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Old 04-09-2011, 10:01 PM   #21
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I would say that the most obviously overvalued asset class at the moment is junk bonds and leveraged loans. I have been seeing stupidly-underwritten stuff flying off the shelves and not at what I would call terribly cheap prices. If this trend continues, we may see this sort of thing get transmitted to the equity market in short order via increased M&A and leveraged buyouts.
Why is it that he same exact movie, with the same exact script, with occasionally different actors, gets replayed over and over again?

Doesn't anyone ever learn? Hell, we just saw this movie three years ago. You'd think we'd remember how it ended.
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Old 04-09-2011, 10:24 PM   #22
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Why is it that he same exact movie, with the same exact script, with occasionally different actors, gets replayed over and over again?

Doesn't anyone ever learn? Hell, we just saw this movie three years ago. You'd think we'd remember how it ended.
Maybe because it's the same CEO's, or near-CEO's, that want to continue things?

It seems to me a lot of people on the e-r.org website are quire satisfied with their financial situation, but in reality it is way far away from what the New York/Wall Street crowd makes. They want to keep making that, or more.
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Old 04-09-2011, 11:12 PM   #23
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Maybe because it's the same CEO's, or near-CEO's, that want to continue things?

It seems to me a lot of people on the e-r.org website are quire satisfied with their financial situation, but in reality it is way far away from what the New York/Wall Street crowd makes. They want to keep making that, or more.
Moral hazard. The taxpayers keep bailing out banks that fail, rescuing unprofitable companies, carrying the can for people who borrowed money they can't repay but can walk away too easily, funding excessive and unsustainable political promises etc etc etc.
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Old 04-10-2011, 04:13 AM   #24
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We are not at valuation extremes. There is a big grey area and we are in it -- most of the time we should expect to be in it. Schemes to finely tune AA's based on valuation alone have a poor track record.

Just thought you'd like to know that .

If bond rates move up and stocks continue the trajectory... eventually some investors will reevaluate the risk/reward balance and lighten up on equities. Seems to be a common move for certain contrarians.


Do you know of any research on the topic of AAs based on valuation or other factors?
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Old 04-10-2011, 07:04 AM   #25
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If bond rates move up and stocks continue the trajectory... eventually some investors will reevaluate the risk/reward balance and lighten up on equities. Seems to be a common move for certain contrarians.


Do you know of any research on the topic of AAs based on valuation or other factors?
+1 I am sloooowly decreasing my equity allocation. I eventually want to move about 8-10% more out. But I can't resist trying to wring a few more bucks out of the bull so I move a percent here and there at every time we hit a new high. Once I get to my revised (more conservative AA) I plan to leave it there - or so I say now
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Old 04-10-2011, 07:19 AM   #26
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Additionally, without the bailout of the largest investment banks and others, a more massive collapse of the stock exchanges would have detonated a worldwide financial collapse. The stock market, IMO, is still much overvalued.

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I have little doubt that on an historically basis stocks are overvalued. However the real question is what about on a relative basis? Are they overvalued compared to bonds, real estate, oil etc? I honestly don't know.
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Old 04-10-2011, 08:10 AM   #27
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A comment about Ben Graham on stock allocation and P/E.


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Graham explains it this way:
“The sound reason for increasing the percentage in common stocks [beyond 50%] would be the appearance of ‘bargain price’ levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgment of the investor the market level has become dangerously high.”
Benjamin Graham on Asset Allocation
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Old 04-10-2011, 08:19 AM   #28
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Why is it that he same exact movie, with the same exact script, with occasionally different actors, gets replayed over and over again?

Doesn't anyone ever learn? Hell, we just saw this movie three years ago. You'd think we'd remember how it ended.
I was thinking the same thing. That said, for now there ae different circumstances for the same junk bond deals. Absolute leverage levels are lower in these deals (since lots of them reduced leverage by defaulting), and the economic picture is improving steadily (as opposed to peak leverage deals being done at the top of the cycle). I don't like seeing PIK toggle note deals being done by CCC-rated issuers to fund dividends to sponsors, but at least I am not seeing scads of LBOs where the debt structure on the target is so large that at cyclical peak earnings the company can barely interest on the debt (let along fund cap ex or pay down any debt over time). I take this to mean that there is room for this to roll along for a bit, although I want t of the junk market these days.
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Old 04-10-2011, 09:54 AM   #29
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I think the overall market in overvalued. But there seems to be pockets of fairly valued, high quality stocks out there. I usually buy index funds but I think that, in this climate, one has to be a bit more choosy.
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Old 04-10-2011, 10:01 AM   #30
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... But I can't resist trying to wring a few more bucks out of the bull so I move a percent here and there at every time we hit a new high...
Additionally, I look at my stock holdings, and thought that their projected P/E ratios in the low teens were not so bad. Of course, in the past when the economy went sour, all those earnings projected by analysts went out the door. No companies can prosper with a declining economy back drop. Conversely, an improving economy is a rising tide that lifts all boats, leaky ones too.

So, to me, the question is still "Is the economy improving?", and I believe it still is. Hence, my main reason for hanging on to my stocks a bit longer. And as greedy as I am, I might still try to wring a couple more of bucks out of each share by writing covered calls.
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Old 04-10-2011, 11:25 AM   #31
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If bond rates move up and stocks continue the trajectory... eventually some investors will reevaluate the risk/reward balance and lighten up on equities. Seems to be a common move for certain contrarians.

Do you know of any research on the topic of AAs based on valuation or other factors?
Yes I agree that stocks and bonds are competitive financial assets and so there is some linkage. I've not seen any models of what that linkage really is. We are back to 1950's interest rates and in those years the order of returns for FI was cash -> then short term bonds -> then intermediate term bonds.

I imagine there is some research on AA's and valuations. Probably plenty of papers which I don't know about. At Bogleheads there was a thread or two on PE10 and AA modification.

Personally I've constructed my own portfolio options in spreadsheets with data going back to about 1970. I've tried a lot of combo's involving variables like PE10, PE5, PE1, interest rates. I've also tried rules like: lighten up if we are 36 months past the last SP500 low and the last 12 months gain was >50%.

What seems to stand out in my personal research is that the best thing was to stick with the highest level of equities I could tolerate and continuously rebalance. But that was in the context of going to short term bonds when a timing model said to do so. The timing model had those valuation considerations in it already.

My guess is that adjusting AA based on a few rules might give better backtest results then straight buy-hold. Rules one might consider using data from public sources:
1) relative gains over recent months for stocks versus short term bonds
2) PE10 levels
3) whether the yield slope has gone negative over recent months (10yr Treasury - 3mo Treasury)

To do this yourself is a lot of effort and only fun if you enjoy analysis a lot.
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Old 04-10-2011, 12:14 PM   #32
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Market Harmonics - Investors Intelligence Survey

Check out the top chart - compare 2007 with now

http://www.traders-talk.com/mb2/inde...0&#entry571943
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Old 04-10-2011, 12:27 PM   #33
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What goes up, must come down.



Also, what goes down, must come up...

This is as far as I would venture to go with this sort of analysis. My approach relies on asset allocation, balancing, enjoying the highs, and hanging on through the lows.
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Old 04-10-2011, 12:51 PM   #34
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What goes up, must come down.

Also, what goes down, must come up...

This is as far as I would venture to go with this sort of analysis. My approach relies on asset allocation, balancing, enjoying the highs, and hanging on through the lows.
I think we need a couple of new general forum rules in addition to Godwin's Law.

You hit on one addition - adding a music video to a post (not about music).

I think the another one is adding a video of cute cats.


All three indicate the thread is coming to an end.
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Old 04-10-2011, 01:00 PM   #35
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I think we need a couple of new general forum rules in addition to Godwin's Law.

You hit on one addition - adding a music video to a post (not about music).

I think the another one is adding a video of cute cats.

All three indicate the thread is coming to an end.
Bad mood today, Dex?
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Old 04-10-2011, 01:13 PM   #36
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I've been happily just following my Total Stock Index and Total International Stock Index funds to notice if the market is overvalued or not. So I really can't say either way
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Old 04-10-2011, 02:02 PM   #37
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Bad mood today, Dex?
I've had mine ... what about you?

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Old 04-10-2011, 02:28 PM   #38
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I've had mine ... what about you?
Later today...Mr B is watching baseball right now.

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Old 04-10-2011, 03:53 PM   #39
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Well, aren't there things that come down and never can get up? Like the Nikkei that has been down for 20 years, and just as one thought it would not happen, it would set a new low occasionally.




But I guess at least that is not as bad as Enron, Global Crossing, WorldCom, and recently, Bear Stearns, Lehman Brothers, etc... They went down, then simply disappeared. Looking back through the ages, we find things that went up invariably came down, but the reverse was not true.

Time for some gloomy music...

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Old 04-10-2011, 09:48 PM   #40
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I wonder what that Nikkei chart looks like with dividends...
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