Monday, March 18, 2013

Asset Bubble, Bond Bubble, Is the Fed OOC?

Interesting discussion on Bloomberg. Check out this short video if you can stand watching these guys interrupt each other, especially Pento.

Wesbury makes the point no one on this panel disputes that PE ratios are not in the stratosphere. Pento does not think current market strength supports forward PE's (what I got trying to follow the conversation with all the interruptions) and that market conditions are going to finally cut into profits. Other analysts not on this panel (Hussman, for example) say the Shiller PE ratio is too high. With everyone believing treasury bonds are in a bubble does that mean they are the best contrary play right now?


Keith said...

To be honest, and remaining aligned with my Luddite approach to the modern world, I have grown weary of watching videos of a subject that can be read easily at my own pace. Unfortunately, the internet seems to be catering to a growing illiteratcy including more videos to convey the various news media on a daily basis.

Regarding Schiller and others, however, I found a similar article on Yahoo in text form. The debate was Schiller vs Stovall. I don't know much about the Schiller index, but it would appear it is a finer grained look at earnings plus some other ingredients vs the historic look at PE ratios that we are used to seeing. Clearly the Schiller goes much higher. All that aside given the huge market rise in the past 3 months since the re-election of Obama, I think there is much merit in attributing the increase to bond money moving into equities. However, there is also still a great deal of cash sitting on the sidelines that has been idle since the downturn. From a personal perspective I have not participated in the recent rise, however I am glad that I have been in since late 2010 since those dividend stocks have appreciated significantly with sufficient cushion that I do not lose sleep at night. The next leg of the market for my participation will depend upon good ole' earnings. If corporations can demonstrate sustained earnings this spring, I am in. Otherwise I will just hold steady. The reality is we are living in a global economy with much of the market determined by China and the growing economies outside the US which accounts for the dicotomy of living in a poor economy while the at the same time we are experiencing a raging market.

Sojka's Call said...

I understand your Luddite leanings but nonetheless think you would enjoy the video if only for the entertainment value of seeing these guys debate the current market. A wait and see attitude, as you mention waiting to see the latest corporate earning results, is what Hussman advocates saying that there is little risk staying on the sidelines waiting for a clear direction to establish itself. Personally, I have increased my cash position by liquidating many precious metal positions because I was looking to limit my ETF exposure and establish positions with a Trust where it is more likely they actually hold the physical gold and silver to back their positions. Also, if the loser positions I hold have not recovered by now, my take is they probably will not in the next 2 - 4 years anyways so many of those are on my chopping block now. Other, non-dividend positions that have seemingly had their run are also being slowly liquidated. The dividend paying stocks are more likely to weather future market storms better as long as they can maintain their payouts of course so those will remain my core holdings.