Seasonality is historically strong for the summer months and particularly for July.
August - not so much.
August - not so much.
Trading the Indices on Fundamentals
- Thread starter FXtrader8911
- Start date
Indeed it is. FX, still trading ?? I stepped out for a bit but back into again. The daily's have had a few dips but nothing that looks like a turn yet. We just have to wait and see though the DAX has had a dip or 2. Sideways atm. Markets are quite high though.
The Vix Index is relatively stable. It’s been range bound this year, hitting a high of about 27 and currently gravitating lower —> around 16, down 24% in the last 6 months.
Also with interest rates being so low & inflation very, very gradually increasing depending on COVID management - the stock-markets will continue to rise. There is no sign of any major correction in the near future!
The Buffett Index summary below (Technical Analysis overrides Fundamental Analysis —“always”) —>
Of course sooner or later, (probably later IMO), there will be a correction of some sort but the Fund Managers who are saying a 60% collapse,,, have rocks in their head!
I’m signing out again for a good while,,, I’m an infrequent poster but have an exceptional grasp of where markets are at, unlike those that are supposedly in the know with the fundamentals.
Criticisms of The Buffett Indicator
It is important to call out that no single metric is illustrative of the entire market, of course. The primary criticism of using the Buffett Indicator as a valuation metric (and particularly in 2021 using it as a metric to justify the overvaluation of the market), is that it does not address the state of non-equity asset markets. In truth, investors have many different asset classes to consider and evaluate when considering portfolio distribution - e.g., corporate bonds, real estate, and commodities.
The proverbial elephant in the room here is the bond market, expressed as interest rates. Very generally speaking, bonds represent a lower-risk asset as an alternative to equity (stock) markets, and the two have a highly interdependent relationship.
The 50,000ft overview on interest rates is as follows. When interest rates are high, bonds pay a high return to investors, which lowers demand (and prices) of the riskier equities. Additionally, higher interest rates means it's more expensive for businesses to borrow money, making it harder to borrow cash as a way to finance growth. Which is to say any business that takes on debt will face relatively higher interest payments, and therefore less profits. And again, less profits means lower stock prices. The corollary to all this is also true. Low interest rates means bonds pay less to investors, which lowers demand for them, which raises stock prices in relation to bonds. Low interest rates make it easy for corporations to borrow cash cheaply to finance growth. Corporate interest payments will be low, making profits high. This is all to say, if interest rates are high, stocks go down. If interest rates are low, stocks go up.
Interest rates today are lower than they've ever been. Below is a chart showing the interest rate of the 10Year US Treasury Bond. This is the most vanilla bond there is, and over the last 50 years the interest rate on it has averaged 6%. Back during the peak of the .com bubble (when the Buffett Indicator was very high), the 10Y Treasury rate was a bit higher than average, around 6.5%, showing that low interest rates weren't juicing the stock market. Today the Buffett Indicator is roughly the same distance above its historical average as it was during the .com bubble, but interest rates are at an all time low, near 1%. This can be interpreted to mean that during the .com bubble, equity investors had other good options for their money - but they still piled recklessly into stocks. Whereas today, investing in bonds returns so little that you may actually lose money to inflation. Today's investors need to seek a return from somewhere, and low interest rates are forcing them to seek that return from riskier assets, effectively pumping up the stock market. While this doesn't justify the high Buffett Indicator on any fundamental basis, it does suggest that the market today is less likely to quickly collapse like it did in 2000, and that it may have reason to stay abnormally high for as long as interest rates are abnormally low.
The Buffett Index summary below (Technical Analysis overrides Fundamental Analysis —“always”) —>
Of course sooner or later, (probably later IMO), there will be a correction of some sort but the Fund Managers who are saying a 60% collapse,,, have rocks in their head!
I’m signing out again for a good while,,, I’m an infrequent poster but have an exceptional grasp of where markets are at, unlike those that are supposedly in the know with the fundamentals.
Criticisms of The Buffett Indicator
It is important to call out that no single metric is illustrative of the entire market, of course. The primary criticism of using the Buffett Indicator as a valuation metric (and particularly in 2021 using it as a metric to justify the overvaluation of the market), is that it does not address the state of non-equity asset markets. In truth, investors have many different asset classes to consider and evaluate when considering portfolio distribution - e.g., corporate bonds, real estate, and commodities.
The proverbial elephant in the room here is the bond market, expressed as interest rates. Very generally speaking, bonds represent a lower-risk asset as an alternative to equity (stock) markets, and the two have a highly interdependent relationship.
The 50,000ft overview on interest rates is as follows. When interest rates are high, bonds pay a high return to investors, which lowers demand (and prices) of the riskier equities. Additionally, higher interest rates means it's more expensive for businesses to borrow money, making it harder to borrow cash as a way to finance growth. Which is to say any business that takes on debt will face relatively higher interest payments, and therefore less profits. And again, less profits means lower stock prices. The corollary to all this is also true. Low interest rates means bonds pay less to investors, which lowers demand for them, which raises stock prices in relation to bonds. Low interest rates make it easy for corporations to borrow cash cheaply to finance growth. Corporate interest payments will be low, making profits high. This is all to say, if interest rates are high, stocks go down. If interest rates are low, stocks go up.
Interest rates today are lower than they've ever been. Below is a chart showing the interest rate of the 10Year US Treasury Bond. This is the most vanilla bond there is, and over the last 50 years the interest rate on it has averaged 6%. Back during the peak of the .com bubble (when the Buffett Indicator was very high), the 10Y Treasury rate was a bit higher than average, around 6.5%, showing that low interest rates weren't juicing the stock market. Today the Buffett Indicator is roughly the same distance above its historical average as it was during the .com bubble, but interest rates are at an all time low, near 1%. This can be interpreted to mean that during the .com bubble, equity investors had other good options for their money - but they still piled recklessly into stocks. Whereas today, investing in bonds returns so little that you may actually lose money to inflation. Today's investors need to seek a return from somewhere, and low interest rates are forcing them to seek that return from riskier assets, effectively pumping up the stock market. While this doesn't justify the high Buffett Indicator on any fundamental basis, it does suggest that the market today is less likely to quickly collapse like it did in 2000, and that it may have reason to stay abnormally high for as long as interest rates are abnormally low.
I would not be so quick to dismiss the Buffett indicator nor the fundamentals. We are seeing a cartoon-like, 300% to 500% increase in some stock prices, will low interest rates increase profits also by 300% to 500%? I think not, so, where is the value in such stock prices? How long will it take for the PE to grow into the price to make the investment viable? All these gamers that won big will spend on lanbos, Ferraris and the like, when the monopoly money stops coming in there won't be many left to pay the cartoon prices, then, the fundamentals will again matter and technical analysis won't.
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Yes but nowhere as before, current prices make me nervous to buy. We need a decent correction to flush out the Tom & Jerry players then markets will settle to fair value and so trading on some logic can resume,
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To each his own. I see some cut and paste that follows the above so who's views are you paraphrasing?
This post is going to age in horrible fashion.
Maybe we only get 10% on S&P - but that is still good for 400+ points. Markets tend to overshoot in both directions. 15% is more likely with an outlier possibility of 20%.
Very soon.
Jorge Pérez, the director of Investments of Libertas 7 recently made the following comment, which I think, pretty much encapsulates current trends and thinking:-
"In my opinion the market quotations are distorting the real value of the assets increasingly more, due to the massive injections of cash and an interest rate structure that does not give priority to the risk or the duration in a rational manner. Not even the biggest and fastest drop in the GDP that we have had in the West in decades has stopped some of the indices reaching record highs again. The need to take on more risks to get the same returns and the lack of investment alternatives makes the trading multiples of equities rocket. As the corporate profits recover in 2021, maintaining the existing multiples should result in a unique type of bull market trend but with a high level of uncertainty."
My main takeaway from the above is that market players are not giving priority to risk in a rational manner. Until fund managers are able to regain control of the markets from the retail players, this irrational distortion of prices is likely to continue.
The above comment by Jorge Pérez was commonly reiterated by 12 top fund and money managers interviewed by Valencia, interesting that only 2 of the 12 were willing to put a price on where 2021 will close.
The Buffett indicator had risen another 6% in Sep, to 206%, the historical average is 120% having reached an all-time Pre-Covid high of 140%.
"In my opinion the market quotations are distorting the real value of the assets increasingly more, due to the massive injections of cash and an interest rate structure that does not give priority to the risk or the duration in a rational manner. Not even the biggest and fastest drop in the GDP that we have had in the West in decades has stopped some of the indices reaching record highs again. The need to take on more risks to get the same returns and the lack of investment alternatives makes the trading multiples of equities rocket. As the corporate profits recover in 2021, maintaining the existing multiples should result in a unique type of bull market trend but with a high level of uncertainty."
My main takeaway from the above is that market players are not giving priority to risk in a rational manner. Until fund managers are able to regain control of the markets from the retail players, this irrational distortion of prices is likely to continue.
The above comment by Jorge Pérez was commonly reiterated by 12 top fund and money managers interviewed by Valencia, interesting that only 2 of the 12 were willing to put a price on where 2021 will close.
The Buffett indicator had risen another 6% in Sep, to 206%, the historical average is 120% having reached an all-time Pre-Covid high of 140%.