tag:blogger.com,1999:blog-6616959642391988608.post7899560594289492695..comments2024-03-28T00:18:25.641-07:00Comments on Calafia Beach Pundit: Equities remain very cheap based on corporate profitsScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-6616959642391988608.post-18451707151707156892010-03-27T10:55:29.379-07:002010-03-27T10:55:29.379-07:00Thanks for the many comments and criticisms. This ...Thanks for the many comments and criticisms. This proves once again that valuation is an art, not a science, and that means that there will always be a way to "beat the market," but it won't be easy. It's a never-ending challenge and the playing field is always changing.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-55905548118845581412010-03-27T09:43:12.779-07:002010-03-27T09:43:12.779-07:00I don't agree with the "Fed model" e...I don't agree with the "Fed model" either. The equity market has returned over time real growth + monetary inflation + an equity risk premium. You can also state that as the risk-free rate plus an equity risk premium. That also equals TIPS + breakeven rate plus an equity risk premium. We can further break down the ERP as the credit risk premium for corporates plus an equity risk DaleWhttps://www.blogger.com/profile/16369657928022546882noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-15014451001070223792010-03-26T17:44:47.544-07:002010-03-26T17:44:47.544-07:00This comment has been removed by the author.Garyhttps://www.blogger.com/profile/13335751305150509057noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-43075738800920328802010-03-26T17:42:48.208-07:002010-03-26T17:42:48.208-07:00Scott -- the big issue with trying to value the ma...Scott -- the big issue with trying to value the market based on capitalized earnings discounted by the 10yr yield, is that you are assuming the 10yr yield is priced correctly.<br /><br />Around 2000-2001 is when Greenspan and Bernanke started whining about deflation and openly manipulating bond prices. I still don't buy their argument about deflation, since the cost of living continues to Garyhttps://www.blogger.com/profile/13335751305150509057noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-56432717461502777662010-03-26T12:40:35.967-07:002010-03-26T12:40:35.967-07:00Tom,
I have read Hussman from time to time and h...Tom, <br /><br />I have read Hussman from time to time and he is a very bright guy. It is always a good thing to know what he is thinking. However if you look at the returns in his funds it appears he has been very skeptical of the recent recovery and it shows in his investment performance. Everyone invests for their respective risk tolerance and his has always seemed low to me. He does well in Johnhttps://www.blogger.com/profile/11652253509768573561noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-35464400622864910932010-03-26T12:00:01.388-07:002010-03-26T12:00:01.388-07:00Happy to see some optimism--but investors might be...Happy to see some optimism--but investors might be justifiably wary right now. <br /><br />Our financial system just collapsed, after all--the very same system we have now. So, what is a company worth, if we suffer a second collapse?<br /><br /><br />Should investors be wary? <br /><br />There are still heavily leveraged hedge funds operating, some on bank balance sheets. Is there another Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-29702708946135340052010-03-26T11:48:35.914-07:002010-03-26T11:48:35.914-07:00Scott,
Your model seems to have suggested signifi...Scott,<br /><br />Your model seems to have suggested significant undervaluation in 2007, also? <br /><br />John: looking at PE ratios around 2000 and 2001 is not a particularly healthy comparison. We know now that 2000 was the peak of a particularly virulent bubble economy. Note, too, that for more than 10 years the stock market has delivered zero or negative returns since that time. Hussman Tom Burgerhttps://www.blogger.com/profile/01484696976692382802noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-74444329271158356152010-03-26T11:17:37.063-07:002010-03-26T11:17:37.063-07:00I appreciate this post because I have intuitively ...I appreciate this post because I have intuitively come to the same conclusion. If you look at the average pe ratios of blue chip US stocks around 2000 to 2001 they were very high relative to now. PEs today are much lower while prices are not much changed from eight or nine years ago. Companies have continued to grow their cash flows over the years but market participants have severly reduced whatJohnhttps://www.blogger.com/profile/11652253509768573561noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-58904149624918001312010-03-26T10:54:26.288-07:002010-03-26T10:54:26.288-07:00CDO: I'm aware of the criticisms of the model,...CDO: I'm aware of the criticisms of the model, but I still like it. It is one input among many that I rely on.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-60899901835935855052010-03-26T10:53:43.778-07:002010-03-26T10:53:43.778-07:00As of the 4th quarter of 2009 the S&P 500 was ...As of the 4th quarter of 2009 the S&P 500 was still trading below<br />NIPA Corporate profits after tax...<br />that is very cheap especially in a low inflation environment...broderohttps://www.blogger.com/profile/12296214283216386700noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-26262420256376993722010-03-26T10:49:56.956-07:002010-03-26T10:49:56.956-07:00CDO: Using a corporate bond yield for a discount r...CDO: Using a corporate bond yield for a discount rate is sensible, but it wouldn't change the way the model works by much. I have supply-sider friends that prefer to use a corporate rate for a discount factor.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-61196696477138364082010-03-26T10:46:49.877-07:002010-03-26T10:46:49.877-07:00krispy: Sorry, but my expertise does not extend to...krispy: Sorry, but my expertise does not extend to refiners.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-41489970336597730302010-03-26T10:45:56.732-07:002010-03-26T10:45:56.732-07:00septizoniom: dude, you need to chill. This is a mo...septizoniom: dude, you need to chill. This is a model, not a pronouncement. It's a tool, a guide for gauging whether the market's valuation. I've been showing it for more than a year, and it's been sending a strong bullish signal, and it's been right. Could it be wrong now? Who knows. But it's a way of looking at the world that makes sense to me.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-64716683160404090652010-03-26T10:30:13.451-07:002010-03-26T10:30:13.451-07:00Scott - - I really enjoy the blog. It is great, e...Scott - - I really enjoy the blog. It is great, especially the charts and graphs! <br /><br />Two points on this post - -<br />1) High level theory on what discounting rate should be used... it seems that using a Treasury rate is implicitly making a zero risk premium argument. Paul Kasriel uses the Moody's Aaa bond yield in his Kasriel Valuation model - essentially Art Laffer's CDO Squaredhttps://www.blogger.com/profile/02059206818756305544noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-13751163520469798102010-03-26T10:13:46.990-07:002010-03-26T10:13:46.990-07:00Hi Scott,
I was wondering if you can give me your ...Hi Scott,<br />I was wondering if you can give me your opinion on the relationship between the price of oil and the refiners. The crack spread. I have been looking at investing in the refiners, they look very undervalued particularly valero and was wondering what your thoughts about the refiners in general, oil, crack spread etc.<br /><br />By the way, I want to thank you for always giving me krispyhoochiehttps://www.blogger.com/profile/02825653444132300520noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-76072261869826490402010-03-26T09:25:05.816-07:002010-03-26T09:25:05.816-07:00why are you right and the wisdom of the entire mar...why are you right and the wisdom of the entire market wrong? have you examined why you might be wrong?septizoniomhttps://www.blogger.com/profile/14253705209662419429noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-30102995535320735902010-03-26T09:12:35.194-07:002010-03-26T09:12:35.194-07:00Amen Scott....also net cash flow to GDP is at an a...Amen Scott....also net cash flow to GDP is at an alltime high of 11.36%...with corporate profits after tax currently at a low 67% of<br />cash flow....we still have room for<br />profits to grow....broderohttps://www.blogger.com/profile/12296214283216386700noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-89367069894869768262010-03-26T09:00:47.929-07:002010-03-26T09:00:47.929-07:00You obviously have a ton of faith in Bernanke et a...You obviously have a ton of faith in Bernanke et al...Public Libraryhttps://www.blogger.com/profile/00017383928897945054noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-56703931506983892252010-03-26T08:56:38.433-07:002010-03-26T08:56:38.433-07:00Are 8% 10YR yields really that out of the question...Are 8% 10YR yields really that out of the question in the next few years? Just saying....Public Libraryhttps://www.blogger.com/profile/00017383928897945054noreply@blogger.com