Debt-deflation Bear Market Update - Part I: First Bounce officially over - Eric Janszen

[Ben]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

Well, I think you can only use this kind of mean-reversion analysis at extreme points with a longterm time-frame. In 1975 it had only just dipped under, so at that time, you couldn't draw conclusions. After 1985, however, you could think about buying stocks for the long-term. And if you had bought 85-90, you would have been rewarded over the next 10 years.

Now, according to CPI adjusted we are fairly valued, but that's in the context of having over shot to the upside. It's only a buy signal if it dips significantly below.

I'm not sure what to make of the without lies adjustment. It seems to suggest that it will soon be the time to buy. How do you square this with EJ's use of the inflation adjusted dow?

When it comes to this kind of thing, I prefer looking at Shiller's 10 year trailing P/E (http://www.multpl.com/) . On wikipedia you can find the graphs of 10 year trailing P/E vs 10/20 year inflation adjusted annual returns, so you can get an idea yourself of the predictive value. (my take: gives clear signals at extreme points, above 22 is bad, but otherwise, from a 10 year point of view, you can expect positive real returns from stocks most of the time. Now we're at ~20, but that's in the context of coming down from a high, so it's not a clear buy or sell)

[yernamehear]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

Of course people, EJ included, cherry pick time frames. What a real investor needs is a diversified portfolio that weights the different asset classes differently with "gasp", TIMING of the weightings. (Trades are necessary). There are many who tout that bonds have out-performed for about 20-25 years now, etc. It's not about a single asset class forever/buy and hold/forget.

I have some gold, stocks, bonds, etc. Right now, I'm a little overweight gold and commodities, underweight bonds and stocks. There have been many academic studies about this, but those are relatively boring compared to engaging in internet board flaming.

Good luck.

[bart]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

Just like almost any chart, it needs to be interpreted in context of many others. It's primary purpose for me is to show how large a factor that inflation has been and is, but it can of course be used in a mean reversion context. If it is though, one of the main charts that needs to be taken into account is the hard/paper asset cycle... and we're far from the end of that cycle in my opinion.






The "without lies" adjustments are based on John Williams work at shadowstats.com and I very highly recommend you study his work and factual context. We've been being lied to about CPI since at least 1982.

I don't see any conflict with EJ's use of the CPI adjusted Dow, "without lies" is complementary.

P/E stuff can work too, as long as its within a broad context.

[metalman]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

Of course people, EJ included, cherry pick time frames. What a real investor needs is a diversified portfolio that weights the different asset classes differently with "gasp", TIMING of the weightings. (Trades are necessary). There are many who tout that bonds have out-performed for about 20-25 years now, etc. It's not about a single asset class forever/buy and hold/forget.

I have some gold, stocks, bonds, etc. Right now, I'm a little overweight gold and commodities, underweight bonds and stocks. There have been many academic studies about this, but those are relatively boring compared to engaging in internet board flaming.

Good luck.

who's flaming? this started with ej posting 3 coins his dad bought in 1973. 'cherry picked' the dates? he didn't get to decide when his dad bought them.

then he calculated an 8% compound annual rate of return to the current price.

then he asked 'what's beat this'?

yep, a provocative question. have we answered it? munger's tool looks like it does, but how did one buy the s&p500 in 1973? if you bought 500 stocks of the index then how many of those went out of business in 37 yrs?

we haven't answered the question yet.

[yernamehear]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

1. Aaah, there are several portfolios that would track the S&P 500; there's this one with 30 stocks in it that does it pretty well.
2. Choosing a given year and challenging a single asset class (or even a single metal) to "beat this" is effectively cherry picking
3. Perhaps I was being too specific. My point about flaming is that reading a serious, and "boring to most people" academic-style article is not what people really want to do. They want some emotional excitement, e.g. seeing of there's some excitement on an internet board. This topic hasn't had flames (I haven't read it all though).
4. Search M. Faber and Tactical Asset Allocation.

Good Luck again.

[metalman]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

1. Aaah, there are several portfolios that would track the S&P 500; there's this one with 30 stocks in it that does it pretty well.
2. Choosing a given year and challenging a single asset class (or even a single metal) to "beat this" is effectively cherry picking
3. Perhaps I was being too specific. My point about flaming is that reading a serious, and "boring to most people" academic-style article is not what people really want to do. They want some emotional excitement, e.g. seeing of there's some excitement on an internet board. This topic hasn't had flames (I haven't read it all though).
4. Search M. Faber and Tactical Asset Allocation.

Good Luck again.

you new here? try this...

[Jim Nickerson]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

Barron's interview with Ray Dalio http://online.barrons.com/article/SB...el_article%3D1 5/29/2010

How are your portfolios positioned?

Our portfolio is mostly skewed to Treasury bonds, gold and emerging-market currencies, especially Asian currencies. We also hold commodity assets that are limited in supply and that high-growth emerging countries need. I want to minimize my exposure to the major developed countries' currencies -- the U.S. dollar, the euro, the British pound and the yen -- because those countries have a lot of debt, and they are going to need to print more and more money and will have more sluggish growth rates. I prefer the yen to the others. However, none of these can get too far out of line with the others, and when there is downward pressure on one, there is pressure on all. Just as the notion that the G-7 countries represent the major world powers is obsolete, it is also an obsolete notion that their currencies are the major reserves of wealth.

The depreciation of the major currencies and the printing of money will not cause a significant general level of inflation anytime soon.

Explain why the printing of money won't cause inflation

The printing of money will offset the deflation that is coming from the weak demand for goods and services due to weak credit growth. For example, in March of 1933 the U.S. printed a whole lot of money, and that had the effect of converting deflation into modest inflation, but not a high rate of inflation.... My point is, in developed countries there is too much of most things at the moment, and that's creating a deflationary environment. There is too much manufacturing capacity. There is too much labor. There is too much housing stock. As Europe's economy weakens and its debt crisis worsens, the printing of money does not mean that it will produce an accelerating inflation because simultaneously there is also less being purchased, and the surpluses are already causing deflationary pressures. That is why, contrary to almost everybody's belief, I believe the bonds in countries that can print money will be good investments.

Hugh Hendry, in an article from moneyweek.com dated 5/28/2010, quoting the author M.S.Webb.

http://www.zerohedge.com/article/hug...hyperinflation

"Otherwise, given that hyperinflation is still some way off, you buy 30-year US Treasury bonds or gilts. It is, says Hugh, the one thing most of us can't bring ourselves to do. But it is also the one that, pre-hyperinflation, 'makes a lot of money.'"

I do not know if the Finster Market Outlook has an iota of value, nevertheless its projection from last week (5/22/10) projected gains in "USTBonds" of 10.41% over the next month, 15.87% over the next four months, and 28.84% over the next year. "UST" is a symbol for the US Treasury 10-year note. Finster's site shows "USTBonds", and "bond" I believe denotes the US Treasury 30-year bond. So whether Finster's projections are for the 10-year Treasury note, or the 30-year Treasury bond, I do not know.

http://users.zoominternet.net/~fwuthering/FFF/FinsterMarketsOutlook

[jk]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

thanks for the heads up on dalio, jim. i've been ignoring barron's for a while, but i never ignore dalio. this portfolio ["Our portfolio is mostly skewed to Treasury bonds, gold and emerging-market currencies, especially Asian currencies. We also hold commodity assets that are limited in supply and that high-growth emerging countries need."] sounds very itulipish.

[Jim Nickerson]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

thanks for the heads up on dalio, jim. i've been ignoring barron's for a while, but i never ignore dalio. this portfolio ["Our portfolio is mostly skewed to Treasury bonds, gold and emerging-market currencies, especially Asian currencies. We also hold commodity assets that are limited in supply and that high-growth emerging countries need."] sounds very itulipish.

When I read Dalio's remarks, except for the T-Bond part, I thought it sounded very "jk-ish." I sometimes think "jk" is really Ray Dalio anyway. At least both are from CT and since CT is small, if the two are not the same, they must live close to one another.

If one thinks Dalio is likely correct, what sort of allocation percentages might one consider between the assets he mentioned? Three asset classes to me don't represent much diversification.

[jk]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

When I read Dalio's remarks, except for the T-Bond part, I thought it sounded very "jk-ish." I sometimes think "jk" is really Ray Dalio anyway. At least both are from CT and since CT is small, if the two are not the same, they must live close to one another.

If one thinks Dalio is likely correct, what sort of allocation percentages might one consider between the assets he mentioned? Three asset classes to me don't represent much diversification.

i foolishly sold my tbonds at the recent bottom and missed out on the recent rally, so i make no claims to be as smart as dalio. westport is about 45 minutes drive from where i live. i know my percentages, of course, but not dalio's. as of yesterdy, i'm 30% gold, 10% silver, 18% energy, 8% other currencies including loonies, gim and meafx, 6% agriculture, about 9% shorts and 1.3% in puts. up a bit over 3% ytd- nothing to write home about.

[yernamehear]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

you new here? try this...

Nope. VERY familiar with what happens "here".

[Ben]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

I like academic papers on quantitative investing!
I use mechanical strategies to pick stocks.
I thought that one was interesting. It's the first mechanical market timing model I've seen.

Metalman, if you bought the S&P you would rebalance every year (as a tracker ETF does), so companies going bust would get sold before they go bust, so basically survivorship bias wouldn't be such a big problem. I mean, most tracking ETFs have tracking errors of under 1%.

There are also lots of simple mechanical investing strategies with 1 year holding periods that would have significantly beaten the S&P e.g. buying the lowest decile by P/S ratio

However, yernamehear, I still think it's more than possible to do an EJ and avoid long-term periods when stocks perform terribly, while switching into assets entering secular bull markets, like gold. You just need to be an uncommon sort of person.

[metalman]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

I like academic papers on quantitative investing!
I use mechanical strategies to pick stocks.
I thought that one was interesting. It's the first mechanical market timing model I've seen.

Metalman, if you bought the S&P you would rebalance every year (as a tracker ETF does), so companies going bust would get sold before they go bust, so basically survivorship bias wouldn't be such a big problem. I mean, most tracking ETFs have tracking errors of under 1%.

There are also lots of simple mechanical investing strategies with 1 year holding periods that would have significantly beaten the S&P e.g. buying the lowest decile by P/S ratio

However, yernamehear, I still think it's more than possible to do an EJ and avoid long-term periods when stocks perform terribly, while switching into assets entering secular bull markets, like gold. You just need to be an uncommon sort of person.

kind sir, pls list all of the s&p500 etfs available in 1973... or am i supposed to be a pro who has the time/knowhow to rebalance? in 1973 i didn't know how to balance a much more than my own ass on a chair as i stared out the window thinking about my gf.

ever read what ej actually did?

sold gold in early 1990s & bought stocks.

sold stocks in 1998 except his dot com private equity.

ipos & sales...

sold the stock (cisco stock?) spring 2000.

bought 10 yr bonds & cash (6% plus?)

bought 15% gold 2001.

upped gold to 30% early 2009.

those 10 yr t bonds bought in the fall of 2000 will be maturing in a few months.... that the real reason ej is eager to find a new asset class???

(forgot he also has series i savings bonds... Future inflation fears topple TIPS)

[Ben]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

hehe ok. I imagine you could just buy the 30 (or more) largest S&P companies, then once per year sell those that are no longer top 30 and buy the new ones, and come pretty close to tracking it.

[yernamehear]

Re: Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

kind sir, pls list all of the s&p500 etfs available in 1973... or am i supposed to be a pro who has the time/knowhow to rebalance? in 1973 i didn't know how to balance a much more than my own ass on a chair as i stared out the window thinking about my gf.

ever read what ej actually did?

sold gold in early 1990s & bought stocks.

sold stocks in 1998 except his dot com private equity.

ipos & sales...

sold the stock (cisco stock?) spring 2000.

bought 10 yr bonds & cash (6% plus?)

bought 15% gold 2001.

upped gold to 30% early 2009.

those 10 yr t bonds bought in the fall of 2000 will be maturing in a few months.... that the real reason ej is eager to find a new asset class???

(forgot he also has series i savings bonds... Future inflation fears topple TIPS)

Congratulations to EJ. These are anecdotes.

Again, it is pretty easy to buy 30 stocks, as was previously posted, (and maybe fewer), and correlate with the S&P 500. The "s&P 500 etf's" objection is a red herring.

No offense to EJ, Bill Miller, or whomever, but with billions of investors in the world, somebody is going to flip a coin and get heads 15 times in a row (essentially, Bill Miller did).

One needs quantitative/mechanical trading systems with risk management ( I know a few), not anecdotes.

Like I always say, Good Luck. :cool: