Saturday, 19 August 2017

Chart of The Day: A Choice of Two Evils

Either price inflation needs to surge or stocks need to plunge to bring this ratio back to a more "sensible" level.

Friday, 11 August 2017

Thursday, 10 August 2017

Tuesday, 8 August 2017

22 realities to not follow the herd

Michael Lebowitz is out with an article titled 22 Troublesome Facts in which he lists 22 realities for why his company does not recommend following the herd.

The list, which is broken down into Equity/Bond valuations, U.S. Economy, and the Federal Reserve is a must read.

You can access the article here.

Wednesday, 2 August 2017

Value Investing's Compatibility with Austrian Economics — Truth or Myth?

By David J. Rapp, Michael Olbrich, and Christoph Venitz,

ABSTRACT: Within the Austrian economists’ community, value investing is characterized as a useful investment strategy, and one that is in line with Austrian economics, in particular Austrian value theory. In fact, value investing shares some basic findings with Austrian value theory, especially the crucial distinction between values and prices. However, value investing also contradicts some fundamentals of Austrian economics. Therefore, the authors argue that value investing’s seeming compatibility with Austrian economics must be characterized as a myth. The aim of this article is to illustrate what makes value investing incompatible with Austrian economics and, hence, to terminate this myth.

Read the article here. 

Related article: 

Ahoy! The U.S. Stock Market On Course To Crash 

Monday, 31 July 2017

Latest memo from Howard Marks: There They Go Again...Again

By Howard Marks
Some of the memos I’m happiest about having written came at times when bullish trends went too far, risk aversion disappeared and bubbles inflated.  The first and best example is probably “,” which raised questions about Internet and e-commerce stocks on the first business day of 2000.  As I tell it, after ten years without a single response, that one made my memo writing an overnight success. 
Another was “The Race to the Bottom” (February 2007), which talked about the mindless shouldering of risk that takes place when investors are eager to put money to work.  Both of those memos raised doubts about investment trends that soon turned out to have been big mistakes.
Those are only two of the many cautionary memos I’ve written over the years.  In the last cycle, they started coming two years before “The Race to the Bottom” and included “There They Go Again” (the inspiration for this memo’s title), “Hindsight First, Please,” “Everyone Knows” and “It’s All Good.”  When I wrote them, they appeared to be wrong for a while.  It took time before they were shown to have been right, and just too early. 
The memos that have raised yellow flags in the current up-cycle, starting with “How Quickly They Forget” in 2011 and including “On Uncertain Ground,” “Ditto,” and “The Race Is On,” also clearly were early, but so far they’re not right (and in fact, when you’re early by six or more years, it’s not clear you can ever be described as having been right).  Since I’ve written so many cautionary memos, you might conclude that I’m just a born worrier who eventually is made to be right by the operation of the cycle, as is inevitable given enough time.  I absolutely cannot disprove that interpretation.  But my response would be that it’s essential to take note when sentiment (and thus market behavior) crosses into too-bullish territory, even though we know rising trends may well roll on for some time, and thus that such warnings are often premature.  I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits and cut losses.
Since I’m convinced “they” are at it again – engaging in willing risk-taking, funding risky deals and creating risky market conditions – it’s time for yet another cautionary memo.  Too soon?  I hope so; we’d rather make money for our clients in the next year or two than see the kind of bust that gives rise to bargains.  (We all want there to be bargains, but no one’s eager to endure the price declines that create them.)  Since we never know when risky behavior will bring on a market correction, I’m going to issue a warning today rather than wait until one is upon us. 
I’m in the process of writing another book, going into great depth regarding one of the most important things discussed in my book The Most Important Thing: cycles, their causes, and what to do about them.  It will be out next year, but this memo will give you a preview regarding one of the most important cyclical phenomena.
Before starting in, I want to apologize for the length of this memo, almost double the norm.  First, the topic is wide-ranging – so much so that when I sat down to write, I found the task daunting.  Second, my recent vacation gave me the luxury of time for writing.  Believe it or not, I’ve cut what I could.  I think what remains is essential.

Sunday, 30 July 2017

This Chart Might Make You Rethink the Adage “Stocks Always Come Back”

By Jeff Clark, Senior Precious Metals Analyst,,

It was a pretty simple inquiry on my part: Mike Maloney predicts the stock market is facing the mother of all crashes—if he’s right, then how long before the average stock investor would get back to even?

I wanted to know not only for myself, but because I have a daughter just starting in her career. I also have a wife with a 401k and over a decade to retirement. I have a son in college. I handle my retired parents’ money. And I have other family and friends who follow traditional brokerage advice and have 60% of their portfolios in stocks (or more in some cases).

So, if the stock market crashes, how long does history say it’ll take for their stock holdings to return to pre-crash levels… months? Years? Or—gulp—decades?

It’s an important question, because the answer will tell you how to invest depending on your timeframe. And if the answer ends up being “a long time”, well, you might consider sidestepping the stock market altogether if you, too, are nervous about its frothy nature.

At this point the average stock broker will pull out a looong term chart of the S&P and show that over time—despite numerous crashes and corrections and bear markets—the stock market ultimately marches higher. History does show this to be true on a nominal basis, further bolstered by the investor who is dollar cost averaging and reinvesting dividends (though these charts always exclude commissions and fees).

But when I saw one of those charts from my broker many years ago, I did notice one thing: over the past 100 years or so, there were a handful of crashes that not only looked like the Grand Canyon, they took a long time to recover. “What if that happened to my portfolio?” was the question I immediately muttered to myself.

Years later, after recalling my Dad’s grumbling about inflation in the late 1970s, I had a second question: if the Dow did end up taking a protracted time to get back to even, wouldn’t inflation erode my real rate of return? If it took a portfolio-killing ten years, for example, I might have earned back that $20,000 I lost, but now the car I’d planned to buy with that money cost not $20,000 but $30,000. Or $40,000. Show me all the long-term charts you want but I still can’t afford to buy that car.
So here was my inquiry: in the biggest market crashes, how long has it historically taken the S&P to return not to its pre-crash price, but to the inflation-adjusted level? By asking this question, I felt like I’d be better equipped to not just handle a major downturn but decide if I should be in the market at all.

Here’s what I discovered. In the four biggest stock market crashes since 1900, the inflation-adjusted recovery periods were all measured in decades.

Continue reading the article here.