This could work but since it will be a long-term holding the hedge will lose money almost surely. US stocks will probably earn something like 5% over the next 5-10 years(Grantham, Hussman and some other models indicate that) so to me its better to just buy the whole thing and not hedge
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Global Macro Trading Journal
- Thread starter Daal
- Start date
This could work but since it will be a long-term holding the hedge will lose money almost surely. US stocks will probably earn something like 5% over the next 5-10 years(Grantham, Hussman and some other models indicate that) so to me its better to just buy the whole thing and not hedge
Just a clarification. BRKA $98K figure includes the book value of the non-publicly traded business as well stocks and bonds. So effectively you are paying for the stocks and bonds at market plus the private businesses at a slightly premium to book but a extremely small premium to earnings(maybe 4x after tax)
Quote from Daal:
Its interesting, even though US stocks have been declining in valuations they still aren't cheap by any means(Shiller PE, Hussman estimates, and discount model I posted a while back). If the secular theme keeps playing either the economy will have to grow a lot(Unlikely unless the Fed adopts NGDP targeting) or stocks will collapse. There is the 3rd possibility that stocks do nothing while the economy grows(Taking earnings and book values with it)
Either way I'm cautious on stocks and I'm only buying in select opportunities
Stocks are cheap relative to forward earnings estimates, bonds have pathetically low yields, cash has zero yield. The one remaining major macro issue (Europe) is old news and totally priced in. The market action is very bullish. Earnings are continuing to rise across most industry sectors. Finally, sentiment is still rather sceptical about the idea of a bull market.
When valuations, relative valuations, news, fundamentals, price action, and sentiment are all favourable for a bull market, then the right position is to be heavily long stocks.
Quote from Daal:
Its interesting, even though US stocks have been declining in valuations they still aren't cheap by any means(Shiller PE, Hussman estimates, and discount model I posted a while back). If the secular theme keeps playing either the economy will have to grow a lot(Unlikely unless the Fed adopts NGDP targeting) or stocks will collapse. There is the 3rd possibility that stocks do nothing while the economy grows(Taking earnings and book values with it)
Either way I'm cautious on stocks and I'm only buying in select opportunities
The fourth possibility is a scenario where the Dow goes to 50k, but on a valuation basis is equivalent to being at 5k today (which implies a significant capital loss in real terms). This is really what keeps me up at night, as there would be very few good options to preserve purchasing power while waiting for the valuation low.
Significant inflation seems a remote possibility for now, but each new round of CB intervention seems to get costlier while delivering less in the way of results. QE1 bought more than a year, QE2 gunned markets for 6-8 months while the LTRO rally has now lasted three months; it would be quite significant if the market is unable to keep rallying from here. At some point the Fed may decide to explicitly gun inflation expectations, thinking they can control it.
Is historical (back to 1950s or something) price to book data available from S&P? It would be interesting to see how it compares to PE, dividends etc. as a valuation measures.
Quote from Ghost of Cutten:
Stocks are cheap relative to forward earnings estimates, bonds have pathetically low yields, cash has zero yield. The one remaining major macro issue (Europe) is old news and totally priced in. The market action is very bullish. Earnings are continuing to rise across most industry sectors. Finally, sentiment is still rather sceptical about the idea of a bull market.
When valuations, relative valuations, news, fundamentals, price action, and sentiment are all favourable for a bull market, then the right position is to be heavily long stocks.
Yep -- add on top that many hedge fund managers are still playing "catchup" after lagging behind their benchmarks in '11... and missing out on early chunk of 2012 rally...
More or less agree with Zulauf that we could have at least a month left (if not longer) with a potential blowoff type move, barring 1) a genuine geopolitical event, 2) exceptional fuckwittery from Europe, or 3) oil price going nuts
Quote from Martinghoul:
Well, here's the thing... I generally have a few issues with these sorts of books.
Firstly, it often turns out that these "successful" people aren't quite as good as they're portrayed to be. For example, I think we did talk about that Siva-Jothy fellow on this thread. The mighty do fall.
Secondly, more often than not the stories I have read are about "courage", "convictions" and all this type of bollox. The fact that some random BSD (Big Swinging Dick) had the balls to strap on a random position and managed to get lucky isn't that enlightening, IMHO.
I agree with you that a great trading book can be very useful and do all the things that you mention. I guess I just haven't found a "great" trading book out there yet.
Again, I hasten to stress that this is my Z$2c, nothing else.
That post just shows you either haven't read many trading books, or you didn't study properly the ones that you did read. In either case it's a sign of laziness and lack of competitive spirit. Darkhorse is being way too polite.
The competition, who I can assure you DO read every worthwhile trading book, and study them hard to get every single valuable money-making idea out of them, are going to pull further and further ahead as they read and learn more relative to the complacent backsliders who don't.
A mere single profitable idea per 100 books read, will make far more money than was expended to buy the books and read them. Not to mention, in every competitive performance field on the planet, studying past and present peak-performance is mandatory for anyone who takes the subject seriously. A boxer who did not watch fight videos, or a general who did not study historical battles, would not be allowed to say "that's just my 2 cents" - he would be given a bloody good kicking and thrown out of his place of work, and told not to return until he had done his basic homework. Traders who don't read trading books should be suspended until they do, or if self-employed, should be scorned and mocked by their peers for being lazy and irresponsible fools.
Quote from Specterx:
The fourth possibility is a scenario where the Dow goes to 50k, but on a valuation basis is equivalent to being at 5k today (which implies a significant capital loss in real terms). This is really what keeps me up at night, as there would be very few good options to preserve purchasing power while waiting for the valuation low.
At some point short long bonds is going to be epic. Makes me salivate just thinking about it...
Quote from darkhorse:
At 120x earnings Amazon doesn't even have to stumble, all it has to do is catch the sniffles or trip on a press release. You could whack 30-40% off the multiple (and share price) and it would still be a nosebleed growth play.
Is there any convincing explanation for the Amazon valuation? It's too expensive even for a high growth stock, and earnings are down!
Quote from Ghost of Cutten:
Is there any convincing explanation for the Amazon valuation? It's too expensive even for a high growth stock, and earnings are down!
LNKD trades at 748 x earnings. QLIK trades at 311.
Nobody tries to rationalize these numbers. It's just demand outpacing supply and the most bullish buyers setting price at the margins. High flying growth stocks don't trade on valuation -- until the day they suddenly do.
Case in point: NFLX had a PE ratio pushing 70 last year. Now that Reed Hastings has fucked up, it's been whacked down to 27.
When the growth story is invalidated at tipping point levels -- maybe even just a forecast shift from 'super' growth to 'decent' growth, sometimes brought on by a management stumble or event-driven inflection point -- you get the big whoosh. The only way I know of to catch the whoosh is 1) pay attention, and 2) use charts as signaling devices for strong reward to risk setups. We caught a major chunk of the NFLX downmove doing just that.
The whoosh happens to all high flyers eventually, because those kind of valuations make no sense as a permanent phenomenon. They are simply a short-handed expression of buying pressure outweighing selling pressure, with true believers not giving a shit about the multiple (until that one day)... knowing that other bulls won't care until that one day either...