Tuesday, May 3, 2016

068. Long Range Market Perspective

Market conditions continue to be characterized by the likelihood of extremely poor long-term and full-cycle outcomes, with expected 10- to 12-year estimated Standard & Poor's 500 nominal total returns in the 0% to 2% range, negative expected real returns on both horizons and the continued likelihood of a 40% to 55% interim market loss over the completion of the current cycle; a decline that would represent only a typical run-of-the-mill cycle completion, based on valuation measures most tightly related with actual subsequent market returns across history.

John Hussman: <http://www.gurufocus.com/news/401664>

Friday, April 15, 2016

066. Yale University Survey of Investor's Views About Stock Valuation

THE INVESTOR BEHAVIOR PROJECT AT YALE UNIVERSITY, under the direction of Dr. Robert Shiller since its beginning and now under the auspices of the Yale International Center for Finance, has been collecting questionnaire survey data on the behavior of US investors since 1984.

Among the studies that this project has produced was a major study of investor thinking about market valuation.

Confidence in acceptable valuations of the market was held by over 60% to 80% of the surveyed population from 2001 through 2011. That has changed early in 2013 when the confidence level of investors that that the market was not too high dropped to 45% to 50%.

CONCLUSION: From 2001 to 2011 60% to 80% of investors accepted high valuations of the market - e.g. market was not too high. After 2013 only 45% to 50% of investors accepted market valuations - e.g. market became too high.

Monday, April 11, 2016

065. Stock Market Growth Exceeds Profit Growth

Stock market capitalization represents the most reliable indication of the valuation of invested assets. That does not include other property, such as real estate or land holdings but offers a good insight into the most closely watched class of US wealth.  (SOURCE: https://research.stlouisfed.org/fred2)

This asset class grew from $2 Trillion in 1985 to the current level of $20 Trillion, in increasingly cyclical pattern. The growth of the market has been about 1,000%

Meanwhile corporate profits - the source of the stock market value - have grown from $200 Billions in 1985  to the current levels of $1,400 Billions, The growth of profits has been about 700%.

CONCLUSION: Although a number of influences have propelled the growth of  both market valuation and corporate profits, it is the increasing use of low cost deb that has financed the differences between the stock market and profits.  Since 1985 investors have more than doubled the deployment of debt to finance an increasingly risk stock market.

Friday, April 1, 2016

064. Finding Global Trouble Spots

When planning for military engagements in the next two to four decades our Defense planners will have to examine what can be learned from demographics.

The following analysis was prepared for the April 2016 issue of the AFCEA Signal magazine.

Conditions now projected for thirty years ahead, or year 2045, will originate from current decisions. Defense plans will have to address the lengthened life of ships, aircraft and combat equipment. Personnel now entering into military service will be retiring in thirty years. The environment in which U.S. Defenses will operate will also have to anticipate how to cope with a different composition in the global population. It is the purpose of this Viewpoint to outline what are some of the current indicators that will be shaping our approach to dealing with situations in the different countries. This Viewpoint is based on an analysis of the data from 180 countries that is now available from the World Bank.

Demographic analysis will have to start with an examination of population growth and of its wealth. The following table shows that the largest projected population increases will originate mostly from newly created post-colonial African countries.

We find that population growth rates ranging from 23% to 42% are likely to be taking place under conditions of social turmoil, especially if the per capita income levels remain at the $250 to $680 subsistence levels. Though the aspiration levels may rise as influenced through accessible media, hopes of lifting from abject poverty could be potentially influenced by propaganda from ideologically radical sources.

An analyst’s examination of the population growth patterns will also take into account whether there will be young people ready to foment conditions for potential military exploits. This youth, representing between 35-47% of the total population, will try to enter into labor force where there will be few available employment opportunities. Although this group does not have sufficient education they are becoming more literate by listening to media and will demand the privileges of the more wealthy countries as an entitlement.

The above table will show that in a number of countries, currently affected by disturbances, there is large share of the total population now aged up to 14 years. They will age into a new generation that could be guided by preachers and politicians to become “angry young people” who will be clamoring for what is not available to them. Instead, they could be goaded to what is increasingly becoming an accepted political norm that they “are created endowed with the rights for life, liberty and the pursuit of happiness”.

But changes in the population numbers will not be sufficient as indicators of potential political conflicts. It will take other influences to create conditions that are favorable to the initiation of asymmetric warfare actions.

We have examined income per capita and the age for a wide range of countries where conditions of stability have not been as yet established. It is apparent that even small nations can well afford the acquisition of readily available arms as well as off-the-shelf command control systems to engage in military actions. Warfare used to required large-scale deployments of forces to engage in an armed conflict. That is no longer necessary. Easy availability of weapons in the hands of even a small, untrained and impoverished organization has increased the number of incidents that will appear as military actions. The number of small war-like incidents is likely to be increasing, not decreasing.  
As is the case for using any explosive, it cannot be activated unless there is also an ignition trigger. Though demographic conditions need to be favorable it requires a spark to create organized violence. It takes the calls for political actions that transform events out of the domain of demographics into matters that can be dealt only with ideology and politics.

CONCLUSION: Our analysis highlights that a large growth in impoverished and unemployed youth are likely to be setting up the conditions for increased disturbances. There is no shortage of revolutionary leaders who are ready to exploit activities that can be dealt with only by an organized military.

[i] http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators&preview=on&l=en#

063. Decline in New Canaan Home Prices

According to <https://mail.google.com/mail/u/0/?shva=1#inbox/153ce868d31a01a6>
a 4/1/2016 sample of current homes for sale in New Canaan showed overall declines of:

Property  Current Price      Original  Price Change
727 Smith Ridge Road $6,900,000 $8,900,000 -22.5%
579 Frogtown Road 4,295,000 5,800,000 -25.9%
354 South Avenue 3,995,000 4,950,000 -19.3%
60 White Oak Shade d 2,995,000 3,195,000 -6.3%
260 Lukes Wood Road 2,699,000 2,899,000 -6.9%
117 S Bald Hill Road 2,269,000 2,495,000 -9.1%
14 Gower Road 2,195,000 2,650,000 -17.2%
99 Hickok Road 1,995,000 2,195,000 -9.1%
43 Bartling Drive 1,950,000 1,995,000 -2.3%
165 Old Norwalk Rd 1,649,000 1,735,000 -5.0%
251 White Oak Shade  1,329,000 1,395,000 -4.7%
116 Rocky Brook Road 999,999 1,100,000 -9.1%
157 Weed Street 975,000 1,050,000 -7.1%
128 Bald Hill Road 927,900 959,000 -3.2%

PRICE CHANGES $39,004,899 $45,407,000 -14.1%

Homes over $4 million declined 22.6%, homes over $1 million declined 4%. The final sale price will be below these declines.

CONCLUSION: The erosion in home prices is particularly severe on high-priced homes. The actual sale price of these homes is not known, but will most likely show further reductions.

Tuesday, March 29, 2016

062. Strassmann Takes Course with Yale Prof. Shiller

There are 6,073 global participants in Lesson #2 of prof. Shiller's course on behavioral finance.

. This experience has been so far a spectacular success.