Ring ring.

Honest reporting on shorter-term trading activity and ideas
compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Ring ring.

Postby compscidude » December 15th, 2016, 8:34 am

Some people say, 'the best time to buy is now'. These people are wrong, as a moment's glance at any diagram of market history will show you. There are good times and bad times to be buying.

Right now, in my opinion, is almost certainly not a good time to be buying. It is probably a good or good-ish time to be selling to cash and staying there. So I am ringing my 'danger' bell. Here's why.


Shares:

- The US markets have hit quadruple-record-highs on the indices. Repeatedly. This means the US markets are expensive, in some sense. For every index to be at unprecedented levels simultaneously is rare.

- The Shiller 10-year price to earnings ratio is worse than it was before the crash in 2007-2008, which has only happened a couple of times historically. Again, this means the US markets are expensive in some sense.

- In fact every time in the last 100 years the market had the shiller index value this high, there was a god-almighty crash very soon after. See for yourself:

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

Look at 2008, 2000, 1966, 1929. Or 1905. Or 1937. And when you adjust for a strong dollar right now, it looks even worse.


Bonds:

- The bond rally which has continued for three decades is reversing rapidly.

https://www.ft.com/content/271752ec-a81 ... a99e2a4de6


Currency:

- Separately, the pound is still very weak by historical standards, and the US dollar is strong. If you're buying international shares this should be a real warning sign all by itself that you're on the wrong side of history.

- In fact if you really want to shock yourself, calculate the value of the SP500 in pound sterling and compare it against what you could have bought it for in 2012 or 2008. Of course time has passed since then, but this has hardly been a decade of growth.

- Of course, Britain may manage to devalue the pound further in March. We'll see. There is probably a limit to how much lower the pound will go from here, and that limit is probably less damaging than riding out a stock market or bond market crash.

Politics:

- America has a political crisis. Maybe a very big political crisis - Putin's direct involvement in manipulating the election; the possibility of the electoral college refusing to elect Trump. There is a non-zero chance Trump will not be elected by the EC, and the Trump Rally may turn into a crash very soon afterwards.

- America has just started raising rates. We just had the second rate rise in 10 years.

- Britain and Europe have problems looming over them too. Of course, there are always problems at any time. The market climbs a wall of worry. But these problems are substantial - Brexit. European Banks. Greece.

- Historically, Republican governments have more often presided over worsening economic conditions. 1929, 2001, 2007 stand out as particularly interesting examples.

I conclude that at the very least, this is a highly dangerous time to be buying shares or bonds, especially in the US market or in countries pegged to the dollar. It is perhaps also a good time to be selling, as I have (89% cash).

comp

EDIT: 08:36, 15/12/2016, fixed a typo.

tjh290633
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Joined: November 4th, 2016, 11:20 am

Re: Ring ring.

Postby tjh290633 » December 15th, 2016, 10:58 am

You are looking at the market as a whole. For certain shares the time might definitely be now. Others ought not to be touched with a barge pole. As for fixed interest securities, Mrs Yellen has pointed out that that king has no clothes.

TJH

SalvorHardin
Posts: 23
Joined: November 4th, 2016, 10:32 am

Re: Ring ring.

Postby SalvorHardin » December 15th, 2016, 11:45 am

I’ll play Devil’s Advocate. I should point out that I live off my portfolio, having retired over a decade ago, so I have a lot more skin in the game than most people (up 29% in sterling in 2016). Also I laugh at a 20% fall in the market; I’ve seen too many of these in my 35-years of investing in the markets to the point where I’m no longer scared. So the sorts of events that give some investors the shakes tend to bounce off me.

At a time of 1.5% 10-year gilt yields, particularly when the world is awash with cash looking for a secure home and people are happy to buy German debt at negative yields, a P/E of 25 is not expensive (but neither is it cheap). The P/E ratios of some stockmarkets, especially the FTSE100, are also distorted (upwards) by the huge losses/collapsing profits recently incurred by the multinational miners and oil companies as well as the problems of some banks (banking is a sector that I won't touch with the proverbial bargepole - it's run by insiders for insiders and their cronies).

What would the typical private investor rather hold for 30 years; a 30-year gilt paying 3.5% gross or Unilever shares which currently yield 3.3% net?

Donald Trump will be the next President of the United States and he will make a success of it. The people who are saying that there's a good chance that the Electoral College will vote for Clinton are the same people who failed to spot the surge of support for Trump because they don’t associate with anyone who votes Republican (or UKIP). Bear in mind that their collective prediction was for economic disaster and a stockmarket crash if Trump won; someone ought to tell Wall Street to respect these people instead of keeping on hitting record highs. For me rising US interest rates is a sign of the strength of the American economy and it’s this which has pushed down Treasury bond prices. But inflation should stay relatively low; there's a lot of surplus productive capacity out there and the export of jobs and production to lower cost countries is going to continue, though protectionism is on the rise.

In the unlikely event that Trump loses the Electoral College vote then Trump gets voted in by the Republican-dominated House of Representatives. I can’t find any odds for this happening (I'd think 500-1 or more); though you can get 6-1 on Trump appearing in the ring at Wrestlemania 33 next year.

If anything I think that Trump will be an economic success. Slashing red tape, much of which is designed to restrict economic growth, will particularly help. It helps that expectations for Trump are so low thanks to the Democrat-dominated media. I'm still massively overweight in North American railroads and North America in general, with some of my holdings coming close to celebrating their twentieth birthdays (I remember one poster on TMF insisting that long-term investors never make money, ROTFLMAO).

If anything the dollar will strengthen in 2017 given the troubles in the Eurozone and increasing political uncertainty around the world. Russian sabre-rattling is always good for the dollar, but it will be bad for the Euro which has several other things to worry about (Brexit causing splits, the Italian banking crisis, a possible Spanish banking crisis, Marine Le Pen possibly winning next year’s Presidential election (which will break up the EU).

Michael Gove was right to when he dismissed the collective view of “experts” in fields dominated by human behaviour. Human systems aren’t like physics, where to paraphrase Laplace given the initial conditions you can predict the Universe, which is why the economists and political pundits get it wrong more often than not. I’m particularly impressed by how staggeringly wrong the pundits and political class were about the Brexit vote.

Currently I’m about 8% in cash (normally it no more than 3%-ish), because I recently sold half my largest holding (Disney) and am having a think about where to put it, and I have to write a big cheque for last year’s capital gain tax bill any day now.

StepOne
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Re: Ring ring.

Postby StepOne » December 15th, 2016, 12:57 pm

You could be right, but what are you suggesting doing with the money? If it's going into cash then I think I'll just hang on in there. This bell has been ringing pretty regularly since early 2015, since when there has been a 20% fall in the FTSE along with a similar rise (sorry, I'm not sure what has happened in other markets, but I think the S&P500 is at all time highs). So, unless you got completely out right at the top, and completely back in right at the bottom, you will probably have made around 10% on this trade. To me, it's just not worth the risk. Eventually you'll be wrong, and all those little 10% profits will be wiped out.

StepOne

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 1:17 pm

Donald Trump will be the next President of the United States and he will make a success of it. The people who are saying that there's a good chance that the Electoral College will vote for Clinton are the same people who failed to spot the surge of support for Trump because they don’t associate with anyone who votes Republican (or UKIP).

I cannot take your view on this seriously. Almost no one in American politics or media is talking about the Electoral College voting for Clinton.

Your assumption is that Clinton is the only other candidate. Whereas presently, discussion of an EC rebellion centers around the idea of Kasich, McCain or Romney being put forward to Congress as a compromise 'traditional GOP' candidate, if 37 EC voters can be persuaded to vote against Trump. Right now the total that have indicated they are willing to act is around 20; last week it was 1.

I encourage you to take a look at http://www.reddit.com/r/politics and survey the American press items on this topic.

The less obvious mistake you have made is the idea 'he will make a success of it'. On the contrary, in the event that Trump is elected to President by the EC, he will immediately be in breach of the constitution, and it is therefore fairly likely that he will be impeached early on. This could result in him being replaced by Mike Pence who is far more palatable to 80-90% of the Republican party and who is also more favourable in the eyes of the democrats.

Whether things ultimately go as you expect or not, you are presently assigning zero probability to events that have a non-zero chance of occurring, and that is not a good strategy for investment.

comp

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 1:42 pm


You could be right, but what are you suggesting doing with the money? If it's going into cash then I think I'll just hang on in there. This bell has been ringing pretty regularly since early 2015, since when there has been a 20% fall in the FTSE along with a similar rise (sorry, I'm not sure what has happened in other markets, but I think the S&P500 is at all time highs). So, unless you got completely out right at the top, and completely back in right at the bottom, you will probably have made around 10% on this trade. To me, it's just not worth the risk. Eventually you'll be wrong, and all those little 10% profits will be wiped out.


Could be right? I am right, about the danger. I am not saying that some particular event will happen. I am not making a prediction about the path of the future. I am warning that the odds of a bad thing happening are, by history's measure, exceptionally high.

I suggested doing nothing with the money. When dollars are expensive, euros are expensive, bonds are expensive, shares are expensive, property is expensive, then cash is by definition cheap. When the pound is sitting at a historically low level, the risks of losing your shirt are substantially reduced.

I am not talking about profits or optimising them. I am simply talking about the present danger of suffering from an almighty, investment-career-destroying crash, a risk which is higher than it has been since the year 2000, according to the Shiller PER understanding of overvaluation.

We are already looking now at an overvaluation of the US market which is worse than 2007. Do you remember 2007-2008?

Between 1920 and 1930 a lot of people made money. Then, they lost it, and it took twenty years to recover.

- At the time of the 1929 crash that began the great depression, the Shiller PER was 30.

- At the time of the 2007 crash which has lead to a ten year long stagnation in the world economy that has not yet ended, the Shiller PER was 26.

- Compare and contrast: earlier this week the Shiller PER was over 28.

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

Many people who are Fools may be planning to retire in the next 10-20 years. Yet it is only recently that the FTSE100 surpassed the high tide mark of the last millenium. 16 years! Just to get back to the starting point if you bought in 1999 when the markets were at super-high Shiller PERs. Who of us can risk (another?) 16 year setback just to get back to square 1?

Re: "10% profit" - is a remarkably precise number for you to draw from the air, which also has the interesting quality of having no relationship whatsoever with the scale of any past correction starting from these levels of overvaluation.

Take a look at how the UK market responded to the similarly priced overvaluations in the US around 2000 and around 2007.

https://www.google.com/search?q=ftse100&oq=ftse100 - set the time scale to maximum.

Also, I should mention that my post was clearly focused on the US market. I expect though that the UK market will follow the US down when a crash inevitably occurs. It is hard to know though, as the speed of currency movement in the pound this year is without precedent in history and it has such a big effect on the FTSE.

If I was someone that was 100% committed to staying in the market no matter what, I would probably switch any US holdings I have into UK holdings, as the UK market seems less overvalued, given the weak pound and lack of historical records being set. Fortunately, I have no such commitment to holding shares.

comp

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 2:06 pm

I’ll play Devil’s Advocate. I should point out that I live off my portfolio, having retired over a decade ago, so I have a lot more skin in the game than most people (up 29% in sterling in 2016). Also I laugh at a 20% fall in the market

1. 20% fall? The markets did not fall 20% either of the last two times this type of overvaluation occurred in the last two decades.

In the UK, the FTSE100 index fell from around 7000 to 3500, peak to trough. A 50% drop. 50% in 1999-2003, and again in 2007-2008.

Those who were invested in investment trusts should be even more nervous due to the use of gearing. MRCH for example fell 60% peak to trough in 2007.

Hmm. I think I've just persuaded myself to sell MRCH...

2. If you are able to live on dividends (i.e. a portfolio taking the place of an annuity) you will probably be fine in the long term anyway and can ride out any storms. However, anyone who is dependant upon (or interested in) the capital value of their portfolio should be paying very serious attention to dangers that affect capital value.

comp

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 2:11 pm

The less obvious mistake you have made is the idea 'he will make a success of it'.

Just to be clear about what I mean when I write this.

I am not saying that Trump cannot be elected or cannot make a success of a presidency.

I am saying that it is a significant mistake to assert as fact that Trump will a) get in and b) be successful.

comp

StepOne
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Re: Ring ring.

Postby StepOne » December 15th, 2016, 2:31 pm

Including dividends the UK market is at an all time high, and well above where it was in 1999.

The 10% figure is based on the 20% dip that happened after you first rang in early 2015 - ie. people staying in the market lost 20%. People who traded out and back in might have mitigated that, so may have only lost 10% on average. Total finger-in-the-air-type guesstimates, but enough to tell me that it's not worth doing.

Are you investing in anything else, or is it literally in cash?

Thanks,
StepOne

SalvorHardin
Posts: 23
Joined: November 4th, 2016, 10:32 am

Re: Ring ring.

Postby SalvorHardin » December 15th, 2016, 2:43 pm

compscidude wrote:The less obvious mistake you have made is the idea 'he will make a success of it'. On the contrary, in the event that Trump is elected to President by the EC, he will immediately be in breach of the constitution, and it is therefore fairly likely that he will be impeached early on.

comp

You may get a better response if you are less patronising and dismissive of others. Such as labelling my opinion as a fact which you then state is false (a prediction cannot be proven to he wrong until after the event).

Particularly as you then go on to state that if Trump is elected by the Electoral College this will be in breach of the constitution. (How can this be?)

Your attitude has convinced me, an extremely successful investor with 35 years experience, that I should revert to my policy of not posting about investment matters (which I initiated on TMF after a prominent poster on Bert's Sanctuary said that in voting for Brexit I was as evil as those who herded the Jews into Auschwitz and got sixty recs for it - I don't freely give my knowledge to people like that)

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 2:56 pm

The 10% figure is based on the 20% dip that happened after you first rang in early 2015 - ie. people staying in the market lost 20%. People who traded out and back in might have mitigated that, so may have only lost 10% on average. Total finger-in-the-air-type guesstimates, but enough to tell me that it's not worth doing.

OK, my apologies. Your number makes more sense now.

You are correct that if the price dipped 20% and swiftly back again, it would hardly be worth bothering about.
Indeed, where would be the danger if stockmarket crashes from these levels generally looked like that?

But I am not proposing this as a means of making short term profits or avoiding small losses. I am proposing avoiding new investment right now as a means of mitigating the risk of terrible, profound, horrifying losses.

What I'm talking about, when I show graphs over 100 years, is drops of up to 80% following the price levels we see in the market today. Corrections that take 8 to 25 years (on several occasions) to return to the purchase price.

And I am not advising anyone else to sell up their portfolio as I have. Instead I am saying: "don't buy new shares". This is a bad time to buy. It may or may not also be a good time to sell.

You make a fair point about dividends. Even including dividends though, it took many years for someone buying at the peak to get back to square 1 in the case of the FTSE's recent crashes in 1999 and 2007. If they have the nerve to stay the course after the initial shock. Folk like you and I can grimace and sit it out (or chuckle and reinvest divis). But for many people, seeing half their money wiped out not long after they invest is a profoundly traumatic experience that will likely keep them out of the markets for the rest of their life.

Now to return to a point I made above. In principle, 'not buying' and 'selling' might seem to be the same thing. Indeed if one doesn't want to buy at these prices because they are dangerously high, surely that implies one should sell?

But a) the emotional experience that accompanies 'buying low, seeing it go high, then back low' is completely different to seeing your capital halved and b) the consequences in real life of putting in £10000 at the bottom, seeing it go up and down and taking out £10000 at the end, are completely different to putting in £10000 and having it drop to £5000. If you should need to call upon that capital, it simply isn't there any more in the latter case.

A lost unrealised profit is not the same (emotionally or practically) as a loss of capital invested.

Are you investing in anything else, or is it literally in cash?

Literally cash. My comment about cash being cheap by definition, when everything else is expensive, was not tongue in cheek.

Thanks for your replies and sorry for my initial grumpy reaction to them.

comp

dspp
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Re: Ring ring.

Postby dspp » December 15th, 2016, 3:16 pm

SH, slightly off topic, but it would be a shame if disagreements re non-investment matters were to get in the way about investment matters. I for one would miss your contributions and I think I said that at the time back on TMF, regards, dspp

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 3:36 pm

You may get a better response if you are less patronising and dismissive of others. Such as labelling my opinion as a fact which you then state is false (a prediction cannot be proven to he wrong until after the event).


I explained in the two posts above, that I was saying it is wrong to present it as though it simply 'is'. Please scroll up a couple of posts above your recent post. I do not think it is patronising to be dismissive when people assert their predictions as though they are facts.

Particularly as you then go on to state that if Trump is elected by the Electoral College this will be in breach of the constitution. (How can this be?)


In order for you to write this, you must have not made any effort *whatsoever* to familiarise yourself with news and events in the US, as I recommended above. This issue has been covered ad nauseum for the last 6 months in literally thousands, perhaps tens of thousands of news articles in both the UK and US.

On top of that, despite your bold assertions, you're clearly not familiar with the various grounds for impeachment in the US (which is what we're talking about). The appropriate part of the constitution is the Emoluments Clause. You can read more about it by googling "heritage emoluments clause".

The following links to UK news articles took me less than 15 seconds to find in google by typing "trump impeached".

1) http://www.standard.co.uk/news/world/ex ... 00111.html

2) http://www.independent.co.uk/news/world ... 30441.html

Some examples in the US media:

3) http://www.huffingtonpost.com/ralph-nad ... 89492.html

I had many other links but unfortunately the forum blocks posts with more than 3 URLs.

A historical precedent comes from Jimmy Carter being forced to sell his peanut farm in order to take up the presidency, or face threat of immediate impeachment. A more recent example is the Nobel Prize that Obama was awarded, for which he had to obtain approval.

Your attitude has convinced me, an extremely successful investor with 35 years experience, that I should revert to my policy of not posting about investment matters

You could be an extremely successful investor for a million years for all it matters. What we're discussing here is not about investment, it's about US current events, political process and law. If you know nothing about the grounds for impeachment in the US, or current events relating to that matter, you will not be in a good position to assert the future course of reality in relation to those matters.

If you do not wish to feel patronised or as though your views are being dismissed, then I recommend that you avoid making strong assertions about those matters which you have evidently not conducted even 15 seconds of background research towards.

comp

Itsallaguess
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Re: Ring ring.

Postby Itsallaguess » December 15th, 2016, 4:37 pm

I don't know what the future holds.

What I do know is that if I listened to this bell being rung in early March 2015, I'd have lost an awful lot of money -

http://boards.fool.co.uk/ring-ring-13176189.aspx

There's absolutely no doubt that, given how often it's rung, it'll be right some day, but if and when that's the case, we'll still all remember all the other ones that weren't.....

Itsallaguess

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 4:38 pm

I forgot to address this point:

"This bell has been ringing pretty regularly since early 2015"


The bell that rang continually in 1999-2000 around this level (and a bit higher) led to the biggest crash (peak to trough) in about 70 years.

Furthermore 'pretty regularly'? You must have a strange definition of 'regular'.

Facts, please?

comp
Last edited by compscidude on December 15th, 2016, 4:44 pm, edited 2 times in total.

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 4:40 pm

There's absolutely no doubt that, given how often it's rung

And how often is that? Facts please, rather than slurs.

comp

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 4:53 pm

Itsallaguess,

I've just remembered who you are from the old TMF site. I'm putting you on ignore here (as I did there) because you regularly write unsupported and inaccurate responses about anything I post regardless of topic.

Moderator Message:
Sentence removed due to comments about other poster


I have already formally and politely asked you to stop directing public messages to me on fool.co.uk, and I can see that you have no respect for my quite reasonable request.

This post on TMF summed things up rather well:
http://boards.fool.co.uk/did-you-ring-a ... 40975.aspx

Now that I've realised who I'm talking to, I'm putting you on block again and I won't see your posts any more. Please do not pretend to address messages to me in public from this point onwards, as you KNOW that I will not see them.

It is sad that I realised who you were not from your name, but from the consistent inaccuracy and spiteful tone in your messages towards me.

The purpose of this message is so that people know in future why I am not replying to itsallaguess.

comp

compscidude
Posts: 20
Joined: November 6th, 2016, 10:07 pm

Re: Ring ring.

Postby compscidude » December 15th, 2016, 4:57 pm

Ah, that's a shame. I can't set itsallaguess to ignore because he's a board moderator.

Well, I guess that's it from me then folks. I'm not interested in being harassed constantly here like I was at TMF.

comp

Itsallaguess
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Posts: 172
Joined: November 4th, 2016, 1:16 pm

Re: Ring ring.

Postby Itsallaguess » December 15th, 2016, 5:04 pm

compscidude wrote:
Please do not pretend to address messages to me in public from this point onwards, as you KNOW that I will not see them.


I didn't write my post for your benefit Comps, I wrote it in case people on this board didn't realise you'd been ringing this bell for as long as you have.

A public-service announcement if you like....

Do carry on though, I won't need to post on this thread again now I've done that.

Itsallaguess

mswjr
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Posts: 122
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Re: Ring ring.

Postby mswjr » December 15th, 2016, 5:30 pm

compscidude wrote:
Well, I guess that's it from me then folks. I'm not interested in being harassed constantly here like I was at TMF.

comp


Fair enough. Big crash coming, you're all in cash. Got it.


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