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S&P500, what's a fair level?

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The sentence in context was very clear, over 50-70yrs the index members change, but you can just own the index.

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Matt Likes Analysis wrote:

if by losing a war you mean every private asset in your country has been turned to nuclear dust and every company’s foreign assets are expropriated, or turned to nuclear dust, then yes.

Not necessarily.  Companies can be private without being in a stock index.  But the large companies can be demolished, or their future prospects become so gloomy that anything publicly traded and has debt goes bankrupt.  Or they get nationalized shortly before the war ends because things go so badly.

Or revolution does away with private property, as with Eastern Europe after WWII and Russia after WWI.

Anyway, my point was that indexes only go to zero in pretty extreme and uncommon situations, whereas individual stocks can go to zero far more often. 

You want a quote?  Haven’t I written enough already???

S&P 500 fair level?    …my advanced secret analysis tells me 2142 as of 12:22 EST on 10/20.  I can certainly keep you guys updated in the future if you’d like…

yes please

no prob…been slaving away updating the model since lunch…new output says…….  2142!   

i need 2 decimal places

"You want a quote? Haven’t I written enough already???"

RIP

I don’t have the technology for that type of detail

Matt Likes Analysis wrote:

also, he didn’t say “i love well diversified portfolios or a portfolio consisting of stocks in a specific index”, he said “i love an index which tracks the performance of various companies”. that’s like me saying “i love my favourite team’s stats page far more than the team itself”.

lol sillyhead. You’re pickier than my mom when she goes out to a restaurant “Do you have some cilantro and pumpkin seeds you can add to this salad?” Mom, it’s a friggen Denny’s. 

mom knows best.

How many people need to come out and say the obvious? It’s a dead end for American equities…

Are investors in denial about how dim the outlook is for American businesses? “Asset valuations are extreme; returns are poor, the probability of losses is high and the ability to recover any losses quickly is low”.

http://www.bloomberg.com/news/articles/2016-10-21/why-corporate-america-...

I was having some Denny’s earlier tonight with my mom actually, it’s really not that bad. I mean, the food is a little bit grungy, but it’s always been that way. They’re grungy, but they’re consistently grungy. I can respect that.

On a more related note, I don’t think this Trump rally will last very long. There might be a new president, but nothing else really changed (yet). The economic situation is just the same as it was last week. I had to remind myself of that after these last couple days. 

BankThatDank wrote:
There might be a new president, but nothing else really changed (yet).

Yup. And nothing global macro has changed, we still are where we are in the business cycle.

But a big change could be made that would impact valuations, like cutting corporate taxes to zero. The gov is about creating schemes that show improvement on paper, and this is Trump’s specialty. I’m on the lookout for those…

BankThatDank wrote:

On a more related note, I don’t think this Trump rally will last very long. There might be a new president, but nothing else really changed (yet). The economic situation is just the same as it was last week. I had to remind myself of that after these last couple days. 

The market isn’t valued based on the current economic situation.  The market value is based on the expected economic situation a year or two into the future.  The elections impacted the probabilities of various economic outcomes, due to changing odds of fiscal stimulus, government regulation, etc.  If I had to explain the market move, I’d attribute it to people trying to nail down what these changing odds are 

are you saying the market knew 2 years ago that trump will win?

"You want a quote? Haven’t I written enough already???"

RIP

You got it exactly rawraw. Markets are forward looking. The day after the election, financials and healthcare stocks were soaring while the rest were negative or negligible. So without knowing anything about what the Trump presidency means for business (which for me is almost the case) we could say that the market was betting that the ‘odds’ suddenly ‘changed’ in these sectors. 

More or less, what I was saying is that the low growth environment we’re in hasn’t changed magically just because Trump got elected. This comments on today’s economy, but is also a forward looking statement as well. 

purealpha wrote:

But a big change could be made that would impact valuations, like cutting corporate taxes to zero. The gov is about creating schemes that show improvement on paper, and this is Trump’s specialty. I’m on the lookout for those…

What if the Fed raises interest rates at the same time? The Fed is out of the control of the government right? 

BankThatDank wrote:

What if the Fed raises interest rates at the same time? The Fed is out of the control of the government right? 

That’s what I’ve been thinking about. The Fed is owned IMO. Coordinated effort; Fed raises rates, and Trump launches fiscal stimulus, so the markets don’t crash. Although how do they pay for stimulus? There are those in the republican party (Bannon) who want to deal with the fiscal gap, and a bunch of irresponsible spending doesn’t help. What a cluster, who know what these guys are going to do. 

Whatever is going to happen, it’s going to happen bigly.

You want a quote?  Haven’t I written enough already???

Yeah it’s totally going to be BIGLY.

This crew if guys, with near total power, just a few “checks of balances” in their way? 

I thought rising rates at the moment would be a negative factor on stocks, just cause the normalization of rates would bring higher interest costs for businesses and a rebalancing towards the increasingly attractive bonds.  

Umm, this is kinda big league…

———————————-

“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

http://www.hollywoodreporter.com/news/steve-bannon-trump-tower-interview...

Something like that would take a couple years before we could really feel it’s effects. I hope Trump gets it done though; economists have been touting infrastructure for a while now. 

Hard to see how trillions in infrastructure investing could possibly be achieved without a meaningful rise in interest rates and very likely inflation.  That’s not necessarily a bad thing (hyperinflation would be bad, but a more moderate inflation is ok) provided that it comes along with raised median real wages and didn’t reduce overall employment.

The effect on equities is hard to estimate off the top of one’s head.  Interest rate rises are likely to push equities downward, and the duration of equities is a lot larger than most bonds.  On the other hand, the spending and wage rises should boost earnings, so there is a positive pressure there.  

My sense is that the interest rate effects would dominate in the short term, but after a correction, the earnings effects would kick in.  But I’ve been wrong on this kind of stuff before so am open to other arguments if they seem sound.

You want a quote?  Haven’t I written enough already???

I don’t think there is any reason to believe the market will adjust one estimate of the future (rates) without adjusting the estimate of growth in cash flows. So it really comes down to which has the larger impact in the formula. 

Last I checked, the expected inflation as judged by treasury and tips was up. So part of the current stock performance since announcement includes a higher discount rate. 

Also, I tend to agree with Damadoran analysis of drivers of discount rates.  And I’m not so sure the rates will go extremely high unless growth also goes high (going back to the opposing variables). Just my two cents 

bchad wrote:
Hard to see how trillions in infrastructure investing could possibly be achieved without a meaningful rise in interest rates and very likely inflation.  

Right. And even broader, punching anything they have said into a macro model, it just doesn’t make sense. The market seems to like how it *sounds*, even though we have no idea the full picture, how they plan on financing all the big league moves they keep talking. 

One big problem – the target of growing global populist rage is income inequality. We believe that this US populist movement is going to result in even MORE profits being distributed to the asset holders? 

bchad wrote:

My sense is that the interest rate effects would dominate in the short term, but after a correction, the earnings effects would kick in.  But I’ve been wrong on this kind of stuff before so am open to other arguments if they seem sound.

This is my guess as well. The raising of interest rates along with the last lingering effects of the great recession may bring a short-term correction, but the normalization of rates is occurring due to a gradual resumption of good business conditions and not due to anti-inflationary measures. I don’t really see how this can be a negative over the medium term. It’s like the final litmus test for a greenlight on the economy. Sure inflation would probably increase, but maybe it wouldn’t be a problem for a number of years. Don’t forget that inflation is one of the indicators that is still underperforming. And the timing of this type of investment with the commodities super cycle bust might mean that over-inflation is even farther away. 

After the FOMC meeting ends tomorrow, I’m thinking the market will spike. If they raise rates, it will spike. If they don’t, it will spike. It would probably spike if Yellen went into a coughing fit and keeled over in her seat. Nobody cares about the economy in this market today; except for purealpha of course.

I bathe in Lake Superior Returns

^ Looking forward to the movie If the market crashes and Purealpha makes millions, 

Alphie doesn’t care about anything because nothing cares for him.  For instance, I heard his mother fed him with a slingshot.

#tragic

asrmek wrote:
After the FOMC meeting ends tomorrow, I’m thinking the market will spike. If they raise rates, it will spike. If they don’t, it will spike. It would probably spike if Yellen went into a coughing fit and keeled over in her seat. Nobody cares about the economy in this market today; except for purealpha of course.

That looks about right, market is already going crazy today, as reported P/E now 26.2X, but nobody cares. There’s been years of made up economic and market numbers, it’s part of the disinformation or “post-truth” age in America. 

I’m starting to wonder if this is the final mult-year push up to like 32X or whatever, before the collapse. There’s not just the normal business cycle (dotcom, subprime, fed bubble?), there’s also a larger macro-cycle going on here. For decades the S&P has been getting more expensive, even as the US to loses their grip on reality, and GDP growth heads to zero.

The bull market is getting old, it almost certainly pops during Trumps 8yrs. But the larger cycle correcting, that’s truly ”the big one”.

http://www.multpl.com