46 replies to this topic

[pdx5]

Thanks Pdx for the clarification. I stand by my comment as well. If you purchased long bonds in 2008 you surely didn't get a 7.1 pct coupon from Uncle Sam

No problem. The main point I was trying to make is market had much more competition from bonds in 2008 than now. Now a days stocks have virtually no competition from bonds, precious metals and even real-estate which is slowing down.

It does not matter if uncle Sam was not issuing 7.1% coupons, because one could buy bonds on the open market with effective interest rate of 7.1%.

This market is unlikely to suffer any serious correction until it goes parabolic first. My target to go bear is 2050 if reached in 2014. They (Fed & Admin) are keeping interest rates near zero (ZIRP) and no stimulus to main street economy. Where can new money from 401-k and savings go? Stocks is the only place which is performing. IMO market reaches irrational overvaluation at SPX 2050. That is the only chance bears have of a double digit correction.

Edited by pdx5, 20 July 2014 - 12:17 AM.

[TechMan]

First of all, pdx5, your SPX 2050 target is only 3% away from the holiday shortened session high on 7/3/2014. There's nothing "parabolic" about it. And it's certainly not "irrational overvaluation". SPX 2050 could be reached all in a day or a weeks' work. Second of all, without any technical data, the argument about 401(k) money flows is nothing but rationalization. And finally, yield's not the only reason for money flows to Treasuries. In fact, at times that may not be the reason at all.

[TechMan]

Speaking of bonds, here's the latest on junk bonds.

Junk bonds appear to have reached a ST peak on 7/7/2014. It now has a negative correlation with the SPX 3 days in a row. Therefore, a mean reversion to re-calibrate seems imminent. H0A0 could suddenly turn around and join the SPX moving higher, or the SPX could follow the H0A0.

Edited by TechMan, 20 July 2014 - 07:32 AM.

[rjo]

Thanks Pdx for the clarification. I stand by my comment as well. If you purchased long bonds in 2008 you surely didn't get a 7.1 pct coupon from Uncle Sam

No problem. The main point I was trying to make is market had much more competition from bonds in 2008 than now. Now a days stocks have virtually no competition from bonds, precious metals and even real-estate which is slowing down.

It does not matter if uncle Sam was not issuing 7.1% coupons, because one could buy bonds on the open market with effective interest rate of 7.1%.

This market is unlikely to suffer any serious correction until it goes parabolic first. My target to go bear is 2050 if reached in 2014. They (Fed & Admin) are keeping interest rates near zero (ZIRP) and no stimulus to main street economy. Where can new money from 401-k and savings go? Stocks is the only place which is performing. IMO market reaches irrational overvaluation at SPX 2050. That is the only chance bears have of a double digit correction.

Sorry last comment...that's incorrect while there are very seasoned maturities issued long ago that paid a coupon of 7% and even higher...in 2008 the price on those treasury issues could not be bought for an effective rate of 7.1%. There is no arbitrage. The market would price those old coupons to an effective rate paid to you very close to the market interest rate at the time which was far below 7.1%. In other word if there was a treasury issued 15 years ago with a coupon of 7% priced at par...by 2008 the price on that issue would be say 115...making your effective rate (because you're purchasing the security above initial issue) much less.

[pdx5]

Techman, if 2050 is reached quickly, meaning in 2 months or so, that could pose as irrational exuberance. At that level, Shiller PE would match beginning of a previous serious decline. Since no one knows exact top, we all have to make our own benchmarks for strategic trading. 2050 happens to be mine, if reached before October, since corporate profits won't be much higher by then. rjo, again, main point is bonds were much more serious competition to stocks in 2008 compared to now. The number I posted was "average" interest rates published by our government. No point in getting lost in the forest looking at individual trees. Whether the rate was 7.1 or 6.9 or 6.6 or 6.3 is still vastly different than 3.4 or 3.6.

Edited by pdx5, 20 July 2014 - 10:17 AM.

[brucekeller]

I think the fact that momentum growth stocks like YELP and KING and their ilk relatively held up last week is an indication risk is on. Same solars also have seemed to formed a bottom to rip again after ripping last month. Also RUT appears to have bottomed, obviously has to be confirmed, but it having bottomed is more likely than the other option. All that coupled together plus other more subtle market feelings tells me risk on for at least a few weeks. Maybe it all ends with 2050 in Aug / Sept, primed for a good ol' Sept/Oct correction.

Edited by brucekeller, 20 July 2014 - 10:41 AM.

[TechMan]

pdx5 - Even given another 3% to the upside, to SPX 2050, there's no way the Shiller PE Ratio would reach "irrational exuberance" level of the past. Again, if you're talking about having to take 2 months just to go up 3%, it's definitely nothing "parabolic" or "irrational exuberant" about your target.

And, if matching the "previous serious" decline level in your reply to me is getting to the 27 level, then we're virtually there already at above 26. As you may notice, Shiller's PE-10 had stayed in the range of 25-27 for nearly 5 years before 2007 top.

[arbman]

Well, historically declines like Black Monday or Tuesday came not too far away from these levels, actually 2007 decline also started not too far from here. So, either it is "bubbling up" more or crashing from here, I doubt much of a soft landing will happen... However, this doesn't mean a bear market, I think we may see 2011 type sharp decline (which is really the slower version of 1987 or 2010 declines) and then a bottom to rally back up, perhaps similar to 2012... ALL reflation rallies end when the crowd believes in the manipulation, then the bankers pull the rug underneath very suddenly. This one will not be any different imho, yet this doesn't mean a prolonged bear market either...

http://www.multpl.com/shiller-pe/

Edited by arbman, 20 July 2014 - 12:57 PM.

[pdx5]

TM, The SPX chart already looks parabolic. I will grant you that ascending to 2050 from here is not parabolic. It is really just continuation of the parabola. Back in 2003 through 2007 were the housing boom years, and jobs data was robust, and corporate profits were good. So Shiller 27 was somewhat justifiable based on prevailing optimism. Very few foresaw the housing debacle at that time. At this juncture, if we ignore the big internationals, the rest of SPX and RUT components do not look healthy. Jobs data is weak, GDP growth is weak. Which is why I perceive this market overvalued and at SPX 2050 it looks dangerously overvalued if reached within a couple of months. Because I am not seeing what catalyst is present to improve future economic performance. Only ZIRP is keeping the market afloat. It is not a healthy situation. I heard today 4 big corporations are moving out of US based on tax savings available in other countries. No one has to agree with my POV. I am just posting what I think. If I am wrong, it won't be the first time

[arbman]

TM,
The SPX chart already looks parabolic. I will grant you that ascending to 2050 from here is not parabolic. It is really just continuation of the parabola.

Back in 2003 through 2007 were the housing boom years, and jobs data was robust, and corporate profits were good. So Shiller 27 was somewhat justifiable based on prevailing optimism. Very few foresaw the housing debacle at that time.

At this juncture, if we ignore the big internationals, the rest of SPX and RUT components do not look healthy. Jobs data is weak, GDP growth is weak. Which is why I perceive this market overvalued and at SPX 2050 it looks dangerously overvalued if reached within a couple of months. Because I am not seeing what catalyst is present to improve future economic performance. Only ZIRP is keeping the market afloat. It is not a healthy situation. I heard today 4 big corporations are moving out of US based on tax savings available in other countries.

No one has to agree with my POV. I am just posting what I think. If I am wrong, it won't be the first time

pdx, I am thinking we will see 2050 within a few weeks, not months!

Edited by arbman, 21 July 2014 - 02:09 AM.