Stocks: The Next Decade

[M Paquette]

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/d754f94c-a4ba-11e1-9908-00144feabdc0.html#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.

 

[EvrClrx311]

to quote one of my favorite books:

"A combination of history and human nature conspires to make us seriously misjudge the future"

 

[Chuckanut]

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.

 

[M Paquette]

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.

 

[audreyh1]

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

 

[MichaelB]

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?

Did you author that? Brilliant!

+1

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.

 

[audreyh1]

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.

 

[MichaelB]

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.

 

[M Paquette]

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/capital_markets/ycfaq.html
http://www.clevelandfed.org/research/data/yield_curve/ (Caution: assumes nothing else bad happens...)

 

[Independent]

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.

 

[audreyh1]

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.]

 

[ReadySkiDaddy]

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.

 

[pb4uski]

....Warning: not for human consumption. .....

+1

 

[EvrClrx311]

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)

 

[unclemick]

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.

 

[brewer12345]

Don't forget to include an allocation to Venezuelan beaver-cheese futures.

 

[clifp]

Don't forget to include an allocation to Venezuelan beaver-cheese futures.

Geez Brewer I thought there was just one global market for Beaver Cheese. I am long the July 410 contract and short the Oct 450, per your last recommendation. I didn't there know was a separate Venezuelan market. Is there different types of Beaver Cheese? or the same cheese, but a different exchange because of crazy Hugo Chavez?

 

[brewer12345]

Geez Brewer I thought there was just one global market for Beaver Cheese. I am long the July 410 contract and short the Oct 450, per your last recommendation. I didn't there know was a separate Venezuelan market. Is there different types of Beaver Cheese? or the same cheese, but a different exchange because of crazy Hugo Chavez?

I would tell you, but then I would have to kill you.

 

[ReadySkiDaddy]

It would be relevant to show how gold moves relative to our national debt, as well as perhaps relative to inflation.