Market bubble

[Valuist]

Most of us realize that the actions of the stock market have been fueled strictly by the Fed, and its only a matter of time before that bursts and ends up miserably for many.

Was talking to a guy I know over the weekend. A former software programmer, he's been out of work for a year and a half, and he's been trading stocks all year. "I'm up over $100,000 this year," he bragged. He went on about Netflix and Tesla and a few other high fliers. He doesn't understand fundamentals. He has zero knowledge of technical analysis. This is a guy who believed he could beat blackjack not only by NOT counting cards, but not even knowing basic strategy. As he was talking to me, a sense of deja vu set in. This was exactly the same type of thing we heard in 1999, when Joe Public believed he could make a fortune trading simply following momentum. Anecdotal evidence like this cannot be discounted.

Just heard on King World News that a quite a few pieces in the fine arts market have appreciated by 100% or so in the past 6 to 8 months. This kind of move often is a sign of impending strong inflation in that near future.

[Saratoga_Mike]

The public's current fascination/participation in the stock market isn't even close to where it was during the tech bubble, not even in the same planet.

S&P 500 earnings bottomed out at $61.20 in 2009. They're projected at $109.40 for this yr (and there's only one qtr left, so that shouldn't be too far off). That puts the mkt at 16.1x earnings, lower than the historical 17x when inflation is running around 2.5%.

[Clocker]

Originally Posted by Saratoga_Mike

The public's current fascination/participation in the stock market isn't even close to where it was during the tech bubble, not even in the same planet.

The current bubble is being driven by large investors, not by the public or the day traders. With the fed driving interests rates to near zero, and often below zero in real terms, there is no other game left in town for the pension fund and mutual fund managers who have to constantly show returns.

[Valuist]

Originally Posted by Saratoga_Mike

The public's current fascination/participation in the stock market isn't even close to where it was during the tech bubble, not even in the same planet.

S&P 500 earnings bottomed out at $61.20 in 2009. They're projected at $109.40 for this yr (and there's only one qtr left, so that shouldn't be too far off). That puts the mkt at 16.1x earnings, lower than the historical 17x when inflation is running around 2.5%.

According to the numbers I'm posting, we're already past the 17x. The S & P showing 18.5 and even the Dow at 17.5. And all the index PEs are up considerably from just a year ago.

http://online.wsj.com/mdc/public/pag...1-peyield.html

[Saratoga_Mike]

Originally Posted by Clocker

The current bubble is being driven by large investors, not by the public or the day traders. With the fed driving interests rates to near zero, and often below zero in real terms, there is no other game left in town for the pension fund and mutual fund managers who have to constantly show returns.

What portion of assets did pension funds have allocated to equities in 2000 and 2007? Where's that number now?

The vast, vast majority of mutual fund managers are always 95% to 100% invested.

[Robert Goren]

Everybody is a genius in a bull market.

[Saratoga_Mike]

Originally Posted by Valuist

According to the numbers I'm posting, we're already past the 17x. The S & P showing 18.5 and even the Dow at 17.5. And all the index PEs are up considerably from just a year ago.

http://online.wsj.com/mdc/public/pag...1-peyield.html

I don't know the P/E on the Dow (too narrow of an index, so I don't care).

The S&P is trading at roughly 18.5x 2011's earnings ($97), but not the estimate for 2013. That link is incorrect.

[Saratoga_Mike]

Originally Posted by Robert Goren

Everybody is a genius in a bull market.

Non-sequitur to the conversation at hand...no one in this thread made any such claim.

[DRIVEWAY]

Originally Posted by Clocker

The current bubble is being driven by large investors, not by the public or the day traders. With the fed driving interests rates to near zero, and often below zero in real terms, there is no other game left in town for the pension fund and mutual fund managers who have to constantly show returns.

Interesting observation you are making!

Is there a statistic which shows Pension Fund deposits vs. withdrawals?

Is there a projected date where baby boomer influenced withdrawals will surpass deposits? One might think that S&P PE ratios might gradually contract along this curve and dramatically contract just prior to the date at which withdrawals exceed deposits.

Pension fund managers will need to be alert and nimble prior to this event. Some will get caught in a dramatic downturn. Pick a date like Oct. 8th, 2021
and reverse engineer a financial plan accordingly. Remember, it's better to be early than late in this scenario.

[Saratoga_Mike]

Please also note free cash flow as a percentage of S&P net income is projected at 84.3% this yr, up from 78.3% in 2007. You can't spending earnings, so FCF is more impt, imo.

[Mike at A+]

Originally Posted by Clocker

The current bubble is being driven by large investors, not by the public or the day traders. With the fed driving interests rates to near zero, and often below zero in real terms, there is no other game left in town for the pension fund and mutual fund managers who have to constantly show returns.

Or in simpler terms, the rich get richer. The upper middle class with money to invest will ride their coattails on the way up but when it comes to inside information of when the bubble will burst, the well connected (read politicians and their friends) will be the first to get to the exits. The middle class will get obliterated and we will become the two class society that Democrats have wanted all along.

[pandy]

I also think this is more a big investor rally. The public is beaten down from the recession and the two bubbles, tech and real estate. There isn't rampant speculation, like the crazy house flipping at the end of the real estate bubble, or the insane biotech trading at the end of the tech bubble. So if this is a bubble, it has a way to go before it busts, but that doesn't mean there can't be a sharp sell off at any time.

[sammy the sage]

Originally Posted by pandy

I also think this is more a big investor rally. The public is beaten down from the recession and the two bubbles, tech and real estate. There isn't rampant speculation, like the crazy house flipping at the end of the real estate bubble, or the insane biotech trading at the end of the tech bubble. So if this is a bubble, it has a way to go before it busts, but that doesn't mean there can't be a sharp sell off at any time.

yep...they'll be feeding on EACH other...