Happy days are here again.....?

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kahibe's picture
kahibe
Status: Member (Offline)
Joined: Nov 29 2008
Posts: 22
Happy days are here again.....?

 

...

http://www.hussmanfunds.com/wmc/wmc081201.htm

...

After over a decade of strenuous overvaluation, stocks are now
undervalued. Not ridiculously cheap, but undervalued and likely to
deliver satisfactory
long-term returns to even passive
investors.
It's certainly possible that stock prices could fall further
by the time that the current market downturn is over
, but to some
extent, the profound depth of the recent selloff has given value
investors something of a “freebie.” Investors have already priced in a
worst-case scenario – treating a near-Depression with unemployment
north of 10% as a certainty. Yet even in the Great Depression, the
market didn't reach the current price/peak-earnings multiple until late
1931, when unemployment was already pushing past 15%. In 1974 and 1982,
valuations were lower, but largely because interest rates (commercial
paper in 1974 and long-term Treasury yields in 1982) surged to 12-15%.
Yes, the economy and earnings will probably continue to weaken, but
value investors can observe the evolution of the economy here with
reasonable comfort that the market has already discounted a good amount
of bad news already.

...

The bottom line is simple. Stocks are a claim on a long-term stream of
future cash flows. Even if one allows for a terrible and surprisingly
deep continuation of the current recession, stocks appear reasonably
priced or undervalued based on a careful analysis of long-term cash
flow prospects.

...


http://dshort.com/charts/bear-markets.html?four-bears

 

Not as deep as the BIG ONE for sure, but comparable to the others except for the rate of descent?

...

 

So as a previously passive value investor...should I go back to sleep and wait for the next curtain call?

Have we already seen a 10 yr sideways market?

 

http://www.nonags.org/members/nijqk/90s-00s.jpg

 

kahibe's picture
kahibe
Status: Member (Offline)
Joined: Nov 29 2008
Posts: 22
Re: Happy days are here again.....?

 

I think we have a rally underway that should last thru the end of the year.  The "market" probably expects that the end of the recession is about the middle of next year?  Many expect this to be a bear market rally though...only time will tell.

 

If you look at the Hussman valuation charts and what
happened back in 1929 and in the '70s...you see that the market spent
considerable time BENEATH the valuation line (blue)....before it became
overvalued again?

http://clusterstock.alleyinsider.com/2008/11/after-all-that-stock-market-finally-at-fair-value

"As you can see, "fair value" (the green line) is fair value because
the S&P 500 has historically spent about half the time below that
level--often after spending many years above it. Given the cyclicality
of this ratio, if we had to guess, we'd say the S&P 500 is in for a
decade or two of below-average values, which argues against the idea that we're suddenly going to have a strong, sustainable valuation recovery.

More likely, the bear market that began in 2000 (after an 18 year
bull market) will likely continue for another decade or so, during
which stocks will occasionally become truly cheap--as they almost did a
week ago, when the S&P 500 hit 750.

The good news, however, is that, after 15 years of being overvalued, the S&P 500 is finally priced to deliver an average long-term
return: about 9%-10% in nominal terms and 6% after adjusting for
inflation
. That's nothing to scream and yell about, but it's likely to
be a lot better than cash."

 

What
will tend to keep valuations down?   Peak oil and other scarcer
resources?  Global warming and environmental stresses?  Food and water
shortages?  Overpopulation?  The economic mess?

 

kahibe's picture
kahibe
Status: Member (Offline)
Joined: Nov 29 2008
Posts: 22
Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Re: Happy days are here again.....? NO!

Yes, the economy and earnings will probably continue to weaken, but
value investors can observe the evolution of the economy here with
reasonable comfort that the market has already discounted a good amount
of bad news already.

I wouldn't rule out a bear rally. But this country has an enormous debt and derivative overhang that has yet to work their way through the economy. Government in the 30s was relatively small compared to today's government and was less of a financial burden on the economy. Besides that, Obama shows every inclination to copy Roosevelt's mistakes. Only this time, his results will be worse. In the 30s, this country had a strong manufacturing base that would weather government stupidity. Today, much of it has gone offshore. With savings and capital depleted, a recovery is no where in sight because there is nothing to finance a recovery. It's all going towards servicing taxes and debt.

The bottom line is simple. Stocks are a claim on a long-term stream of
future cash flows. Even if one allows for a terrible and surprisingly
deep continuation of the current recession, stocks appear reasonably
priced or undervalued based on a careful analysis of long-term cash
flow prospects.

From a purely technical point of view, valuations look like bargain.  However, it would be an expensive mistake to invest on technicals when the fundamentals are worse than anything ever seen in the history of this country. I see a strong support line in the Dow at 8,000. That's the last Maginot LIne. When that breaks, there will be some severe damage to insurance companies and pensions funds, among many others. If I were to invest in stocks, I would limit myself to precious metals. They have a bright future.

The herd grazes restlessly as the storm approaches....

That would be a herd of lemmings.

kahibe's picture
kahibe
Status: Member (Offline)
Joined: Nov 29 2008
Posts: 22
Re: Happy days are here again.....? NO!
hewittr wrote:

The herd grazes restlessly as the storm approaches....

That would be a herd of lemmings.

 

That's all we have...and lots of them.

I have a pretty reliable S&P timing system that went on a buy around the 28th...worked again...for awhile. 

Bear market rally?

People who claim that things are as bad as the great depression are wrong...only about a 10th as bad...so far.

Gold and gold stocks might do well...but I'd use a timing system for sure. 

Real gold in the hand is worth a lot more than on paper if the crap really hits the fan....but if that happens you'll need to be able to keep it and barter it....and you can't eat or wear it.

A lot of emphaisis on the negative is not that meaningful if you don't prepare in substantial ways.

As someone has said.....be optimistic...but be prepared?

 

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