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Cape, Tobin Q, Imply Market Is 48% Overvalued

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In English please...

High frequency trading algorithms are artificially boosting prices when selling backwards and forwards betweem each other. If you turn them off, no-one wants to pay the current prices. (remember the shock 1000 point drop last month when the HFT's disabled themselves).

Maybe the HFT's are using a good-times algorithm. My SFT algorithm responds "earnings are pants, don't forget your shorts".

VMR.

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stock markets are gonna drop 50% soemtime soon.

50% would only bring them to fair value, a further 50% fall could easily occur to the undervaluing downside. In the 1930's the undervaluation was considerably greater,

At the height of the global financial crisis stocks did not even achieve fair value by this measure, and people still dismiss intervention in our markets.....

The correction will come when enough people loose faith in the manipulation need to achieve current valuations. Once the corruption is purged people will return to the markets again.

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will it make house prices fall?

The stock market is seen as a sentiment indicator, although not everyone invest in them they seek reassurance from a rising market and pessimism on a falling market. The reason why house prices fell so sharply at the start of this correction was due pessimism caused by the continuously falling stock markets. This not only effected people tendency to buy houses but to consume in general.

This is the reason why the markets were pumped up last year. President Obama advising people to buy stock in March 09 was no fluky call, given it was advised just weeks just before one of the most powerful stock market melt ups in history.

So now I see the stock market more as a central bank monetary tool than a market.

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agreed,I'm sat on some deep out of the money puts I bought in march,that were jsut unbelievably cheap on a risk/reward basis.I spent months sceptically watching the melt up and wondering when things would turn.at the mo,some of my favoured bets are getting cheapish again.I'm well aware though that the Ponzi could stay afloat for longer and the biggest issue facing many , is trying to secodn guess the activites of the CB's and assorted crony investment banks.at some point they will lose their grip and then it's gonna be a bloodbath.

Best thing to do is vote with your feet and not participate unless you see any easy opportunity. I have only been invested in the market for about 4 months in the last 4 years. I have still been able to make a better return than cash but can not leave the money on the table for long in this mess of a market.

Edited by Confounded

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If the DOW goes below 10k, the FTSE below 5k dont our respective dictators shove taxpayers money in, allowing the rich to get their money out, the plunge protection team or whatever.

Theyll keep doing that presumably.

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stock markets are gonna drop 50% soemtime soon.

Happy to defer to your greater maths Don Pedro, but I'm not convinced a 50% overvaluation is the same as a 50% correction. Although there's nothing to prevent a subsequent undervaluation of course.

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'Shut down HFT, and next thing you know the market will drop to its fair value: somewhere 50% lower.'

I'm in good company :lol:

hey you doing much these days or you sitting out?

Playing the breadth/sentiment cycles mostly with ham.

Jack be nimble and all that..........

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couldn't agree more,haven't had long term moeny in the markets since 2008,jsut traded options,leave the capital commitment to someone else.

I am never nromally one for conspiracy theories,but to me,you look at the overnight gains on the futures in the US viz a viz the gains at the open,HFT,Algo's,dark pools,the levels of insider selling throughout this rally......man I could go on.someone's gonna get raped and you've gotta make sure it's not you.

I don't think I am a conspiracy nut either but since late 2006 (when the first tremors from the US housing markets were being felt) I began to notice the invisible hand guiding the DOW up. They managed to pump the DOW over 2000 points higher than the previous high on no news other than private equity speculation that never came to fruition. This meant they avoided the infamous double top and also bought a load of point they could afford to loose in the coming crisis.

During the crisis they prevented two big fall back to back (apart from post Lehmans), this meant the market avoided panic sell offs. The two biggest percentage moves during the crisis where both up (10%+ moves) yet fear is supposed to be a stronger emotion than greed.

As you point out post Obama telling everyone to buy stocks in March 09 countless tricks have been used to pump the market up.

It is a tough market to be invested in when you know fundamentally you are buying something that is incredibly over valued but on the other hand you know there are powerful forces looking out for you. I just can't shake the nagging doubt that the market will eventually beat them in a spectacular way.

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RK,would love to say I'd picked up on this,but I didn't.Wish I'd tried harder at school.

:blink: (me too)

This is their (smithers) worked example of their methodolgy from the article linked.

with the S&P 500 at 1169 as at 31st March 2010, q was 1.6166 and CAPE was 1.5761.

To update as at 10th June 2010, when the S&P 500 was 1087, for q take 1.61 × 1087 ÷ 1169 = 1.50 and for CAPE take 1.58 × 1087 ÷ 1169 = 1.46.

So let's imagine the SPX falls to 725 at some future time.

Thus, for q take 1.61 X 725/1169 = 1

i.e. a 61% overvaluation results in a correction from 1169 to 725 or 38%.

Could you should how you would arrive at a 50% overvaluation (edit) resulting in a fall of 50% please confounded, 'cause I'm sorry to admit I don't get it. :(

Edited by Red Karma

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:blink: (me too)

This is their (smithers) worked example of their methodolgy from the article linked.

So let's imagine the SPX falls to 725 at some future time.

Thus, for q take 1.61 X 725/1169 = 1

i.e. a 61% overvaluation results in a correction from 1169 to 725 or 38%.

Could you should how you would arrive at a 50% overvaluation (edit) resulting in a fall of 50% please confounded, 'cause I'm sorry to admit I don't get it. :(

To calculate the geometric mean

The geometric mean of a data set [a1, a2, ..., an] is given by

753061f377ecbca16901c207e944ecb9.png

The geometric mean of a data set is less than or equal to the data set's arithmetic mean (the two means are equal if and only if all members of the data set are equal). This allows the definition of the arithmetic-geometric mean, a mixture of the two which always lies in between.

The geometric mean is also the arithmetic-harmonic mean in the sense that if two sequences (an) and (hn) are defined:

9c6e3241052d94e19c7c69142978325d.png

and

84bebd70409d1f9297232a12454cf418.png

then an and hn will converge to the geometric mean of x and y.

This can be seen easily from the fact that the sequences do converge to a common limit (which can be shown by Bolzano-Weierstrass theorem) and the fact that geometric mean is preserved:

59d685dc860801e38bdfbd0481ec7d9f.png

Replacing arithmetic and harmonic mean by a pair of generalized means of opposite, finite exponents yields the same result.

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  • 146 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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