Valuations

Legendary Investor Jim Rogers Predicts A Stock Market Crash, And The World Yawns

Legendary investor Jim Rodgers has often been right, and often been wrong, about the future of U.S. financial markets. He’s completely bullish on the future of Asia, and in fact now lives officially in Singapore.

Now he’s calling for the worst stock market crash in our lifetime. Read more here.

He may be right. Or not.

It’s worth noting that when the stock markets first began flashing indications of overvaluation, they were at about half their current levels. Had we gone to cash in 2013 as the statistics suggested, we would have missed out on at least 1 of every 4 dollars in our diversified portfolios.

Why didn’t the financial markets crash after 2013? The unexpected happened: the Fed and other central banks of the world intervened to support financial markets.

I have my own emotional reservations about that: when governments intervene in markets as the mood strikes them, then markets become unquantifiable. But the money which has been made is quite real.

So now Jim Rogers says that the biggest stock market crash in our lifetime is imminent, he may be right. Stock markets ARE very overvalued, and have been for years. My response for all of us has been to stay very diversified and be a bit cautious. The result has been that our investment returns haven’t beaten the stock markets, but we’ve at least participated while remaining realistic about genuine dangers out there.

I also remember that the Financial Panic of 2008 was followed by a market boom.

Genuinely, we don’t know what will happen. Let’s also keep in mind that we want to buy low, and sell high, and we want to persist. Investing is a marathon, not a sprint.

Why the economy isn’t thriving: more insight

Last week we were in San Francisco listening to a presentation by Schwab’s chief economist, Liz Ann Saunders. My takeaway was that the economy is not thriving because of

a. excessive debt in the system.
b. complexity.

The excessive debt may or may not have prevented a depression but its legacy is gargantuan payments to keep from defaulting. These will only become larger as interest rates rise.

The complexity is due to technological change and off-the-charts over-regulation. Distractions have grown and regulatory uncertainty is rife.

What will happen? We don’t know. Here’s bond guru Bill Gross’ latest comment.

Taking profits in energy

Today we exited our relatively high-risk energy holdings, after a very profitable short term run. I tried to hold on to get as many clients as possible long term rather than short term capital gains. However since we’ve been going sideways for a couple of weeks I thought it would be wise to take gather our profits and depart. The easy money from the days of grotesque overvaluation last year appears to have been made. Also I’m hoping that our diversified value stock mutual funds have a toehold in energy. Now we’re on to other bargains.
 
In the bigger picture, we could see either the stock or the bond markets move dramatically based on news. Both are overvalued. Our energy adventure was a bit of sideshow, compared to the bigger challenges of asset allocation and diversification. That’s where our greater attention must focus. Go slow and stay cautious.

Watch out!!!

I’m rejoicing at the recent all time highs in the stock markets. The money gained is real. But I’m also cautious. Let’s stay diversified and careful. We don’t really know what will happen. We need to be emotionally prepared for a downturn, even if it’s slight. Remember, for us, downturns are when investments go on sale. In my professional life, every decline in the stock markets has been a opportunity to create greater long term gains.

Read the article here.

Energy Bargains

Currently the stock markets continue their trend of overvaluation which has defined the past three years. Overvaluation doesn’t mean that a downturn is imminent. On the other hand, it implies that the stock markets are vulnerable. So we need to stay diversified, and we’ll all muddle by. This indicator has been useless for the past three years, so selling out and running away may not be viable choices. Meanwhile, there are genuine bargains in the energy and materials sectors. Also the European indices are becoming attractive. England’s FTSE 100 is trading at 3 year lows.

Read article

Valuations

I’m watching the China exchange traded fund, symbol PEK, which is up about 16% in one day, having fallen close to 40% in one month. I’m also looking at valuation statistics for the United States stock markets. The Value Line P/E is 19.1%, which is historically modestly overvalued. The median yield is 2.1%, again modestly overvalued. The Value Line Median Appreciation Potential is 35%, which is historically profoundly overvalued. These statistics can stay in the “overvalued” zone for years. My perception is that they have stayed high for so long due to artificially low interest rates. They continue to suggest, however, that the possibility of an eventual downturn, perhaps years in the future, is out there. Most of our portfolios are diversified and relatively cautious. At the moment, we’ll continue to stay conservative. We don’t know what will really happen in the short run. Eventually, if and when bargains emerge, we’ll do some buying.