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S&P 600 in 2009
Old 12-19-2008, 02:49 PM   #1
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S&P 600 in 2009

Shilling on TechTicker 1


Shilling on TechTicker 2

Shilling made me FI this year by listening to his advice; he now predicts S&P 600 next year with an P/E of 15 (usually it's 10 at bottom but interest rates are really low), and that corporate profits are going to get creamed to the tune of $40 EPS.

MyCorp at least is acting like this is going to happen.
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Old 12-19-2008, 03:05 PM   #2
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Unlike most gloomy analysts, at least he realizes that forecasting a worst-case earnings yield has to take current interest rates into account.

Stocks may be a bargain at a P/E of 12 when Treasuries are yielding 2%, but not so much when Treasuries are yielding 8%. Nice to see someone actually considering that for a change and not acting as if P/E determines undervaluation or overvaluation in a vacuum.
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Old 12-19-2008, 04:29 PM   #3
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Wow! - makes me wonder if my best financial bet might not be to just use all extra $ (outside of 401k) to pay off remainder of my 4.5% mortgage next year.
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Old 12-19-2008, 04:41 PM   #4
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I would take Shilling very seriously. His monthly INSIGHT that I subscribe to runs 40-50 pages, and he has the data to back up every assertion right there on the page. Unlike most forecasters who just say something with no substantive evidence behind it.

He's usually good, but this year has been amazing. He nailed it - every aspect of what we've seen. A buck rally, oil and commodities plunge, emerging markets massacre, long Treasury rally, etc. I'm going to continue to follow his advice and sit on the sidelines.
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Old 12-19-2008, 04:58 PM   #5
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"No one has ever timed the market more than once as far as I know"

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Old 12-19-2008, 05:07 PM   #6
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Fair enough, but the problem with statements like that is that they sententiously fail to make a specific point. For instance - does that mean you can't time the market in a day by day sense, or a yearly sense, or what? Sure, timing the market day by day is impossible, but large trends aren't too hard to see.

Besides, should we take it as an axiom, and therefore throw caution and foresight to the wind? I'll be damned if I'll blindly throw my money into an investment because of the sage advice that you can't 'time it', whatever is meant by that.

Shilling - and I by proxy - take a timing granularity of a year, and look for the big trends, and he at least has been more right than wrong. Making 40% beats hell out of losing 40%.

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"No one has ever timed the market more than once as far as I know"

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Old 12-19-2008, 05:59 PM   #7
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He got it right this year but what about the previous 20 years or so? He has always been a bear. If you stick to your guns long enough, your gonna eventually be right.
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Old 12-20-2008, 04:26 AM   #8
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"No one has ever timed the market more than once as far as I know"

Peter Lynch
Marty Zweig was well known for avoiding 1987... apparently he owned index puts. I don't know if he avoided the tech bubble bust.

He was a fixture Louis Rukeyser's Wall Street back in the day.

I think Marty's approach was a bit defensive and fell a little out of popularity in the 90's and 00's. I wonder if his approach avoided this mess? He has followers.
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Old 12-20-2008, 09:39 AM   #9
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Shilling - and I by proxy - take a timing granularity of a year, and look for the big trends, and he at least has been more right than wrong. Making 40% beats hell out of losing 40%.
Nouriel Roubini also called for S&P to bottom at 600, but his prediction was based off of a 10x multiple on $60 earnings. I think he raised his prediction since then, but I'm not sure. Plenty of other smart folks are calling for higher, and lower 2009 levels.

It's all good because it takes buyers and sellers to make a market, and risk premiums are much higher than in the past. At these levels and lower buying risky assets seems the much better bet than sticking with the "risk free".

Congratulations on your good fortune (and Shiller's and Roubini's as well). But in these matters it's nearly impossible to distinguish between luck and skill and I'd caution you against relying too much on any soothsayer who's shown recent success (and against patting yourself on the back too much as well). Bill Miller ran up a very impressive track record of beating the S&P 500 every year for 15 consecutive years (Shiller’s track record is considerably less impressive). It is only recently that Miller’s performance was shown to be the equivalent of flipping a coin and getting a long series of heads. With enough people flipping coins, someone hits the long-tail probability and claims the moniker of "genius", at least for a while. But over the past two years Mr. Miller's performance has been so horrendous he's given back more than all the excess returns he'd accumulated over his storied career. There is no art or science in determining when the luck of the current investment "genius" will run out.

With respect to your 40% returns, again congratulations are in order. But one doesn't have to have done this for very long to remember a long line of folks who were boasting more impressive returns investing in technology stocks, followed by residential real estate, and finally in commodities. As it eventually turned out, in each of those cases people would have been better served by a broadly diversified portfolio. Now those same folks are bragging about their long treasury bond investments. All I can say is “good luck”.

But one obvious difference between then and now is that the prior investment vehicles had no identifiable top. The upside was theoretically unlimited. So buying NASDAQ 5,000 still carried the illusion of potential untold riches to follow. Not so with treasuries. Currently 30 yr, cash-pay treasuries, can only appreciate another 60% before 30 year rates hit zero. On the other hand, if all the money the Fed is printing results in a return of inflation an 80% or more decline is entirely possible.

In fact, if 30 year treasury yields back up to the entirely reasonable yield of just 6.5% the long bond currently priced at $140 declines 48% to $73. Meanwhile S&P 600 is only a 32% decline from Friday’s close. I'd say the risk return strongly favors the S&P over long treasuries.


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Sure, timing the market day by day is impossible, but large trends aren't too hard to see.
You mean like the large trend of inflation that could follow the largest increase in the supply of USD in history?
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Old 12-20-2008, 11:32 AM   #10
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Here is another article along the same lines.

"Are the good times really over..." ~Merle Haggard
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Old 12-20-2008, 11:39 AM   #11
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Quote:
Originally Posted by Architect View Post
I would take Shilling very seriously. His monthly INSIGHT that I subscribe to runs 40-50 pages, and he has the data to back up every assertion right there on the page. Unlike most forecasters who just say something with no substantive evidence behind it.

He's usually good, but this year has been amazing. He nailed it - every aspect of what we've seen. A buck rally, oil and commodities plunge, emerging markets massacre, long Treasury rally, etc. I'm going to continue to follow his advice and sit on the sidelines.
I am so disappointed, Architect. I thought your investing dominance grew entirely out of your personal skills and insights. Still, chosing the right guru is pretty good.

Ha
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Old 12-21-2008, 08:40 AM   #12
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All good points. You're right, I should shut up more but I've already sold my bonds and am trying to figure out how/when to put it back into a regular portfolio.

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Originally Posted by . . . Yrs to Go View Post
Congratulations on your good fortune (and Shiller's and Roubini's as well). But in these matters it's nearly impossible to distinguish between luck and skill and I'd caution you against relying too much on any soothsayer who's shown recent success (and against patting yourself on the back too much as well).
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Old 12-21-2008, 09:23 AM   #13
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Well I predicted the S&P will " Hit" a 800 level this Yr.. way back in Sept of 07'... Does that make one want to Not own anything? It just hit that level for How Long? It may Hit 600 at one time or another, maybe for a Day or a few weeks.. But, if it stays Down at or even 800 level for very long? Then Not only are our Whole Wall Street People and Co.'s In Deep DoDo? But It will be Far Worse than the "Great Depression"...and basically? But your head btwn your legs and Kiss your Butt Goodbye....American Dollar and the American Way will be No Longer ...

It will be Armageddon... beyond your worse dreams..
and onlythose who are carrying Guns will be safe in their Homes and on the streets..
Unemployment will be 50% or more..Marshal Law and WWIII time clock will be at Midnite..

If the Ave. Worker is Making the ave. Median Income of $50k yr as they say? Then It will only take about 8 yrs of paying Back the Debts we incurre For Avoiding a Melt Down.. and a simple -5% Less Corporate and Personal Income Tax will avoid all of it !
and just needed for a few yrs.. then bring the taxes back up gradually..

U of I Economics #102...

and Does any of these Guru's Make anykind of $ doing their Predictions? Such as Selling a Financial Newsletter, Has a Job at some College? Does Speaking engagements? And did they Say we would have "at least" a -20% Bear market this Yr, back in 07" or earlier? And advised everyone to Sell their Equities and only Own Treasuries? Knowing a Bear market historicaly last 18 mos.. They should have..





:-)
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