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rumour leading to yesterday's selloff
- Thread starter sumosam
- Start date
Quote from Cutten:
Could you explain these methodologies? It look as though they contain no risk premium for owning stocks, which is rather strange - especially during this kind of environment.
Well I'm not saying stocks should get a 30PE ... but even a discount to 20PE accounts for the risk premium.
As far as 'during this kind of environment' is a short sighted argument. Euphoric times have always been most risky to long term returns... And we certainly aren't in euphoric times. Much safer to buy here than S&P at 1400-1500 (although it didn't feel that way before).
The inflation argument is wall street BS myth to get people to overallocate to equities. They dont tell you the market could drop 60 percent in one year.
Quote from gbos:
I have to say that it takes a lot of faith to accept 3% return for 30 years with an unknown variable called âinflationâ.
They're probably in them only for the trade... capital appreciation on the anticipated drop in long rates <2%.
After that they'll short bonds or move to something supported by inflation...
No, there in them because they know they can get there money back.
I agree. Historically, there have been many more rangebound periods and very few long-term secular bear markets, despite all the "next Great Depression" calls. This could be a lot like 1966-1982, where there was no net movement for almost 18 years. We're below the '97 highs right now, so this rangebound period is already 12-years old. Given the fact that 1981-2000 was the best 20-year period for stocks on record, it's not surprising we're getting this mean reversion for a couple of decades. It doesn't mean it's the end of the world.
This year we're extremely oversold by any historical standard or benchmark. The 1100-1200 area is right in the middle of the channel formed since 1999. I think it's a very likely target...especially with the huge gap just above 1100. I'm just not sure how fast we'll get there.
This year we're extremely oversold by any historical standard or benchmark. The 1100-1200 area is right in the middle of the channel formed since 1999. I think it's a very likely target...especially with the huge gap just above 1100. I'm just not sure how fast we'll get there.
Quote from scriabinop23:
The reality is that we're rangebound and considering everyone's bullish bias out there, unless we have another fundamental meteor hit the economy, there's no catalyst to move into a lower range (yet). Does anyone here realize risk free rate (30 yr treasury) being at 3.27% translates to a 30.58 PE being an acceptable baseline under some methodologies? With even $40 of S&P earnings (off more than 50% from peak), that justifies 1200 S&P. Even a more realistic $60 of earnings against a 20 PE (considering a 30 yr at 3.27% seems like an anomaly) is 1200...
If hedge funds are done selling, then market up. Investors aren't selling here (and the for the few that are, they are in the small minority). Once that overhead supply gets worked through, the market can move to the 1100-1200 range without too much trouble. For the die hard short, that is the next opportunity.
Simply put, if I were a fund manager and had 2% 10 yr money or 3.2% 30 yr money to choose from versus much high yielding corporate (which there isn't much new supply of) or stocks that are beaten down 70-90% and offer double the yield (or even much higher, where fundamentals are still relatively sound), I would go for stocks much more easily. That will play out, especially as the hole in money supply is filled up.
This fed printing of money will find a way into the system.
The market only goes to 500 if there really is so much more 'hedge fund delevering' or 30 year bond goes to 10%.... (not happening right now - have we heard of quantitative easing?)
Quote from JamesVU2000:
The inflation argument is wall street BS myth to get people to overallocate to equities. They dont tell you the market could drop 60 percent in one year.
True, but unlikely when the government is about to embark on a $1,000,000,000,000 spending spree. Right now, Wall Street continues to spread fear and panic (and this includes Paulsen), as their friends accumulate. The market action has been impressive lately, especially whenever Obama makes an appearence.
2009 will be marked by government sponsored job growth under the auspices of a very competent government. Foreign events may send the market in a direction, but I think the overall bias will be to the upside throughout the year. Inflation is probably a non-issue while monetary velocity remains so low. I doubt that velocity will pick in in 2009 or in 2010.
I think a turnaround in growth is pretty much baked in starting the 2nd half. Anyway, that is how I am playing it as I steadily accumulate at these levels, keeping cash in reserve, in case I am wrong and the market breaks lower.
Quote from MKTrader:
This year we're extremely oversold by any historical standard or benchmark. The 1100-1200 area is right in the middle of the channel formed since 1999. I think it's a very likely target...especially with the huge gap just above 1100. I'm just not sure how fast we'll get there.
I agree. Institutions that have parked their money in .01% Treasuries can only keep it there so long. Everything that was redeemed will find its way back in some allocation mix. Currently, it seems to favor large caps (commodities are in the dog house), but it could reverse to small caps once risk aversion diminishes. My guess is that accumulation is already in process and it will gather steam as it becomes clearer which industries will most benefit from government fiscal and monetary policies that Obama will put in place.
the market is simply stuck in a trading range. Like the trading range between June 2002-April 2003 this one will also break to the upside. Go long and ignore the doom and gloom headlines. No one cares about the hedge fund redemptions or GM.