Why Only Fools Think the Bottom Is In

[stockman]

Re: Why Only Fools Think the Bottom Is In

NERO3-

Market action is the most important issue for my own trading. I am not as confident that it is a multi year bull market as you, but it doesn't matter. The current market offers a long side opportunity- so I'm a participant.

Since my allocation does not differ much from Soros, other than my preference for smaller cap stocks... I agree that he is the man!

There are intelligent people on both sides of the table here, but I prefer not to get locked into a long term view personally. My own experience suggest that getting too committed to a long term thesis can hurt my results. For now I am on the bull's side, but if the markets should break down- the corporate fixed income or equity market I would not mind changing sides.

Wherever our ultimate destination is, it is not as important (for me) as the opportunities offered along the way.

[grapejelly]

Re: Why Only Fools Think the Bottom Is In

if you think it's a bear if it's like 75-76, and then stagnation for some years, why not buy stocks that are dirt cheap, and just get the dividends until inflation peaks? Or why not buy emerging market stocks, that surely will be in a bull if us stocks are in a inflationary structural bear?

I'll tell you why I wouldn't do this.

Stock prices are ultimately based on return on investment, namely the ability of the company to increase earnings.

Earnings are taking a crapper for the foreseeable future.

In addition, as Mauldin and others have noted, overall stock valuations tend to oscillate in long cycles, like 1982-2000, where the multiples on which stock prices are based expand, or contract.

So we are in a period since 2000 where multiples on which earnings are based (pick a metric of your choice, for instance price to earnings, or price to dividends, whatever, I like using dividends because they can't be fudged as easily as earnings) are contracting.

AND, the economies are slowing down really, really fast. There is the odd outlier like Chinese vehicle sales, but on the whole, economies are really sinking fast almost in tandem.

So, if I buy stocks now, how "cheap" are they? Once the valuation metrics fall, AND earnings fall, today's cheap stock is much cheaper tomorrow.

The one thing you must also figure in here is the terrible inflation that is baked into the cake (sorry, I hate that phrase but it is useful.)

Inflation is TERRIBLE for stocks because it makes earnings unpredictable, it makes operations opaque and difficult, and more than anything, inflation lowers the net present value represented by a stream of earnings or dividends.

So we have THREE bad things on the horizon:

falling multiples (predictably falling over many years, starting in 2000 and probably lasting until around 2015)

falling earnings (because of the bad economic times)

and

rising inflation (because of the huge currency depreciation caused by the central banks.)

Now, tell me again, why would I want to buy stocks?

I am very sorry that I own mining stocks and energy stocks right now. I will hold onto them because of the long term. I think they will be okay but I should have sold them when they were falling. Now I think they are great companies and I'm a very poor trader, so if I sold them, that would be the moment they were about to take off.

There is a fourth reason that stocks are bad. It trumps EVERYTHING. And that is sentiment. Popular sentiment is STILL favorable to the market and "buy and hold" claptrap.

All major moves in any market are predictable based upon sentiment. All of them. Without exception.

When Joe Six Pack swears off stocks forever, and the popular magazines and blogs declare the stock market dead, THEN it is time to get back into stocks.

[nero3]

Re: Why Only Fools Think the Bottom Is In

I'll tell you why I wouldn't do this.

Stock prices are ultimately based on return on investment, namely the ability of the company to increase earnings.

Earnings are taking a crapper for the foreseeable future.

In addition, as Mauldin and others have noted, overall stock valuations tend to oscillate in long cycles, like 1982-2000, where the multiples on which stock prices are based expand, or contract.

So we are in a period since 2000 where multiples on which earnings are based (pick a metric of your choice, for instance price to earnings, or price to dividends, whatever, I like using dividends because they can't be fudged as easily as earnings) are contracting.

AND, the economies are slowing down really, really fast. There is the odd outlier like Chinese vehicle sales, but on the whole, economies are really sinking fast almost in tandem.

So, if I buy stocks now, how "cheap" are they? Once the valuation metrics fall, AND earnings fall, today's cheap stock is much cheaper tomorrow.

The one thing you must also figure in here is the terrible inflation that is baked into the cake (sorry, I hate that phrase but it is useful.)

Inflation is TERRIBLE for stocks because it makes earnings unpredictable, it makes operations opaque and difficult, and more than anything, inflation lowers the net present value represented by a stream of earnings or dividends.

So we have THREE bad things on the horizon:

falling multiples (predictably falling over many years, starting in 2000 and probably lasting until around 2015)

falling earnings (because of the bad economic times)

and

rising inflation (because of the huge currency depreciation caused by the central banks.)

Now, tell me again, why would I want to buy stocks?

I am very sorry that I own mining stocks and energy stocks right now. I will hold onto them because of the long term. I think they will be okay but I should have sold them when they were falling. Now I think they are great companies and I'm a very poor trader, so if I sold them, that would be the moment they were about to take off.

There is a fourth reason that stocks are bad. It trumps EVERYTHING. And that is sentiment. Popular sentiment is STILL favorable to the market and "buy and hold" claptrap.

All major moves in any market are predictable based upon sentiment. All of them. Without exception.

When Joe Six Pack swears off stocks forever, and the popular magazines and blogs declare the stock market dead, THEN it is time to get back into stocks.

I'll answer you with a graph of SLB, one of soros picks, during the seventies. A graph of UNP, I don't have any emerging market graphs from the seventies, but in the 74 low, it was a extremely good buying opportunity on the nikkei. I think it's similar with the shanghai and many emerging market's now.


http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=SLB&origurl=%2Ftools%2Fquotes%2Fintchart.asp&x=0&y=0&startdate=1%2F1%2F1970&enddate=3%2F30%2F1981&time=20&freq=1&customdate=true&hiddenTrue=&comp=unp&compidx=aaaaa~0&compind=aaaaa~0&uf=0&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=128&size=3&optstyle=380

[grapejelly]

Re: Why Only Fools Think the Bottom Is In

I'll answer you with a graph of SLB, one of soros picks, during the seventies. A graph of UNP, I don't have any emerging market graphs from the seventies, but in the 74 low, it was a extremely good buying opportunity on the nikkei. I think it's similar with the shanghai and many emerging market's now.


http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=SLB&origurl=%2Ftools%2Fquotes%2Fintchart.asp&x=0&y=0&startdate=1%2F1%2F1970&enddate=3%2F30%2F1981&time=20&freq=1&customdate=true&hiddenTrue=&comp=unp&compidx=aaaaa~0&compind=aaaaa~0&uf=0&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=128&size=3&optstyle=380

I agree with you that there are always opportunities in the market.

That is one reason NOT to regret buying mining stocks and energy stocks right now.

And it is a good reason to have some equity exposure because you can't predict the future very reliably.

[nero3]

Re: Why Only Fools Think the Bottom Is In

I agree with you that there are always opportunities in the market.

That is one reason NOT to regret buying mining stocks and energy stocks right now.

And it is a good reason to have some equity exposure because you can't predict the future very reliably.

You know a company like GE, DD, or whatever, is likely to be able to pass on inflation. I see every time I am in the store, that I'm paying more for potato chips, chocolate, milk, bread, even bottle water, than for diesel for my car. I think it's insane. I can see it all get expensive, I think the potential for supply disruptions on oil are rising, I think a peak in oil prices is possible at one point that might not be reversible like after 1980. You might dampen it with a strong dollar, if we are on a dollar standard, but as I see it, living standards will have to drop, as oil get shorter in supply.

On GE, DD, etc, they might not do much, but you might get a juicy and increasing dividend, while waiting for the deflationary 80-s or 50-s like boom.

[raja]

Re: Why Only Fools Think the Bottom Is In

If one is a farmer, prepare for some hard times, or prepare to have the bank foreclose on your farm. All of us should prepare for some bare grocery store shelves.

As the world gets poorer, increased striving for efficiency will be required. Right now, much of the US produce is flown in from California.

California gets the biggest piece of the pie due to the types of crops grown in the state. The state is the largest producer of fruits and vegetables in the country, accounting for 49 percent of the total U.S. value. Tree and vine fruit production in California is 58 percent of the U.S. value, and vegetable and melon production is 39 percent of the U.S. value.

As belts tighten, I see a shift to regional farming to cut transportation costs.
Therefore, I believe that farms supplying local market will prosper, while those relying on transporting their products great distances will suffer. Also, farmers will always have a good supply of fresh, free food, whereas those in the cities will experience more shortages and higher prices.

Therefore, I think only some farmers will suffer hard times . . . while others will thrive.

Disclosure: I am long regional farming, being the owner of a small hobby farm in Tennessee. ;)

[rogermexico]

Re: Why Only Fools Think the Bottom Is In

Grape, based on previous posts, you seem to be a bit of austrian and I like that. Your debunking of "stocks as a good inflation hedge" is right on the mark and I couldn't have said it better.

All valuation metrics are reverting to their means at the same time, including, importantly, corporate profitability (CP) CP over the past 10 years has been abnormally high. This means that even Shillers 10 year trailing PE is inlfated. Many other authors have debunked the "stocks as an inflation hedge" argument. Jim Rogers convincingly makes the case for investing in commodities versus commodity producers. This applies to PMs and industrial metals.

In my view, compared to stocks, only the US dollar will have worse real performance over the next several years.

I'll tell you why I wouldn't do this.

Stock prices are ultimately based on return on investment, namely the ability of the company to increase earnings.

Earnings are taking a crapper for the foreseeable future.

In addition, as Mauldin and others have noted, overall stock valuations tend to oscillate in long cycles, like 1982-2000, where the multiples on which stock prices are based expand, or contract.

So we are in a period since 2000 where multiples on which earnings are based (pick a metric of your choice, for instance price to earnings, or price to dividends, whatever, I like using dividends because they can't be fudged as easily as earnings) are contracting.

AND, the economies are slowing down really, really fast. There is the odd outlier like Chinese vehicle sales, but on the whole, economies are really sinking fast almost in tandem.

So, if I buy stocks now, how "cheap" are they? Once the valuation metrics fall, AND earnings fall, today's cheap stock is much cheaper tomorrow.

The one thing you must also figure in here is the terrible inflation that is baked into the cake (sorry, I hate that phrase but it is useful.)

Inflation is TERRIBLE for stocks because it makes earnings unpredictable, it makes operations opaque and difficult, and more than anything, inflation lowers the net present value represented by a stream of earnings or dividends.

So we have THREE bad things on the horizon:

falling multiples (predictably falling over many years, starting in 2000 and probably lasting until around 2015)

falling earnings (because of the bad economic times)

and

rising inflation (because of the huge currency depreciation caused by the central banks.)

Now, tell me again, why would I want to buy stocks?

I am very sorry that I own mining stocks and energy stocks right now. I will hold onto them because of the long term. I think they will be okay but I should have sold them when they were falling. Now I think they are great companies and I'm a very poor trader, so if I sold them, that would be the moment they were about to take off.

There is a fourth reason that stocks are bad. It trumps EVERYTHING. And that is sentiment. Popular sentiment is STILL favorable to the market and "buy and hold" claptrap.

All major moves in any market are predictable based upon sentiment. All of them. Without exception.

When Joe Six Pack swears off stocks forever, and the popular magazines and blogs declare the stock market dead, THEN it is time to get back into stocks.

[nero3]

Re: Why Only Fools Think the Bottom Is In

As the world gets poorer, increased striving for efficiency will be required. Right now, much of the US produce is flown in from California.
As belts tighten, I see a shift to regional farming to cut transportation costs.
Therefore, I believe that farms supplying local market will prosper, while those relying on transporting their products great distances will suffer.
Also, farmers will always have a good supply of fresh, free food, whereas those in the cities will experience more shortages and higher prices.

Disclosure: I am long regional farming, and the owner of a small hobby farm in Tennessee. ;)

I agree with you. I think farming will be in a bull, a long term bull. I don't see so much shift between local and long range, I think it will be bull no matter what. I was close to buying a farm last year, but to achieve it I would have to sell everything I had and go deep into debt. Farming ,railroad, small garden, good life on the country side. A shift away from the urban cafe latte city life is coming.

[stockman]

Re: Why Only Fools Think the Bottom Is In

There is a fourth reason that stocks are bad. It trumps EVERYTHING. And that is sentiment. Popular sentiment is STILL favorable to the market and "buy and hold" claptrap.

All major moves in any market are predictable based upon sentiment. All of them. Without exception.

When Joe Six Pack swears off stocks forever, and the popular magazines and blogs declare the stock market dead, THEN it is time to get back into stocks.

You may be right if we are looking for the secular turning point- when valuations actually begin to expand again. This is why I have trouble with the 'new multi-year bull market' thesis- not enough time to unwind the prior peak valuations (15-18 years?) and not low enough in valuation (5-7 times 10 year earnings?) However it is worth noting that the NOMINAL low in the SPX was established in 1974- well before trough valuations were seen. And there were important opportunities following that 1974 low- in commodities as well as small cap stocks.

There had been plenty of opportunities on the long side since valuations peaked in 2000. Even in Japan's lost decades... there have been very nice 1 year + 'bull markets' when sentiment just got too lopsided to the bear case.

Can't see sentiment here as being overly bullish by any measure.

AAII asset allocation.jpg

And confidence is down to 1974 levels.

Consumer Confidence 041209.JPG

[stockman]

Re: Why Only Fools Think the Bottom Is In

I agree with you. I think farming will be in a bull, a long term bull. I don't see so much shift between local and long range, I think it will be bull no matter what. I was close to buying a farm last year, but to achieve it I would have to sell everything I had and go deep into debt. Farming ,railroad, small garden, good life on the country side. A shift away from the urban cafe latte city life is coming.

Year	Price per Acre Iowa Farmland Values	Change	DJIA	IFL (Iowa Farm Land)/DJIA
60	$237		616	$0.38
61	$237	0%	731	$0.32
62	$241	2%	652	$0.37
63	$250	4%	763	$0.33
64	$265	6%	874	$0.30
65	$293	11%	969	$0.30
66	$354	21%	785	$0.45
67	$397	12%	905	$0.44
68	$409	3%	944	$0.43
69	$419	2%	800	$0.52
70	$419	0%	839	$0.50
71	$430	3%	890	$0.48
72	$482	12%	1020	$0.47
73	$635	32%	850	$0.75
74	$834	31%	616	$1.35
75	$1,095	31%	852	$1.29
76	$1,368	25%	1005	$1.36
77	$1,450	6%	831	$1.74
78	$1,646	14%	805	$2.04
79	$1,958	19%	839	$2.33
80	$2,066	6%	964	$2.14
81	$2,147	4%	875	$2.45
82	$1,801	-16%	1046	$1.72
83	$1,691	-6%	1259	$1.34
84	$1,357	-20%	1211	$1.12
85	$948	-30%	1546	$0.61
86	$787	-17%	1895	$0.42
87	$875	11%	1939	$0.45
88	$1,054	20%	2169	$0.49
89	$1,139	8%	2753	$0.41
90	$1,214	7%	2634	$0.46
91	$1,219	0%	3167	$0.38
92	$1,249	2%	3301	$0.38
93	$1,275	2%	3754	$0.34
94	$1,356	6%	3834	$0.35
95	$1,455	7%	5117	$0.28
96	$1,682	16%	6448	$0.26
*97	$1,837	9%	7908	$0.23
98	$1,801	-2%	9181	$0.20
99	$1,781	-1%	11497	$0.15
00	$1,857	4%	10786	$0.17
01	$1,926	4%	10021	$0.19
02	$2,083	8%	8341	$0.25
03	$2,275	9%	10454	$0.22
04	$2,629	16%	10783	$0.24
05	$2,914	11%	10718	$0.27	http://www.iowaworkforce.org/trends/farmhist.html
06	$3,204	10%	12463	$0.26	http://www.extension.iastate.edu/news/2006/dec/061801.htm
07	$3,908	22%	13265	$0.29	http://www.extension.iastate.edu/news/2007/dec/071801.htm

My largest investment and ONLY long term investment is in FARM LAND.

[metalman]

Re: Why Only Fools Think the Bottom Is In

Year	Price per Acre Iowa Farmland Values	Change	DJIA	IFL (Iowa Farm Land)/DJIA
60	$237		616	$0.38
61	$237	0%	731	$0.32
62	$241	2%	652	$0.37
63	$250	4%	763	$0.33
64	$265	6%	874	$0.30
65	$293	11%	969	$0.30
66	$354	21%	785	$0.45
67	$397	12%	905	$0.44
68	$409	3%	944	$0.43
69	$419	2%	800	$0.52
70	$419	0%	839	$0.50
71	$430	3%	890	$0.48
72	$482	12%	1020	$0.47
73	$635	32%	850	$0.75
74	$834	31%	616	$1.35
75	$1,095	31%	852	$1.29
76	$1,368	25%	1005	$1.36
77	$1,450	6%	831	$1.74
78	$1,646	14%	805	$2.04
79	$1,958	19%	839	$2.33
80	$2,066	6%	964	$2.14
81	$2,147	4%	875	$2.45
82	$1,801	-16%	1046	$1.72
83	$1,691	-6%	1259	$1.34
84	$1,357	-20%	1211	$1.12
85	$948	-30%	1546	$0.61
86	$787	-17%	1895	$0.42
87	$875	11%	1939	$0.45
88	$1,054	20%	2169	$0.49
89	$1,139	8%	2753	$0.41
90	$1,214	7%	2634	$0.46
91	$1,219	0%	3167	$0.38
92	$1,249	2%	3301	$0.38
93	$1,275	2%	3754	$0.34
94	$1,356	6%	3834	$0.35
95	$1,455	7%	5117	$0.28
96	$1,682	16%	6448	$0.26
*97	$1,837	9%	7908	$0.23
98	$1,801	-2%	9181	$0.20
99	$1,781	-1%	11497	$0.15
00	$1,857	4%	10786	$0.17
01	$1,926	4%	10021	$0.19
02	$2,083	8%	8341	$0.25
03	$2,275	9%	10454	$0.22
04	$2,629	16%	10783	$0.24
05	$2,914	11%	10718	$0.27	http://www.iowaworkforce.org/trends/farmhist.html
06	$3,204	10%	12463	$0.26	http://www.extension.iastate.edu/news/2006/dec/061801.htm
07	$3,908	22%	13265	$0.29	http://www.extension.iastate.edu/news/2007/dec/071801.htm

My largest investment and ONLY long term investment is in FARM LAND.

well done. good to have among us one of jim rogers' farm owners riding around in a maserati, thumbing his nose at the unemployed bankers working the fields as hired hands.

[jtabeb]

Re: Why Only Fools Think the Bottom Is In

well done. good to have among us one of jim rogers' farm owners riding around in a maserati, thumbing his nose at the unemployed bankers working the fields as hired hands.

Who needs Ag when you have a recovery like this?

:mad::mad::mad::mad::mad:

[nero3]

Re: Why Only Fools Think the Bottom Is In

Who needs Ag when you have a recovery like this?

:mad::mad::mad::mad::mad:

That's why you need to buy. If you want things to look good, the opportunity will be over. When the man on the street says, this is going to be great, then the buying opportunity is over. Of course when the last bear have bought, it's time for the next crash

[metalman]

Re: Why Only Fools Think the Bottom Is In

Who needs Ag when you have a recovery like this?

:mad::mad::mad::mad::mad:

yep, just another recession like 2001, 1990, 1981-83, etc. no biggie. gonna bounce back any day now. money on the sidelines, blah, blah, blah...

[nero3]

Re: Why Only Fools Think the Bottom Is In

yep, just another recession like 2001, 1990, 1981-83, etc. no biggie. gonna bounce back any day now. money on the sidelines, blah, blah, blah...

Oh, shut up, it's going to bounce back. The US just need to print more dollar so the rest of the world can get along, and the us will be dragged along in a sluggish recovery. And if: no more mortage backed securities to china, no more treasuries to china, well then yields will head up, creating a very steep yield curve. That's inflationary and promote recovery.