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zugzwang

Current Equities Bull-Run Matches Dotcom Era

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S&P 500 has gained 26.2% per annum since March 2009 (total returns).

Irrational exuberance? Bernanke makes Greenspan look like a piker.

http://www.bloomberg...s-28-lower.html

Rally Matches 1990s Gains With Valuations 28% Lower

By Whitney Kisling - May 13, 2013 8:29 AM GMT

Returns from the U.S. equity bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.

The Standard & Poor's 500 Index has gained 26.2 percent annually including dividends since March 2009, the same as during the last 50 months of the technology bubble, according to data compiled by Bloomberg. Shares in the index now trade at 18.6 times annual profit, below the average 25.7 multiple in the 1990s rally led by Internet companies.

For bulls, the valuations show stocks will keep rising after the S&P 500 advanced 164 percent as individuals scarred by the worst financial meltdown since the Great Depression return to equities. Bears say the price-earnings ratios mean investors lack confidence in the economy and corporate profit growth. They also note that the last time returns were this high, the bubble popped and more than $5 trillion was erased from the value of U.S. stocks, according to data from the World Bank.

...

"Valuation and sentiment are much more reasonable," Greg Woodard, a portfolio strategist at Manning & Napier in Fairport, New York, said in a May 9 phone interview. His firm had $48.1 billion at the end of the first quarter. "The mentality then was this was a new paradigm, it's not like it was before, you don't pay attention to the traditional fundamentals. Today, I would describe the conditions as more positive for investing."

Fed Stimulus

Concern the U.S. was at risk of another contraction prompted the Federal Reserve to take unprecedented action to spur growth during the last four years, pushing down interest rates and increasing the attraction of equities. The central bank pumped $2.3 trillion of stimulus into the economy and has held the benchmark lending rate near zero percent.

That's different than what happened in 1999 and 2000, when the Fed raised its target rate for overnight loans between banks six times to 6.5 percent. Even with the policy, gains in gross domestic product have averaged 2 percent since 2009, less than half the rate as the 50 months through March 2000.

While the advance since 2009 that added $11.3 trillion to the value of stocks is comparable to the last four years of the technology bubble, it remains weaker than returns generated in that rally's strongest stretch. The S&P 500's level almost tripled during the 50 months starting in December 1994. Reaching gains of a similar size would have required the index to climb to about 1,918, or 17 percent above last week's close.

Edited by zugzwang

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Yes, they keep stoking R2-D2's furnace with tulip bulbs and virtual currencies.

However, these scumbags inflating everything will at some point run out of mugs, even within their sordid circle of parasites, and the hungry crowds outside will be looking for blood...not cakes.

Not saying its happening any time soon, but is a very real threat.

Just one Rodney King brought LA to it's knees...

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With near zero interest rates and money printing, people are going in to the stock market, even with such horrible fundamentals. I must add that equities are better than fiat paper though.

But equities are traded in fiat paper.

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With near zero interest rates and money printing, people are going in to the stock market, even with such horrible fundamentals. I must add that equities are better than fiat paper though.

The UK stockmarket is further than the US from a peak.

In terms of yields and comparison to other assets, it doesn't look overvalued. Money printing has shifted all asset prices relative to their fundamentals.

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FTSE+AIM.PNG

FTSE AIM all share index. It is the market where junior companies live (95% junk in there though). See the 2000 peak. People put £1,000 into dot com shares, and suddenly it became £64,000.

---

The government are likely to make all AIM shares Isa-eligible next April. Watch this space carefully.

How many people are driving round with Bull Bear Stickers on the back of their car, how many BBC programmes talk about shares? What happened to Working Lunch? What do people talk about at the dinner table?

Edited by out2lunch

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FTSE AIM all share index. It is the market where junior companies live (95% junk in there though). See the 2000 peak. People put £1,000 into dot com shares, and suddenly it became £64,000.

Lots about the AIM has changed since 2000. Not - according to most commentators, and backed up by the graph you posted - for the better.

Most of my AIM exposure is through VCTs. They're in a difficult game (they can't just trade AIM shares like a private individual or a regular fund), but I like the tax breaks. B)

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The UK stockmarket is further than the US from a peak.

In terms of yields and comparison to other assets, it doesn't look overvalued. Money printing has shifted all asset prices relative to their fundamentals.

But if the US markets do correct they will take all markets down with them including the FTSE.

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S&P 500 has gained 26.2% per annum since March 2009 (total returns).

Irrational exuberance? Bernanke makes Greenspan look like a piker.

the nasdaq bull market began in the 70s, way to go to equate a multidecade bull market to today that cant even make nominal highs

nasdaq-100-march.gif

Edited by georgia o'keeffe

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One thing puzzles me about the 'wealth effect' strategy-if that is indeed what is being pursued here.

If investors can make profits from simply betting on QE inflated asset prices- why would they want to invest in the real economy?

How is giving people a shortcut to gains via asset pumping ever going to lead to more jobs?

It seems deeply incoherent to me for Bernanke and the rest to claim that their money printing will create real economic growth when all it does is create opportunities for short term speculation- which means that more long term and perhaps more risky investments in the real economy are now competing for that cash.

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to me if these were normal times the central banks might well be signalling an interest rate rise. still that option seems to be off the table. still if they hinted it might cause a panic! this is not advice.

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It's nowhere near as overvalued as the dotcom on replacement cost.

The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It's a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies

Q-Ratio.gif

http://advisorperspectives.com/dshort/updates/Q-Ratio-and-Market-Valuation.php

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S&P 500 has gained 26.2% per annum since March 2009 (total returns).

Irrational exuberance? Bernanke makes Greenspan look like a piker.

Still 19% or so below the real high of August 2000 though. Keeping blowing the bubbles and I'll keep reducing allocation based on my valuation model. I'm currently seeing a 41% over valuation.

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The UK stockmarket is further than the US from a peak.

In terms of yields and comparison to other assets, it doesn't look overvalued. Money printing has shifted all asset prices relative to their fundamentals.

I'd agree with the first sentence. I'm seeing the FTSE 100 over valued by only 11% or so.

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Still 19% or so below the real high of August 2000 though. Keeping blowing the bubbles and I'll keep reducing allocation based on my valuation model. I'm currently seeing a 41% over valuation.

You must use something similar to this then....

As at 12th March, 2013 with the S&P 500 at 1552 the overvaluation by the relevant measures was 57% for non-financials and 65% for quoted shares.

Although the overvaluation of the stock market is well short of the extremes reached at the year ends of 1929 and 1999, it has reached the other previous peaks of 1906, 1936 and 1968.

http://www.smithers.co.uk/page.php?id=34

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Still 19% or so below the real high of August 2000 though. Keeping blowing the bubbles and I'll keep reducing allocation based on my valuation model. I'm currently seeing a 41% over valuation.

I've taken some profits and moved a little bit into cash since we hit 6600 (my mid-year target from last December). Very satisfactory six months. cool.gif

I'm still long equities though. I ought to be more cautious but my set up says 7000 before year end. They keep blowing bubbles that I can't say no to!

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Just to be contrary.....

Rule-of-20-400x274.png

Numerous analysts – often the same ones that were bearish just six months ago – continue to talk up US equities using a variety of metrics. These include comparisons of dividend yields or PE ratios to treasuries, etc. One of the more unusual metrics is the so-called Rule of 20. Developed over 30 years ago by Jim Moltz, the rule states that for equities to be “fairly” valued , the average PE ratio plus the inflation rate has to be around 20.

With the current PE ratios, the Rule of 20 metric now clocks at around 17 (PE=15, Inflation =2). That means to be valued “fairly” on a historical basis, US stocks’ PE ratio should be around 18, allowing quite a bit of room for multiple expansion. That’s assuming of course that inflation stays subdued. Also Mr. Moltz likely didn’t contemplate deflation risk when designing this rule.

Historically the Rule of 20 performed well in 2000 by pointing how overvalued the market was prior to the correction, and then again in 2007.

According to ISI, the current situation is more akin to 1983, when we were still living in the shadow of the “Death of Equities” and the Rule of 20 metric was at the lows. This “death” was proclaimed in 1979 on the cover of Business Week, which read “How inflation is destroying the stock market”. Of course by 1983, after Volcker had raised the Fed Funds rate to 20% in 1981 (hard to believe, right?), inflation rate had receded. The “anti-equities” mentality however still persisted, creating an opportunity. Since then, the S&P500 increased more than 10-fold (particularly if dividends are taken into account). The Rule of 20 therefore paints an incredibly bullish picture for the US stock market over the next couple of decades. Will Mr. Moltz be proven right again?

http://pragcap.com/u-s-equities-and-the-rule-of-20?utm_source=feedly

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May as well stick these here.

SPX Topping Extremes

http://www.zealllc.com/2013/spxtopex.htm

Whenever any market is very overbought by its own standards after a long rally that was uninterrupted by any material sentiment-rebalancing selloffs, prudent traders have to expect a sharp correction. After all, that’s what markets do. They rise and they fall. The SPX has rallied too far too fast for too long, resulting in euphoric sentiment. And as always when such extremes are hit, the inevitable reckoning soon follows.

So how big will the selloff be? The odds are approaching certainty that it will at least exceed 10%, formally hit correction territory. And if this long-in-the-tooth cyclical bull is to survive any longer, the bullish traders should really hope for a major correction approaching 20%. It is going to take a lot of selling to bleed away enough greed for any semblance of balanced sentiment to finally return.

The bottom line is the stock markets are topping today. The flagship S&P 500 is hitting all kinds of technical and sentimental extremes only seen at major toppings. Euphoria now reigns supreme as traders no longer think anything beyond the most trivial selloff is even possible anymore. But this is exactly when serious major selloffs are born, when traders grow so complacent they stop worrying at all.

Thus these beloved stock markets are extraordinarily dangerous. Best case we are in for a humdinger of a correction, worst case a new cyclical bear.

Is a bond crash going to be the other side of this surge in equities?

http://www.arabianmoney.net/us-dollar/2013/05/18/is-a-bond-crash-going-to-be-the-other-side-of-this-surge-in-equities/

Or to put it more simply: will a rising stock market derail the bond market thereby forcing up interest rates and cooking its own goose? It is a far from improbably scenario. Let us consider why the stock market could rise another 30-40 per cent by this autumn.

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My view for what its worth is that the engineered rise in the markets has done its job now this sucking in millions of ordinary folks money who have seen their fixed rate interest rates vanish. Job done by the Gov/ institutions :angry: now any day soon they will take thir profits before any of the plebs can get there money out, then it all begins again 'same old' as they say.

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My view for what its worth is that the engineered rise in the markets has done its job now this sucking in millions of ordinary folks money who have seen their fixed rate interest rates vanish. Job done by the Gov/ institutions :angry: now any day soon they will take thir profits before any of the plebs can get there money out, then it all begins again 'same old' as they say.

This is my thinking also. The run-up since January 1st has been amazing with records broken not just in the DOW/S&P 500 but in things like how many up days without a fall, etc. Remarkable.

As I have posted elsewhere on here, I think they have been trying to lure in Joe Public for a few years now but the QE and ramping was just not doing it as the masses stayed out of the markets... so 'they' just engineered this enormous ramping surge from January 1st taking the markets parabolic and scaring the sh*t out of anyone still in cash savings.

In the US they have also tried to re-inflate the housing market and we all know what has been going on here.

It is fascinating to watch. For the first time this year, for me anyhow, it s beginning to feel like 2008 all over again.

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Is a bond crash going to be the other side of this surge in equities?

And Gold crash ?

High Yield bonds seemed to be still going up in price and the BAC-ML HY Bond index just moved below 5%.

Edited by easy2012

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And Gold crash ?

High Yield bonds seemed to be still going up in price and the BAC-ML HY Bond index just moved below 5%.

Bonds still beat bank savings, and ever more people are using them as a substitute. The ongoing rise means people are discounting ever more of the risk.

Time will tell if they're right. Money-printing has surely shifted the natural equilibrium of risk-reward in all kinds of assets.

As for gold, that's the hardest of all to call. It remains in a permanent huge bubble, in that its trading value has hugely exceeded any intrinsic value for thousands of years. If you value it on fundamentals it makes everything else look ridiculously cheap.

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  • 242 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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