Do you think the Fed will really lower rates this year?

[thehangingman]

No, those two values are not unimaginable.

We are at the end of the TNX cycle, now its time for the TNX to rise after finishing its run up from the 1960s to its top in the 1980s to its low point in the 2000s.

To believe that the S&P will simply keep rising thinking that these companies will keep growing is unrealistic. On Oct 1st of 1965, the S&P closed at 92.43. On April 1st of 1975, the S&P closed at 95.00. On April 1st, 1982, the S&P closed at 109. Thats 18% appreciation of the index in 17 years. Wasnt the world growing from the 60s to the 80s?

Its not inconcievable to believe that these indexes will turn right around and make a double bottom to the levels they were at a few years ago.

While some may laugh at this assertion, one has to ask themselves did the guys who traded during the mid 60s ever conceive that the S&P500 would have only returned 18% in 17 years?

Quote from JSL_Capital:

My thoughts on equity using Bill Gross's GDP extrapolation and my required rate of return.

If Bill Gross's assessment that the GDP growth tends to revert to the mean of about 5% and I want to get at least 8% return on mature cyclical stocks the fair value of the Dow is, using the dividend discount model:

247.96 * 1.05 / (8% - 5%) = 8678.6

And the fair value of the S&P 500 using the same model:

819

Yikes!

Now, I'm not saying that the market needs to go to such levels in any way, but the model is just telling me, if I want 8% annualized return over the period of say, the next 10 years as a buy and hold investor, buying these indices at those levels will make sense. Right now the required rate of return for the big funds seems to be in the 7% range, far lower than the past 20 years (with the exception of the late 90s).

 

[Mvic]

Quote from thehangingman:

Has Bill Gross been wrong in the past? Is he stating his position as a benefit to the public or a benefit to his business?

Yes and the latter. I think he used the buying interest on the heels of his remarks to either unload a position or to initiate one (in other words either getting short, maybe as a hedge, or lightening up on a long position with minimal slippage). These big players are always doing this.

 

[PohPoh]

Of course Bill Gross thinks bonds are going up.
He runs a fucking Bond fund.
What's he gonna do? Tell people to sell?
PFFFT...

 

[niceneasy]

i think the marketing machine has begun to prepare for a rate hike. this will of course be a real fuck-you to the housing market. but the dollar has to be propped up somehow...

 

[drsteph]

Quote from niceneasy:

i think the marketing machine has begun to prepare for a rate hike. this will of course be a real fuck-you to the housing market. but the dollar has to be propped up somehow...

Why does the dollar have to be propped up?

If china will not revalue the yuan then we can devalue the dollar. Perhaps not directly, but indirectly vs the euro and other world currencies. This has an indirect effect of strengthening the yuan.

The problem is that everyone, especially the asians, play the game of competitive currency devaluations which makes it near impossible for US & Fed policy to have any real effect without the tacit approval of many of our trading partners.

How better to combat a strengthening dollar than rate cuts?