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Old 03-09-2012, 10:48 AM   #41
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I don't really buy this narative. Companies are sitting on a lot of cash because they are able to meet demand with their existing capacity, and they also fearful of any uptick in demand being temorary.

It doesn't make sense to build factories and hire people when you are able to produce everything you can sell with the factories and people you already employ.

I'm very encourage by the last few positive jobs reports, as it indicates that companies are seeing demand beyond their existing capacity to meet. That could translate into a very virtuous cycle over the next few years if nothing derails it.


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Yes, profits are up, but companies are sitting on a TON of cash because of restrictive regulatory environment......
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Old 03-09-2012, 10:52 AM   #42
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Hmmm, I am beginning to think that a lot of people have become reflexively pessimistic over the last several years. I see lots of things moving in the right direction: profits, labor market, funding conditions, etc. With hthe Greece exchange in the rearview mirror, perhaps some of these positive developments will occupy more of the media's attention.
Not sure about the media, but I agree the US economy - and the global economy - is on a steady but slow path of growth, and risk is falling. US real wages continue to fall ever so slightly, which is painful for many but good for longer term employment prospects and business profits.
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Old 03-09-2012, 10:56 AM   #43
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Not sure about the media, but I agree the US economy - and the global economy - is on a steady but slow path of growth, and risk is falling. US real wages continue to fall ever so slightly, which is painful for many but good for longer term employment prospects and business profits.
I see credit market conditions improving meaningfully as well. The investment grade market is wide open and investors are thrusting cash at such issuers. Junk spreads have been dropping to the point where it is attractive for many junk issuers to refinance or pound out new bonds. The bank loan market also seems to be easing somewhat based on a few refinancings/amendments that allow for much more borrower flexibility and often a lower cost of funds.
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Old 03-09-2012, 12:08 PM   #44
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I see credit market conditions improving meaningfully as well. The investment grade market is wide open and investors are thrusting cash at such issuers. Junk spreads have been dropping to the point where it is attractive for many junk issuers to refinance or pound out new bonds. The bank loan market also seems to be easing somewhat based on a few refinancings/amendments that allow for much more borrower flexibility and often a lower cost of funds.
And, the two biggest bankers in the world have said they will bet the house to keep credit markets on this path for a good while longer. My sense is the US is in a better situation vs the rest of the world than it as been for a long while, and it is still improving.

The risk reward ratio is skewed but I think many investors are thinking asset prices are too high when that is not clear. They may be high, but the risk of loss of purchasing power is catching up.
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Old 03-09-2012, 01:42 PM   #45
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As I navigate through many Stock and investor forums, the sense is quite widespread that the market is due for a precipitous decline. A lot of people appear to be shifting into cash.

I read about people who are 86% cash, 50% cash, and a majority being 35% cash. All this is not earning them anything, while inflation continues ( gas prices, groceries, taxes ) so they are losing as they hold cash each day.

Although I am not fully invested, my own take is that this sidelined cash will have to be put to use in some way, and fairly soon. The market has risen since December, and folks are still running scared and hoarding cash. One day they will have to start putting it to work, because inflation and living is not being sidelined.

There will probably be a couple of declines, nothing too serious is my belief, and I intend to buy solid blue chips at that time, then hang on and count on the dividend yield. If the market goes up, I may take the CGs, but if not, I continue to use the dividends to survive.

In summary, I think there will be a breakout to the 14,000 level before we see a drop back to the 12,000 levels. So I am not lightening up at this time.
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Old 03-09-2012, 01:48 PM   #46
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Bullish? No
Holding stocks? Yes
Why? Taxes, committment to oil and gas long term, and hassles and onerous tax costs of selling MLPs, particularly partial postions.

Besides which, while no longer bargains, my stocks are not overpriced. However, long experience has taught me that this is scant protection from a general market decline.

Ha
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Old 03-09-2012, 02:28 PM   #47
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Bullish? No
Holding stocks? Yes
Why? Taxes, committment to oil and gas long term, and hassles and onerous tax costs of selling MLPs, particularly partial postions.

Besides which, while no longer bargains, my stocks are not overpriced. However, long experience has taught me that this is scant protection from a general market decline.

Ha
You can always hedge, Ha. Wait until the VIX calms down a bit and load up...
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Old 03-09-2012, 03:37 PM   #48
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Any thoughts on this chart? With a historical average market PE of about 16, the market looks a little overpriced. Of course, that didn't mean anything in the 90's or the 20's but there weren't many other periods in the last 100 years or so that were priced higher. I don't really have much experience with chart reading and I generally follow some basic rules of investing... choose a diversified mix of investments and rebalance your portfolio regularly to maintain the asset allocation. That said, not overpaying for an asset is also a good rule of thumb and it looks like the market is getting expensive. I've also seen charts and research that show we're only about halfway through a cyclical bear market that started in 2000 (couldn't find one to share unfortunately). Not sure how I feel about that as it's still all theory. My time horizon is very long so I'm not making major changes to my investment strategy, but I have made some slight adjustments. I'd love to get feedback from someone who follows this kind of data and has an opinion.
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Old 03-09-2012, 03:44 PM   #49
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You can always hedge, Ha. Wait until the VIX calms down a bit and load up...
In a tax deferred account.
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Old 03-09-2012, 03:45 PM   #50
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In a tax deferred account.
If the poop hits the windmill and the puts come into the money in a significant way, you will have plenty of losses to offset your options gains.
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Old 03-09-2012, 03:54 PM   #51
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If the poop hits the windmill and the puts come into the money in a significant way, you will have plenty of losses to offset your options gains.
Yes. but if the gains are short term and the losses long term they won't offset. I'd rather have short term gains than none at all, but Ha raises a real issue (as he usually does) when bringing taxes into the discussion. No simple choice.
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Old 03-09-2012, 04:03 PM   #52
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Yes. but if the gains are short term and the losses long term they won't offset. I'd rather have short term gains than none at all, but Ha raises a real issue (as he usually does) when bringing taxes into the discussion. No simple choice.
Uhhh, last I checked, ST gains will offset LT. Or am I misremembering?
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Old 03-09-2012, 04:08 PM   #53
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Uhhh, last I checked, ST gains will offset LT. Or am I misremembering?
Long term losses do not offset short term gains. The losses carry over and the gains are taxed at ordinary income rates.
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Old 03-09-2012, 04:09 PM   #54
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A couple of things--

1. We have had two recessions in the last 10 years, one of which was probably the worst one since the thirties. So the earnings over the last ten years are probably a little depressed, compared to going forward.

2. Interest rates matter. I'm willing to pay a higher amount for the earnings of equities when my other options are so bad. Cash and bonds are yielding less than inflation.

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Any thoughts on this chart? With a historical average market PE of about 16, the market looks a little overpriced. Of course, that didn't mean anything in the 90's or the 20's but there weren't many other periods in the last 100 years or so that were priced higher. I don't really have much experience with chart reading and I generally follow some basic rules of investing... choose a diversified mix of investments and rebalance your portfolio regularly to maintain the asset allocation. That said, not overpaying for an asset is also a good rule of thumb and it looks like the market is getting expensive. I've also seen charts and research that show we're only about halfway through a cyclical bear market that started in 2000 (couldn't find one to share unfortunately). Not sure how I feel about that as it's still all theory. My time horizon is very long so I'm not making major changes to my investment strategy, but I have made some slight adjustments. I'd love to get feedback from someone who follows this kind of data and has an opinion.
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Old 03-09-2012, 04:15 PM   #55
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Long term losses do not offset short term gains. The losses carry over and the gains are taxed at ordinary income rates.
I don't believe this is exactly correct. An example of what my rather lazy search found:

Capital Losses

"Can I use a long-term capital loss to offset a short-term capital gain before using it to offset a long-term gain?

No, long-term capital gains and losses must first be combined to arrive at net long-term gain or loss before the result can be netted against the net short-term gain or loss. If you follow the Form 1040, Schedule D, Capital Gains and Losses, Parts 1 and 2, line-by-line, the form will perform the netting for you in this order."

In other words, you can offset ST gains with LT losses as long as you first net your LT gains and losses first and then still have more LT losses than LT gains.
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Old 03-09-2012, 04:21 PM   #56
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Any thoughts on this chart?
You don't say what the chart is, but to me it looks like PE-10.

By that measure, stocks have been overvalued since about 1990. It's tough to make investment decisions based on a metric that flashes sell for decades.

Of PE-10, one might ask why the measure seems less useful today than it was in the past. In other words, what changed? One possible answer is that corporations have become structurally more profitable as the value of labor has been depressed by global competition. A higher than historic share of profits would cause PE-10 to say stocks are over valued. The question becomes, will corporate profits mean revert or not? Short of a rapid acceleartion of international labor costs or a reemergence of private sector unions with real clout, I'm having difficulty understanding why this situation doesn't persist for quite some time.
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Old 03-09-2012, 04:24 PM   #57
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In other words, you can offset ST gains with LT losses as long as you first net your LT gains and losses first and then still have more LT losses than LT gains.
That sounds right to me.

Mutual Fund ST Gains are treated as ordinary distributions and can't be offset with capital losses. But I don't think the same rule applies to normal ST gains not passed through a MF.
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Old 03-09-2012, 05:20 PM   #58
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I stand corrected and beg your pardon for the earlier challenge. Long have I labored under this misconception. It's a good day when you learn something like this..
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Old 03-09-2012, 05:24 PM   #59
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I stand corrected and beg your pardon for the earlier challenge. Long have I labored under this misconception. It's a good day when you learn something like this..
You had me scared for a minute there that I had been doing it wrong.
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Old 03-09-2012, 06:29 PM   #60
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Any thoughts on this chart? With a historical average market PE of about 16, the market looks a little overpriced...
Yes, this chart is indeed PE-10, which is the average PE over the past 10 years.

The current P/E ratio of the SP500 is around 16, and not 22.8 as the PE-10 shows.

If one wants cheaper stocks, there is emerging-market stock, with PE of 12 for an index (FTSE perhaps, I forgot). Also, a PIMCO money manager recently pointed out that emerging-market bonds also have better yields than US ones, yet emerging countries are not laden with debt like developed countries are.

Moreover, I find it interesting that Burton Malkiel, the author of the well-known book "A Random Walk Down Wall Street" and a buddy of John Bogle, also noted in more than one recent article or interview that emerging stocks and bonds should be good buys. As a proponent of the Efficient Market Hypothesis, albeit only in the weak sense, meaning that in the short-term the market may act irrationally (of course we know this), his stance is noteworthy.
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