Buy, buy, buy! Dr. Doom said so.

[NW-Bound]

I saw a couple of interesting videos on Bloomberg. Roubini said that the world economy is recovering, and it is safe to buy equities. That includes US equities, international, and emerging markets too, although he thought one should underweight EM because developed markets like Europe and Japan look better.

And he said to watch out for bonds!

So, do you do the reverse?

Roubini: How I'd Invest $1,000 Right Now: Video - Bloomberg

And this is a follow-up video by a commentator.

Why Is Nouriel Roubini Becoming More Optimistic?: Video - Bloomberg

PS. About a few days ago, I thought I heard Angela Merkel said that Europe was stabilizing but EMs looked fragile. This of course worried me a little, as I have a bit of EMs that have been beaten down bad. Thought that if one does not buy low, then when would one buy, but of course it can go lower.

 

[Meadbh]

Here is a Canadian perspective from Ryan Lewenza of TD on October 18th (I hope you can see the video if you are outside Canada). In any case, this weekly series is usually quite perceptive, and the tone has become more optimistic about the global economy over the past few weeks. Let's hope they are right!

Webcasts and Videos | Investor Education | TD Direct Investing

 

[donheff]

Well, I guess this should convince me to stand pat on my AA rather than conclude that it is time to slowly get a little more conservative with equities at all time highs.

 

[ziggy29]

Well, I guess this should convince me to stand pat on my AA rather than conclude that it is time to slowly get a little more conservative with equities at all time highs.

Equities are not really even close to "all time highs" if you look at P/E ratios and factor in inflation. The Dow and S&P 500 are barely higher than it was at its 2000 high and the Nasdaq is still 25% below its 2000 high. When you consider current earnings and inflation, the 2000 market was much more overvalued than the market today. Also, the 2000 bubble occurred at a time when you could get 4-5% in a safe savings account or short-term CD -- compared to 1% (at best) today, which is a guaranteed loser after inflation and taxes.

I'm not suggesting stocks are a bargain now, but they're not nearly priced as high as they were 14 years ago.

 

[Independent]

I have to ask:
Back in 2009, when Shiller's P/E10 was under 15, did Roubini think it was a good time to buy stocks?
Or, did he just determine that stocks might be a good buy now that the P/E10 is up to 23?

 

[aja8888]

Shiller P/E index tracking:

 

[CCdaCE]

Or, it's time to sell. Even Assistant Dr. Doom, Paul Farrel of Marketwatch is tooting this horn with 6 reasons that say the stock market is going to roar into/through 2014.

2014

-CC

 

[karluk]

I have to ask:
Back in 2009, when Shiller's P/E10 was under 15, did Roubini think it was a good time to buy stocks?
Or, did he just determine that stocks might be a good buy now that the P/E10 is up to 23?

That is a fair critism of Roubini, and was my first thought when reading this thread. I was ready to dismiss Roubini as a failed market timer who may have gotten out of the market at the right time, but failed to get back in until stocks were already at new highs.

But a quick internet search indicates that Roubini deserves a more nuanced evaluation. It's true that he was dead wrong in missing the 2009 bottom. But his return to optimism is not all that recent. I found the following article that has him turning bullish in early 2012.

The perennially negative Nouriel Roubini – nicknamed Dr Doom for his usually critical views – is turning bullish. You read that right, Roubini is betting on additional stock market gains.

“We’re a believer; we’re celebrating. We think the rally has legs,” explains Gina Sanchez, Roubini’s director of equity and allocation strategy.


She tells us that Roubini’s firm currently recommends being overweight equities, playing cyclical areas of the market such as technology. “Also we’d take some tilts into staples and telecom to collect yield. And we’d also be overweight ag and livestock. Generally we’d take advantage of the risk rally.”

EconomicPolicyJournal.com: HOT: Roubini Turns Bullish on U.S. Stock Market

 

[REWahoo]

Or, it's time to sell. Even Assistant Dr. Doom, Paul Farrel of Marketwatch is tooting this horn with 6 reasons that say the stock market is going to roar into/through 2014.

2014

-CC

Not sure what's behind Farrel's 180 turn - a stroke maybe?

 

[aja8888]

I sure hope they are right, I am 70% equities right now (with daily looks and stops). The rest ain't worth talking about.

 

[ERhoosier]

IMHO- That Schiller PE10 chart looks like US market is in the upper range of historical valuation, especially so discounting the 2000 dot-com bubble and considering the ongoing stimulus (QE) in US and Europe.
Not saying we're approaching a bubble nor that the market cannot go higher, just that US equities do not look cheap to me right now.

 

[NW-Bound]

The chart posted in an earlier post is P/E10, which is the average of the last 10 years. It is currently at 24.53 as shown in that plot.

The present or current condition P/E is lower at 19.19. It can be seen at S&P 500 PE Ratio.

The value of 19.19 is still in the high end of the historical range. However, there are never any absolute values of any asset. Anything of value is always priced with respect to other things, like real estate, land, water, oil, etc...

Currently the interest rate is depressed by the Fed, and compared to that, the inverse of P/E, or E/P, is 5.2%, which looks pretty darn good. Of course the question is whether that E/P is going to stay, and I guess Roubini is saying that he does not see any chance of a calamity to upset that.



PS. The forward P/E of the S&P is currently expected at 16.21. See http://online.wsj.com/mdc/public/page/2_3021-peyield.html. Of course a political upheaval, or an unexpected event like a bombing campaign of Syria might change all that.

 

[gerntz]

Sounds like a bunch of market timers to me.

 

[NW-Bound]

Many people cannot help making prognostication about the future movement of the stock market. Others are afraid to make a judgement call.

It is not any different than people who are speculating about the outcome of some ball games, or which political party will get what seat in the government. Yet, in the first case, it's just entertainment. In the 2nd case, it's not a whole lot an individual vote can affect the outcome.

Investing is a serious matter, and also under an individual's control. Of course the hard part is knowing what to do, but an individual can be a contrarian and does not have to go with the flow (this is different than politics). This has often been the right move.

 

[aja8888]

Remember, the markets are efficient.....unless, of course, you have a super computer and a tie in to a trading desk.

 

[NW-Bound]

I am not a day trader. I am trying to discern longer-term trends, to spot bubbles to avoid them, or to pick up what I perceive as good values.

I often bragged here about helping my daughter buy her 1st home at 38% of what the previous owner paid during the housing bubble. Zillow now says that it is at 90% of that peak value, or a value of 236% of what we paid. I spotted that the house was on sale during one of our morning walks. People were throwing houses away, and we picked one up.

Was the housing market efficient? I did not care to ask. Darn! I wanted to do some more for myself (with cash), but my wife was scared.

 

[NW-Bound]

Let me tell y'all a bit more about the above RE that was a big success, for my daughter that is.

For our weekend walks, we usually went a bit further than our daily walk, and the hike would take us through part of a mountain preserve, then to this subdivision. These were smaller homes, but upscale and not cheap. I saw some homes for sale earlier, but my daughter was just starting out with her new job after college, and might not be ready for home ownership.

That Saturday morning in our weekly walk, I stopped and looked at some sales brochures at the front of a house, just out of curiosity. Hey, it looked like the price was higher than I typically saw 6 months earlier, perhaps by 5%. This was not good.

So, when I got home, I looked up Zillow and did a quick search. Surely enough, there had been some activities, and home prices were inching up. Time to make our move.

I called my daughter, told her about what I found. I also called up a local realtor who had been active in our area for 25+ years. She was very fast and efficient, and lined up 4 or 5 houses in that area for us to view that very afternoon.

We immediately found one that looked the best, with the previous owner already done some remodeling. It was not even the highest price. It was a short sale, with the house empty, and the previous owner not taking away any of the new appliances, or destroying the place. It looked too good to be true, with the bank asking for only 36% of the previous sale price 3 years earlier.

So, we made an offer on Sunday, and at our agent's advice, gave a price of 6% above asking to avoid any bidding war. Yep, we got it. My daughter was of course so happy, particularly as we gave her the 20% down payment. And the house PITI+HOA payment was only about the same as her apartment rent, and she had her own place and it was much nicer.

I remember now the reason I did not really pursue buying a couple as investment for myself. We already owned two homes, and though these investment smaller homes were not of the same values, we wondeded if that would be too much RE, plus for a DIY guy, it would mean more work for me. My wife reminded me that the HOA fees and taxes and insurance would cut into our profits, if we were to hold them for a while. And then, I thought that if I would make 30-50% gain in a year or longer, that would still require more work, while investing in stocks is so passive.

As it turned out, the homes were all snatched up within 6 months. Darn! The prices were so depressed, I could write a check for 3 or 4 of them without flinching, and still have plenty of cash left for living without selling stocks. Oh well, you can't be too greedy, but when things look right, you've got to be decisive.