Kudos to MMs

Quote from Maverick74:

I think there are many things driving this market, all of which are legit. I've said this before on many other threads and I know people roll their eyes when anyone says this, but when you price the s&p in gold, we are still sitting on the march 09 lows. We haven't even rallied yet. This is important to note because it reminds us that a lot of this rally has been driven by a weak dollar. The question I would ask Nitro or anyone else making the case for a much lower s&p is, would you buy the dollar at these levels and hold it for say 3 to 5 years. Would you? I know I wouldn't. But if you are shorting the spoos, that is exactly what you are doing.

Let me bring up another point. When making the comparison to where we were in march of 2000 when the spoos where at 1550, our economy was primarily domestically driven. In fact you could argue it was silicon valley driven. The s&p 500, dow and even the nasdaq now are actually international indices. All of our growth is being driven not from the US but from overseas. Corporations are sitting on a record amount of cash. Over 2 trillion dollars. And where is that cash likely to go? To wherever the growth is. That will only drive this market higher.

I bring this up because citing high unemployment rates, us debt, over sized government, these ironically are factors driving international growth if you think about it and therefore driven our market higher. The worse it gets job wise in this country, the higher the market will go. Why? Because it means capital will be leaving the US where it's stale and held down by high taxes and regulations and will actually move to areas of high growth in other parts of the world. And since most large cap companies in the US are in those areas, those stock prices will be driven higher.

Next point I'll bring up to Nitro or anyone else making the bear case is, if you pull your money out of stocks, then where do you suggest putting it? In Bonds? In Gold? In CD's? Under the mattress? The fact of the matter is the s&p dividend yield is at record lows to bond yields. Never in history have we seen a major selloff under these circumstances.

Last comparison I'll make to 2000 is that rally was very concentrated in tech. This rally has been incredibly broad and diverse. The transports are making new highs, retail is strong, discretionary spending stocks, chip stocks, energy, metals, automotive, you name it. It's very hard to take the market substantially lower with such broad participation.

Then thrown in the fact that by and large, most people missed this rally. Sure they have been long early, then got out. Or they are just getting in now or maybe they caught the middle. But we are seeing record underperformance by mutual funds.

Everyone wants this market to go lower. The bears, the bulls, long term investors, mutual funds, even our government. Nobody wants this market to go higher.

Now do I think we are "technically" overbought? Sure, we could use a 3% to 5% pullback or even a 3 to 5 month sideways consolidation. I think both of those are on the table. But for Nitro or anyone else to be making a "fundamental" case for lower stock prices simply does not have the data or statistics to back them up.

As traders, we all get paid on price, not on opinions or fundamentals. We trade price. And price is going higher. I think Nitro is a very bright guy. But he has a weakness and it's a deadly one as a trader. Almost dogmatic. He is not willing to "protect" his capital, or investors capital, whatever it may be. As traders, we all have a fiduciary responsibility to ourselves and our family that we protect our capital first and make money second. This business is full or very bright people who are broke and destitute because they failed to protect their capital. This should be the primary concern, not where the fair value of the s&p is.
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You OK?
 
When astronomers look at any galaxy and applied Newtons laws of physics, they couldn't understand why the galaxies weren't flying apart. The realization that something unseen must be at work leads to one of the most exciting discoveries in cosmology in history. It turns out that there must be what is called "Dark Matter" that accounts for the missing gravity that keeps galaxies intact. We basically backed out how much there must be from simple equations of motion.

I did something similar in my model. If I put in by hand my "missing financial dark matter" that is holding the SPX at these levels, and then applied my equations forward, it comes back with a "FV" of about 1300 on the nose.

I still don't understand what this "financial dark matter" is. I thought I knew but the market is ignoring my theory. Without it, the model thinks SPX is FV at 1250.

FWIW.
 
Quote from nitro:

I still don't understand what this "financial dark matter" is. I thought I knew but the market is ignoring my theory. Without it, the model thinks SPX is FV at 1250.
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Maybe you are missing what's analogous to a cosmological constant. In your case, it would be 1317 / 1250 = 1.0536
 
Quote from nonlinear5:

Maybe you are missing what's analogous to a cosmological constant. In your case, it would be 1317 / 1250 = 1.0536
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That is already in the model, and it is implemented in far more natural way than your suggestion.
 
Quote from nitro:

When astronomers look at any galaxy and applied Newtons laws of physics, they couldn't understand why the galaxies weren't flying apart. The realization that something unseen must be at work leads to one of the most exciting discoveries in cosmology in history. It turns out that there must be what is called "Dark Matter" that accounts for the missing gravity that keeps galaxies intact. We basically backed out how much there must be from simple equations of motion.

I did something similar in my model. If I put in by hand my "missing financial dark matter" that is holding the SPX at these levels, and then applied my equations forward, it comes back with a "FV" of about 1300 on the nose.

I still don't understand what this "financial dark matter" is. I thought I knew but the market is ignoring my theory. Without it, the model thinks SPX is FV at 1250.

FWIW.
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How can there possibly be any such thing as "fair value" to that level of precision? For example, a fall in the earnings yield from 9% to 7%, hardly an irrational or tectonic shift in return expectations, would result in a 28.5% increase in the price of a stock market. Then there is the fundamental unpredictability of the future, which can easily mean earnings rise or fall more than expected.

You can never say that the fair value of something is X. You can only give a potential value range, based on a floor at which the asset is objectively cheap, and a ceiling above which it is objectively overvalued. Those value ranges are so wide for almost all assets, that they are utterly irrelevant for trading purposes.
 
Quote from Ghost of Cutten:

You can never say that the fair value of something is X. You can only give a potential value range, based on a floor at which the asset is objectively cheap, and a ceiling above which it is objectively overvalued. Those value ranges are so wide for almost all assets, that they are utterly irrelevant for trading purposes.
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This is why I find relative-value trading so attractive.
 
Quote from nitro:


As the old saying goes though, the market can stay "irrational" longer than you can stay solvent. I just shrug my shoulders...You know, this is nowhere near as crazy as 1999 - 2001 with the NAZ at 5000. That was truly the height of hubris, but lots of people got incinerated along the way shorting it at every turn...

Look at PCLN. You think that piece of shit is worth $460? I don't think it is worth $50!!!! GOOG? On a lucky day $400. CME? $200. NFLX? maybe $100. The list is endless. As long as there is a bigger fool to sell to, that is the price of whatever it is you are trying to sell something at, and the world is bursting with idiots. In fact, I am beginning to believe that the stupider you are, the better trader you are likely to make. Amazing that nature would optimize for morons.

What is the "right" price for SPX? IMO About 1280, and that is being gracious.
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How on earth do you know that the market is irrational? You have provided no evidence to back that up. This is not 2000, where the S&P had an earnings yield of 3% and treasuries with almost no risk were yielding double that. The only hubris being demonstrated here is by yourself, making controversial claims without even the slightest supporting facts or reasoning to justify them.

Who cares what you "think" something is worth? An opinion is not reality. Why is google worth no more than $400 per share, perhaps you could try to justify that claim with some facts and reasoning? Ditto for CME.

Without any evidence to back up these claims, your accusation that people are operating on the greater fool theory is just nonsense upon stilts. You can't just throw out claims like that without proving them to be true, or at least making them convincing by giving credible explanations, some demonstrable axioms and a chain of logical reasoning to lead to your conclusions. At the moment you are just arm-waving. An assertion is not an argument.

I don't know why you are hypocritically accusing others of being stupid. You are acting the stupid one here, making utterly illogical and irrational claims, failing to use basic reasoning, not thinking critically about your deeply flawed and naive axioms, having giant gaps in your knowledge of investment and valuation theory, the list of mistakes and blunders goes on. You can't hope to improve if you stubbornly refuse to examine the possible flaws in your thought process, which many people have generously pointed out to you. After 450 pages you show less signs of adapting than the dodo, and your account balance will head the same way unless you quit playing the spoiled asperger's boy.
 
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