Market Concerns anyone?

[frommi]

I still don't think it's that easy. I would rather have been in Capital Cities in the 1970s rather than in CBS, or in Teledyne rather than worse managed conglomerates in the very same niche industries... Sometimes bad management just stays bad.

 

Sorry i am not old enough to remember that times. But since i don`t know these, i doubt that they where great businesses with a strong moat and brand. :D

But i could be wrong on these.  :)

[Palantir]

I like your positivity. Yes, I am basing some of my decisions on people much smarter than myself. When a bunch of billionaires are saying one thing (watch out) I think it's wise to at least listen up. Though, they aren't perfect, either.  What do you think may happen when QE gets turned off (I'm making an assumption that it will happen...someday)? Do you think the companies will be healthy enough to justify the artificial valuations bump due to QE? We're already trading at higher than historical average valuations (so you'd have to assume that their more valuable to justify it not dropping, let alone growing). I know of no epic bull market that has started with this type of valuation. This time may be different...but you know how that usually ends up. I agree with you that the US will see significant growth in the future. and with the productive gains. I think we sometimes tend to underestimate with technology can do. I don't see population growth though. It's certainly not through birth rates. From what I've read, we are at all time lows. Unless you're calculating massive amounts of immigrants, which might be doubtful given our legacy issues and that other economies are growing more rapidly. I think it's wise to not only think about what could go right but also the opposite view.

 

I disagree. I don't believe these billionaires have been saying anything particularly insightful, nor do I believe that they have any deeper understanding of macroeconomic policy than "normal" people, and they are bound by the same biases and behavioral errors as the rest of us, especially when it comes to fighting the last war. Furthermore, many of these investors are in a situation where their skills are far less valuable thanks to rising markets, and this causes all sorts of cognitive dissonance.

 

Our population growth is low, but it is not shrinking, and yes I do believe there will be consistent immigration in the future, our current economic malaise is not a forever situation. As a result, I'm confident that it combined with a weaker dollar, technological advances, even the rising energy boom, will reorient the economy towards a more export oriented phase, which should reverse trade deficits.

 

So that's what I think will continue the rally even after QE ends.

 

An interesting point you made was "I know of no bull market in history..." and I think many people share that view. The issue is, how far are you looking back? In my view, the current situation is not unprecedented, but a fairly regular phenomenon when you look back over multiple centuries, so I think that looking to the last century of financial history is not enough.

[frommi]

 

So that's what I think will continue the rally even after QE ends.

 

You can even go so far and say either QE will continue or it will end because the economy is running on full steam. Both outcomes should be good for the stock market. It can only be disrupted by outer forces like a bursting chinese housing/banking bubble or another black swan like event. And these events are not predictable so its pointless to even try.  :)

[Liberty]

I still don't think it's that easy. I would rather have been in Capital Cities in the 1970s rather than in CBS, or in Teledyne rather than worse managed conglomerates in the very same niche industries... Sometimes bad management just stays bad.

 

Sorry i am not old enough to remember that times. But since i don`t know these, i doubt that they where great businesses with a strong moat and brand. :D

But i could be wrong on these.  :)

 

I wasn't born back then either, but Singleton at Teledyne and Tom Murphy at Capital Cities are two of Buffett's favorite managers and capital allocators. I suggest you look them up (get the book Outsiders, which was recommended in Buffett's latest annual letter).

[stahleyp]

I like your positivity. Yes, I am basing some of my decisions on people much smarter than myself. When a bunch of billionaires are saying one thing (watch out) I think it's wise to at least listen up. Though, they aren't perfect, either.  What do you think may happen when QE gets turned off (I'm making an assumption that it will happen...someday)? Do you think the companies will be healthy enough to justify the artificial valuations bump due to QE? We're already trading at higher than historical average valuations (so you'd have to assume that their more valuable to justify it not dropping, let alone growing). I know of no epic bull market that has started with this type of valuation. This time may be different...but you know how that usually ends up. I agree with you that the US will see significant growth in the future. and with the productive gains. I think we sometimes tend to underestimate with technology can do. I don't see population growth though. It's certainly not through birth rates. From what I've read, we are at all time lows. Unless you're calculating massive amounts of immigrants, which might be doubtful given our legacy issues and that other economies are growing more rapidly. I think it's wise to not only think about what could go right but also the opposite view.

 

I disagree. I don't believe these billionaires have been saying anything particularly insightful, nor do I believe that they have any deeper understanding of macroeconomic policy than "normal" people, and they are bound by the same biases and behavioral errors as the rest of us, especially when it comes to fighting the last war. Furthermore, many of these investors are in a situation where their skills are far less valuable thanks to rising markets, and this causes all sorts of cognitive dissonance.

 

Our population growth is low, but it is not shrinking, and yes I do believe there will be consistent immigration in the future, our current economic malaise is not a forever situation. As a result, I'm confident that it combined with a weaker dollar, technological advances, even the rising energy boom, will reorient the economy towards a more export oriented phase, which should reverse trade deficits.

 

So that's what I think will continue the rally even after QE ends.

 

An interesting point you made was "I know of no bull market in history..." and I think many people share that view. The issue is, how far are you looking back? In my view, the current situation is not unprecedented, but a fairly regular phenomenon when you look back over multiple centuries, so I think that looking to the last century of financial history is not enough.

 

They are billionaires because they are less emotional than other people. I really don't see how you can say they think the same way as other people. If they thought the same way...they wouldn't be billionaires, Keep in mind, we're not talking about Zuckerberg. We're talking about investing legends with decades and decades of experience. Do you think they could be seeing something that you don't? What do you think the odds of that are? I think they can see something that I don't. That's why, while still position aggressively (for most people, anyway), I've taken a bit off. This whole stimulus thing is something that is unprecedented. Will it work? Maybe, maybe not. However, with everyone hating cash, there won't be a ton of people holding it if things go out of whack. How much growth do you think we could have in the market, realistically over the next several years with current valuations? Like I said before. Maybe this time is different, but we'll see.

 

You are correct about me looking only at the past 100 or so years. That's something to maybe consider. Do you have any data to support that thought though?

[Pauly]

I like your positivity. Yes, I am basing some of my decisions on people much smarter than myself. When a bunch of billionaires are saying one thing (watch out) I think it's wise to at least listen up. Though, they aren't perfect, either.  What do you think may happen when QE gets turned off (I'm making an assumption that it will happen...someday)? Do you think the companies will be healthy enough to justify the artificial valuations bump due to QE? We're already trading at higher than historical average valuations (so you'd have to assume that their more valuable to justify it not dropping, let alone growing). I know of no epic bull market that has started with this type of valuation. This time may be different...but you know how that usually ends up. I agree with you that the US will see significant growth in the future. and with the productive gains. I think we sometimes tend to underestimate with technology can do. I don't see population growth though. It's certainly not through birth rates. From what I've read, we are at all time lows. Unless you're calculating massive amounts of immigrants, which might be doubtful given our legacy issues and that other economies are growing more rapidly. I think it's wise to not only think about what could go right but also the opposite view.

 

I disagree. I don't believe these billionaires have been saying anything particularly insightful, nor do I believe that they have any deeper understanding of macroeconomic policy than "normal" people, and they are bound by the same biases and behavioral errors as the rest of us, especially when it comes to fighting the last war. Furthermore, many of these investors are in a situation where their skills are far less valuable thanks to rising markets, and this causes all sorts of cognitive dissonance.

 

Our population growth is low, but it is not shrinking, and yes I do believe there will be consistent immigration in the future, our current economic malaise is not a forever situation. As a result, I'm confident that it combined with a weaker dollar, technological advances, even the rising energy boom, will reorient the economy towards a more export oriented phase, which should reverse trade deficits.

 

So that's what I think will continue the rally even after QE ends.

 

An interesting point you made was "I know of no bull market in history..." and I think many people share that view. The issue is, how far are you looking back? In my view, the current situation is not unprecedented, but a fairly regular phenomenon when you look back over multiple centuries, so I think that looking to the last century of financial history is not enough.

 

They are billionaires because they are less emotional than other people. I really don't see how you can say they think the same way as other people. If they thought the same way...they wouldn't be billionaires, Keep in mind, we're not talking about Zuckerberg. We're talking about investing legends with decades and decades of experience. Do you think they could be seeing something that you don't? What do you think the odds of that are? I think they can see something that I don't. That's why, while still position aggressively (for most people, anyway), I've taken a bit off. This whole stimulus thing is something that is unprecedented. Will it work? Maybe, maybe not. However, with everyone hating cash, there won't be a ton of people holding it if things go out of whack. How much growth do you think we could have in the market, realistically over the next several years with current valuations? Like I said before. Maybe this time is different, but we'll see.

 

You are correct about me looking only at the past 100 or so years. That's something to maybe consider. Do you have any data to support that thought though?

 

Hmmm...so was there a consortium of billionaires warning you that the market was going to be halved five years ago?  I'm all for listening to what Buffett, Soros et al. have to say, but in the end you must make up your own mind.

If Soros is bullish and Icahn bearish, who do you believe? They're both worth ~$20 bln, so whose $20 bln holds more sway?  Or maybe you don't listen to John Paulson in 2008 but you listen to him in 2012 after his wealth has exploded and you put all of your money into gold, is that a smart thing to do?

 

Remember that a lot of billionaires got there with a few great calls and a ton of leverage, not by being right all of the time.

 

 

[Palantir]

These billionaires have absolutely no insight into macroeconomic theory, history, or appropriate policy that others do not. Even with decades of investing experience they will have no better grasp of this than anyone else making their collective opinions no different from yours or mine. So I do not believe they are seeing anything I don't.

 

If you want to see what I'm referring to, then read reinhart and rogoffs paper - five centuries of financial folly.

[giofranchi]

I disagree. I don't believe these billionaires have been saying anything particularly insightful, nor do I believe that they have any deeper understanding of macroeconomic policy than "normal" people, and they are bound by the same biases and behavioral errors as the rest of us, especially when it comes to fighting the last war. Furthermore, many of these investors are in a situation where their skills are far less valuable thanks to rising markets, and this causes all sorts of cognitive dissonance.

 

Our population growth is low, but it is not shrinking, and yes I do believe there will be consistent immigration in the future, our current economic malaise is not a forever situation. As a result, I'm confident that it combined with a weaker dollar, technological advances, even the rising energy boom, will reorient the economy towards a more export oriented phase, which should reverse trade deficits.

 

So that's what I think will continue the rally even after QE ends.

 

An interesting point you made was "I know of no bull market in history..." and I think many people share that view. The issue is, how far are you looking back? In my view, the current situation is not unprecedented, but a fairly regular phenomenon when you look back over multiple centuries, so I think that looking to the last century of financial history is not enough.

 

Palantir,

I am extremely bullish on North America in the long-run, but the next 5 to 10 years are another matter. We are in a deleveraging. And looking back at history, not only 100 years but centuries, deleveragings have really mixed outcomes: some were not so dreadful for stocks and other assets, others were very punishing. So, I guess we simply cannot be sure… Maybe your theory of a very long bull market is right, maybe it is not… What I am almost sure about is that in both cases those billionaires stahleyp referred to will go on making money! No matter what will actually happen, they won’t stop building great wealth. How? This is how I see it: you have basically 3 options:

1) a very long bull market: earn 100, the bull market suddenly stops: earn 0

2) a very long bull market: earn 50, the bull market suddenly stops: earn 50

3) a very long bull market: earn 0, the bull market suddenly stops: earn 100

I guess most of those billionaires have chosen option n.2. I have chosen option n.2.

Of course, you might reply: “Hey! I will earn 100 no matter what happens to the general market!”. Then, you simply are in another league! :)

 

Gio

 

[Packer16]

I think if you look at the dreadful deleveragings (Depression) they either have monetary contraction or the same effect by the gold standard.  The ones that have been more benign have had monetary accomidation (post WWII).  I think we are in the later camp.  I think there is also a possibility that we may be undervalued.  There is an interesting viewpoint in the latest CFA magazine of deflation (or low inflation) due to the aging population along with higher equity prices, he sets fair value at close to a 20 P/E.  This guy has a view that demographics drive GDP and security prices.  So what you may have is Fairfax being right on deflation in combination equity prices rising.  A combination not may folks appear to be considering. 

 

Packer

[frommi]

I think if you look at the dreadful deleveragings (Depression) they either have monetary contraction or the same effect by the gold standard.  The ones that have been more benign have had monetary accomidation (post WWII).  I think we are in the later camp.  I think there is also a possibility that we may be undervalued.  There is an interesting viewpoint in the latest CFA magazine of deflation (or low inflation) due to the aging population along with higher equity prices, he sets fair value at close to a 20 P/E.  This guy has a view that demographics drive GDP and security prices.  So what you may have is Fairfax being right on deflation in combination equity prices rising.  A combination not may folks appear to be considering. 

 

Packer

 

I think when you look at P/E rates, you have to look at interest rates, too. And with an S&P 500 earnings yield of 5% and a 10 year treasury rate of 2.7% we have a lot of room for stocks to go. In 1999/2000 earnings yield was 3-3.4% where 10y rates where at 6%, and in 2007/2008 4.5-5.5% and 10y rates at 4.8%. So before the crashes you had a clear alternative in treasuries. Maybe that doesn`t fit always, but in these years it fits. And why should someone leave the stock market when there is no place to go without losing money to inflation?

[Packer16]

You are correct as the underlying assumption is interest rates are going up in "reversion to the mean".  I think QE has just enhanced the short-term rate of change of this effect rather than causing it.  So QE got us to this point where we would have gotten to eventually anyway given the demographics.  The reversion to the mean argument is based upon the conditions which have caused the downward drift in interest rates (oversupply) is going to change.  I have found no reasonable argument for the oversupply going away short of a war or a worldwide pandemic.

 

Packer

[stahleyp]

I like your positivity. Yes, I am basing some of my decisions on people much smarter than myself. When a bunch of billionaires are saying one thing (watch out) I think it's wise to at least listen up. Though, they aren't perfect, either.  What do you think may happen when QE gets turned off (I'm making an assumption that it will happen...someday)? Do you think the companies will be healthy enough to justify the artificial valuations bump due to QE? We're already trading at higher than historical average valuations (so you'd have to assume that their more valuable to justify it not dropping, let alone growing). I know of no epic bull market that has started with this type of valuation. This time may be different...but you know how that usually ends up. I agree with you that the US will see significant growth in the future. and with the productive gains. I think we sometimes tend to underestimate with technology can do. I don't see population growth though. It's certainly not through birth rates. From what I've read, we are at all time lows. Unless you're calculating massive amounts of immigrants, which might be doubtful given our legacy issues and that other economies are growing more rapidly. I think it's wise to not only think about what could go right but also the opposite view.

 

I disagree. I don't believe these billionaires have been saying anything particularly insightful, nor do I believe that they have any deeper understanding of macroeconomic policy than "normal" people, and they are bound by the same biases and behavioral errors as the rest of us, especially when it comes to fighting the last war. Furthermore, many of these investors are in a situation where their skills are far less valuable thanks to rising markets, and this causes all sorts of cognitive dissonance.

 

Our population growth is low, but it is not shrinking, and yes I do believe there will be consistent immigration in the future, our current economic malaise is not a forever situation. As a result, I'm confident that it combined with a weaker dollar, technological advances, even the rising energy boom, will reorient the economy towards a more export oriented phase, which should reverse trade deficits.

 

So that's what I think will continue the rally even after QE ends.

 

An interesting point you made was "I know of no bull market in history..." and I think many people share that view. The issue is, how far are you looking back? In my view, the current situation is not unprecedented, but a fairly regular phenomenon when you look back over multiple centuries, so I think that looking to the last century of financial history is not enough.

 

They are billionaires because they are less emotional than other people. I really don't see how you can say they think the same way as other people. If they thought the same way...they wouldn't be billionaires, Keep in mind, we're not talking about Zuckerberg. We're talking about investing legends with decades and decades of experience. Do you think they could be seeing something that you don't? What do you think the odds of that are? I think they can see something that I don't. That's why, while still position aggressively (for most people, anyway), I've taken a bit off. This whole stimulus thing is something that is unprecedented. Will it work? Maybe, maybe not. However, with everyone hating cash, there won't be a ton of people holding it if things go out of whack. How much growth do you think we could have in the market, realistically over the next several years with current valuations? Like I said before. Maybe this time is different, but we'll see.

 

You are correct about me looking only at the past 100 or so years. That's something to maybe consider. Do you have any data to support that thought though?

 

Hmmm...so was there a consortium of billionaires warning you that the market was going to be halved five years ago?  I'm all for listening to what Buffett, Soros et al. have to say, but in the end you must make up your own mind.

If Soros is bullish and Icahn bearish, who do you believe? They're both worth ~$20 bln, so whose $20 bln holds more sway?  Or maybe you don't listen to John Paulson in 2008 but you listen to him in 2012 after his wealth has exploded and you put all of your money into gold, is that a smart thing to do?

 

Remember that a lot of billionaires got there with a few great calls and a ton of leverage, not by being right all of the time.

 

Yes, there were plenty of warning signs from Klarman, Buffett and Marks. Did they predict it would be that bad? no, but there were still saying to be careful (I can provide links if you're interested).

 

I tend to listen to guys who have a  history of success who haven't done it by a lot of leverage or one time shot. That ain't Paulson. He really had a pretty tame track record before the subprime crisis.  I'm not talking about legendary guy vs another. I'm talking about almost the entire side. Do you know any legendary investor that is bullish? If so, I'll be happy to listen.

 

Palantir, I'll take a look at that.  Thanks for the reading idea. I've read A Short History of Financial Euphoria, but it was rather short.

 

Packer, thanks for those thoughts, too. That is something to think about.

[alertmeipp]

I don't know if anyone mentioned this before on this thread.

 

My financial stocks (insurances, banks) did very well and so are the bio-tech and tech stocks.

But commodity stocks are telling me a different story - no where near bull market valuation (economy recover nicely), even they have to play lots of catch up or the general market is on drug.

[no_free_lunch]

I think there is good upside in commodities but I think the 06/07 values were ludicrous.  However, we are down so much from those points, that yes, 50-100% in many companies is doable.

 

There is still upside in many other countries as well.

[Palantir]

Giofrwnchi, I agree with packers statement here. You have to make a distinction between a deflationary deleveraging (no QE happens) vs an inflationary deleveraging (CB tries to boost money supply) and asset prices behave differently in both periods.

 

Such credit bubbles have not been common in recent memory, so this situation can feel unprecedented. So some try to employ mental models of " this is just like the 70s" or " this is just like the 90s" when it is very different, which is the reason for the obsession with inflation you will find in the WSJ.

 

In a sense you may have a point, the markets may be overvalued and can correct at anytime. So maybe next year markets are down by 20%, but over the long term I am bullish.

[alertmeipp]

over longer term, should we expect pipeline, railway and additonal refinery capacity to lower the gap betwern wti, brent and canadian light, heavy crude? there is like 20 dollars differential among the 4

[Palantir]

Stanley - for reinhart and rogoff no need to get the book, just google the PDF.

[stahleyp]

I'm not even sure who this guy is but I ran across this article looking for something else.

 

Good news though! It's official. We're in a bull market until 2017! And, valuations no longer matter. party time!  :P

 

http://www.marketwatch.com/story/shillers-hot-pes-powering-a-roaring-bull-till-2017-2013-11-06?pagenumber=1

 

I especially liked his incorrect dates. haha

 

", the Dow nearly doubled from a bottom of 7,286 in late 2002 to 14,164 in October 2008. Déjà vu?"

 

He mentions it twice in the article. Perhaps it was a typo, but things were dramatically different in Oct of 2007 vs Oct 2008. 

 

Good idea, Palantir. Thanks

[kevin4u2]

I don't know if anyone mentioned this before on this thread.

 

My financial stocks (insurances, banks) did very well and so are the bio-tech and tech stocks.

But commodity stocks are telling me a different story - no where near bull market valuation (economy recover nicely), even they have to play lots of catch up or the general market is on drug.

 

Why should commodity stocks move in correlation with the general market?  Maybe the commodity bull is over.  10-15 yrs ago when he price of oil fell it was good for the markets because consumer spending would benefit.  Today your proposing the inverse logic? 

 

High oil prices choke off the economy and are not a sign of strength.  If the price of gasoline fell $1/gal across north American, how effective would that be compared to QE?  The forecast for oil price is lower in 2014 on shale oil, shouldn't that help the economy. 

[alertmeipp]

No doubt the cheap oil price will help the economy.

But will an economy firing at all cylinders push down commodities?

 

US oil, no doubt has its own issues, as it is limited by infrastructure. Some of the infrastructure pieces are being put together as we speak or will eventually be?... if a US producer can sell crude for more dollars (10$+), many things look cheap. Now, if Canadian producers can sell at Brent price, they will be "baggers".  But all these is beyond my pay grade.

 

 

[plato1976]

 

Which country?

Europe?

 

I think there is good upside in commodities but I think the 06/07 values were ludicrous.  However, we are down so much from those points, that yes, 50-100% in many companies is doable.

 

There is still upside in many other countries as well.

[no_free_lunch]

But will an economy firing at all cylinders push down commodities?

 

That, in a nutshell, is my take on commodities as well.  Not all commodities but oil in particular is interesting.    Right now I am long oil via NOV but I am seriously looking at the producers right now.  My basic take is that these guys have such a hard time making money, why would the price of oil go down.  Further, once the economy ramps up that is just tailwind.

 

[no_free_lunch]

Which country?

Europe?

 

I am thinking of Brazil in particular but I am sure there are others.  Brazil reminds me of america in the 50's/60's, at least a little bit.  You have low debt levels and emergence of a middle class.  Downside risk is corruption and inflation.  No position though, other than 3% in an emerging market ETF.