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U.S. Treasuries or Gold ?
#1
Confused   The One Percent must really be worried.

New highs daily in the stock market, miraculously produced by 1.0% GDP growth. Total stock market capitalization is now growing 23 times faster than the underlying economy.   What is not to like ? ?

Where is our board expert on everything ? ?





Mish in the Arena with Hedgeye: Hiding Out in Gold and Treasuries


https://moneymaven.io/mishtalk/economics...9K4ySulZw/
[Image: https%3A%2F%2Fs3-us-west-2.amazonaws.com...3w6wIZv0IA]

I joined Daryl Jones for the 25th episode of Hedgeye | In The Arena.

I had the pleasure of chatting with Hedgeye's Daryl Jones last week on a number of topics.
Here's a link to the Hedgeye page One-on-One with Mish Shedlock: "I Would Hide Out in Gold & Treasuries" where you can play or download the podcast. It's about 52 minutes long.

Topics
  1. Inflation or Deflation Debate: There is a lot of hidden inflation
  2. Favorite Asset Classes: Gold and Treasuries
  3. Good Reason to Expect Recession: Greenspan doesn't
  4. Rate Cut or Hike What's Next: It's clear what they want to do
  5. Central Bank Independence: I would abolish the Fed in a second
  6. US election.

To spill the beans a bit, the inflation has primarily been in assets.

I propose another deflationary bust is up next.
Mike "Mish" Shedlock
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#2
You beat me to it. I was just getting ready to post that toon.
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#3
The DJI average PE ratio is 20.71

and the transport average is 18.46

That doesn't seem excessive, given the balance sheets they're based on aren't BS
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#4
(11-14-2019, 06:34 PM)andrew_o Wrote: The DJI average PE ratio is 20.71

and the transport average is 18.46

That doesn't seem excessive, given the balance sheets they're based on aren't BS

I'm wondering how much the PE ratio has been effected by stock buy backs? Never seen an article that chronicles it.
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#5
(11-14-2019, 10:01 PM)doubletroublejim Wrote:
(11-14-2019, 06:34 PM)andrew_o Wrote: The DJI average PE ratio is 20.71

and the transport average is 18.46

That doesn't seem excessive, given the balance sheets they're based on aren't BS

I'm wondering how much the PE ratio has been effected by stock buy backs? Never seen an article that chronicles it.

Buy backs would make the PE worse (higher) - because they push up the price.
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#6
How believable are the earnings that P/E is based on ? ?
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#7
I wouldn't do just UST and gold, but wouldn't do without them either.  Far as stocks go, you have to diversify globally.  US stocks may be in the stratosphere, but the rest of the world's stock market is still fairly reasonable.  The non-US stock market represents about 50% of the global market cap (the US is about half by itself), but covers more like 95% of the world's population and 90% of its GDP.

Anyone with 100% of their portfolio in US stocks is taking immense risk for piddling return prospects.  You can fix this by putting half your stock allocation in non-US stocks.  If you have a US stock portfolio, you can easily do this with just one position by moving half of it into the Vanguard Total International Stock fund VXUS.  Then make sure the rest of your portfolio has plenty of UST and gold.
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#8
(11-15-2019, 10:53 PM)andrew_o Wrote:
(11-14-2019, 10:01 PM)doubletroublejim Wrote:
(11-14-2019, 06:34 PM)andrew_o Wrote: The DJI average PE ratio is 20.71

and the transport average is 18.46

That doesn't seem excessive, given the balance sheets they're based on aren't BS

I'm wondering how much the PE ratio has been effected by stock buy backs? Never seen an article that chronicles it.

Buy backs would make the PE worse (higher) - because they push up the price.
Buy backs mean less outstanding stock to be divided by the earnings.  Yes, the price could go up, but it could be far out weighed by the fewer shares in regards to PE.  For instance, a company like Chlorox just spent 1 Billion  buying back its stock.  The price did go up as a result granted, but how many less shares are there?  

Stock buy backs are prevalent thru out the market. Many corps used the money they had stashed overseas to buy back stock when the tax rates went down.  Also, from what I have read, the cost of borrowing funds to buy back stocks is often less than paying the dividend on the stock.  So....if you are a CEO, buy back the stock, the price goes up,  and the Corps top dogs get a fatter check on their own stock in the end.  This has been a large driver of corporate debt which has gone thru the roof and has even the Fed commenting on.  

Zero interest rates do strange things.  That among many other issues is why the toon of the cocaine addled bull is very appropriate.

Like I said, I don't really know how the PE is effected,  I have never seen a study of it.  Would be interesting to see and maybe not that hard to do.

Quick internet search:

https://www.adviserinvestments.com/inves...-08-05-19/

According to this article, it appears the buy backs account for only 2% of  a decline in PE. The article does it by earnings per share but it's the same result I would think.
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#9
I remain suspicious of corporate P/E's.

Accounting is not what it used to be.

Sad  I could not find much on the P/E.  But did find this article.

Everyone still relies on a stock’s P-E ratio to invest, but a study shows it’s bunk

Published Sat, Jun 1 20199:30 AM EDTUpdated Sat, Jun 1 201912:57 PM EDT

Maggie Fitzgerald@mkmfitzgerald




Key Points
  • Nearly 80% of investors surveyed by Bank of America Merrill Lynch use forward price-to-earnings ratio as a factor when investing and its the number one factor leading the charts for the last 14 years.

  • However, low P/E stocks have underperformed the market since 2010.

  • So-called FANG stocks, who generally have higher P/E ratios, have dominated investing and contributed to much of the markets gains in recent years.
"Evaluating the price-earnings ratio is a deeply ingrained practice for investors. But it isn’t a metric that delivers positive results, Bank of America Merrill Lynch said in a quant study last month.

Nearly 80% of investors surveyed by the bank use forward price-to-earnings ratio as a factor when investing, making it the No. 1 factor annually, according to the study. Paradoxically, low P/E stocks have underperformed the market since 2010, the study shows.

“Low P/E remains the most popular factor for the 14th year running despite its weak performance for most of this bull market (the factor lagged by 46ppt since 2010),” Bank of America Merrill Lynch’s equity and quant strategist Savita Subramanian said in a note to clients.
[Image: BofA chart.1558707939771.PNG]
A P-E ratio is simply the current share price of a stock divided by its earnings per share. Forward P/E incorporates a company’s forward looking, estimated earnings per share from Wall Street analysts.


So why is this conditioned practice underperforming the market for investors? Largely because when everyone is investing on a P-E basis, its edge is lost and is already priced into the market. Its “returns may be more likely to be arbitraged away in the subsequent year,” Subramanian said.
[Image: PE SP.1558708899714.PNG]
The rise of growth investing has also contributed to low P/E stocks underperformance. Instead of value investing, where investors try to buy companies at a cheap valuation and bet on a turnaround in earnings, growth investors buy stocks that are already expensive with expectations earnings will keep growing at a pace that justifies the same or even higher valuations.

The so-called FANG stocks, who generally have higher P/E ratios and are the quintessential growth stocks, have contributed to much of the markets gains in recent years.

Leverage was the second most popular factor, or net debt/EBITDA, according to the study. Beta, size, and estimate revisions were among the other popular metrics."


https://www.cnbc.com/2019/05/31/everyone...-bunk.html
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#10
Quote:....have contributed to much of the markets gains in recent years.

Are they including the historic dividend yield into that?

I own some shares that haven't gone up much in years but when I add up and compound all the earnings I've had, they've just about paid for themselves already.
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