tag:blogger.com,1999:blog-6616959642391988608.post7985462413460254163..comments2024-03-18T13:22:06.536-07:00Comments on Calafia Beach Pundit: Equities are so undervalued it's hard to believeScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-6616959642391988608.post-82837773490905065462008-11-28T06:37:00.000-08:002008-11-28T06:37:00.000-08:00Peace,I agree there is nothing wrong in using math...Peace,<BR/><BR/>I agree there is nothing wrong in using mathematical models to better understand history and therefore gain a little insight into likely future conditions. It's when you take it too seriously that problems emerge: LTCM and our recently failed "quant" funds, for example. <BR/><BR/>These guys had models that said a certain event would happen only once in (what?) a thousand years, soTom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-19802914275191799562008-11-27T16:19:00.000-08:002008-11-27T16:19:00.000-08:00Tom: I think Mr. Fisher was making a comment abou...Tom: I think Mr. Fisher was making a comment about standard deviations from the historical record of volatility, not about the shape of future uncertainties. I think we Austrians overreach when we absolutely reject the efforts of professional managers like Scott to develop norms and rules for the design of prudent portfolios. The existence of rogue waves that can swamp any vessel does not "LetUsHavePeacehttps://www.blogger.com/profile/15150236444828943359noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-46220680637496930292008-11-27T09:18:00.000-08:002008-11-27T09:18:00.000-08:00Peace: your comments are very insightful. You can'...Peace: your comments are very insightful. You can't manage a portfolio if you assume that markets like we have today will happen every so often--the risks would leave you frozen in cash, and even cash can be risky as some holders of MMFs found out. How to avoid another disaster like this? I don't know, but I suspect that risk spreads will be higher than normal for quite some time.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-69382677695368152212008-11-27T04:37:00.000-08:002008-11-27T04:37:00.000-08:00"LetUsHavePeace"When it comes to markets and the e..."LetUsHavePeace"<BR/><BR/>When it comes to markets and the economy, it seems to me that we are making unwarranted assumptions about underlying probabability distributions. You can't even talk about "standard deviations" without assuming a particular mathematical form -- and that is quite likely wrong.<BR/><BR/>The Austrian School economists have argued all along that mathematical models in that Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-30605744133727069602008-11-26T19:58:00.000-08:002008-11-26T19:58:00.000-08:00From Peter Fisher at the New York Fed: "Stress tes...From Peter Fisher at the New York Fed: "Stress testing alone, however, -- if it is only a theoretical, number-crunching exercise divorced from the messy reality of trading and settlements -- may create its own problems. I am sure most portfolio managers know the potential impact of one- or two-standard-deviation moves in their asset values and of simultaneous one- or two-standard-deviation moves LetUsHavePeacehttps://www.blogger.com/profile/15150236444828943359noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-7240937439583810632008-11-26T13:47:00.000-08:002008-11-26T13:47:00.000-08:00"t" is looking for John Hussman.Here is the link a..."t" is looking for John Hussman.<BR/><BR/>Here is the link address: http://www.hussmanfunds.com<BR/>/weeklyMarketComment.html <BR/>A google search on John Hussman brings his site right to the top.<BR/><BR/>Hussman is a data-driven analyst. His valuation model is based on Price to Peak Earnings ratios with what he calls normalized profit margins. He looks at long-term data history and calculates Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-21300350930503491432008-11-26T13:10:00.000-08:002008-11-26T13:10:00.000-08:00Speak: Those are valid points. But to close the ga...Speak: Those are valid points. But to close the gap on the earnings side alone would require a decline in profits of two thirds. On the rate side, it would require Treasury yields of 10%. Or some combination of the two, leaving you with a scenario very difficult to describe.<BR/><BR/>I can believe that profits will decline some more and that rates will rise. But that still leaves me with cheap Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70541924817460872032008-11-26T13:00:00.000-08:002008-11-26T13:00:00.000-08:00Stocks are cheap at the moment, no doubt about it....Stocks are cheap at the moment, no doubt about it. Looking forward, I'd expect those lines to come together more from the earnings dropping and rates rising (intrinsic value lower) rather than stocks going up.<BR/><BR/>In the past, where there have been large discrepancies, I note that the market has proven to be more right than the model -- the intrinsic value moved to the stock price rather SpeakToMehttps://www.blogger.com/profile/04512373918759007718noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-11409955893087060522008-11-26T10:08:00.000-08:002008-11-26T10:08:00.000-08:00Tom: isn't Hussman now bullish? I have to believe ...Tom: isn't Hussman now bullish? I have to believe that all model valuations are showing stocks to be some degree of cheap. I admit my model has been wrong for years, and questioning its validity is entirely reasonable.<BR/><BR/>The Depression was caused by monetary contraction AND FDR's stupidity: a lethal combination that we don't have today.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-76381300917805355622008-11-26T10:05:00.000-08:002008-11-26T10:05:00.000-08:00CDLIC: ;-). But he's also a politician, and you ca...CDLIC: ;-). But he's also a politician, and you can never trust politicians to do what they say.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-25629431271028258902008-11-26T10:03:00.000-08:002008-11-26T10:03:00.000-08:00Mark: excellent comments. I don't know how big the...Mark: excellent comments. I don't know how big the hole is but I have a high degree of confidence in the Fed's ability to fill it. I've always believed that you can never underestimate the Fed's ability to get what it wants.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-34538218105404824022008-11-26T10:00:00.000-08:002008-11-26T10:00:00.000-08:00Tom, Would like to take a look at the Hussman mode...Tom, Would like to take a look at the Hussman model, would appreciate if you could post web address. Not much of a top down mkt analyst, look more at individual companies but even old dogs can learn new tricks. Have been buying aggressively since Oct 10th, BRK,JNJ,KO, BNI, CB,GE,UPS.<BR/><BR/>Have been watching CVX and COP, thinking crude may drift into the low 40s this winter.<BR/>thx.Unknownhttps://www.blogger.com/profile/09157122026722258624noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70263675449746091342008-11-26T09:38:00.000-08:002008-11-26T09:38:00.000-08:00It seems to me that right now it is all about whet...It seems to me that right now it is all about whether the central banks can and will fill the black hole of debt (perhaps better described as dollar amount of lost leverage) created by dropping asset prices and the collapse of the shadow banking system. If they can and will fill that hole, I think stocks can recover substantially in the next few months. If we can't or won't, deflation will takeMark Gerberhttps://www.blogger.com/profile/07980096984624964261noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-58353021279604465952008-11-26T05:20:00.000-08:002008-11-26T05:20:00.000-08:00Scott wrote:"And although I dislike Obama because ...Scott wrote:<BR/><BR/>"And although I dislike Obama because of his socialist instincts, I seriously doubt he is going to blindly make every mistake in the books."<BR/><BR/>But then again he is a socialistic; spread-the-wealth; tax-the-rich; free-markets don't work; Government is the savior of society; give the less fortunate their fail share; universal “voluntary” civilian service; regulate the CDLIChttps://www.blogger.com/profile/01216074401236580903noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-1547936786560977962008-11-26T05:02:00.000-08:002008-11-26T05:02:00.000-08:00Two things, Scott. One is that your valuation mode...Two things, Scott. One is that your valuation model showed stocks being undervalued for most of this decade. Other models, such as John Hussman's, seem to be more useful -his showed the market overvalued until the recent plunge, but now undervalued.<BR/><BR/>Secondly, this idea that avoiding monetary contraction avoids the damage doesn't make sense to me. The Austrian School thinking shows that Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.com