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John Mauldin Market Forecast
Old 01-23-2021, 07:12 PM   #1
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John Mauldin Market Forecast

Mauldin published his 2021 market forecast in todays Thoughts from the Frontline https://www.mauldineconomics.com/fro...e-stock-market

He uses a series of charts and graphs to display the market's currently high valuation--and not on just one valuation indicator. For example, Citi Research's Euphoric/Panic Index is at record levels well in excess of the 2000 tech bubble. I am not clear, however, how to properly incorporate the role of record low interest in the market ratios.

I found his comparative graphs of S&P 500 by decade from the 60's and his contrast to a dividend portfolio for the same period particularly interesting.

He is pretty much of the opinion that ETF Index investing has gone passé' and stock picking maybe better(?)

For retirees dependent on their portfolio, he strongly believes taking gains and moving to cash is desirable.

I know the phrase of Dirty Market Timer comes to mind but.....

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Old 01-23-2021, 07:56 PM   #2
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I always read his name as John Maudlin. I wonder why?
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Old 01-23-2021, 07:56 PM   #3
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Riverboat gamblers will love this article.
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Old 01-23-2021, 07:56 PM   #4
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Quote:
Originally Posted by nwsteve View Post
Mauldin published his 2021 market forecast in todays Thoughts from the Frontline https://www.mauldineconomics.com/frontlinethoughts/forecast-2021-the-stock-market......

...... For retirees dependent on their portfolio, he strongly believes taking gains and moving to cash is desirable.

I know the phrase of Dirty Market Timer comes to mind but.....

Comments?
Sounds entirely appropriate and applicable. I don't consider this kind of thing "market timing". It is as much doing with what the market is giving you as B&H is. "Timing" to me means having a "timing system" that one uses to "make money." You ply it all the time.

But.... if you can tolerate, in the case of a very sizable crash on a 50/50 AA port with no appreciable interest or dividends, say a 30% drop in portfolio value and wait 10 years or more to make it back, then one can stay with B&H. Especially since this will not apply to 30 yr retirement periods for most people. It will just cover between "Crash-point" and time of death. Only a few unlucky people will literally walk right into it on day #1
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Old 01-23-2021, 08:21 PM   #5
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I don't consider this kind of thing "market timing".
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Old 01-23-2021, 08:39 PM   #6
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I can't argue with anyone who wishes to reduce exposure to equities.

However, he really did not develop the case comparing our current market to 1999/2000. I do not find them very comparable.

Heavily quoting Jeremy Grantham does not make a compelling case. Jeremy Grantham noted that asset prices are inflated and a bubble forming due to all the cheap money. The date he said that was Jan 27, 2010 (see WSJ *Grantham Calls a Stock Bubble"). Relying on his views is just lazy in my view.
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Old 01-23-2021, 08:59 PM   #7
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Quote:
Originally Posted by nwsteve View Post

...

He uses a series of charts and graphs to display the market's currently high valuation--and not on just one valuation indicator. For example, Citi Research's Euphoric/Panic Index is at record levels well in excess of the 2000 tech bubble. I am not clear, however, how to properly incorporate the role of record low interest in the market ratios.

...

Comments?
One can cherry pick ratios and indexes to show pretty much anything. The Fed Model considers equity earnings yield vs 10-treasury yield, showing the market grossly overvalued in 1999, and undervalued today. Look at Figure 2.

https://www.yardeni.com/pub/valuationfed.pdf
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Old 01-24-2021, 08:20 AM   #8
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One can cherry pick ratios and indexes to show pretty much anything. The Fed Model considers equity earnings yield vs 10-treasury yield, showing the market grossly overvalued in 1999, and undervalued today. Look at Figure 2.

https://www.yardeni.com/pub/valuationfed.pdf
This is precisely why I don't like to read any forecasts (But I am guilty this time!). Everyone needs to understand their mindset and emotional makeup. As far as I am concerned, this is what I have learned about financial markets over the last 20 years: "Ignorance is a bliss". I would have made more money by doing nothing than what I did early on in my financial career. I have to keep reminding myself about this fact every time I read/hear someone talking about the forecast.
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Old 01-24-2021, 10:39 AM   #9
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Originally Posted by nwsteve View Post
Mauldin published his 2021 market forecast in todays Thoughts from the Frontline https://www.mauldineconomics.com/frontlinethoughts/forecast-2021-the-stock-market ...
What's his track record for his last ten annual marker forecasts? IOW is he any less worthless than all the others?
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Old 01-25-2021, 05:39 AM   #10
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Used to read Mauldin years ago, and came to the conclusion that the main value was in finding some interesting charts and observations that one might not run across otherwise... but the value was not in market forecasting or anything actionable. Good for reading, not good for investing.

This sense was based upon observing that, when some of his forecasts turned out to be incorrect, the newsletters then tried to spin the original comments to be consistent with what actually happened... and then subsequent forecasts were so vague (e.g. predicting a “muddle-through economy”) that they could be claimed to be correct under a variety of subsequent possible outcomes.

It has been so many years that I don’t recall more specifics that led to these impressions (can’t cite quotes), so there’s always the possibility that I’m wrong or unintentionally unfair in these comments... but I doubt it.

Also I recall that, at that point, his business model was to be a “manager of hedge fund managers.” In other words, at the risk of sounding overly cynical: If as an UHNW individual you were unsatisfied with forking over a mere 2 & 20 for a hedge fund, you had the option of layering an additional fee on top of that, to purchase the services of someone who would help you select which hedge fund to invest in. Knowing the business model, it made sense that the newsletters had to have legitimate and interesting financial data and content, to establish the expertise of the “selector of hedge funds,” but it also made sense that the newsletters were rather general in their predictions.

All that said, in fairness, impression was that Mauldin did have a genuine interest in the financial markets. Not pure sales / marketing. That’s why the newsletters made for interesting reading. But consider the source of the information, and its purpose and track record, in determining how to use it.
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Old 01-25-2021, 05:47 AM   #11
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Originally Posted by nwsteve View Post
I am not clear, however, how to properly incorporate the role of record low interest in the market ratios.
Low interest rates increase the relative value of corporate earnings and dividends, thus supporting equity prices.
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Old 01-25-2021, 05:55 AM   #12
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Originally Posted by razztazz View Post
But.... if you can tolerate, in the case of a very sizable crash on a 50/50 AA port with no appreciable interest or dividends, say a 30% drop in portfolio value and wait 10 years or more to make it back, then one can stay with B&H.
Maybe an overly grim prediction given 1987, 2000 and 2008-09? B&H worked through those and many more...
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Old 01-25-2021, 07:09 AM   #13
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Mr. Mauldin was among the Permabears I was in the habit of reading 10-15 years ago. While I've come to discount those views, I am troubled by the "rocket ship" valuations of a narrow slice of tech stocks driving the S&P 500, and lowered our market exposure to about 30% in the first pandemic bounce-back last spring.

Being in the gap between retiring and Social Security, a large chunk of our living expenses are coming from retirement accounts right now. A large hit to our accounts would take us well above sustainable withdrawal rates.

Unfortunately, the return to earth of stocks like Alphabet (Google), Amazon, and Apple will drop much of the rest of the market with them. Also, if we are hit by a more contagious COVID strain, most of the US is not going to take action to check its spread.
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Old 01-25-2021, 07:39 AM   #14
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Bears are fun to read but lousy at timing...

IIRC if you had sold when Greenspan made his "irrational exuberance" statement you'd have missed a huge run-up in equities before the market did actually decline.
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Old 01-26-2021, 02:00 PM   #15
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I was very worried about the valuations, but the emergence of all these perma-bears like Mr. Mauldin is giving me comfort that the market still has room to run.

As Col. Hogan said to Col. Klink when they were trying to disarm a bomb - "I didn't know which wire to cut, but knew you'd pick the wrong one".
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Old 01-27-2021, 08:46 PM   #16
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I was very worried about the valuations, but the emergence of all these perma-bears like Mr. Mauldin is giving me comfort that the market still has room to run.
The market can remain irrational longer than you can remain solvent.

https://quoteinvestigator.com/2011/0...emain-solvent/
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Old 01-27-2021, 09:35 PM   #17
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Low interest rates increase the relative value of corporate earnings and dividends, thus supporting equity prices.
Agreed. Although the low interest rates have affected stock multiples in some sectors more than others. I've owned AWK American Water Works since 2010.
That year, the PE ratio was well under 20, now it's almost 43. If you go back to the mid 80s, when interest rates were sky high, it was trading under 6 times earnings.

So right now, this utility stock is trading at a higher multiple than Microsoft, QUALCOMM, Intel, Apple, Johnson & Johnson, Eli Lily, Pfizer, Cisco Systems, etc.

My theory is that over the past 10+ years, older, and/or more conservative investors, who would just as soon put the money in CDs at the bank, are starved for yield, & have migrated to stocks like this, causing the multiple expansion.

I'm not crazy enough to make predictions for future interest rates, but my guess is that even if they got back to the historical average, stocks like this would be hit extremely hard.

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