Is this rally for real?

[FUEGO]

I do realize that I have used a naughty word here, "overvaluation". I hope people will not be offended by this lapse from my otherwise perfectly PC record.

Always the diplomat!

 

[FIREd]

Hum, I am currently 47% stocks/ 53% bonds and cash and have been shoring up my cash position for months. I am waiting for some bargains.

 

[W2R]

I do realize that I have used a naughty word here, "overvaluation". I hope people will not be offended by this lapse from my otherwise perfectly PC record.

Oh Ha, you always use the word "overvaluation" and we still like and appreciate you even so. It's almost part of your identity here, by now. Besides, you could be right and I, for one, don't want to eat crow if that happens.

 

[ziggy29]

Hum, I am currently 47% stocks/ 53% bonds and cash and have been shoring up my cash position for months. I am waiting for some bargains.

My 401K is on autopilot to buy into a 60/40 mix. My Roth contributions and my taxable brokerage account, on the other hand, are not, and I too have been accumulating cash with each new contribution for the last 4-5 months because I'm feeling, if anything, the market might have been a little overoptimistic.

I've thought about investing the cash each time I put it in, but there's a nagging part of me thinking things will get cheaper fairly soon. If not, the vast majority of my portfolio rises and I'm happy. If it does, at least I have a little "dry powder" to use.

I'm not someone to dart in and out of being invested, but the last decade has taught me that valuations definitely matter, and the only reason I'm not a dirty market timer in the extreme is because "valuation" is an inexact science with a lot of moving parts that people much smarter than me haven't nailed down. But I am more conscious of it and am increasingly more willing to tweak my AA accordingly.

 

[FIREd]

... I too have been accumulating cash with each new contribution for the last 4-5 months because I'm feeling, if anything, the market might have been a little overoptimistic.

I've thought about investing the cash each time I put it in, but there's a nagging part of me thinking things will get cheaper fairly soon. If not, the vast majority of my portfolio rises and I'm happy. If it does, at least I have a little "dry powder" to use.

I'm not someone to dart in and out of being invested, but the last decade has taught me that valuations definitely matter, and the only reason I'm not a dirty market timer in the extreme is because "valuation" is an inexact science with a lot of moving parts that people much smarter than me haven't nailed down. But I am more conscious of it and am increasingly more willing to tweak my AA accordingly.

I basically feel the same way you do.

 

[unclemick]

Pssst - Wellesley. I say again can you hear me?

The Norwegian translation - keep your portfolio yield up to 3%(or whatever your 'hard times' defense is in $) and watch the back door.

Stay balanced - agile, mobile and hostile.

Geaux Saints

heh heh heh - lest we forget Feb 7th is coming. Which reminds me - need to dress up my dividend stock defense - very carefully.

 

[easysurfer]

Dow ended down 3.5% in Jan '10.

 

[TheSweetLife]

0 for 3 and still swinging for the basement.

I do admire your persistence...

Persistence is what got me to where I'm at today So glad I don't take myself, or others, too seriously. It's all good.

 

[Gone4Good]

He feels that retirees need to be much quicker to pull the sell trigger when the market reaches even lesser levels of overvaluation.

I don't think anyone would disagree with this, in theory. In practice, though, it has proven to be nigh impossible.

If you can tell me what the magic metric of overvaluation is that will allow me to sell my equities at the right time so that I enhance my risk adjusted returns then I'm with you 100%.

 

[haha]

I don't think anyone would disagree with this, in theory. In practice, though, it has proven to be nigh impossible.

If you can tell me what the magic metric of overvaluation is that will allow me to sell my equities at the right time so that I enhance my risk adjusted returns then I'm with you 100%.

You have changed the question. The question Smithers addresses is whether a person living off his portfolio can afford to "maximize his risk adjusted returns." There is no magic metric, if there were it would cease working 2 weeks after being discovered. But if you believe that US stock markets are mean reverting around a long term value of Q ratio, or of PE10, then there are identifiable risky areas and less risky areas.

Few would dispute that over a very long time, stock markets deliver higher returns than high quality credit assets or cash. The goal is to use equity markets when they are a priori less risky, and to sell when they are overvalued. Smithers only says that a retired person, or a person near retirement should sell at a lower level of overvaluation than someone with 20+ years before he will need to take out funds. Clearly, the person who attempts to use this idea must believe that there is an objective criterion of value. This thinking is similar to card counting at Blackjack. You bet bigger when the deck is rich, and lay back when it is poor.

His books are a good introduction to this way of thinking, They are both very thought provoking. I don't want to debate this idea, he does it far better thanI could.

Ha

 

[Steve O]

Here's a little look at what I think is really going on

Ellen Brown: JPMorgan vs. Goldman Sachs: Why the Market Was Down for 7 Days in a Row

 

[ziggy29]

Here's a little look at what I think is really going on

Ellen Brown: JPMorgan vs. Goldman Sachs: Why the Market Was Down for 7 Days in a Row

Unreadable, IMO. She needs to learn how to use paragraphs.

 

[Gone4Good]

Here's a little look at what I think is really going on

Ellen Brown: JPMorgan vs. Goldman Sachs: Why the Market Was Down for 7 Days in a Row

A split has occurred between the paper forces of Goldman Sachs and JP Morgan Chase. Mr. Volcker represents Morgan interests. Both sides are Illuminists . . .

So the markets are down because there is a rift among the Illuminati?

Oh boy.

 

[Gone4Good]

But if you believe that US stock markets are mean reverting around a long term value of Q ratio, or of PE10, then there are identifiable risky areas and less risky areas.

I agree. However the "long run" is very long indeed. By those measures the market has been at least 33% overvalued since 1992.

Just for kicks, here are the statistics regarding the ending balance (as of Dec 2009) of a $1MM portfolio on a 4% withdrawal rate for a retirement starting in each of those years (1992-2009).

Stock/Bond . . . .. 75/25% .. . . . .. 50/50% .. . . . . 25/75%
Mean . . . . . .. . 1,086,917 . . . . .. .1,037,101 . . . . .964,243
Median . . . . . . . . 854,526 . . . . . .. . 888,757 .. . . .909,818
Min . . . . . . .. . . . . 532,342 . . . .. . . .657,455 . . . . .774,381
Max . . . . . . .. .. 1,899,128 . . . . . . 1,561,032 . . . 1,215,082

Seems pretty balanced, notwithstanding that 10 of those years had valuations (26+ PE-10) at least 33% above current levels.

 

[haha]

You pays your money, and you take your choice.

Ha

 

[NW-Bound]

The return numbers all look good. They include the good years from 1992 to 2000, however. Will we get something like that again? It is anyone's guess.

 

[ziggy29]

The return numbers all look good. They include the good years from 1992 to 2000, however. Will we get something like that again? It is anyone's guess.

Of course, they also include the (collectively) unusually bad years of 2000-2008.

 

[Gone4Good]

The return numbers all look good. They include the good years from 1992 to 2000, however. Will we get something like that again? It is anyone's guess.

Yeah, but anything that includes 1992-2000 also includes 2000-2009. Meanwhile you also have numbers for periods from 2000-2009 and 2007-2009.

To replicate the 2000-2009 decline from a valuation perspective we'll need to see the PE-10 drop to 8.6x.

 

[Gone4Good]

Of course, they also include the (collectively) unusually bad years of 2000-2008.

Yeah, what he said.

 

[NW-Bound]

Yes, but I looked at the period of 2000 to 2009 as a "break even" period. Good periods interspersed with break-even ones I can take.

 

[NW-Bound]

Yes, it depends on where one starts his or her retirement.

"Some guys have all the luck
Some guys have all the pain
Some guys get all the breaks" - Rod Stewart​

YouTube - Rod Stewart - Live (HQ) Some Guys have all the Luck

 

[Gone4Good]

In case anyone is keeping score . . .

Q4 GDP 5.7% - better than expected
Q4 GDP inventory contribution - smaller than expected
S&P Q4 Earnings - 77% beating expectations (so far)
S&P Q4 Revenues - 68% beating expectations (so far)
January ISM Manufacturing Report 58.4% - better than the highest estimate and best reading since 2004

 

[ziggy29]

Yeah, it's hard to misinterpret the numbers of the second half of 2009 -- technically, the recovery is well underway.

But if the jobs don't follow -- and I mean private sector job, not temporary stimulus make-work jobs -- it won't last long.

And watch state and municipal budgets in the year to come. Many of them are teetering on the brink and if the recovery doesn't take hold in the form of increased tax revenues, more shoes will drop.

 

[NW-Bound]

In case anyone is keeping score . . .

Q4 GDP 5.7% - better than expected
Q4 GDP inventory contribution - smaller than expected
S&P Q4 Earnings - 77% beating expectations (so far)
S&P Q4 Revenues - 68% beating expectations (so far)
January ISM Manufacturing Report 58.4% - better than the highest estimate and best reading since 2004

Yeah, tell me about it, someone who has 71% in equities. I am taking a bit more risk than other people, willing to bet that the global economy, not just the US, is recovering. But the market has been down (correcting?) the last couple of weeks, and that bothered me. What if I am wrong? What if the "all-knowing" and "efficient" market knows something I don't?

Still not selling anything. Have not for quite a while, and in fact I have been adding to my position in an electronic passive component maker (well-known to EEs), which has been beaten down really bad in 2008-2009.

 

[CCdaCE]

Dow ended down 3.5% in Jan '10.

So much for the January effect. Hehe.

-CC