There have been threads in the past that discuss our favorite sites but I was hoping we could share some of the less popular sites that we frequently visit. Everyone knows about Zerohedge, for example.
Every morning I read the commentary on bearnobull.com which I find to be extremely insightful and lacks the bias that plagues so many sites. The author Denis Oullet, who was an equity manager at a hedge fund, has something called the rule of 20 which I find to be extremely valuable and is probably worth a thread of its own.
I’m deeply skeptical of anyone who thinks the current market is not overvalued. It’s complete lunacy out there from a bottom up small cap perspective, lots of valuations today don’t make any sense at all looking out a few years.
If you go down the cap structure, everything is expense. High grade bonds are expensive. Low grade bonds are expensive. Preferred stocks are expensive (SHOW ME SOME YIELD, BABY). Equities (the residual) are expensive. Speculative equities (the residual of the residual) are VERY expensive and ridiculous. No asset class for US-based assets is cheap today. A P/E of 20x is the new 15x but the difference in the compounding math between the two is profound.
The R2K shows positive returns >2/3rds of the time on an annual basis. I think we are coming up for a negative year either this year or next (current -1% YTD with the last down year 2011 when everyone was crapping their pants daily about the PIGS). 2015 will probably be the fat pitch shorting opportunity of the decade (could be late this year too). When the tide goes out on the residual of the residual it’s going to go out hard and fast. It’s gonna be one helluva show.
I agree but I’m so sick of being “wrong,” that I don’t say much about it anymore.
Someone said once that the thing about bubbles is that you have to choose between looking stupid before it bursts or looking stupid after it bursts. Most people just like to look stupid afterwards, collect their bonuses, and then say “no one could have predicted that prices would fall so much, so don’t fire me, Mr. Smithers!”
I don’t see that we need to crash the way we did in 2008, and perhaps not even 2000. However one of the problems which the bromeister points out is that pretty much everything is expensive right now, so it’s not just that you can’t get to the exits in time, there’s almost nowhere to go (except cash) if you even get there…
I don’t expect a huge crash but a 10-15% wake up call is not out of the question. Cash isn’t a great place to be either because we’re probably going to have a decent clip of inflation at some point (I agree, there’s nowhere safe to go). So round and round we go with the musical chairs, when it stops, nobody knows.
This is why I do my consumer lending more heavily than investing in the markets currently. I was joking with someone recently saying isn’t it strange to feel less anxious about investing in unsecured consumer loans than investing in the market. Never thought I’d have that feeling ha ha. But the monthly amortizations and short terms provide a hedge to inflation and the returns are good in this environment. The risk is really another national recession, because even at regional recessions I’m pretty well diversified at this point.
Either earnings increases or the prices decrease. I still don’t see the former happening. I find it strange how the world as a whole is still pretty sluggish, but stocks are rallying.
I would encourage you to check out Denis’ logic behind the rule of 20, rather than whatever bloomberg says, since he’s the one who invented it. Also, his site is about much more than the rule of 20, and he has not recommended further allocation to equities since early spring, so just because the indicator that he invented says stocks are about fairly valued, doesn’t mean he’s telling you to buy, buy, buy.
I think the point is that a P/E of 20 is an earnings yield of 5%. A PE of 15 is closer to a 6.7% earnings yield. If we are saying these are justifiable, then it means that the earnings yields are suitable as an estimate of long-term returns. That 1.7% difference in yields means that things are going to be compounding slower (about 18% per decade) which means a lot more people are going to be underfunded for retirement, if this is the new normal.
My views are more along the lines of John Hussman, which says that either prices are fair, and long-term returns are likely to be extremely low, or they are overpriced, and there is going to be a deep correction in the near-to-mid future. But it seems crazy to invest now, expecting rocketing performance. The best one can hope for is non-losses.
The only real arguments in favor of staying invested at these prices is 1) that is that it has seemed relatively crazy to be long for a while and yet nothing bad has happened since 2011, 2) everyone’s afraid to be in safer assets because they don’t earn anything. But neither one seems like good logic as to why one should expect this to continue indefinitely.
There doesn’t seem to be anything to suggest that production or employment is going to make any striking and/or permanent leaps forward, and profit margins are at all time highs despite only modest job growth and stagnant or declining median pay.
In my personal life I see friends fraying at the edges. A surprising number of people who on the surface look like they are making it, but if you scratch just below, they’re precariously balanced and just one step away from disaster. I sometimes wonder if this is the tip of the iceberg. Most of the country is just faking it and not really succeeding while wealth keeps getting concentrated. In other places around the world too.
I just don’t see where stable sources of growth are coming from. To some extent - oil and gas. Also the wealthy buying luxury goods, but those are ultimately niche areas.
I see a ton of this as well. Student debt, no willingness to buy starter homes, annual vacations to someplace nice and warm, newish cars, boats, etc. Credit is cheap, but it isn’t unlimited, and incomes aren’t really growing at the pace of lifestyles.
bchad has some good comments. As he points out, I was referring to the earnings yield – a ~20% compounded difference in the yield is huge. We’re talking about the entire market here. So the distribution among individual stocks would be much wider than 20%.
The attractiveness of any earnings yield is always relative to interest rates and the bond market. Obviously the higher the earnings yield, the more “margin of safety” you have relative to the attractiveness of other types of yield out there. Right now credit yields and interest rates are very low. When interest rates go up (whenever that is) there will be compression in the P/E multiple. The compression may or may not be partially offset by earnings growth. I don’t spend any time forecasting this, but there are fundamental reasons why the historic range of the market multiple is lower than 20x (because usually interest rates are higher than today).
Anyway the market multiple is just a proxy and I don’t spend too much time thinking about it – I spend most of my time looking at stocks bottom up. It is harder now than at any point in the last 8 years that I have personally experienced to find inexpensive stocks. In contrast, it is the easiest time I have ever seen to find good shorts.
I would be all in on the market today but I would run it market neutral or slightly net short. I would be scared to death here to be long only and all in. A book of short garbage would likely get crushed 40-50% in a 20% down market if the book is well structured and should offset some of the inevitable losses on the long side. A lot my shorts are already down 30-50% this year in a flat market which is a good problem to have. The funds I personally know that are doing well this year (double digit % returns) are making most of their money on the short side.
Most businesses now and throughout history (and by extension, most incomes earned by employees at various businesses) are hand to mouth subsistence type of businesses. Of course there are big corporations that are killing it but I’m talking about looking at the millions of businesses in the US as a whole population. It’s basically hand to mouth. If you use leverage, you can potentially accelerate your earnings or have a larger discretionary capex budget but debt is real and has significant risks.
It’s always been like this throughout history, though more so in the modern era because we have much better access to credit than anyone has ever had before.
^ I haven’t looked at it in great detail but I’ve always struggled with Amazon’s absurd multiples. And it’s not just P/E, it’s everything. I understand the story and the growth potential and the massive upside on the topline but at any price? Hmm…