True and that will abate as the January effect comes into play.
Forecasting for all of 2015. VIX in 2014 has a 2007-ish feel - http://tinyurl.com/nndrrlx. So 2015 should be like 2008, if history repeats itself perfectly.
I doubt we get 2008 but I wouldn’t be surprised to finish 2015 down. My prediction this year was +/- 5% on the R2K and we’re right on schedule for that. Historically the R2K has a down year every 3 years or so and we haven’t had one since 2011. I think we’re probably going to go roughly sideways until interest rates go up in 2016 or 2017. It’s what they call a “stock picker’s market” which is a fancy way of saying everything is overvalued.
What’s your view on the high yield market in 2015 Bro, particularly among small caps? If I can’t make money off the R2K, can I buy some small cap HY bonds and clip the coupons while sleeping at night?
LOL…could it be that i know something you don’t?
This is most likely be a long correction. More than a year if no major events break out. i.e.: major war.
Definitely not.
Not 2015 specific, but the SF Fed makes the long term bear case: http://www.valuewalk.com/2014/12/fed-model-pe-ratios/ Can a great rotation out of stocks and into bonds just be getting started?
I do equities for the most part but my guess is it’s richly valued along with the rest of the small cap market. It has been extremely easy in recent years for small companies of dubious merit to obtain financing of all kinds. If you were going to do small cap HY bonds you would want to focus on defensive sectors and companies that have been public a while, and likely avoid new issues. I think it would be negative for companies to go from no debt to meaningful debt in the last 24 months (why not sell equity at historically high prices?). If it’s a refi scenario that may be different.
I haven’t compared yields but you might be better off in a basket of super liquid S&P 500 or Russell 1000 dividend paying stocks even if the yield is lower. We are going to have a really nasty correction in small caps at some point with a lot of bankruptcies – unclear when that will be but it could easily be 16/17 depending on lots of events that are difficult to forecast. The current market is fantasyland in terms of valuations and some of the stuff that is allowed to fly today but it could remain like this for an extended time period. I’m running low net and won’t bet aggressively given the prevailing conditions.
Interesting paper but this feels like something that only an academic would write.
A few thoughts:
-
Washington state recently proposed a capital gains tax of 7% on all annual gains of $25K for individuals and $50K for couples. This was projected to impact 1% of residents in the state (assuming that is correct). This probably extrapolates to most part of the country. I haven’t seen any official data, but most baby boomers have most of their wealth tied up in their homes and are looking to continue their unrelenting locust swarm of destroying the national balance sheet at the expense of everyone else. Those who have significant wealth (millions) will diversify but have to be partially in equities long-term.
-
A P/E ratio market multiple of 8-9x does not make sense of the US. Really? You are going to buy dominant global Fortune 500 companies with a 10-12% earnings yield? Thanks, I’ll take two. In fact, I’ll sell blood and mortgage everything to be 500% leveraged-to-the-hilt all-in on that proposition, regardless of the demographic trends. Really though, international money would flood into the US at that yield because it’s still the safest place in the world to invest with the best infrastructure, best companies, and best rule of law / shareholder rights. And that’s not even considering domestic institutional capital. You cannot, and will not, find a better 10-12% yield on a risk-adjusted basis than US equities. Not within our lifetimes.
-
I could see a scenario where there is a “new normal” market multiple P/E that goes from 14-15x to 12x or something but 8x is insane. 12x for a basket of multi-national companies (possibly with dividends and buybacks) that are extremely stable, will benefit from global population growth, and have pricing power is still a pretty fantastic yield and you could do far worse than that.
^ Second that. The graphs correlating P/E and M/O ratios have way too much scatter - they don’t give R^2 for a reason, I suspect, because looks like it is going to be << 0.5. Ignore.
Also, P/E ratio does not say anything about index values - in a recession, E can go down faster than P. Look at 2009 in http://www.multpl.com/.
LOL…This is a definite yes. You have a map of the market? Scratching your head? Don’t worry, you are not the only clueless guy running ‘billions of dollars.’ Maybe you should stick to golf.
But you keep dodging the question of what it is YOU do, friend. I’ll tell you why that is…because you are a student with zero experience, or worse, run some bullshit back office reports and are completely removed from the real investment decision-makers if you are working, that’s why.
I don’t dodge questions. I told you to do a search. It will only take a few minutes. My first few posts will tell what i do or want to do. You interpret the search as what?
After looking at your first posts, I interpret that you are a low-level corporate accountant with finance envy, zero experience in a paid finance gig as your forties loom ever closer, and several hundred dollars in a ScottTrade account.
Listen buddy, i’m not the one that’s running ‘billions of dolars’ and still think CMT is valuable. I would not say this out loud. I would keep it to myself.
Bump. A lot of those themes wound up not only ringing true in 2015 but looks like this year’s a refrain.
called it!