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Global Tactical Asset Allocation - Equities

Tyler Durden's picture


Following up on the popular Global Tactical Asset Allocation report posted yesterday, we present Damien Cleusix' deep dive in equities: the GTAA - Equities version.

Valuations are now above levels where performance going forward will not please the buy & hold crowd, even if we go back to the good old days, the credit bubble stops deflating, growth reaches pre-2007 level in a sustainable manner .... At 1200 on the S&P 500 will be priced more expensively than all of the structural tops pre-2000 (well 1997-2000) except the final tail of the 1929 move ... This does not imply that the market will fall in the short or even the medium term but that a further rise will only have speculative and no investment merit if bought. Our base assumption remains that we will fall to significantly undervalued levels before a new secular bull market can start (in the developed world as you know we believe that we are in a secular bull market in emerging markets). This currently implies a sub-530 level on the S&P 500 going up by 5-6% a year.

55 pages of equity-related observations for your reading pleasure.

And again, should you want a copy of the pdf, please email us directly.



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Wed, 01/13/2010 - 18:49 | 193025 Instant Karma
Instant Karma's picture

Really? You mean the S&P 500 is as expensive now as it was 10 years ago? More so? Probably because earnings have sucked and companies keep issuing stock. No one seems to talk about how earnings can rise year after year (mostly) yet P/E ratios remain the same or rise. Why? Dilution.

I'm out of the ponzi scheme (stock market). I'm into precious metals. Dilute that!

Wed, 01/13/2010 - 18:51 | 193027 sawyer
sawyer's picture

Yeah Dilution and excessive salaries/bonuses...

Thu, 01/14/2010 - 12:28 | 193762 Anonymous
Anonymous's picture

NO DILUTION??? Hey Sherlock, ever heard of GLD?

How about IAU, GTU, CEF, DGL, DGP, DGZ, DZZ, and that's just the NYSE, but my favorite is on the London Stock Exchange---

It's called BULL

I can think of an appropriate ending for that one!

And don't think your physical holdings are safe, unless you plan to sell it to an Indian jeweler or a weakened industrial manufacturer.

Dilution is dilution is dilution. Good luck with your PM!!

Wed, 01/13/2010 - 19:52 | 193094 Anonymous
Anonymous's picture

Uh, this is non-sense. The naive PE looks that way because of the massive losses in the crisis. As Q4 2008 and Q1 2009 roll-off... the EPS for 2010 will come out to be roughly $90/shr.

So at 16.4x thats ~1400 YE.

If its "all a ponzi scheme" how come divs continue at 2.5% and cash on balance sheet is highest levels of all time?

Good luck in gold (4.5%/yr avg last 100-yrs, poor performance except in crisis... are we headed "into" or "out of" a crisis?)

Thu, 01/14/2010 - 05:16 | 193498 Arm
Arm's picture

I have been hearing the forward earnings argument (forward P/E) for over two years now.  Indeed it is the same arguement the sellside uses in every single bubble.  ("No, I swear it's not expensive, you are just not considering stupendous magical sales numbers just around the corner" - second favorite gimmick is arguing for lower risk premia due to a "more stable world")

The forwared part implies forecast.  Forecasts can be whatever you want them to be which is why I prefer trailing P/E.  That said, your earnings growth forecasts for 16.4x should be somewhere in the 20% range for several years (I don't know the years forward in your model, or if you are just naively taking some consensus EPS).  That is simply nutty.  We are not seeing remotely that type of growth.

Let's just reality check for a moment.  Seeing some stocks are now above pre-crisis levels.  Arguing for low valuations today implies that either that earnings growth will be higher than was expected in 2007 or that systematic risk has gone down.  Do you even remotely want to argue in favor of any of these two points?



By the way 2.5% dividends are historically on the low end for equities.  It is only in the recent two decades that investors neglected dividends.

Thu, 01/14/2010 - 09:40 | 193561 Anonymous
Anonymous's picture

This scuttling street creature keeps
showing up with his $90 operating earnings
estimate. First of all, no one is
higher than $86 on operating earnings,
so he's rounding it up. Secondly, GAAP
earnings (the S&P historical standard for
P/E is GAAP.. not "operating" earnings)
will come in at $60, best case..V recovery,
party hats, and all, not that any of
this looks remotely possible without
more stimulus. So, you want to pay a 20
multiple for a steep slide into a 1% GDP
second half? Go to it, boyz.
Hussman pointed out months ago that a
20 multiple for the market has NEVER been
sustainable in the long run. NEVER.

Thu, 01/14/2010 - 09:58 | 193574 Anonymous
Anonymous's picture

Wrong. We ARE seeing that kinda growth.

EPS estimate 1-yr ago... for 2009... were $40-50/shr on SPX. Turns out they should come in at $65/shr. Maybe more if the 4Q is very good.

Thats 40-60% upside growth in EPS from 1-yr ago expectations to 2009 reality (ah... that why the market rallied!).

So now EPS estimates for 2010 are $70-80/shr. What will the recovery upside be?

Thu, 01/14/2010 - 11:37 | 193664 Anonymous
Anonymous's picture

Yeah? So long as you keep mixing operating
earnings and GAAP earnings, you have
no credibility. Go sell some
nosebleed stock to some idiots who
loved the dotcom multiples. How'd that
work out?

Thu, 01/14/2010 - 12:42 | 193799 Anonymous
Anonymous's picture

"operating EPS" differ from "GAAP EPS" by $3/shr over the last 3 quarters.

Why do we care about writedowns of "Goodwill" and other "intangible assets"? Its a meaningless accounting construct. Operating EPS is a better measure.

We no longer live in a "hard asset" based economy, so software companies can earn $Bs in cash-flow on deep negative net worth. "Book value" is no longer that relevant.

For those of you who think its "all a ponzi scheme", riddle me this -- what is GOOG worth? It was started in a garage, a little more than 10-yrs ago. This year it will have close to $30B in revenue! That's real $, being paid by people who like the service. It will cash-flow something like $10B... even with plenty of waste in the operations (perks, excess employees, failed project, etc). Yet, when it IPO'd at $85/shr you guys probably thought it was all BS... right? You would've thought that when investing $100k in the start-up.

That $100k would be worth >$100M today.

But then... its all a ponzi scheme... and you'll be right eventually.

The pessimists hey-day was winter 2008-09. Its over. Get long and loud!

Thu, 01/14/2010 - 13:05 | 193842 jd2iv987
jd2iv987's picture

+1 for saying go long and loud.


but its because of the drop in public confidence and rise in private confidence....coupled with coming off extremely low estimates, and INFLATION.



Thu, 01/14/2010 - 13:30 | 193883 Anonymous
Anonymous's picture

No thanks. I don't want to be your
bagholder at the peak of a bear market

Thu, 01/14/2010 - 16:12 | 194098 jd2iv987
jd2iv987's picture

then you have 5 years to wait.

or just let emotion and stupidity influence your long term investing strategies.



Thu, 01/14/2010 - 07:17 | 193519 George the baby...
George the baby crusher's picture

Ponzi schemes have dividends too, until they don't.

Thu, 01/14/2010 - 13:15 | 193861 jd2iv987
jd2iv987's picture

i agree the analysis is nonsense...but i dont think you have any clue as to why.


and were you serious about into or out of a crisis? obviously the stock markets/commodities are going to run wild...but have you considered what happens in the fixed income markets as rates and yields shoot through the roof?

thats the real redistribution of wealth...

take it from risk averse investor and give it to the risk friendly (boomers to gen x,y) the same time do anything to try and stop the rush of capital out of our fixed income and real estate markets to asia...


keep putting bandaids on the dam....

Wed, 01/13/2010 - 20:16 | 193121 Anonymous
Anonymous's picture

What Robot fired off today?

Between 11:03 and 11:04 CT today, there were a series of transactions in ESH0 in which a market participant appears to have inadvertently traded approximately 200,000 contracts as both buyer and seller. CME maintains trade practice and risk management rules and procedures respecting such matters. In keeping with standard practices and CME's self-regulatory responsibilities, CME is reviewing the circumstances of this event.

The sender provided the following contact information.
Sender's Name: CME Globex Control Center

Wed, 01/13/2010 - 20:20 | 193126 Clampit
Clampit's picture

Yeah, but does the fed care about technicals?

Wed, 01/13/2010 - 20:54 | 193156 RobotTrader
RobotTrader's picture

Yet another "white paper" put together.

By a high paid "strategist" or "analyst" which cost something in the area of 6 figures.

And then there were the weeks of research.

Hours of typing.

Hours of proofing.

And for the same amount of money spent, that firm could have employed a 19-year old joystick expert which knows nothing but "chasing motion" who could have been plopped down in front of three 24" monitors and could have played the usual and typical Options Expiration Schwang and made the firm 6 figures in 48 hours.

Imagine this 19-yr. old trader with no MBA trying to make sense of a white paper discussing valuations....



Wed, 01/13/2010 - 21:11 | 193179 Anonymous
Anonymous's picture

Yet another critic who sees no need to worry and no need to fuss or question the present state. I rode that pony for its greatest gain. I've had its biggest piece of the pie. To the critic I give the crumbs along with the risk appetite, enjoy your meal.

Thu, 01/14/2010 - 07:25 | 193520 George the baby...
George the baby crusher's picture

Then again, imaging a 19-yr old trader with an MBA trying to make sense of the market.

Wed, 01/13/2010 - 21:28 | 193187 Zina
Zina's picture

Please, help Haiti

Wed, 01/13/2010 - 21:32 | 193189 Zina
Zina's picture

Hope Uncle Sam will give to Haiti help efforts at least 0.1% of that trillions used to save the banksters

Thu, 01/14/2010 - 00:21 | 193364 Trifecta Man
Trifecta Man's picture

I donated to Red Cross.

Thu, 01/14/2010 - 09:38 | 193559 Anonymous
Anonymous's picture

Sorry to say, the Red Cross is another corrupt organization...especially their hugely profitable blood business. What a business model: get blood for free and then sell it to hospitals & blood banks at a huge profit...noting that the profits for the blood do NOT go to the separate relief side of the organization.

They are not what they used to everything else.

Wed, 01/13/2010 - 22:15 | 193235 Anonymous
Anonymous's picture

Earnings, PE ratios dont mean shit in this market. Its all about daytraders and GS bidding up any stock and also futures and the fucking HTF Monolith HAL trading the market. Valuations? Dont mean a thing. Just pick any stock and it will go up.

Wed, 01/13/2010 - 23:52 | 193337 Anonymous
Anonymous's picture

I have a few dogs in my portfolio that dictate otherwise....

Wed, 01/13/2010 - 22:24 | 193245 Anonymous
Anonymous's picture

That report is way too bullish.

The S&P 500 will bottom out around 216 -- and stay there for exactly 37.4 years.

I have charts and graphs to prove it.

Thu, 01/14/2010 - 10:31 | 193603 Anonymous
Anonymous's picture


Wed, 01/13/2010 - 22:40 | 193270 buzzsaw99
buzzsaw99's picture

interesting read but fundamentals are irrelevant, this is the new age, the age of aqueous federaleous reserverelius maximus expendus. let me give you my (much shorter) report: the market only goes up.

Wed, 01/13/2010 - 23:27 | 193316 Anonymous
Anonymous's picture

guess what those big scary actions by the FED and Gov't that you girls love to cry about are exactly what will make this the biggest most amazing bull market. Guess what buy and hold guys aren't the smart money. The Smart money is the money that recognized A) the building deflationary potential energy back that would surge to the forefront in 06-07. B) knew that gov't actions would be slow and incremental at first ( late 07- late 09) but when embarked upon would pave the way for the largest rally in risk assets, in history. Only the smartest money will fully participate because it takes a lot of intelligence to go with the seemingly dumb bet. Sure the will be plenty of "smart" money managers that genuinely believe that the markets are overpriced. What they fail to be capable of is recognizing that the game has changed. The rules are actively and deliberately being altered, to perpetuate the rally in risk assets (for the economies well being).

Thu, 01/14/2010 - 09:45 | 193565 Anonymous
Anonymous's picture

Sorry, the smart money sounds like a
dumbass trading in his basement:)

Thu, 01/14/2010 - 16:06 | 194092 jd2iv987
jd2iv987's picture

sounds like? because you clearly dont know.


that was one of the most coherent and accurate comments ive ever read on here.


dont get caught up thinking whats bad for the consumer is necessarily bad for the agenda...gotta keep everything up and running....or else we are all screwed right? so i guess number one goal is to keep it floating. if matter what side of the market you are on...your screwed....because even if you short everything and everything goes to shit...who's gonna pay you? the bankrupt company? or the bankrupt treasury?


ur best bet is to stay long until...its time to save the bond market. then they will do their best to drive capital away from risky assets and back into "safe" assets. in an economy based solely on confidence...its pretty easy to manipulate everything...especially when the population that makes up the confidence is borderline retarded.



Thu, 01/14/2010 - 16:06 | 194093 jd2iv987
jd2iv987's picture

sounds like? because you clearly dont know.


that was one of the most coherent and accurate comments ive ever read on here.


dont get caught up thinking whats bad for the consumer is necessarily bad for the agenda...gotta keep everything up and running....or else we are all screwed right? so i guess number one goal is to keep it floating. if matter what side of the market you are on...your screwed....because even if you short everything and everything goes to shit...who's gonna pay you? the bankrupt company? or the bankrupt treasury?


ur best bet is to stay long until...its time to save the bond market. then they will do their best to drive capital away from risky assets and back into "safe" assets. in an economy based solely on confidence...its pretty easy to manipulate everything...especially when the population that makes up the confidence is borderline retarded.



Wed, 01/13/2010 - 23:52 | 193338 max2205
max2205's picture

Congrats to ZH for being bearish for 70% on indexes and over 300% on individual stocks. That's going to be hard to beat

Thu, 01/14/2010 - 09:14 | 193552 Anonymous
Anonymous's picture

Are you stupid or just trying to act ignorant or are you just a worthless troll who always tries to play the good cop bad cop routine. Well all cops are bad, don't disgrace your family by becoming one.

Thu, 01/14/2010 - 09:48 | 193566 Anonymous
Anonymous's picture

I call bullshit. Guys like you are still
trying to get back to even.

Thu, 01/14/2010 - 00:17 | 193351 Trifecta Man
Trifecta Man's picture

Damien Cleusix provides a marvelous summary of various fundamental, tecnical, and quantitative factors that influence the stock market in his analysis.  This guy obviously knows his stuff.

I basically agree with his concept that the stock market appears to be overbought now, meaning that the risk is high for a significant correction.  Most likely this is because of all the "unaccounted" new money that has swung into the stock market, as suggested in another article on this site.  Charles Biderman's view is that the Fed may be the source of this new money, as it sure does not seem to be public demand by the statistics.

In colloquial terms, stocks are in bubble mode at this time.  It is difficult to know when the moment will hit when profit taking sets in.  My best suggestion for establishing when this bubble busts is when the QQQQ breaks its 20 week moving average, or breaks its 100 day moving average.

But until that happens, we are still technically in a bullish mode, even though stocks generally are way overvalued in fundamental terms.


Thu, 01/14/2010 - 16:26 | 194117 jd2iv987
jd2iv987's picture

trifecta man - phenomenal analysis.


make sure you sell at that point...ill take everything you have off your hands...


give it a year or two and maybe you will realize we are in a bull market. (not saying it will be due to anyting positive, but we will be moving higher in risk assets/commodities)


you can thank the drop in public confidence for i guess barry is actually doing something positive. except the reprucussions will be worse.

no need to worry until the end of go long.

Thu, 01/14/2010 - 01:30 | 193416 ACjourneyman
ACjourneyman's picture

How come the stocks I own go down when GS fucks the market, could it be because I have miners, energy,gold stocks and still holding SRS(POSDOG BASTARDMF), one day it will pay, I know it. I feel like closing my trade account and going all in on physical, at least they won't rob me of anymore money.

Thu, 01/14/2010 - 02:24 | 193447 Trifecta Man
Trifecta Man's picture

By their nature, the mining stocks have a large volatility, where these type of stocks can easily move about 20%-30% off their highs.  Plus they tend not to be large cap stocks, so they suffer a bit from short manipulations.  Traders tend to love the stocks with the richest ground per tonne.  Shorters tend to pound the miners with the lower grades.

In general buy big dips and sell some into rallies.

Historically precious metals tend to drop in value in February.  Might see some bargains if you wait a couple months.  Here's a historic chart on gold futures.

In the long term, you already know where the dollar is headed.

Thursday the CFTC will have a meeting on limitations in positions on oil futures.  Some hope that they may even discuss precious metal futures contract limits.  Gold and silver zooms if they stop JPM from keeping a huge short position.

Thu, 01/14/2010 - 13:09 | 193851 Anonymous
Anonymous's picture

I can't see wasting time with SRS. My experience after making a pile on SKF/SRS then puking it back and then some on SRS. I bought around $40 or so. Kept averaging down (but not fast enough to beat the decay.) Finally made it to 9.5/share avg. Then bought a pile at 9.05 hoping to beat it back to close to even. Next leg down dropped to the $7's clawed my way back to 7.70 sold 40% of shares... went to 8.05 -- sold 2K more shares. Dropped to $7.40 and dumped the rest for almost 50K loss.

I took the advice of folks here -- THANK YOU GUYS FOR THE ADVICE! -- I started by selling to my comfort level. Then decided I'd rather just be OUT. It's a dead trade. It'll pop around in the range of 3-5% at most.

Maybe the CRE that is supposed to fail will be allowed to fail (good luck with that!)

If it ever looks like a long term reversal maybe I'll gamble (cuz, yes, that is what it is) and trade some but I've seen enough of my capital go away to ever get involved in it.

It's a 24- 48 hr trade at the very most. I'm sorry if this is painful. It was for me but I wish I had just sold it off from the beginning.

Good luck.

Thu, 01/14/2010 - 02:33 | 193453 Anonymous
Anonymous's picture

Speaking about "global allocation", why not build up your wealth tax-free by working in the Gulf? First 90K is tax exempt if you are a US citizen. If you are from UK, Canada or Australia, even better. You don't have to pay any income tax on your Gulf income. Just google gulf specific tax free to see for yourself.

Thu, 01/14/2010 - 09:48 | 193567 Anonymous
Anonymous's picture

I know that this is a little off topic, but--

NOTE TO LLOYD BLANKFEIN and all other Bankers who have profitted from this nation's demise---

If you are truly doing "God's Work"--then please do what Jesus would WANT you to do, and send those BONUS checks directly to Haitian relief efforts.

Thank you.

Thu, 01/14/2010 - 10:01 | 193576 Anonymous
Anonymous's picture

Since Dec 1 -- Gold is down 10%, Stocks are up 10%.

If you think thats a tough 20% swing! Wait 3 months, it will be 40%.

Stocks bitches!!!

Thu, 01/14/2010 - 11:39 | 193665 Anonymous
Anonymous's picture

I submit that trolling for bagholders
at ZH is futile.

Thu, 01/14/2010 - 11:50 | 193686 Anonymous
Anonymous's picture

Last I looked, the corporate insiders continue to sell every
share they can. Which would mean the 2010 street
sell-side estimates are bs. You can't get a
36% yoy earnings increase on lower revenues. So the
insiders cost cut to the bone as long as they can get away with it and unload their shares into the rally. How many
wall street guys know this? I submit ALL of them.

Thu, 01/14/2010 - 12:48 | 193809 Anonymous
Anonymous's picture

Why would you think "coporate insiders know something"?

I bet they were buyers in 2007, when they should've been sellers.

Hmmm? Not a good indicator.

Thu, 01/14/2010 - 13:44 | 193905 Anonymous
Anonymous's picture

okay...i'll ignore across-
the-board corporate insider selling as
a bad indicator and go with your pie-
in-the sky operating earnings instead.
Things sure are wonderful...glad you
are here daily to point this out. Bet
your stops are really tight, aren't
they? Tee-hee.

Thu, 01/14/2010 - 11:57 | 193691 Anonymous
Anonymous's picture

Obama's tax should take the legs off the big banks.
Worried that they'll pass the tax along to you?
Simple solution. Do business with someone else.

Thu, 01/14/2010 - 12:31 | 193769 Anonymous
Anonymous's picture

For an excellent read on what true bear market bottoms look like, have a look at "Anatomy of the Bear" - this was not the final bottom in this cycle. But it was a good run...I expect the S&P will go to 1250 at least like the charts indicate inn the above report, at that point at least I can say I feel like the odds for a successful short is favorable. Right now I think cash is most sensible. hopefully gold stocks will correct meaningfully and a buying op occurs in that sector. Right now I don't feel comfortable with gold, although the arguments for hard assets ring true with me.

Thu, 01/14/2010 - 12:54 | 193818 Anonymous
Anonymous's picture

NOTE TO LLOYD BLANKFEIN and all other Bankers who have profitted from this nation's demise---

If you are truly doing "God's Work"--then please do what Jesus would WANT you to do, and send those BONUS checks directly to Haitian relief efforts.


Amen to that brother! Instead, what can we expect? Well I expect for Obama's tax hike on banks to get passed on to customers in the form of higher transaction costs...

Thu, 01/14/2010 - 13:01 | 193837 jd2iv987
jd2iv987's picture

thank you perma bears.


you are making it that much easier.


just like you perma bulls in '07.


thank you. take this analysis with a large grain of salt. it is utter nonsense.



Thu, 01/14/2010 - 13:23 | 193873 Anonymous
Anonymous's picture

yeah, yeah...keep working at it.
Maybe you'll be even in 10 years.

Thu, 01/14/2010 - 13:54 | 193920 Anonymous
Anonymous's picture

Im at all-time highs now.

Down 25% in 2008.
Up 60% in 2009.

Pretty much long stocks the whole way... plenty of opportunities to outperform, everyday... including today.

Only mistake was not ADDING way more risk when fear was the highest.

Fri, 01/15/2010 - 16:24 | 195207 jd2iv987
jd2iv987's picture

no...buying citi and wachovia puts in july 07 should keep me positive for a lil while.


thanks for the concern though. i never said i was a perma bull, but even in a delusional market that is purposely being not going to sit on the sidelines and whine about how goldman sachs manipulates everything. ill ride the manipulation in the stock market and stay short the treasury. i mean all we did was transfer all the shitty worthless assets from the private sector to the public should be pretty obvious whats going to happen...


optimism breeds opportunities

pessimism leads to missed opportunities


sorry...but its how the world works.

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