This is a must read article. A warning to those who may be offended, it includes some racy language and sexual reference. Well used to excellent point in my view.
It is a great relief to have people call BS where so deservedly due. And most importantly, to point out that the experience of repeated capital loss for the masses, is the sentiment journey toward revulsion and rejection of over-valued assets which finally brings the generational capitulation and once in a lifetime investment opportunities for those that are prepared for them. Those who can restrain their animal nature and stick to the discipline of saving and protecting their capital through this period, will be the only one’s who are set up to take advantage of the next secular bull ahead. Those who insist that they must earn more now, and cannot wait for better prices, will continue to suffer financial harm indefinitely. It has always been thus.
“The love affair with stocks had to come to a hideous and grinding denouement. 20 years of good vibrations requires almost as many of despondency and apathy for the flames of lust to be extinguished. This is how it always goes. This is what sets us up for the next bull market, the one that makes those of us who have stuck it out rich. We’re not there yet, but we are getting very close. Perhaps not on valuation, as central banks and governments still have too much invested to let it clear. But certainly on sentiment. Apathy is morphing into disgust, the longer this continues the better.
Because hatred and a public perception of endless futility brings about opportunity.”
In a directly related story, the interest in “financial-tainment” is also in a massive downturn. The latest Nielsen stats show CNBC’s ratings for the quarter were the lowest since 2005. This too is a a necessary part of the revulsion cycle in the masses, as those who have followed the sell-side bias of financial media to their repeated demise over the past 15 years are finally turning off and tuning out. Its a revelation who’s time has come.
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Danielle,
In a recent interview, you mentioned that you think stocks could drop about 20% or so from current levels, and that would represent a good buying opportunity. While 20% is not a minor correction, it’s not the drop that I thought you were expecting over the next couple of years or so. I was under the impression that you thought stocks would go much lower, perhaps even lower than the March ’09 lows.
Did I misconstrue your outlook or have you changed your forecast?
To clarify, stocks are likely end this secular bear (15 to 20 years after 2000) at valuations comparable to the end of previous secular bears. That means that the S&P as an example is likely to trade at a Shiller PE of something like 8-10 times (presently its north of 20) normalized earnings of approximately $60 a share. This would amount to an S&P of something like 500 to 600. We could also over-shoot that to the downside given the extreme up cycle that was. At this point there is no way of knowing how much longer it takes to put in the secular bear low. The final bottom could arrive during the next cyclical bear over the next year or two as the next global recession is priced in to current lofty expectations. It could also take a few more years to reach the final secular low in valuations. We might see another couple of cyclical bears before that final capitulation comes. So we need to be protecting capital now against a range of possible outcomes and actively managing our risk as events unfold. We have a good sense of what attractive opportunities will look like, we just cannot predict how quickly they will present.
Thank you very much, Danielle.
Danielle, thanks for posting. This fellow has aptly captured the investment zeitgeist we have all come to know but hesitate to describe. As in all things, though, the truth comes out in the end. Congratulations to him for articulating it so well. As for the profanity, we have indeed come to the point where polite language is inadequate to describe the feelings of investors or the abuses visited upon them by a corrupt industry and a colluding government.
The fact that CNBC ratings are low is a bullish sign! If the ratings were high like in 2000 everyone would be in the market. My question to you Danielle at what point will you admit you are wrong. If the Dow makes a new high, will you change your position? I am not saying you will be wrong. I just want to know at what level of the Dow or S&P will you reconsider your position.
Contrarian indicator on media is not that simple. If stocks were at cycle lows and people had stopped watching market news that might be argued as bullish. But when stocks are near highs and people have lost interest this is something else at work. This is the impact of a secular bear where people try to own stocks “over the long run” but starting from over-valuations are doomed to a miserable journey through violent swings of loss until they finally take their few remaining chips off the table and go away. This is a multi-year process (usually 15-20 years in length), so soon entering year 13, we are making progress toward revulsion capitulation. Not there yet. As for admitting when I am wrong. Our rules are not based on just the price of the Dow or the S&P. There are several key indicators in our metrics and they all have to line up as a buy before we will commit capital. We measure our success as our ability to protect and grow capital over a full business cycle 4-5 years. We don’t need to ride every crazy short term price spike for that. We do need to focus on limiting down market losses as the primary goal. Just the opposite of what conventional wisdom promotes.
This is sound (the article and defensive approach).
BUT, how does one protect capital if paper money is being devalued (printed) en-mass.