Bob Brinker Free Discussion Site 59,820+

Top 829. Dec 10, 2005 12:07 PM

» bbaddict - Re: Re: Re: Re: Yardini's chart

In response to Re: Re: Re: Yardini's chart posted by Kirk:

"My Intel and HPQ shares pay about a 10% a year dividend per year on the original dollars I invested. While I had to wait to get this great dividend, they gained value so the actuall dividend to those buying today is much less."

That's a great point. People fail to do a fair comparison between dividend yield and bond rates. In a growing market, the dividend yield rises for those who already own the stock. Not true for bondholders.

That is something not accounted for in the Yardeni graph you posted above.

The other thing missing from the graph is the "risk premium". (In fact, this graph basically just defines a simple risk premium.) During the late 90's, people were willing to pay/risk greatly. Since the crash, people are much more averse to risk. Thus, the drop below the 10yr bond. Adjusting the figures with a more carefully thought out risk premium would really be insightful.

-- posted by bbaddict

Top 830. Dec 10, 2005 12:23 PM

» allancoleman - Re: QQQ

In response to Re: Re: Re: Re: QQQ posted by bbaddict:

i didn't get my newsletter renewal before i left for Hawaii and i'll send in a subscription request here shortly for my wife's christmas present . she likes receiving it .

-- posted by allancoleman

Top 831. Dec 10, 2005 12:47 PM

» Normxxx - Re: Re: : Brinker QQQ, Yardeni & Buffett/Munger

In response to Re: : Brinker QQQ, Yardeni & Buffett/Munger posted by Kirk:

11/17/05 Market Commentary: With a forward PE of 13.9 for 2006 earnings that include options expensing, law suit settlements and other write offs, the stock market looks very reasonably priced for 2006. Considering the market was running at a PE of nearly 30 at the peak of the bubble with very low quality earnings, it looks downright cheap by comparison. The PEG for the S&P500 was 2.0 back in 2000 and today it is at 1.0 which implies the S&P is fairly valued when you ignore interest rates. My "Fed Model" and my "PEG Model" bracket the S&P500 between under valued by nearly 50% and fairly valued.

I have discovered that Yardeni has a strong positive bias— I believe he was one of the ones who predicted over 10% for the S&P this year. However, my major quarrel is that he tends to ignore anything much older than since the '70s, which, as everyone knows, has been a highly (net) positive period (so far)!

I don't want to go over my numbers/rationale (it's scatterred all over this board, for those who are interested), but I would put this market to "somewhat above" 'fairly valued' (i.e., somewhere between 'fairly valued' and 'about 25% overvalued'), with a continuing propensity to decline, since never in the past has a major decline stopped at 'fairly valued' and not gone on to undervalued. (I think the quick and eager return to rampant speculation, albeit more widely distributed, e.g., in housing and Emerging Markets, illustrates why this is so.)

The amount of "bad news' we've had these past years has run the market PE and PEG much lower than "the good old days."

This is a misapprehension; any number of studies have shown that the market simply does not respond to 'bad' news— except for very brief periods of time. Indeed, it is the market that defines what is 'market moving news,' and whether it is 'good' or 'bad!'

The best recent example is 9/11; within a month, the market had well surpassed its closing reading of the day before the attack!

You really can't predict this stuff so I try to own quality companies bought when prices are bargains and let the returns fall as they may. So far, after over 7 years of doing this as a newsletter portfolio, it has worked very well.

In the long run, this is the only long term strategy that works. And if anybody has a short term strategy that works consistently, s/he sure has not shared it widely!

in the weeks ahead, the market is considerably under valued according to the Fed Model using operating earnings.

What does the Fed model say if you use trailing S&P 'core' earnings?

For 2005, S&P estimates this will be $75.08 (last month $75.08). This gives a forward PE of 16.3 which is quite reasonable.

Except that virtually all of the historical comparisons use trailing earnings and trailing P/Es! Historically, forward earnings estimates have been overvalued by 0% - 20%, on average. They are never underestimated, possibly back to the '40s.

Remember, these numbers include options expense

Those numbers probably do not include options expense, unless you use S&P 'core' earnings! There is not yet any requirement to do so, and many companies (most high tech companies) have not yet chosen to do so!

and the balance sheets are much "more honest" these days with Sarbanes-Oxley laws and people like Bernie Ebbers on the way to jail for lying about WorldCom Earnings.

Right. Like REFCO! (I have a really nice bridge in Brooklyn I'd dearly love to sell you— the tolls are great!)

You think a few 'show' trials, including that of R. M. Scrushy of the HealthSouth fraud who, with the aid of a high priced lawyer and a naive (I'm being kind) jury, walked off scot free with millions, and a few convictions will give anyone pause for more than a few minutes when tens of millions of dollars are at stake?

Q: What about people who want to pick stocks?
A: ... So you're talking about a pretty complex body of knowledge.

You can say that again!

In particular, you must be able to go over a 10Q and spot an ENRON. And even then, the WorldComs and Refcos will get by you. (The Refco stock was supposedly sold largely to Wall Street Insiders, who are now pissing and moaning over the "raw deal" they got! Almost makes me a believer in a Higher Power.)

In other words, you must be as knowledgeable as a short seller used to have to be "in the good old days!"

I still do it, but I never plunk down more than 1%; —2% if I'm feeling 'euphoric.'

______________

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 832. Dec 10, 2005 12:59 PM

» Normxxx - Re: Re: Re: Re: Yardini's chart

In response to Re: Re: Re: Yardini's chart posted by Kirk:

Yes, but even allowing for the fact that most startups and small companies go broke, in the end, the non-dividend payers go broke disproportionately more often! It's a lot harder to "cook the books" if you have to regularly meet a dividend payout.

-- posted by Normxxx

Top 833. Dec 10, 2005 1:14 PM

» Normxxx - Re: Re: Re: Re: Re: Yardini's chart

In response to Re: Re: Re: Re: Yardini's chart posted by bbaddict:

That is something not accounted for in the Yardeni graph you posted above.

Neither is the additional risk of owning stocks over bonds! Or, did you believe it when Glassman predicted "Dow 36000!" in 1999? (He also said that "stocks are as safe as bonds," a quote almost as famous as Irving Fisher's claim in '29 that "the stock market has reached a permanently high plateau.")

Since the crash, people are much more averse to risk.

You'd never know it by their behavior since April, 2003. The bubbles may be more 'selective,' but there are still bubbles everywhere!

Adjusting the figures with a more carefully thought out risk premium would really be insightful.

You mean with a negative risk premium for stocks? I think we may have gotten there already in some 'selected' areas.

Where is any risk premium reflected in Yardeni's model?

-- posted by Normxxx

Top 834. Dec 10, 2005 3:26 PM

» permabear - Re: Re: Re: Brinker QQQ, Yardeni & Buffett/Munger

In response to Re: Re: Brinker QQQ, Yardeni & Buffett/Munger posted by bbaddict:

Permabear, again you are mixing 2 variables. The Laffer curve demonstrates that tax revenues increase with lower rates. The reason is that GDP increases with lower rates, thus increasing tax revenues. GDP increases faster that tax revenues, so, yes, as a percentage of GDP, tax revs can go down. But the Laffer curve just refers to the revenues in $$, not in %GDP.

bbaddict,

I believe that looking at percentage of GDP tells you much more than just looking at raw numbers. Clearly the economy is growing, whether it is due to tax cuts, population growth, etc. etc. etc. Thus seeing an increase in raw number revenues following a tax cut, doesn't mean a whole lot of the other numbers have grown even more. When you look at percentage of GDP, you see just how devastating the Reagan and George W. Bush tax cuts have been to revenues. Following both major tax cuts, revenues declined significantly. Following Bush's recent tax cuts, revenues as a percentage of GDP fell to approximately 15 percent, which is levels not seen since the 1950s. When you take into account all of the spending we are putting paying off the national debt each year (directly tied to budget deficits an tax cuts), you see that when you look at revenues in context of the overall economy, the tax cuts have just been devastating.

And if you read that second link I provided, you will see that the growth in spending is much much greater in terms of defense and national security than other domestic spending (including the gross pork spent in the transportation bill and energy bill). There is no doubt that expenses are rising for entitlement benefits. These are a huge part of the budget. But when you look at growth in spending, it is defense and national security that is the biggest items of increase.

In my view the only way to really deal with the budget deficit problem is to look at both spending and revenues. As the baby boom generation approaches retirement and entitlement needs increase, inevitably there will be a need for both restraint in spending and increases in taxes. What Reagan and Bush have done building up these massive debt levels ($8 trillion and growing), someday there will be a crisis that will lead to both crushing tax increases and spending decreases, both of which will kill the economy and our childrens' future.

-- posted by permabear

Top 835. Dec 10, 2005 6:30 PM

» capran - Re: Re: Re: QQQ

In response to Re: Re: QQQ posted by BrianMcG:
About the only time I half listen is if I happen upon it on a drive around town. I agree his opinion is only one very small bit of info, but it seems he never really says anything of interest. As to the market, I basically have three pieces in the pie. I have a moderately diversified group of mutual funds (only about 12), worth about 200k. The last three years I have only added to the Roth, and that in a balanced fund. The rest of that group is IRA and 403B. I don't move it around at all. I "play" with my Self directed retirement account by moving in or out of the market, primarily in the russell 2000 and s&p 500 index funds. There's no fee for transactions. That I have managed to do fairly well in. Got another penny in their Money market posted today for yesterdays close. My last dec 31 balance not counting all deposits for the year has yielded a gain of 13.98 as of today. I expect to get 2 or 3 more one cent increases with will put me at just over 14% for 2005, up to about 260k. All of my "new" money goes into a state run tax deferred account, with a yield of just under 5%. Brinker may be calling for 1350 on the s&p, but I liked the comments recently I read or heard somewhere, talking about 5 year market cycles and that the first and last 10% of a 5 yr market cycle is the hardest to make, and the 80% in the middle is the relatively easy money. My concerns are that the refi money is already in play and drying up, the deficit spending has to slow down somewhere, the price of housing is rediculoue, at least in my neck of the woods (NW), the price of heating gas and oil is really going to hurt the middle to lower spender, which in turn should ripple a slow down in spending and the economy. Post hurrican spending, rebuilding etc is going to prop up some areas, but I don't think it's a real pretty picture 6 months out. which is why with the exception of the 200k, I'm pretty much out of the market until we get back into the oversold area. If as brinker originally suggested, that we're in a secular bear for another 12-15 years, and we've been in a cyclical bull, the upside risk is overshadowed by the downside risk.

-- posted by capran

Top 836. Dec 10, 2005 7:57 PM

» gabbai - Capran's 14% return on his portfolio

would you be willing to divulge how you made your 14% this year?

-- posted by gabbai

Top 837. Dec 11, 2005 10:04 PM

» capran - Re: Capran's 14% return on his portfolio

In response to Capran's 14% return on his portfolio posted by gabbai:
I have posted on other forums. I could look up the dates of all my transactions if you want them. I started the year with about 220k in a self directed state retirement fund. There are no transation fees. Even though there are about 10 different funds, I confine myself to moving between a russell 2000and an s&p 500 index funds. I rarely move all of the money at one time. My target to start selling was when the russell rose 3.5% above the 50 day moving average. If it went up, I would sell more. If it went down, I would buy more. Up until the most recent uptrend I would usually be all out by the time it reached about 5% over the MA. I made 38 trades for the entire year. I'll give you some specifics going back to April. I got all out April 12 at 613. Moved 75% in may 12 at 586. pulled all out june 17 at 644. Didnt make any moves all summer as I am on a boat with no communication to time anything. pulled 25% out sep 1 at 668, another 25% out at 677 on sept 7, and another quarter out at 678. (so at that point I am 75% out. Moved half in sep 14 at 666, in alittle more on sep 20 and 21. Out 50% on sept 30 at 667, out more oct 3 at 670...the most recent move up I pulled out some at 664 nov 10, more out at 667 on 17th, more out on 18th and pulled the last bit out Nov 21 at 678. I have found the Russell moving more than the s&p but maintained a mix of 50-50 between the 2 indexes. On Nov 21 I was beating the average of the 2 indexes by 12%. I knew there was a chance it might move up, but decided to not be greedy and lock in my profits, picking up a few pennies per share in the money market fund. Nothing special. As Normxxx calls it, selling when overbought and buying into the market when it's oversold. I have missed out on the most recent run, at least in this pot of money. I'm now sitting at a little over 262k. I compute my "percentage gain" by the following equation. current balance minus last dec 31 balance plus all current year contributions devided by last years balance+ all this years contributions. 262371-230190=32181 net gain:13.98%. The money market fund has been adding a penny per share every 8th day, so by Dec 31 I should have between 14.147 and 14.23% for the year. And I am going to sit it out for a while, due to my previous comments about the economy. The only other "timing" I did this year was held off committing 2 years of Roth money until mid April of this year. As much as I agree that Brinker lied and hid his qqq buy, I could have saved a bundle had I moved some or all of my money out of the market. At one point I had a 44% profit in my 403b/roth/ira portfolio. I am now just shy of breaking even, even though some of those funds are still off by a large margin. When I read Kirks entries over a year ago about "making money in a flat market" I decided to take advantage of the ups and downs. I could have bought and held the indexes and would be probably have colse to the average of the indexes, which on Friday would average 4.8%.

-- posted by capran