One Year To Nowhere

[OriZ 3,157]

Isn't a downturn always inevitable? How can you be wrong really? You've missed a few markers already as I recall but I don't really want to dig back into it that deeply. The gas price prediction went pretty well I suppose. It's just to vague IMO. If it doesn't turn, you can always say it's still looming. If it does, you were right. Is there anything you're willing to say with certainty as a direct measurable? And preferably without a million word response. The market's complicated for sure. But you're so certain there's a major event coming. When's the cut off point for this prediction? A year? Two? 6 months?

This cannot be answered in short. I've made this point pretty clear(at least I thought) in the other thread. It's not as much a function of time, as it is of price, and even with time I clearly stated that I cannot pinpoint the exact timing of a top(it would be foolish and pretentious to attempt/pretend to do so).

I started talking about this being close to over(while also emphasizing that it's not quite yet - and that as long as the S&P500 was above the 1820 level - which it had stayed above for the next{last} two years, it was still in the clear) at the end of 2013. Keep in mind that that was at a time where between 2009-2013 the market rose by an average of almost 70% per two years, with a total return of roughly 170% in the 4 years before my post. In the two years since, some indexes are down and most are flat while the headline indexes(those who gave people 70% every two years) are up a measly 8%. So anyone who thought to themselves, 'wow, look at these markets - I'll get in here and make 70% in the next two years' only made 8% this time around. I've said it many times that tops are a process and not an event and this one sure has taken its sweet time due to all the people out there trying to fight it.

Of course a downturn is always inevitable, but I was quite bullish starting in early 2009 all the way to the end of 2013. That's only when I turned bearish so I think price wise - my timing was pretty good. Time wise - As I have written above - market internals have turned unfavorable in mid 2014. In past cycles, that was quickly followed by a broader deterioration in the headline indexes as well - normally no longer than a few months later. We are now almost 18 months later. Make no mistake about it, it will happen, but again those are only the headline indexes.

The broad market(in which market internals are in part inferred from) is indeed down for the year. Only around 30% of individual stocks are actually trending up, most of them large caps that are themselves in a bubble such as MSFT, AAPL, GOOG, etc. When those come down(and they will), they will come down hard, which will affect the market just as much as their rise has held it up.

This is the clearest sign of a fractured market on the verge of collapse. Credit spreads are already diverging and signaling trouble. That was not the case between 2009-2014 where credit spreads were aligned with the moves of the stock market. It's often said that the stock market, and especially the heavier stocks are the last to change direction. Credit spreads and bonds often signal trouble, or in the case of a bottom they signal a positive shift in the economy long before stocks do. Right now what we are witnessing is a divergence that so long as it lasts makes a severe stock market drop imminent.

As I've written above, a change in market internals or the technical picture would defer the immediacy of my concerns but would not change the bigger picture. I know you said you don't want to dig more deeply but considering everything I have just written above I'd like to understand which markers exactly I have missed. I will repeat the points that I wrote in that other thread:

* The market is in a very tiring uptrend and is on the verge of another trend change

* That trend change has not yet been completed as long as certain criteria is met for me - among those - a break of the Oct 2014 lows(I brought that up two years ago).

* Unemployment will not go much lower than 5% if it even does that, before it goes back up above 8%.

* There will be another recession before this decade comes to an end, probably even more severe than the last one(*This was the original post. I now wish to add that I believe it will be by the end of 2016).

* While I can not definitively tell you right now when exactly such recession shall begin, I WILL be able to do that once my requirements for a market top are met. So that will be as real time as it gets(again, we're not trying to PREDICT but rather work with tools that allow us to IDENTIFY far enough ahead of time).

* I am shorting the market already, with an expectation for a 40-50% decline from current levels. However, it could still creep up for a while longer if it wants to, but the return will be no more than another 10% on the upside from current levels, which will be ADDED to the total losses in the end so basically not worth the risk(again, this is an original post from half a year ago, so nothing has changed with the level of the market since. Even if it did in the near future, it will not change the prospects for a roughly 50% decline from current levels, and will just cause it to fall further).

* The market will have an avg annual return of ZERO for the next decade.

And it wasn't only the oil call but also the dollar and some others but either way that's not what matters. I'm not what matters. It's the bigger picture that I think is important for people to see that matters.

Look, if it doesn't turn, I can't always say it's still looming and be right. I don't play those games. I promise if the market rises another 100% from here over the next 4 years and then drops 50% back to current levels, I won't say "see, I told you do". BUT, if the market goes up another 10% from here over the next year, and then falls 60% by the end of the decade(from that top, and around 50% from current levels) you bet I will say I was right. So that's how it works, and I don't believe it's vague at all. If anything it may seem a little vague because there are of course limitations to trying to "predict" the market and I acknowledge those fully. I won't come here and say I can tell you exactly what the market is going to do tomorrow because I certainly can't.

Edited December 8, 2015 by OriZ

[GandD 5,966]

That's a reasonable response.

[Expat1 971]

I don't really see anywhere to put money right now, even long-term money. Everything, every metric, is aligned to and signaling at best stagnation and at worst a correction. I only look at valuations and whether those valuations are improving or deteriorating. The box that defines what I accept as a valuation was exceeded last spring, approached in Aug/September, and went right back up, worse than they were in spring.

The ONLY thing I see with any possibility of intermediate to long term reward is real estate, which is way too much trouble from here. So everything is sitting in cash or whatever the short-term money market equivalent is until valuations improve.

[OriZ 3,157]

I don't really see anywhere to put money right now, even long-term money. Everything, every metric, is aligned to and signaling at best stagnation and at worst a correction. I only look at valuations and whether those valuations are improving or deteriorating. The box that defines what I accept as a valuation was exceeded last spring, approached in Aug/September, and went right back up, worse than they were in spring.

The ONLY thing I see with any possibility of intermediate to long term reward is real estate, which is way too much trouble from here. So everything is sitting in cash or whatever the short-term money market equivalent is until valuations improve.

Keep in mind that even at the August lows, the valuation measures most closely correlated with actual subsequent 10-12 year returns over more than a century of data only inched up a little bit from around zero to about 1% average annual return. Nowehere near a level I would consider investable. Right now it's worse than it was in the spring, you are right.

Also, I don't know if you saw what I wrote in response to your question about interest rates or what you said about low dividend yields, but it's in the old(now closed thread) as well as at the top of this one. I can't see why investors are willing to buy stocks with such relative low dividend yield historically, except for bubble era greed.

As far as real estate long term maybe, short term more pain to come IMHO.

[OriZ 3,157]

Had to google that-looks amazing. Yeah, the Maldives are cool, but for diving micro-Polynesia is a must awa Okinawa and the Galápagos Islands .. You should change your avatar on a regular basis!

The problem is most pics from my dives would look like nothing more than a figure underwater that has a mask and a suit on and a regulator, with marine life next to or behind. You wouldn't really be able to tell it was me

That's a reasonable response.

Well I'm glad we're all clear now!

[Expat1 971]

Isn't a downturn always inevitable? How can you be wrong really? You've missed a few markers already as I recall but I don't really want to dig back into it that deeply. The gas price prediction went pretty well I suppose. It's just to vague IMO. If it doesn't turn, you can always say it's still looming. If it does, you were right. Is there anything you're willing to say with certainty as a direct measurable? And preferably without a million word response. The market's complicated for sure. But you're so certain there's a major event coming. When's the cut off point for this prediction? A year? Two? 6 months?

No, it isn't. If you look at the charts in the other thread the Shiller PE has only reached these overpriced valuations 4X in the market's whole history. The 20's, mid-30's, late 60's, dot-com boom, and just before the 2008 crash. Gets there, has a dead cat bounce or two, like the 2000 point bounce I just played the hand out on, then sudden, wreaking correction. The 1929 correction was 80%, the next one was 50%, the next one was 60%, and the next two were 50%. Exactly like Oriz said, and it was from exactly the same valuation points we are today. PE is inversely related to yield, so that puts the yield valuations exactly at the peak of where every single historical major correction has been.

So it isn't rocket science to watch that chart, watch the rate of change, and figure out within weeks where that peak is probably going to be. We hit it, took the 2000 point drop, it bounced back, just like it has done every single time, and within a reporting quarter (my guess, just remember I said that) I believe it's going to take a steep dive.

The other corrections, the 10%, 15% that happen over the natural course of market history are normal and the market quickly recovers. Those are the dollar cost average dips and jumps and really those are best ridden out. This peak? No. The Dow peaked at 13,895 in 2007 before dropping off to 7062 in 2008. It didn't get back there until 2013.

That's a long time to wait to break even. It took less than a year to work down, and 5 more years to get back to where it was.

Edited December 8, 2015 by Expat1

[Expat1 971]

Keep in mind that even at the August lows, the valuation measures most closely correlated with actual subsequent 10-12 year returns over more than a century of data only inched up a little bit from around zero to about 1% average annual return. Nowehere near a level I would consider investable. Right now it's worse than it was in the spring, you are right.

Also, I don't know if you saw what I wrote in response to your question about interest rates or what you said about low dividend yields, but it's in the old(now closed thread) as well as at the top of this one. I can't see why investors are willing to buy stocks with such relative low dividend yield historically, except for bubble era greed.

As far as real estate long term maybe, short term more pain to come IMHO.

I know, and had rates been raised I would have gotten killed. I was gambling that they would put that off, everyone would sigh with relief, forget about valuations, and rush back in and that's exactly what they did.

As noted earlier, I'm not repeating that. It was a one-time fling.

[Rob L 3,811]

Dollar cost averaging invested in stock index funds has worked well for me since 2008 . I focus on sectors and not stocks. My horizon is > 10 years and I have no confidence that I will beat the market in that time frame.

[Expat1 971]

Dollar cost averaging invested in stock index funds has worked well for me since 2008 . I focus on sectors and not stocks. My horizon is > 10 years and I have no confidence that I will beat the market in that time frame.

[OriZ 3,157]

Dollar cost averaging invested in stock index funds has worked well for me since 2008 . I focus on sectors and not stocks. My horizon is > 10 years and I have no confidence that I will beat the market in that time frame.

The total return of the S&P500 over the coming decade is likely to be approximately zero, with one or more extraordinarily deep interim losses on the way to zero overall returns. I'm pretty much expecting the same outcome as in the decade following similar valuation extremes in 2000. Nearly the same outcome for nominal returns also occured after the 1968 extreme, and the outcome was identical in real terms, as the S&P500 followed both extremes with negative real total returns over a 12 year horizon.

[Expat1 971]

Dollar cost averaging invested in stock index funds has worked well for me since 2008 . I focus on sectors and not stocks. My horizon is > 10 years and I have no confidence that I will beat the market in that time frame.

The S&P has almost tripled since 2008. That's worked out well for everyone. Every investor should however stay aware of and be alert to the real values of their market holdings and know that a 50% drop followed by an 80% recovery might be an "average return of 15%" but they still lost money.

Edited December 9, 2015 by Expat1

[Rob L 3,811]

The S&P has almost tripled since 2008. That's worked out well for everyone. Every investor should however stay aware of and be alert to the real values of their market holdings and know that a 50% drop followed by an 80% recovery might be an "average return of 15%" but they still lost money.

If they bought in on Day one, held and sold after a 80% increase, yes.

If they were holding, bought continuously through the down turn and up turn, they would be ahead.

[Jacque67 7,328]

So will anyone lend me 50 dollars?

[Expat1 971]

If they bought in on Day one, held and sold after a 80% increase, yes.

If they were holding, bought continuously through the down turn and up turn, they would be ahead.

Not if they were holding a quarter mil or so at the downturn.

You dollar cost average 18 grand a year (max 401K contribution) and see how long it takes to recover that $125k.

Edited December 9, 2015 by Expat1

[OriZ 3,157]

I know, and had rates been raised I would have gotten killed. I was gambling that they would put that off, everyone would sigh with relief, forget about valuations, and rush back in and that's exactly what they did.

As noted earlier, I'm not repeating that. It was a one-time fling.

Right now bonds are finally signaling a hike in Dec(they actually have not done that until now despite other expectations that were in the markets for a raise sooner). That can change daily so we'll see when we get closer.