“…[T]he Iron Law of Valuation: every security is a claim on a very long-term stream of future cash flows that will be delivered into the hands of investors over time. Given that expected stream of future cash flows, the current price of the security moves opposite to the expected future return on that security. The value of a share of stock is determined by far more than current earnings, and one's estimate of value will be ill-formed if current earnings aren't a sufficient statistic for the long-term earnings trajectory…
…Indeed, across a wide range of measures including price/trailing earnings, price/forward operating earnings, the Fed Model, price/book value, price/dividend, Shiller P/E, Tobin’s Q, market capitalization to GDP, and even S&P 500 price/revenue, the ratio-based valuation measure most tightly correlated with actual subsequent S&P 500 nominal total returns over the following decade is the ratio of nonfinancial market capitalization to national nonfinancial gross value added (which I introduced in order to account for the estimated impact of foreign revenues). We’ll simply call this measure “market cap/GVA…Note that current valuations are above the 2007 peak, and are now within about 15% of the 2000 extreme…
…But aren’t stocks “cheap relative to bonds”? Unfortunately, the evidence suggests exactly the opposite. Indeed, despite a yield to maturity of hardly more than 2% annually, Treasury bonds are still likely to outperform the total return of the S&P 500 over the coming decade.” – John Hussman, Phd. Weekly Market Commentary at…
http://www.hussmanfunds.com/wmc/wmc150608.htm
RECOVERY? - THIS BULL HAS A LONG WAY TO RUN (Ikon Advisors posted at Advisor Perspectives)
“In conclusion, contrary to the bearish headlines, we at ICON believe that we are in the midst of a long-term recovery. With our valuation methodology as our guide, we believe there is enough value in the market to sustain a continued recovery. Furthermore, as we saw with the post 1987 market recovery, bull markets can last longer than 6 years.” - Ikon Advisors. Commentary at…
http://www.advisorperspectives.com/commentaries/20150605-icon-advisers-inc-recovery-rallies-is-six-years-enough
I am cautiously optimistic in the short run. I expect a correction late summer to fall.
MARKET REPORT
-Monday, the S&P 500 was down about 0.7% to 2079 at the close.
-VIX rose about 8% to 15.29. (Options players are more worried today.)
-The yield on the 10-year Treasury Note was dow to 2.38%. (As a percentage move, that’s 1% lower on the day.)
IL BUONO, IL BRUTTO, E IL CATTIVO
The original Italian title was, “The Good, the Ugly and the Bad,” but it sounded better in English as “The Good, the Bad, and the Ugly” so let’s re-cap that way.
THE GOOD
-The Relative Strength Index (RSI-14 day, SMA) dipped to 28 today, suggesting an Oversold condition so I’d expect a turn-around to the upside soon, but not necessarily immediately. The S&P 500 is now firmly at its lower trend line on a longer term basis and has little room to fall further without triggering further selling.
-In the last 20-days there have been only 7-up days and that is indicating an oversold condition too. In the last 50-days there have been only 47 up-days…oversold again.
-The Index is only 1.6% above its 200-day moving average and that is a good level of support suggesting the most likely direction is up, if not immediately, soon.
-The Russell 2000 was down 0.44% while the S&P 500 was down 0.65% so the Russell was again leading by losing less…a small consolation.
I will get concerned if the S&P 500 breaks decisively below its trend line (That would be ugly and bad.); otherwise, the trend is still up.
THE BAD
-The S&P 500 closed at its low for the day – not a great sign.
-There was late day selling on the Index and the S&P 500 lost over 6 pts in the final hour. The pros are nervous.
THE UGLY
-In general, NYSE the 10-day Market Internals still stink and they are suggesting down moves ahead. Still, I am hopeful that this trend will reverse soon. Otherwise, it will get ugly.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) remained 43% at the close Monday. (A number below 50% is usually BAD news for the markets. New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was minus-59 (It was -89 Friday.) The 10-day moving average of change in the spread rose to -8. In other words, over the last 10-days, on average; the spread has decreased by 8 each day.
Internals remain negative on the markets, but they did
improve some.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late. They are most useful when they diverge from
the Index. In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on
Positive out on Negative – no shorting).
Of course, few trend-following systems will do well in an extreme
low-volatility, nearly straight-up year like 2014.
NTSM
Monday, the NTSM analysis remained HOLD. PRICE is positive. VOLUME, VIX and SENTIMENT indicators are neutral, although (as always) sentiment remains extremely high. VIX and VOLUME are now creeping toward the sell side.
MY INVESTED STOCK POSITION
I remain fully invested at 50% invested, mostly in smaller
cap-stocks in the long-term portfolio with some international stocks. 50% is
conservative, but appropriate for a conservative retired guy. The Dow Jones US Completion Index (all stocks except the S&P 500 – the “S” fund in the TSP) remains ahead of the S&P 500. Since 1 February it is 3.9% ahead of the S&P 500. Since 1 March the Euro-Pacific ETF (EFA) (“I”-fund) is 1.9% ahead of the S&P 500.
THRIFT SAVINGS PLAN (TSP) MEMBERS
My current TSP Allocation: 50%-G; 10%-C; 20%-S; 20%-I. (50% cash is too high for non-retirees, however, the “G”-fund did return 2.2% over the last 12-months and that is exceptional for risk-free money.)
