RAE
Thinks s/he gets paid by the post
Running_Man, thanks for your thoughts, they are always interesting and appreciated (by me, anyway). I share many of your concerns.
....
If you look at the Princess Diaries clip they are actually looking down and saying "inconceivable" which is the point of the clip, not actually that I am claiming this is the end....
The hard part is going to be buying back stocks with the proceeds, considering I think ultimately this is likely to go to 1200 on the S&P during the coming year.
I never correct typos but I absolutely must here, in memory of William Goldman: The Princess BRIDE, not Diaries.
Carry on.
Yeah sorry, but there is no protection against 1200 S&P
Do you realize how many pension funds would go bust at that level? I mean if you are going to say 1200 on the S&P you might as well say zero and national default.
(which actually makes holding precious metals realistic, but I don't think we are going there)
At the current 2,350, it's based on P/E of about $130 and 18 P/E ratio. So either the P/E or the ratio is going have to take a pretty big haircut. If PE takes haircut that means earnings is about $70. That's a 46% drop, similar to drop for 2001, and short of what 2008.Yeah sorry, but there is no protection against 1200 S&P
Do you realize how many pension funds would go bust at that level? I mean if you are going to say 1200 on the S&P you might as well say zero and national default.
(which actually makes holding precious metals realistic, but I don't think we are going there)
Year | S&P | PE | P/E Ratio |
2018 | $2,351 | $130 | 18.1 |
2017 | $2,790 | $112 | 24.8 |
2016 | $2,275 | $99 | 23.1 |
2015 | $1,919 | $92 | 20.8 |
2014 | $2,028 | $110 | 18.5 |
2013 | $1,822 | $108 | 16.8 |
2012 | $1,480 | $95 | 15.6 |
2011 | $1,301 | $97 | 13.4 |
2010 | $1,283 | $89 | 14.4 |
2009 | $1,124 | $59 | 18.9 |
2008 | $866 | $18 | 48.5 |
2007 | $1,379 | $79 | 17.4 |
2006 | $1,424 | $102 | 14.0 |
2005 | $1,279 | $89 | 14.3 |
2004 | $1,181 | $78 | 15.2 |
2003 | $1,133 | $67 | 17.0 |
2002 | $896 | $38 | 23.3 |
2001 | $1,140 | $35 | 32.4 |
2000 | $1,336 | $72 | 18.4 |
1999 | $1,426 | $72 | 19.8 |
1998 | $1,249 | $58 | 21.5 |
1997 | $963 | $62 | 15.5 |
1996 | $766 | $62 | 12.4 |
1995 | $614 | $56 | 11.0 |
1994 | $465 | $52 | 9.0 |
1993 | $473 | $38 | 12.5 |
1992 | $435 | $34 | 12.8 |
1991 | $416 | $29 | 14.3 |
1990 | $325 | $40 | 8.1 |
1989 | $340 | $46 | 7.4 |
1988 | $285 | $50 | 5.7 |
At the current 2,350, it's based on P/E of about $130 and 18 P/E ratio. So either the P/E or the ratio is going have to take a pretty big haircut. If PE takes haircut that means earnings is about $70. That's a 46% drop, similar to drop for 2001, and short of what 2008.
Or maybe PE sets at average of $95 and then PE Ratio would need to be 12.6. Based on historical records neither of these is impossible, but seems to be a stretch, but few if any thought that 2350 was possible for 2018.
Stockman has been warning about this all year:
https://moneyandmarkets.com/stockman-recession-market-correction-trump/
“No one has outlawed recessions. We’re within a year or two of one. When it happens, the earnings, $124, $130 a share, will drop to $75 or $80. Put whatever multiple you want on it; that says the fair value of the S&P going into the next recession is well below 2,000 to 1,500 — way below where we are today. Now if you think the economic gods have outlawed recession, that this business cycle will last forever and we’re in some kind of Nirvana, go ahead with the valuation you have today. Otherwise it makes no sense."
This is not true, and if it were true the underlying message you would be conveying is that the stock market price upholds the economy and not the other way around, or more directly that US government need stocks in order to be functioning. 1200 on the S&P 500 is only taking into consideration a moderate recession and a reversion to the global PE and dividend ratios. To state the US needs a higher stock market price in order to function is a pretty poor reason to hold stocks. It is the recent market action that makes the view I held from the start as a possibility as more likely. Historically bad stock market moves usually result in the economy reflecting why the market declined, not the other way around. There is no reason for the US market to be trading at a premium other than US far superior enforcement of investment financials.
This is different for pension funds at 70% stocks and withdrawing 4-6 percent per year they are in trouble as is anyone holding a pension for it to continue uncut.
This is not true, and if it were true the underlying message you would be conveying is that the stock market price upholds the economy and not the other way around, or more directly that US government need stocks in order to be functioning. 1200 on the S&P 500 is only taking into consideration a moderate recession and a reversion to the global PE and dividend ratios. To state the US needs a higher stock market price in order to function is a pretty poor reason to hold stocks. It is the recent market action that makes the view I held from the start as a possibility as more likely. Historically bad stock market moves usually result in the economy reflecting why the market declined, not the other way around. There is no reason for the US market to be trading at a premium other than US far superior enforcement of investment financials.
This is different for pension funds at 70% stocks and withdrawing 4-6 percent per year they are in trouble as is anyone holding a pension for it to continue uncut.
It is true that Stockman is pretty much a Permabear, along with many others who have been predicting a bear market for much of this decade.
I'm hardly a Permabear, but stopped being bullish in 2016 when didn't have a correction. I turned bearish this year. Knowing that the market always over corrects 2000ish back to our 2015 levels plus an additional 10% so call it 1800-1900, seems well within the range of likely events.
We bounced pretty hard of the bottom in 2009, so I wouldn't be surprised to see a repeat in 2019.
Just a little confused as there was a correction in early 2016. And in late 2015.
RM, I am not arguing with any of your points, but that last sentence I can't make heads or tails of. Can you elaborate some more.
The one factor that I am taking into account is the likelihood that the Federal Reserve has a very close eye on this as well and as such is very likely to strongly defend the S&P500. So inflation becomes a very possible solution to the potential bear market.It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
You are correct, it looked like the S&P was down about 16%. I meant a correction of greater than 20% which is technically a bear market.
Why the quotes from the Tale of Two Cities* by Charles Dickens?
*The late 1700s French Revolution and Reign of Terror.
With the VIX increase this morning I sold another 30% of my put position this morning leaving me at 40% of my original position, though far higher value than that in dollars. After tax assumption I have nearly 6 times the total original investment, covers me around 2200 on the S&P 500. I have not purchased any stocks yet to get me back to 25% equities.
Issue is the last time the market fell 1.5% or more on six successive trading days was 1931 and it followed that up with a 12% rise in one day!. I would still expect quite a bit of tax selling at this point to harvest some losses, and 2100-2200 could still easily be hit in the next days but seems prudent to shave back at this point.