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BULL MARKETS AND LONG-TERM TRENDS

5/9/2020

2 Comments

 
This chart can tell you a lot about bull and bear markets in the long run:
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The source of the chart is an article by Jurrien Timmer of Fidelity Management & Research. Do read the whole thing, it's interesting throughout.

The above chart provides a perspective that is rather similar to our own, as computed by our flagship application, Robot Investment Calculator:

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Note that we use CPI-unadjusted returns, unlike Jurrien Timmer. Still, the overall picture of relative valuation is not very different. (RIC does not go that deep into history, but we could see a similar pattern if it did.)

Unlike Jurrien Timmer, we do not use a long-term exponential regression curve. Instead, we work with MZM, which is a money supply aggregate that includes instantly liquid money.

In the short run, our MZM-based valuation indicator can hint to overvaluation or undervaluation of the market. The COVID19-related monetary expansion made the market significantly undervalued until June 2020. Through August, however, the market grew more than 10 per cent into the 'overvalued' territory. This may signal an increased risk of a correction. (No more ground-shaking events on the horizon, though.)
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2 Comments

corona-INFLATION

2/5/2020

8 Comments

 
Since the end of February 2020 until the end of April, more liquid money was added to the U.S. money supply than there was outstanding in August 1992.
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In relative terms, the recent monetary inflation is second only to that of 1983 -- note that 1983 saw the highest monetary inflation ever. A 24.8 per cent y-o-y money supply growth is pretty respectable.
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While most economists are worried about CPI deflation risk, a double-digit 20+ per cent monetary inflation can hardly fade away without side effects. Or can it? That would be the first time in history.
8 Comments

WHy i don't believe stock market gurus

25/12/2017

147 Comments

 
In short: their predictions are worthless. This is just a short selection of their mistakes:
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Why should I pay any attention to stock market pundits when there is a much more dependable tool? The Robot Investment calculator was right when the gurus were wrong. This is what it was saying on the same day John Hussman predicted a 40-55 per cent market meltdown:
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Let that sink in.
147 Comments

US ECONOMY: MORE GOOD NEWS

3/12/2017

2 Comments

 
The delinquency rate on business loans keeps falling. This is clearly a good news:
Better yet, the delinquency rate on all loans has been falling since Q4 2009. The next recession is not in the making yet.
2 Comments

WHAT HAS HAPPENED TO VENEZUELA?

1/12/2017

1 Comment

 
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It's easy: socialism happened.

And this is what happens to bad governments that experiment with socialism, wage wars, or otherwise ignore the laws of good governance and sound markets:

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Source: Philippe Jorion and William N. Goetzmann 

1 Comment

WHY P/E IS USELESS

26/11/2017

2 Comments

 
Why is the notorious P/E ratio useless? Simply because it fails when you need it most.
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S&P 500 PE Ratio - 90 Year Historical Chart
Think of it:
  • In 1929, the P/E ratio could not have warned you before the stock market crash.
  • Ditto in 1937.
  • There was no strong 'sell' signal in 1968 when it was needed.
  • In September 1976 it would have falsely told you that stocks were still cheap.
  • In December 1991 the market looked expensive. It wasn't.
  • Another false warning came in 1998.
  • The P/E correctly signalled an extremely expensive market in 2000-2001, but it didn't tell you the recovery was on the way in 2002.
  • No 'sell' signal in October 2007.
  • Worse yet, no 'buy' signal in March 2009.
  • Since March 2009, many investors underperformed the index as they mistakenly believed the market was 'expensive by historical standards'. Again, it wasn't.
It's just time to ditch the P/E. The Shiller's P/E (or Cyclically Adjusted P/E) is no better. 
2 Comments

is the dow cheap or overpriced now?

25/11/2017

2 Comments

 
Is it a good idea to adjust stock market indices to inflation? Well, why not. However, there's a glitch. The most usual inflation measure -- the Consumer Price Index -- is an awkward tool for this purpose. Asset prices should not be conflated with consumer prices. Equities are assets, consumer goods are not. 

Discounting asset prices with the CPI is methodologically wrong. Do not expect any meaningful results if you combine the CPI inflation with equity prices, corporate earnings et cetera.

Is there a better approach? Yes. Using monetary inflation -- or money supply growth -- is the correct way to go. In other words, the question is "how would the stock market index look like if money supply remained constant?" 
(It's money supply, not consumer prices what matters to investors.)


The answer to the above question is as follows -- and it's a surprising chart indeed!
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The takeaway of this exercise is, among others:
  • The 1929 bubble was a huge event, something that was never heard of before or after 1929.
  • During the post-war period, reversion to the mean is clearly visible.
  • Interestingly, the present-day monetary-inflation-discounted value of the Dow is pretty much in line with the long-term normal. No bubble, to be specific.
  • The 2000 bubble was very similar to that of 1937, with the aftermath being alike, too.
  • The best years to buy cheap stocks were 1933, 1984, and 2009. 
If you look at the stock market through the inflation-adjusted optics, your perception of reality will never be the same as before. As if your doctor prescribed you the right glasses to correct your impaired vision.

2 Comments

The US Stock market, Inflation Adjusted

12/11/2017

1 Comment

 
This is the most comprehensive US stock market index adjusted for inflation. The inflation is defined as the growth of liquid money supply (MZM, Money Zero Maturity aggregate.)
Is the market overpriced or cheap? Make your own conclusion.
1 Comment

Banking Assets

19/7/2017

2 Comments

 
How do you say "unsustainable" in French? In Dutch?
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2 Comments

How many GDPs could the US households buy?

14/7/2017

1 Comment

 
Five. For the time being.
Households and Nonprofit Organizations; Net Worth, Level/Gross Domestic Product
1 Comment

QE and the S&P 500

14/7/2017

1 Comment

 
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1 Comment

Debt, public and private

13/7/2017

1 Comment

 
No comments needed except for one question: what will the next recession do to the Euro area total debt?
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1 Comment

Irish Property Boom

12/7/2017

1 Comment

 
Ireland has a property boom once again.
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1 Comment

Inflation vs. Interest Rates

11/7/2017

7 Comments

 
Modern monetary policy. Thank you, central bankers.
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7 Comments

Canadian property prices explained

2/7/2017

1 Comment

 
Why have Canadian property prices grown so steeply since 2000?
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This is why:
How long can the Canadian mortgage boom last? I dare not say.
1 Comment

Inflation in Money Supply, Inflation in Property Prices

1/7/2017

2 Comments

 
If your economy's money supply grows like this...

source: tradingeconomics.com
... and debt expansion goes on like that...
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... don't expect property prices to remain cheap.
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2 Comments

The Emerging Markets Debt Mountain

1/7/2017

0 Comments

 
This looks scary doesn't it?
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0 Comments

US Household Wealth

21/6/2017

1 Comment

 
American households are wealthier than ever:
And what is your household's net worth?
1 Comment

Inflation is your friend

18/6/2017

1 Comment

 
Inflation may be your friend if you invest in stocks. Really. Take a look on Venezuela.
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1 Comment

The first blog post: Monetary inflation

12/6/2017

2 Comments

 
This is just a test. However, let's try to examine something important. The monetary inflation, a neglected macro measure. It is, in fact, the driving force behind the long-term growth of prices of stocks and property. Uber-important!
2 Comments

    Author

    Pavel Kohout (1967), investor, writer, photographer and application developer (Android, Windows, macOS). Based in London and Prague.

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The Robot Investment Calculator software and its underlying algorithms and know-how is owned and published by Westbourne Technologies Ltd, 25 Westbourne Terrace, London W2 3UN (the Publisher), Company Number 11115458. All rights reserved. 

DISCLAIMER: Contents are provided for general information purposes only and do not constitute an offer to sell or a solicitation of an offer to buy any Security in any jurisdiction. The Publisher does not intend to solicit and is not soliciting, any action with respect to any Security.

The contents of this section have not been approved or disapproved by any securities commission or regulatory authority in any jurisdiction. The contents are neither sufficient for, nor intended by the Publisher to be used in connection with, any decision relating to the purchase or sale of any existing or future Securities. The Publisher does not intend to provide financial, investment, tax, legal, or accounting advice. Investors considering the purchase or sale of any Securities should consult with their own independent professional advisors. Past performance is no guarantee of future returns.

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