got not a bad track record investing either.  Was he telling us that he's an authority so we should cast our doubts aside?

[giofranchi]

How did the ECRI guys get it so wrong these past two years?

 

The ECRI guys are talking about the economy… about expansions and recessions… Very difficult to get it right!

Here, instead, we are talking about earnings, sales, prices, and subsequent stock market returns… much easier imo!

 

Or let’s put it this way: the S&P500 is a portfolio of 500 companies; Kraven’s portfolio, if I am right, sometimes gets to be composed by around 200 companies… Yet, I am sure Kraven’s has a very clear idea what his portfolio might return next year and for some years after that. (Kraven, please correct me, if I am wrong).

 

Gio

 

[giofranchi]

Were the self controlled ones the people who were buying well capitalized banks at 1/4 book value, tripling their money in two years, or were they the academics hiding scared under their thoroughly backtested charts?

 

Eric,

Maybe I didn’t express my thought properly… I am sure that you are a much better investor than Mr. Hussman! There is no doubt about that!

And I am also sure that for such an outstanding investor like you are, what the general market is likely to do in the next 10 years is completely meaningless!

 

Mine was just a curiosity to understand exactly why and how 53 out of 108 people have voted for a new secular bull under way… An utterly useless curiosity!! ;)

 

Gio

 

[ERICOPOLY]

How did the ECRI guys get it so wrong these past two years?

 

Here, instead, we are talking about earnings, sales, prices, and subsequent stock market returns… much easier imo!

 

How is it easier when Hussmann says that the earnings will stay high until the deficits are corrected?  In what, 20 years?  Next year are they balancing the budget?  I suppose he doesn't run the risk of being easily proved wrong here.  Although with the deficit contracting over the past two years, and with the earnings going higher, he might yet be showing early signs of being wrong?

 

There has been a false dilemma propagated here by you "either the data is wrong or 'this time is different'".

 

You might still be right, but it's a false dilemma.

[giofranchi]

There has been a false dilemma propagated here by you "either the data is wrong or 'this time is different'".

 

You might still be right, but it's a false dilemma.

 

Eric,

I didn’t want to “propagate any false dilemma”… ;D ;D ;D

I simply don't care, believe me! ;)

 

I have already said what I mean by “this time is different”: if Price / Sales and Market Cap / GDP have predicted quite reliably subsequent market returns for the last 50 years (1948-2003), and now they suddenly cease to, well, that’s what I mean by “this time is different”. And I am perfectly aware my meaning of “this time is different” is not what usually that expression is used for…

 

Otherwise, if they haven’t predicted subsequent market returns reliably, then I would be very interested if someone might give me good evidence of the fact that Mr. Hussman has “massaged” the data.

 

That’s all! :)

 

Gio

 

[Kraven]

Or let’s put it this way: the S&P500 is a portfolio of 500 companies; Kraven’s portfolio, if I am right, sometimes gets to be composed by around 200 companies… Yet, I am sure Kraven’s has a very clear idea what his portfolio might return next year and for some years after that. (Kraven, please correct me, if I am wrong).

 

Gio

 

~100.  Actually, no clue what it will do at any time.  I never make any predictions.  I just react to what I see.

[hyten1]

gio what made you think Price / Sales and Market Cap / GDP have predicted quite reliably subsequent market returns for the last 50 years (1948-2003)? honestly 50 years is not that long anyways.

 

i think that is peoples point, that is your assumption.

 

"There are many value screens that work great when backtesting against data, as Hussmann is doing -- but they aren't necessarily predictive. " ericopoly

 

hy

 

 

EDIT: brooklyninvestor's post on this topic http://brooklyninvestor.blogspot.com/2013/05/corporate-profits-to-gdp-why-doesnt.html

is a good read. he also show what if you had follow the cap / gdp ratio (meaning you know in hindsight what was going to happen) what your results would of been, actually no very good.

 

 

 

There has been a false dilemma propagated here by you "either the data is wrong or 'this time is different'".

 

You might still be right, but it's a false dilemma.

 

Eric,

I didn’t want to “propagate any false dilemma”… ;D ;D ;D

I simply don't care, believe me! ;)

 

I have already said what I mean by “this time is different”: if Price / Sales and Market Cap / GDP have predicted quite reliably subsequent market returns for the last 50 years (1948-2003), and now they suddenly cease to, well, that’s what I mean by “this time is different”. And I am perfectly aware my meaning of “this time is different” is not what usually that expression is used for…

 

Otherwise, if they haven’t predicted subsequent market returns reliably, then I would be very interested if someone might give me good evidence of the fact that Mr. Hussman has “massaged” the data.

 

That’s all! :)

 

Gio

[ERICOPOLY]

And I am perfectly aware my meaning of “this time is different” is not what usually that expression is used for…

 

Okay,  got it  :)

[gary17]

lots of very insightful discussion... interesting the vote split is about 50-50 

[indythinker85]

Hugh Hendry on why hes bullish now http://www.valuewalk.com/2013/12/hugh-hendry-bull/

[bmichaud]

As a reminder, Ned Davis Research is why I started this thread, as they are arguing quite strongly for a secular bull market, primarily as evidenced by the market behavior since the March 2009. In the 4 years since the market bottom, the average price return has been 24% give or take, directly in line with other secular bulls (though it is bothersome to me that they exclude the 4 year period out of the 1933 bottom that ended in a huge crash despite average returns of over 25%...).

 

However, they are calling for 2011-type market weakness (if we have a recession then it could be larger) toward the middle of the year. They view the weakness as akin to the 1987 crash (they r not calling for a crash here) that reset the overly optimistic market for a continued secular bull run.

 

All that to say - I found the following Bass interview rather interesting and potentially in support of market weakness next year:

 

http://www.marketfolly.com/2013/12/kyle-bass-long-general-motors-exits-jc.html?m=1

 

1. Believes equities are the only game in town, as QE forces investors out or all other assets

2. Is pitching GM for a potential 40% return over 18 months

3. Thought JCP was an interesting turnaround play, but exited when he thought vendors bailed on the Company

4. Believes HLF will obtain an audit before December, but will maintain a hedged position given the risk if it does not obtain an audit. Believes they can buy back a ton of stock once they receive the audit.

5. Believes HLF fits into his macro view of a higher than average long term unemployment rate, as HLF offers opportunity for those unemployed

6. Completely uninterested in US banks

 

 

My thinking:

 

1. He hinted performance hasn't been great the last two years. I think he is trying to make up ground and is succumbing to the equity herd mentality. Hearing him on this topic is telling, IMO - lacks the conviction he typically expresses with his macro views.

 

2. He is late to the game with GM - when do you ever hear HF managers pitching an idea with only 40% upside? Not saying GM won't go up, just saying I think it is his excuse to play the equity game. Plus his presentation was terrible - 12 pages long??? Come on!!

 

3. He was in and out of JCP very quickly. And in this interview he talks about "doing the work" - how rigorous is his process if he was surprised so quickly on JCP's weakness??

 

4. His HLF reasoning is piss poor IMO. He adds zero value or originality to the long thesis. I think he is just going along with others trying to screw Ackman. What kind of thesis is this long term macro unemployed crap? You want the unemployed to sign up for something that doesn't pay anything??!! Makes no sense.

 

5. His uninterested stance on banks based on his smart sounding "we will be at zero bound forever" thesis represents consensus on the banks, and lends strong credence to Ericopoly's bullish stance, IMO.

 

Overall he sounds sooooo weak in this interview. It seems like he is trying to apply his subprime "rigorous macro process" to anything and everything, and is coming up empty. His whole japan thesis is nonsensical. He is dead wrong yet won't admit he is wrong. And he thinks the US is on some unsustainable debt path without acknowledging that countries that can issue their own currency are not a credit risk.

 

 

Unfortunately I have had to learn the hard way that Buffett and Munger could not be more right about macro thinking infiltrating value investment decisions. I have let these macro idiot managers and newsletter writers get into my head that the environment is far more dangerous than it actually is. Complete waste of time, and guys like Ericopoly and Packer price that wonderful stock picking, while at times subject to large declines, far supersedes worrying about debt levels, broad market valuation, inflation etc.... to the point where one avoids investing in particular attractive situations.

[ERICOPOLY]

Hugh Hendry on why hes bullish now http://www.valuewalk.com/2013/12/hugh-hendry-bull/

 

This is one of the people in my mental list that I would never allow to manage a dollar of my money.  I don't like his recent comments about wanting to be in things that are trending -- and mentioned bitcoin.  That pretty much did it for me.  Did he start his professional investing record before the .Dot Com bubble, or after?

[bmichaud]

The Bitcoin comment was shocking. Gotta be some type of a sign that momentum is coming into vogue.

[stahleyp]

Hugh Hendry on why hes bullish now http://www.valuewalk.com/2013/12/hugh-hendry-bull/

 

This is one of the people in my mental list that I would never allow to manage a dollar of my money.  I don't like his recent comments about wanting to be in things that are trending -- and mentioned bitcoin.  That pretty much did it for me.  Did he start his professional investing record before the .Dot Com bubble, or after?

+1

[bmichaud]

Ned Davis Research is a headline article in Barron's this morning. I strongly recommend!!

[bmichaud]

Some secular bull market thoughts by Jeff Saut (posted elsewhere as well).

 

http://www.raymondjames.com/inv_strat.htm

[stahleyp]

Some secular bull market thoughts by Jeff Saut (posted elsewhere as well).

 

http://www.raymondjames.com/inv_strat.htm

 

http://www.minyanville.com/business-news/markets/articles/jeff-saut-us-economy-us-markets/8/19/2013/id/51354

 

I can't say I'd listen to anyone who'd think that a mutual fund with a 1.82% expense ratio (not to mention a load) is a worthwhile investment.

 

"This discipline is reflected in Day Hagan’s mutual fund, Day Hagan Tactical Allocation Fund of ETFs Class A (MUTF:DHAAX). While some merely look at the performance numbers, it should be noted that DHAAX’s track record, versus the S&P 500 (total return) for the three-year period ending July 31, 2013 has been achieved with a beta of just 0.68, which is well below the stock market’s beta of 1.0 (read: volatility). Obviously this is a risk adverse mutual fund, which I own. For the kind of market I envision going forward, this is one of the funds you should consider."

 

So, he's more bullish now than he was in August?  :o

[bmichaud]

His "timing" models are to blame for the change in outlook you point out. Generally speaking though he has absolutely nailed the big moves the past several years - not the short term "timing" moves.

[stahleyp]

Do you have any older articles from him? I tried to look but didn't have much success.

[merkhet]

I tried to read that article, but I started to vomit when he began talking about Dow Theory and had to stop.

[bmichaud]

Merkhet,

 

I used to be the same way, but after little success relying upon valuation and sentiment, I have found there to be far more merit to Dow theory-type methods than you would imagine. Those type of methods if utilized within a holistic market analysis help one participate and avoid major up and down moves.

 

Just my two cents.

[bmichaud]

Stanley, I've found it difficult as well to find old articles.

[merkhet]

Merkhet,

 

I used to be the same way, but after little success relying upon valuation and sentiment, I have found there to be far more merit to Dow theory-type methods than you would imagine. Those type of methods if utilized within a holistic market analysis help one participate and avoid major up and down moves.

 

Just my two cents.

 

To each their own -- I just know it's not for me. 

 

I find great benefit to being able to stare at a large down move in one of my investments and test my conviction and my mettle.  When I took the LSAT a decade ago, I took two practice exams a day for ten days preceding my actual test date.  The actual test day was a bit of a breeze as my thought was "this is nothing I haven't seen before."  I have a similar approach to not finding too much value in avoiding, what in my opinion are largely unavoidable, large downward movements in price.

 

So I guess if one could consistently avoid large down moves (100%) with those "theories," then there would be some merit to learning them.  I suspect that El Dorado does not exist.  As in many things in life, it's highly likely that outsized return comes at the expense of some initial measure of hardship and sacrifice.

[bmichaud]

Agreed, to each there own.

 

For me, I know I've wasted a lot of time and effort on worrying about large downdraft  amidst a supposedly overvalued market. As such, I'd like to not spend the rest of my career worried about the market when I do not need to be worried. Buffett spent his entire hedge fund career worried about an overvalued market - just read his partnership letters. And look at the not-so-insignificant amount of ink graham spilled in trying to divine the fair value of the market. So yes - I would like to have my cake and eat it too via finding a method in which I can avoid largely being on the wrong side of the market, up and down, while being able to devout 99% of my time on figuring out SHLD and Fiat! Just take Sanjeev this year - Sanjeev has been what sounds like 30% cash since SPX 1500, and even if we get a 20% correction he will have only broken even. Think about the gains in BAC he missed out on by holding that cash, or best buy for that matter. All that great analysis for nothing while waiting for a correction.