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Old 04-12-2010, 08:30 PM   #441
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The bumping of the thread was my sell signal, and W2R just confirmed it.

I know the retail sentiment is suppose to be contrary indicator. When retail investors all want to buy you should sell and vice versa. But I think this forum is different. I noticed that when this thread was started there were a lots post/threads about how we should, hold how the market will go up. Now I see a lot of posts about the P/E ratios showing the market to be overvalued etc.

If I could only get those 6% PenFed CDs, my AA would switch from 80/20 to 40/60 overnight.
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Old 04-12-2010, 09:27 PM   #442
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The bumping of the thread was my sell signal, and W2R just confirmed it.
But it was just a LITTLE (Wheee!)! After all, the Dow only broke 11,000 - -- not a record, like it was when it broke 14,000 back in 2007.
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Old 04-12-2010, 09:41 PM   #443
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But it was just a LITTLE (Wheee!)[SIZE=2]!
Oh, if it is only a little "wheeee", then we'll only have a 20% correction... or as it is known around here, a buying opportunity...
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Old 04-12-2010, 09:47 PM   #444
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Usually sentiment reflects nothing more than a prolonged or dramatic market advance, which logically portends that the advance is nearer it's end than its beginning.

If I should mention PE10, many people will post about its manifold deficiencies.

The truth however is that the productive capacity of the country changes slowly, for better or worse, and thus corporate profits when smoothed such as by PE10 also change slowly.

Over and over it has been shown that unusually good 10 to 20 year results come from an investment made when PEs were low, and sold when they were high. Contrariwise, buying high PE and selling anything other than an equally high of higher PE results in either lackluster or disastrous results over these very meaningful timeframes.

So right now PE10 is almost 22; this is not as high as it has been, but other than the recent bubble it is very high indeed. The top in 1929 was around this level, as was the top in 1966.

People can make whatever clever arguments they wish about exceptionalism, economic and market improvements, sunspots or whatever. I suspect that the real argument is that this gloomy assessment is bad news for early retirees, especially those who are not generously pensioned.

It is sometimes said that low interest rates justify high PEs. True I guess. This is almost a necessary conclusion from capital theory.

But if you make investment decisions based on this, I hope you have a means of making sure than interest rates stay low forever, or at least for the next 20 or 30 years.

My investment program has been a steady earner for many years, and after getting walloped in 07,08, and early 09 I am now a slender margin above October 2007. A byproduct of an overall successful campaign over many years is that I have never had a year with net realized capital losses, or closed a year with any other than tiny losses on my books. I have of course had down years, most spectacularly 2008. Currently I carry no losses on my books.

I went into the recent debacle with a lot of junk that I thought was promising. That is all gone, and I realize that it was inappropriate for someone my age, with my modest resources and with my absolute reliance on my portfolio for living. I wish I had seen this clearly in Oct 2007, but better late than never I suppose. Although I have about a 50:50 allocation and I expect to give ground on the equity side over the next months, I probably will not sell in taxable accounts. I am hoping to do Roth conversions in size this year, and I don't want realized CGs to make these conversions more expensive. All of my equities are well financed dividend payers, only one timber MLP reduced payouts, and many stocks and MLPs continued to increase them, so although I have my doubts about it I will likely stand pat.

A lot of things can happen, but IMO one of the least likely is that a new real bull market started in March 09. Perhaps Zimbabwean inflation might make stocks fly, but the history of inflation at the levels that we have experienced before in the US is that they lower PE ratios enough to more than counteract any good effect of the inflation on corporate profits.

Deflation also kills PEs, and profits. So we are in a sweet spot, where of all the things that can happen, only one is good and it is very unlikely. The one positively good outcome is that inflation stays low but positive, and that PEs continue to surge higher.

We are in a tough spot. Returns on quality fixed instruments are very low, taxes are likely to go higher, and equities at best offer rewards only by taking large risks.

Eventually we will once more have a following wind, and that will be the time for much more adventurous allocations.

Ha
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Old 04-13-2010, 07:30 AM   #445
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The one positively good outcome is that inflation stays low but positive, and that PEs continue to surge higher.
Or that corporate earnings this year, expected to put the S&P 500 multiple at ~15x, aren't "peak" earnings as implicitly assumed by PE10. There are reasons to think 2010 earnings are not at peak, but time will tell.
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Old 04-13-2010, 07:37 AM   #446
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Well I just read this whole thread

This market never really made me uncomfortable until January...

Of course I didn't pay much attention to it last year either... Id just check in at the end of the day and count my money

I took my position in Nov 08 at around DOW 8150 and bought a little more in March 09...

I've sold a lot of these rallys the last few months and regretted it... I was in all Vanguard mutual funds until Dec 09.

I opened a brokerage account, 12 free trades and index sector ETF's...

At least I can buy or sell mid day instead of putting in an order at the end of the day...

Problem is I now find myself spending way too much time watching the market real time

I've found it hard to commit any kind of real money at these levels...

Interesting reading this thread, most of the worries all along were and are legitimate but the market just kept going up...

Im at 20% stocks, Weleslley and Wellington and a couple of ETF's, Sold Citi stock yesterday...

I sold a good chunk of Vanguards energy ETF 2 days ago and booked a nice gain

Now it seems Oil is selling off and Im wondering when to buy back... Long term I believe energy is a winner...

I still have a position in Utilities that's been a loser so far but the dividends are nice...

Now going into what looks like another good earnings season...

Plenty out there to worry about. Futures are down today... Resistance at 11000 and S&P 1200

Maybe buy and hold for a week

Damn brokerage account has turned me into a wannabee day trader
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Old 04-13-2010, 08:20 AM   #447
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Ha, are you doing anything different with your portfolio?
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Old 04-13-2010, 09:12 AM   #448
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Plenty out there to worry about. Futures are down today... Resistance at 11000 and S&P 1200
I see the glass as half-full here.

If you told me one year ago that there would be "resistance" at these levels, I would have been thrilled.
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Old 04-13-2010, 09:34 AM   #449
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Yea you got that right

Trying to sell off the last 15 shares of VOX, Vanguard Telcom ETF...

Volume is a whopping 582

Here's a good one for the pessimists...

New Dow high ahead? Happy talk feeds sheep Paul B. Farrell - MarketWatch

Markets down a little finally, we had what 2 or three small down days since the bottom of the last dip
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Old 04-13-2010, 09:36 AM   #450
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Boring market...

DOW's down 42!!! BUY BUY BUY!!!
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Old 04-13-2010, 09:39 AM   #451
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1175 and 10850

I'll buy VTI, total stock market...
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Old 04-13-2010, 02:30 PM   #452
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"There's little you can do: Capitalism and democracy are dead. And unlike 2008, we will not be able to dodge a replay of 1929 and a Great Depression 2 after the coming crash."

This guy has always been a pessimist. But I'll give him this, he doesn't waffle on his beliefs. Hope he's wrong though.
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Old 04-13-2010, 04:25 PM   #453
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Over and over it has been shown that unusually good 10 to 20 year results come from an investment made when PEs were low, and sold when they were high. Contrariwise, buying high PE and selling anything other than an equally high of higher PE results in either lackluster or disastrous results over these very meaningful timeframes.

So right now PE10 is almost 22; this is not as high as it has been, but other than the recent bubble it is very high indeed. The top in 1929 was around this level, as was the top in 1966.



A lot of things can happen, but IMO one of the least likely is that a new real bull market started in March 09. Perhaps Zimbabwean inflation might make stocks fly, but the history of inflation at the levels that we have experienced before in the US is that they lower PE ratios enough to more than counteract any good effect of the inflation on corporate profits.

Deflation also kills PEs, and profits. So we are in a sweet spot, where of all the things that can happen, only one is good and it is very unlikely. The one positively good outcome is that inflation stays low but positive, and that PEs continue to surge higher.

We are in a tough spot. Returns on quality fixed instruments are very low, taxes are likely to go higher, and equities at best offer rewards only by taking large risks.

Eventually we will once more have a following wind, and that will be the time for much more adventurous allocations.

Ha
Ha Ha, you expressed my market sentiment more cogently than I could. Thanks this really clarified my thinking, lots of things can happen from here most of which are pretty bad for equities. The flip side is there aren't great alternative investments. Being younger, I can and probably should be more aggressive than you. However, my 80/20 is too aggressive so I am going to be taking ~2% off per 100 point increase in the Dow, so if we see Dow 12K by the end of the year I'll be back down to a 60/40 AA. If on the other hand we see Dow 9K, I'll have generated a modest amount of option premium for the covered calls I've written.
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Old 04-13-2010, 04:30 PM   #454
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Being younger, I can and probably should be more aggressive than you. However, my 80/20 is too aggressive so I am going to be taking ~2% off per 100 point increase in the Dow, so if we see Dow 12K by the end of the year I'll be back down to a 60/40 AA. If on the other hand we see Dow 9K, I'll have generated a modest amount of option premium for the covered calls I've written.
Yeah, I'm 44 now and after seeing what I saw in 2008-09, I'm not sure I can stomach much more than 60/40 even though that's probably a wee bit on the conservative side for a couple who probably have a collective 40-45 year joint life expectancy remaining.

But at this point I've recovered enough of my losses that when I rebalanced and the market rebounded to get me back to about 67/33 a couple months ago, I rebalanced back down to 60/40 and I'm pretty comfortable there. I ran the numbers and I don't think I *need* to take much more risk than that at this point. I just need to hold that AA for another decade or so and keep maxing out contributions as long as I still have this j*b.

Plus, my wife may be preparing to enter the ministry later this year or next, and should that happen I suspect our need to take risk would decline even further.
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Old 04-13-2010, 04:31 PM   #455
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I continue to buy more stocks every month. I have been putting money into a Europe index (VGK) for most of the year and will probably do so again at the end of April. They have been the most beaten down this year among my funds. Maybe I will get lucky and Greece will flare up some more.

Lots of stocks still look attractive to me. You can still buy lots of blue chip, dividend achievers with a current div yield of 3% or so. Just use the top 20 holdings of VIG as your stock screener.

I also continue adding large chunks of money to cash. I got my cash back up to 6 months living expenses and will keep at it until it hits a year's worth. It pains me getting only 1% nominal on it when I see so many good stocks out there.
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Old 04-13-2010, 05:26 PM   #456
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Over and over it has been shown that unusually good 10 to 20 year results come from an investment made when PEs were low, and sold when they were high. Contrariwise, buying high PE and selling anything other than an equally high of higher PE results in either lackluster or disastrous results over these very meaningful timeframes.
A low price and PE is easier to detect than a high one. Current PE may signal it's not a good time to buy but it doesn't say sell. Im not challenging you just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.

Ive taken some money off the table dropped my equity to 45% by reducing in the higher risk areas, such as ISV, EM, PM/energy and keeping large blue chip type equities at over half my total allocation. My focus is on expected return and withdrawal rate and I think this allocation (for me) keeps me pretty safe either way. I think we are more likely than not to see at least another quarter, maybe two, of positive news. Not just profits but tax revenues, trade numbers and employment, and is the type of environment where large corporations tend to make their revenue and profit targets.


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Old 04-13-2010, 05:44 PM   #457
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A low price and PE is easier to detect than a high one. Current PE may signal it's not a good time to buy but it doesn't say sell. I’m not challenging you – just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.
You are absolutely correct.This is part of reality that I am OK with. It's like the old prayer, "Please God help me stop sinning- but not quite yet." Or a more newsy example-

Quote:
July 10, 2007, 10:54 am

Citigroup’s chief executive, Charles O. Prince, says his bank hasn’t pulled back from making loans to provide funds for private equity deals, despite a skittish credit market and concerns that the recent run of big buyout deals could be losing steam.
But Mr. Prince used an interesting metaphor to describe his company’s situation as a major provider of financing for leveraged buyouts. “As long as the music is playing, you’ve got to get up and dance,” he told The Financial Times on Monday, adding, “We’re still dancing.”
With respect to the numerator vs denominator, use of PE10 pretty well guarantees that it is the numerator. To see why this is correct (or not), it may be necessary to read the books and from one's own opinions.


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Being younger, I can and probably should be more aggressive than you. (Clifp)
Yes, I agree. I will however share a good quip by a very smart guy and member here named Ed Easterling-"Risk is not a knob." I think what he means, or at least what this means to me, is that risk inheres in the external reality set, and by deciding to up an equity allocation one will not automatically up his likely returns. Could even be the opposite.

Ha
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Old 04-13-2010, 06:46 PM   #458
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A low price and PE is easier to detect than a high one. Current PE may signal it's not a good time to buy but it doesn't say sell. I’m not challenging you – just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.

I I think we are more likely than not to see at least another quarter, maybe two, of positive news. Not just profits but tax revenues, trade numbers and employment, and is the type of environment where large corporations tend to make their revenue and profit targets.


Intel's report today of better than expected earnings $.43 vs .38, optimistic forecast and plan to hire a couple of thousand people, does bode well for a least a few more quarters of growth on the numerator side of the equation.

However, the last time we had Dow 11K, S&P 1200 in rising market was May, 2005. I haven't gone back and looked at the economic statistic in Q2 2005, but it seems to me that underlying economic situation was much better in May 2005, than in April 2010. In particular we didn't have massive government debt, lots of underwater mortgages, and a badly spooked investor class, all of which are bad from a rising stock market from these levels.
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Old 04-13-2010, 07:07 PM   #459
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– just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.

PE 10 is around 22x. PE based on 2010 expected earnings ($78.12) is 15x. The two are not saying the same thing, although neither is saying stocks are especially cheap.

If PE 10 is right, then 2010 earnings are above 'mid-cycle' levels and should come down. But if 2010 earnings are not above mid-cycle then gradually PE 10 will come down as higher mid-cycle earnings are averaged in (this will take a while given the length of the average).

The question then is whether 2010 earnings are more reflective of peak earnings or something lower. I'm hard pressed to come up with reasons why 2010 earnings should reflect a peak as long as we're truly back to a normal growth phase in the economy and not on the precipice of a double dip. Simply saying that current earnings are above an inflation adjusted 10 year average isn't a terribly convincing argument for peak earnings in my view.

Meanwhile the job losses and productivity gains that have driven recent earnings strength don't appear to be temporary phenomenon. Labor has been ceding its share of corporate revenue to equity holders for at least a decade . . . that doesn't look to be reversing anytime soon. If anything, it appears to be accelerating.
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Old 04-13-2010, 10:19 PM   #460
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Intel's report today of better than expected earnings $.43 vs .38, optimistic forecast and plan to hire a couple of thousand people, does bode well for a least a few more quarters of growth on the numerator side of the equation.
I think the P/E on Intel is currently 12, so apparently there are still some stocks out there not bid up to excessively high P/Es.

That was quite an impressive quarterly report!

Audrey
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