Market Concerns anyone?

[Hawks]

Starting to be concerned about U.S. equities. Anyone else feeling uneasy here?

Market up over 20% this year alone, new highs overwhelming new lows, greater flows of money into equity funds from "main street" (that has me really worried, but was waiting for that to finally happen and now it is). Also, some value managers saying equities are fairly valued.

I could mention a couple positives (Europe maybe perking up, Yellen staying the course, etc)  that still keep me mostly in equities, but I'm getting more and more concerned.

Where are all of you at re this market? Moving cash positions up?

[Guest 50centdollars]

I agree but I don't hear people talking about stocks when I go to parties. The one thing I have noticed at the parties I have been do this year is that people having been talking about real estate. Also, Buffett keeps buying stocks.

[no_free_lunch]

Honestly , I am a bit torn on things.  Yes, the indexes are high and it's difficult to find bargain priced stocks.  However, the economy has really only been out of recession for a couple of years the way I view things so there is  still considerable pent up demand.  Also, while there aren't crazy bargains, there are still many stocks which are reasonably priced. 

 

My general strategy is to a) buy more defensive stocks (SPE), b) but some money into merger arb,  c)  Hold some cash, which for me is currently 10% (whereas it was zero most of the year) and d) look for bargains that I can use options to hedge.

[kdk77]

I share your concerns.  I have been uneasy about the market since the beginning of the year. I have been 40% in cash. Just making a few trades if there is compelling evidence. 

 

There you go.  That is my first post on the forum.

[premfan]

I'm a bit concerned about how obamacare is going to affect profit margins. Besides that i feel the markets are reasonable. The value is reasonable relative to what else is out there. I wouldnt touch any real estate at this moment. They are some distressed properties out there that are steals if you can convince a bank to give you money. I think its silly people are paying 7-8 percent cap rate on properties. I'm anti real estate cause the public thinks real estate always appreciates. The public is trained to buy any dip in real estate. That real estate is a hedge against inflation. Best time to buy real estate is when rates are high and money is not easily flowing. I feel the public plays the real estate market more than the stock market.  Ironically, I spoke with the president of a local bank in my town about the banking industry and  real estate this is what he said:

 

1.) banks will report lower earnings next year

2.) worse time to buy real estate

3.) no pricing power in rental units. If rates go up owners are screwed.

4.) The regulatory requirements are a nightmare since the crisis. banks are highly regulated organisms now not fun to be a operator

5.)  First time in banks history that a international buyer wanted a loan on a property in town.

 

 

He could be wrong but, money has to flow and the stock market as a whole is reasonable. Not cheap but not expensive either.

 

 

 

[Hawks]

Yes agree. Market not cheap, and some equities are reasonably or fairly priced. But it's getting very difficult to find good value vs a few years ago imo. Stock pickers however will always find some to feel comfortable with and that's ok if you are that good.

So, the real dilemna for me is, are we in the 5th or 6th inning of this bull market (which is why I have been hanging on to equities and those purchased during the govt shutdown), or are we in the top of the 8th?  Wish I could listen to my head (reasoning) instead of my gut (emotion).  But my gut says "be very careful and wary now".

[Ham Hockers]

Market up over 20% this year alone

 

To quote one of my favorites, never reason from a price change.

[ECCO]

Should we be concern that the SP500 is at 1767 when it was at 1500 in 2000? That is 15% higher, 14 years later...

[rkbabang]

Should we be concern that the SP500 is at 1767 when it was at 1500 in 2000? That is 15% higher, 14 years later...

 

~1% growth for 14 years doesn't seem outrageous to me.  If we had just 5%/yr it would be 2970.  I'm not sure what the inflation rate has been, but I wouldn't be surprised if it has been more than 15% over the last 14 years, in which case there has been no real growth in the S&P500.

[frommi]

As long as bond yields are so low i am not concerned. When 10y treasury yields are higher than the earnings yield of S&P500 i will switch to 50/50 stocks/bonds. But i can`t see this happening in the next 5-6 month.

[Investmentacct]

Should we be concern that the SP500 is at 1767 when it was at 1500 in 2000? That is 15% higher, 14 years later...

 

~1% growth for 14 years doesn't seem outrageous to me.  If we had just 5%/yr it would be 2970.  I'm not sure what the inflation rate has been, but I wouldn't be surprised if it has been more than 15% over the last 14 years, in which case there has been no real growth in the S&P500.

 

Per this CPI table, growth in inflation since year 2000 has been approx 2.4 % per year. And 40% in aggregate increase.

 

http://www.multpl.com/cpi/table

 

But, to keep in perspective, year 2000 s&p 500 valuation was at extreme end.

 

[ECCO]

Should we be concern that the SP500 is at 1767 when it was at 1500 in 2000? That is 15% higher, 14 years later...

 

~1% growth for 14 years doesn't seem outrageous to me.  If we had just 5%/yr it would be 2970.  I'm not sure what the inflation rate has been, but I wouldn't be surprised if it has been more than 15% over the last 14 years, in which case there has been no real growth in the S&P500.

 

Per this CPI table, growth in inflation since year 2000 has been approx 2.4 % per year. And 40% in aggregate increase.

 

http://www.multpl.com/cpi/table

 

But, to keep in perspective, year 2000 s&p 500 valuation was at extreme end.

 

 

I agree that year 2000 valuation was extreme, being at almost the same level 14 years later make me think that today's level is not extreme at all. There is many comments these days about current market price being expensive. It is compare to 5 years ago but does someone realise that we come back a crisis?

 

Today's market level is not cheap neither expensive.

[Aberhound]

My expectation is a recession within 12 months. Usually the market anticipates the recession so I have been liquidating.

 

Am I concerned? Yes, but for other reasons. There are always cycles which create trading opportunities. I was listening to an excellent Econtalk podcast by John Ralston Sauls where he and the host debated whether this is the most corrupt governing class ever except for 2 or 3 others like Stalin and Hitler. How could we not be concerned? Those who have invested in cartels have done well as the cartels have taken advantage of the corruption. Eventually the harm caused by the cartels force action. This creates a period of uncertainty as we await who prevails. Chaos and uncertainty causes stock market declines. Increased corruption inevitably leads to a period of low p/e multiples. Reputations lag. Perhaps the high US p/e multiple is due to its well deserved reputation as the best capitalist system which is no longer deserved.

[rkbabang]

My expectation is a recession within 12 months. Usually the market anticipates the recession so I have been liquidating.

 

Am I concerned? Yes, but for other reasons. There are always cycles which create trading opportunities. I was listening to an excellent Econtalk podcast by John Ralston Sauls where he and the host debated whether this is the most corrupt governing class ever except for 2 or 3 others like Stalin and Hitler. How could we not be concerned? Those who have invested in cartels have done well as the cartels have taken advantage of the corruption. Eventually the harm caused by the cartels force action. This creates a period of uncertainty as we await who prevails. Chaos and uncertainty causes stock market declines. Increased corruption inevitably leads to a period of low p/e multiples. Reputations lag. Perhaps the high US p/e multiple is due to its well deserved reputation as the best capitalist system which is no longer deserved.

 

Certainly this administration is more corrupt than the last, but that is true of every administration.  The next one will be more corrupt still and eventually it will not end well.  But to say that the current governing class is more corrupt than ever in history other than Hitler or Stalin, seems a little bit overstated.  Do some study on the middle ages or Rome.  Take a look at some of the 3rd-world governments today.  I'm no fan of the current 1st-world governments, but it can get, and has gotten, a lot worse than it is now.

[CorpRaider]

Honestly , I am a bit torn on things.  Yes, the indexes are high and it's difficult to find bargain priced stocks.  However, the economy has really only been out of recession for a couple of years the way I view things so there is  still considerable pent up demand.  Also, while there aren't crazy bargains, there are still many stocks which are reasonably priced. 

 

My general strategy is to a) buy more defensive stocks (SPE), b) but some money into merger arb,  c)  Hold some cash, which for me is currently 10% (whereas it was zero most of the year) and d) look for bargains that I can use options to hedge.

 

Ditto.  Would add, upping allocations to EAFE and EM a smidge.

[PLynchJr]

I only allow myself to be concerned about the market as a whole on days ending in Y.

[ERICOPOLY]

My expectation is a recession within 12 months. Usually the market anticipates the recession so I have been liquidating.

 

Am I concerned? Yes, but for other reasons. There are always cycles which create trading opportunities. I was listening to an excellent Econtalk podcast by John Ralston Sauls where he and the host debated whether this is the most corrupt governing class ever except for 2 or 3 others like Stalin and Hitler. How could we not be concerned? Those who have invested in cartels have done well as the cartels have taken advantage of the corruption. Eventually the harm caused by the cartels force action. This creates a period of uncertainty as we await who prevails. Chaos and uncertainty causes stock market declines. Increased corruption inevitably leads to a period of low p/e multiples. Reputations lag. Perhaps the high US p/e multiple is due to its well deserved reputation as the best capitalist system which is no longer deserved.

 

Where would you find the corruption though?

 

Wealthy people are getting after-tax fixed income yields below the rate of inflation.  Is the wealthy class supposedly in charge, and if so why have they rigged this game against themselves?

 

It looks to me, based on how fixed income is taxed, that the wealthy are being thrown under the bus.  The simple fix for this would be to allow a tax deduction based on the CPI, so you would then only be taxed on your real income (on an equal plane with the wage earner).  But here, in the current system, the wage earner has the clear upper hand.

 

EDIT:  Then look at our corporate tax rates compared to... the UK.  Look at our double taxation of dividends.  How can anyone with a straight face argue that this is how wealthy would do things if they were truly in charge of power?

 

Yes, and the wealthy love paying the property tax and the inheritance tax.  There's practically no end to the taxes on capital.  If the wealthy control the "cops", it's the "keystone cops" version.

[Palantir]

If the market is up, may I ask why that is a reason to be concerned? If you feel the market is up too high, how high do you feel it should be? Furthermore, what do you expect in the near term future that is bad?

 

If market goes up next year, it's great, if it goes down you have something to buy, I don't understand why somebody would be concerned.

 

BTW. My prediction is that we're in the middle of an epic, multi year bull market. ;)

[Hawks]

Palantir

You offer good points and questions. Since the early months after 2008/2009,  I've held the belief that the market will bounce back. And I've stayed 80-100% invested in equities throughout those 4 years or so. And, as I said in my second post on this topic, are we in the 5th/6th inning of this bull market or top of the 8th. I still believe we are in the middle frames of this market.

But I raised the "concern" question because of the "uncertainties" which are clearly ahead. Example: the political wrangling this fall is sure to repeat itself this Feb/March. Nothing has changed and may n ot do so until 2014 elections or even 2016. And if we are a "fair value" for equities now, do you want to wait until value is stretched to finally move to cash? And most value manager "gurus" I follow (Longleaf, Cundill, Marks, Chou, etc) are saying it is getting more and more difficult to find good value in this market. Sure, markets have climbed a "wall of worry" many times in the past. I wish I knew the S&P or index number that indicates a top but I don't know how to do that and am skeptical of anyone who says they know. But I'm willing to listen to anyone's argument re how you know or approx where it should be.

I remember years ago starting a post here titled "Why are you all so pessimistic"?  I was moving my cash into equities in the week or two before that post and really enjoyed and learned alot from the many detailed and astute responses to that post. Most replied there were very good reasons to be negative on the markets; fortunately for me, those who thought it was time to buy were right and I too enjoyed the ride. So now, I'm at the opposite end of a long ago post.  Still call me "concerned". I'm overweight equities vs cash, but now very "wary".

 

 

[Palantir]

How are you sure that the political wrangling will be bad for stocks? :) There's been no shortage of this the last few years right?

 

In my opinion, if you are a value investor, the answer is very clear - if your holdings are at or above intrinsic value, you should sell dispassionately, as it is essentially about avoiding downside. Are you a strict value investor? If the market doubles after you selling, so be it. This is solely my opinion though.

 

[stahleyp]

 

BTW. My prediction is that we're in the middle of an epic, multi year bull market. ;)

 

I don't know what the market will do, but I don't know of any legendary value investors that would agree with you here.  I'd like to believe we have an epic bull run, but I don't see how's that's possible. Keep in mind I'm not saying that it isn't possible, but I don't see how it is. Valuations, while not exceedingly high, certainly aren't cheap on a historical basis. Investors aren't shying away from risk really (though they aren't taking great leaps of faith like the 90s either). I do see the possibility of people getting greedier and that could drive things up a bit higher. Could we see an expansion of P/Es on the basis of quantitative easing over the short term? sure. I can buy that. But should expansions really be happening if the government has to support that? I don't see why that's the case. What's making you feel this way?

[Packer16]

I don't think the QE is happening because the gov't wants growth it is happening because they have no other way to monitize the debt.  I agree that the market is close to fair value but on a relative basis in comparison to dollars, bonds and just about anything else it is cheap.  I think the value of the real purchasing of the dollar will decline and stocks are the best bet in a bad environment and we may be in the middle of a long bull market when compared to other assets.

 

Packer

[merkhet]

 

I only allow myself to be concerned about the market as a whole on days ending in Y.

 

 

I only allow myself to be concerned about the market as a whole on days not ending in Y. :)

[Packer16]

Nice reply. I probably spend less than 1% (and that is too much) of my time concerned about market levels.  It is just a fun intellectual exercise.

 

Packer

[PLynchJr]

For the record I was joking.  :)

 

I agree with Palantir.  As long as I can find bargains I buy.  When my stocks reach intrinsic value (or near or slightly over depending on the company) I sell.