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Old 05-19-2012, 05:04 AM   #21
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When a major financial publication announces the death of equities in a cover story I'll immediately increase my exposure to stocks
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Old 05-21-2012, 09:37 AM   #22
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Thank you for posting your data. It is comforting to see something positive now and again. Now the hard part is figuring what solid sectors/companies will be booming in the future to make it all happen. FaceBook and their like may not be around by then, either.
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Old 05-21-2012, 11:02 AM   #23
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Originally Posted by foxfirev5
When a major financial publication announces the death of equities in a cover story I'll immediately increase my exposure to stocks
See "The Economist" this week? They come pretty close, declaring public companies a vanishing breed.
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Old 05-21-2012, 11:32 AM   #24
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Why do we assume that the S&P500 of 140 years ago has any bearing on the S&P500 of 100 years ago, let alone the S&P500 of last year
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Originally Posted by ejman View Post
It's certainly a good point that the stock market market from 100 years ago bears little resemblance to today's.
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Never make predictions, especially about the future.........Casey Stengal
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Things were different. They will likely be different in the future.
It is a fun game to try and predict the future based on the past... and often people are wrong, very wrong, when getting too specific. On that note, my prediction of how the next 10-20 years will go is speculation... and should be treated as such.

However, I'd like to add that time and time again in history people have said "this time its different" only to see the same kinds of patterns repeat themselves under completely different economies, markets, generations.

This is more about probabilities than certainties... the odds of a significant bull market (50% growth over 3-4 years) popping up within the next 20 years is statistically large. The likelihood of it beginning within the following 12 months grows the more people start to believe "its really different this time... it isn't coming back"

The one certainty is that the vast majority of people will have that very mindset at the bottom, just when it is the absolute best time to invest.

As foxfirev8 alluded to... often it is best to just do the opposite of what everyone else is. Buy when everyone is selling... sell when everyone is buying. Makes perfect sense looking at history... but is one of the most difficult things to do in real time.

So that's why we keep staring at the numbers... trying to make sense of them.
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Old 05-21-2012, 10:36 PM   #25
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"Stocks: The Next Decade"

Easy, just follow the chart from the past 6 decades......





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Originally Posted by EvrClrx311 View Post
Posted this research to another board I frequent and thought some here might get some use out of it since stocks/equities are a part of everyone's investments on some level (at least I would hope)...


So I found the following link which displays the yearly dividend adjusted S&P500 returns for the last 140 years.:
CAGR of the Stock Market: Annualized Returns of the S&P 500

The link at the bottom shows where the data came from: http://www.econ.yale.edu/~shiller/data.htm

Maybe someone can chime in on the reliability of this data... I know some here like Zee do similar studies and I've often wondered where they get their data.

So anyways, I was bored today and threw together a program to play around with these numbers. I also added to them the inflation index that runs back to 1914.

My first idea was to look at the best/worst rolling returns from all 1 to 30 year periods. Not many surprises there:
5-Year:
Best was 1924-1928 CAGR 29.3%
Worst was 1928-1932 CAGR -11.5%

10-Year:
Best was 1949-1958 CAGR 20.1%
Worst was 1999-2008 CAGR -1.5

20-Year:
Best was 1980-1999 CAGR 18.0%
Worst was 1929-1948 CAGR 3.1%

Others:
No 15 year period in history had a negative return (the 14 years following 1929 were just barely under 0%)

Then I tried the same thing with the Inflation Adjusted data (1914-2011):
5-Year Inflation Adj:
Best was 1924-1928 CAGR 29.1%
Worst was 1916-1920 CAGR -13.8%

10-Year Inflation Adj:
Best was 1949-1958 CAGR 18.1%
Worst was 1999-2008 CAGR -4.4

20-Year Inflation Adj:
Best was 1980-1999 CAGR 13.6%
Worst was 1962-1981 CAGR 0.8%

Others:
No 18 year period had a negative return (the 17 years following 1965 were just barely under 0% after adjusting for inflation)


Clearly the last decade has been on the low side as far as returns. So next I decided to look up if any other periods in history were as bad or worse than our last decade and if so how did the decade that followed do:

First, ignoring inflation (1871-2011)...
Our last 10-years (2002-20011) had a CAGR of 1.4%. My program only found 4 (out of 130) rolling 10 year periods that did as bad or worse then that (1929,1930,1931,1966) prior to 2000. The next 10 years following those 4 points had an average CAGR of 10.1%... obviously with a lot of overlap from the 1931-1938 time frame

expanding this a little to get more data points I just looked for rolling 10 year periods at 4% or worse and got a lot more hits (years ending in: 1891, 1894, 1896, 1897, 1898, 1915, 1921, 1933, 1938, 1939, 1940, 1941, 1975, 1976, 1978, 1979)

The 10 years following all of those periods averaged a CAGR of 11.6%

I also ran the same test accounting for inflation but since this is getting a little long I'll leave out the boring data. It found 7 rolling 10 year periods that did as bad as the inflation adjusted one we just ended. Those other 7 all had a 10.1% CAGR (after inflation) in the next 10 years.

Conclusions:
There are a lot of reasons to think that the next 10 years are going to be gloomy... with all that is going on in this country right now. However, historically speaking... the next 10 years 'should' average a 9-13% CAGR above inflation (12-17% actual return) if history really repeats itself... History also shows that the longer this near 0% market return continues (currently we're at about 12 years) the larger the pop on the other side will be. I'm guessing the late teens and early 20's are going to have some very bullish years similar to what we saw in the mid 90s.

I'll look closer at the 5, 7, 15, 20 periods that look similar to the one we're currently in and see if they tell the same kind of story.

-Eric
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Old 05-24-2012, 12:48 PM   #26
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Originally Posted by foxfirev5
When a major financial publication announces the death of equities in a cover story I'll immediately increase my exposure to stocks
More "Death of Equities":

http://www.ft.com/intl/cms/s/0/d754f...#axzz1voHtdliW

Disclaimer: I think the markets will continue to flop about in a broad trading range for several more years while working off the commercial and personal balance sheet debt hangover.
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Old 05-24-2012, 02:21 PM   #27
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to quote one of my favorite books:

"A combination of history and human nature conspires to make us seriously misjudge the future"
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Old 05-24-2012, 03:00 PM   #28
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I
As foxfirev8 alluded to... often it is best to just do the opposite of what everyone else is. Buy when everyone is selling... sell when everyone is buying. Makes perfect sense looking at history... but is one of the most difficult things to do in real time.
I understand that the famous John Templeton did just that in 1939. He bought 100 shares of every stock he could find that sold for under $1 per share. The vast majority of them he sold for a profit.
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Old 05-26-2012, 05:02 PM   #29
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For whatever it's worth...[1]

I'm expecting a recession in mid-2013. This will be driven by:

1) Slower economy worldwide

2) A sort of cascade failure of financial institutions, probably seeded by Greece leaving the Euro-zone, and fed by excessive leverage in assorted "too big to fail" financial institutions. (Consider the recent JP Morgan derivatives trade. Now multiply that across all the other institutions engaging in the same behavior. One good shake and we'll be partying like it's 2008!)

3) Poorly timed austerity moves within the USA. I expect the USA to take the happy fun austerity path in early 2013, through either Congressional inaction, or ideologically driven but poorly timed action in the event of a change in administration. This will sent the GDP growth rate negative for calendar Q2 and Q3. (Austerity works just fine in periods of strong growth and economic expansion, particularly when private capital is tight and interest rates are high and rising, exactly when the Usual Suspects think it's not needed. It act as a capital redeployment mechanism. When growth is low, interest rates are low, and there is relatively low demand for capital in private markets, austerity moves just lower economic activity, with the freed money going into reserves rather than economic activity.)

This will be a cyclic bear market following the end of this cyclic bull market, within a longer secular bear market with several more years to run. Think of it a a range bound market, between the recent highs and the 2009 lows, for much of the remaining decade. But that's just me.




1. Past performance is not an indicator of future results. Content is not intended to be investment advice. Conduct your own due diligence. Content may have settled in shipment. Your mileage may vary. Warning: not for human consumption. This product may go straight to your hips. Warning: may induce coma. Disclaimer: text-messaging at 2am may cause loss of friends. Please do not enter into suicide pacts with other ER.org users. Entering into said deal may have adverse outcomes. May contain traces of meat. Being a well-known celebrity does not make you an interesting person. Contrary to popular belief, money does not in fact grow on a tree. Knowing the current status of Brad and Angelina’s relationship does not make you an interesting conversationalist. Caution: may contain traces of fact.
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Old 05-26-2012, 10:10 PM   #30
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Past performance is not an indicator of future results. Content is not intended to be investment advice. Conduct your own due diligence. Content may have settled in shipment. Your mileage may vary. Warning: not for human consumption. This product may go straight to your hips. Warning: may induce coma. Disclaimer: text-messaging at 2am may cause loss of friends. Please do not enter into suicide pacts with other ER.org users. Entering into said deal may have adverse outcomes. May contain traces of meat. Being a well-known celebrity does not make you an interesting person. Contrary to popular belief, money does not in fact grow on a tree. Knowing the current status of Brad and Angelina’s relationship does not make you an interesting conversationalist. Caution: may contain traces of fact.
Did you author that? Brilliant!

FWIW ECRI predicts US recession starts mid-2012
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Old 05-27-2012, 05:58 AM   #31
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1. Past performance is not an indicator of future results. Content is not intended to be investment advice. Conduct your own due diligence. Content may have settled in shipment. Your mileage may vary. Warning: not for human consumption. This product may go straight to your hips. Warning: may induce coma. Disclaimer: text-messaging at 2am may cause loss of friends. Please do not enter into suicide pacts with other ER.org users. Entering into said deal may have adverse outcomes. May contain traces of meat. Being a well-known celebrity does not make you an interesting person. Contrary to popular belief, money does not in fact grow on a tree. Knowing the current status of Brad and Angelina’s relationship does not make you an interesting conversationalist. Caution: may contain traces of fact.
But does it have traces of peanuts?
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Did you author that? Brilliant!
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FWIW ECRI predicts US recession starts mid-2012
Would that be a follow-up recession to the one they predicted last October? I think their methodology doesn't deal well with the QE.
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Old 05-27-2012, 06:20 AM   #32
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Would that be a follow-up recession to the one they predicted last October? I think their methodology doesn't deal well with the QE.
No, that's the one they have been predicting - they just got a lot more specific.

Late last year they were saying recession in 2012, seemed to expect first half but didn't pin it down.
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Old 05-27-2012, 07:05 AM   #33
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No, that's the one they have been predicting - they just got a lot more specific.

Late last year they were saying recession in 2012, seemed to expect first half but didn't pin it down.
Could be - not doubting you, but I recall a 'right now' sense of immediacy when Hussman mistakenly released their first warning. IMHO they are still the best free forecasters around (along with MPaquette) but they too are struggling to reconcile their models with a global easy money policy.
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Old 05-27-2012, 03:03 PM   #34
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But does it have traces of peanuts?

+1
Would that be a follow-up recession to the one they predicted last October? I think their methodology doesn't deal well with the QE.
These peanuts were processed in a facility which also processes peanuts (Southwest Air peanut bag)

I'll add that to the list...


The usual recession forecasting methods look for an inverted yield curve between short term (3 month) and long term (10 year) high quality bonds like Treasuries. And yes, QE and the more recent short/long swap really messes with this.

http://www.newyorkfed.org/research/c...ets/ycfaq.html
http://www.clevelandfed.org/research/data/yield_curve/ (Caution: assumes nothing else bad happens...)
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Old 05-27-2012, 03:13 PM   #35
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Originally Posted by EvrClrx311 View Post
Posted this research to another board I frequent and thought some here might get some use out of it since stocks/equities are a part of everyone's investments on some level (at least I would hope)...


So I found the following link which displays the yearly dividend adjusted S&P500 returns for the last 140 years.:
CAGR of the Stock Market: Annualized Returns of the S&P 500

The link at the bottom shows where the data came from: http://www.econ.yale.edu/~shiller/data.htm

...
Conclusions:
There are a lot of reasons to think that the next 10 years are going to be gloomy... with all that is going on in this country right now. However, historically speaking... the next 10 years 'should' average a 9-13% CAGR above inflation (12-17% actual return) if history really repeats itself... History also shows that the longer this near 0% market return continues (currently we're at about 12 years) the larger the pop on the other side will be. I'm guessing the late teens and early 20's are going to have some very bullish years similar to what we saw in the mid 90s.

I'll look closer at the 5, 7, 15, 20 periods that look similar to the one we're currently in and see if they tell the same kind of story.

-Eric
Shiller uses Price / trailing earnings as a statistic regarding the current pricing (and hence likely movements) of the market. You might look at it, too.

Note, also, that Shiller's special interest is "irrational" factors. That's another way of looking at the market.
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Old 05-27-2012, 07:30 PM   #36
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Could be - not doubting you, but I recall a 'right now' sense of immediacy when Hussman mistakenly released their first warning. IMHO they are still the best free forecasters around (along with MPaquette) but they too are struggling to reconcile their models with a global easy money policy.
I never got a sense of immediacy - I thought at first they had been pretty vague until know - first hinted possible Q4, then moved it out to Q1, then at the end of last year said we wouldn't know whether they had been wrong or not until the end of 2012. [That is, usually you can't be sure a recession occurred until some time after the fact.]
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Old 06-03-2012, 10:10 PM   #37
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It would appear that the upside of stocks is limited. For the last 12 years the best strategy has been selling high and then buying low, which goes against the grain -- usually that strategy has not paid off.
For all of the people who are flocking to high yield stocks like ED, PM, MCD and WMT, keep in mind that these stocks got clocked back in 2008. A better strategy might be to pull globs of cash to the sidelines (40%? 50%?) and wait for the next correction. Hedging with 5 - 20% in gold might be a good thing to consider too.
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Old 06-04-2012, 07:22 AM   #38
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Old 06-04-2012, 01:50 PM   #39
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For the last 12 years the best strategy has been selling high and then buying low
...
Hedging with 5 - 20% in gold might be a good thing to consider too.
This appears to be a contradiction with Gold prices 3-4 times above their historical inflation adjusted norm. If I owned any gold right now, I'd sell it and wait for a drop back down to reasonable levels.

That spike on the right of the graph certainly has leveled off... my guess is it'll head back down to the $300-700 range in the not so distant future (3-5 years)

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Old 06-04-2012, 02:41 PM   #40
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Rebalance! Stay the course! And by all means party on! Either the cheap stuff or top shelf but party.

Remember this - you can't take it with you.

heh heh heh - I didn't predict the Saints would win the Superbowl in 2010 either but I still watched. Mad money is buying a few shares (my few good stocks) of Vanguard Total World Stock Index ETF as in slowly heads down toward bottom(when??). It's a hormone thing.
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