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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 | Link to Comment 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 | Link to Comment sawyer
sawyer's picture

Yeah Dilution and excessive salaries/bonuses...

Thu, 01/14/2010 - 12:28 | Link to Comment Anonymous
Wed, 01/13/2010 - 19:52 | Link to Comment Anonymous
Thu, 01/14/2010 - 05:16 | Link to Comment 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 | Link to Comment Anonymous
Thu, 01/14/2010 - 09:58 | Link to Comment Anonymous
Thu, 01/14/2010 - 11:37 | Link to Comment Anonymous
Thu, 01/14/2010 - 12:42 | Link to Comment Anonymous
Thu, 01/14/2010 - 13:05 | Link to Comment 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 | Link to Comment Anonymous
Thu, 01/14/2010 - 16:12 | Link to Comment 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 | Link to Comment George the baby...
George the baby crusher's picture

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

Thu, 01/14/2010 - 13:15 | Link to Comment 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)...at 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 | Link to Comment Anonymous
Wed, 01/13/2010 - 20:20 | Link to Comment Clampit
Clampit's picture

Yeah, but does the fed care about technicals?

Wed, 01/13/2010 - 20:54 | Link to Comment 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....

LOL...

 

Wed, 01/13/2010 - 21:11 | Link to Comment Anonymous
Thu, 01/14/2010 - 07:25 | Link to Comment 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 | Link to Comment Zina
Zina's picture

Please, help Haiti

Wed, 01/13/2010 - 21:32 | Link to Comment 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 | Link to Comment Trifecta Man
Trifecta Man's picture

I donated to Red Cross.

Thu, 01/14/2010 - 09:38 | Link to Comment Anonymous
Wed, 01/13/2010 - 22:15 | Link to Comment Anonymous
Wed, 01/13/2010 - 23:52 | Link to Comment Anonymous
Wed, 01/13/2010 - 22:24 | Link to Comment Anonymous
Thu, 01/14/2010 - 10:31 | Link to Comment Anonymous
Wed, 01/13/2010 - 22:40 | Link to Comment 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 | Link to Comment Anonymous
Thu, 01/14/2010 - 09:45 | Link to Comment Anonymous
Thu, 01/14/2010 - 16:06 | Link to Comment 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 not...no 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 | Link to Comment 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 not...no 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 | Link to Comment 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 | Link to Comment Anonymous
Thu, 01/14/2010 - 09:48 | Link to Comment Anonymous
Thu, 01/14/2010 - 00:17 | Link to Comment 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 | Link to Comment 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 that...so i guess barry is actually doing something positive. except the reprucussions will be worse.

no need to worry until the end of 2015....so go long.

Thu, 01/14/2010 - 01:30 | Link to Comment 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 | Link to Comment 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.

http://www.321gold.com/charts/seasonal_gold.html

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 | Link to Comment Anonymous
Thu, 01/14/2010 - 02:33 | Link to Comment Anonymous
Thu, 01/14/2010 - 09:48 | Link to Comment Anonymous
Thu, 01/14/2010 - 10:01 | Link to Comment Anonymous
Thu, 01/14/2010 - 11:39 | Link to Comment Anonymous
Thu, 01/14/2010 - 11:50 | Link to Comment Anonymous
Thu, 01/14/2010 - 12:48 | Link to Comment Anonymous
Thu, 01/14/2010 - 13:44 | Link to Comment Anonymous
Thu, 01/14/2010 - 11:57 | Link to Comment Anonymous
Thu, 01/14/2010 - 12:31 | Link to Comment Anonymous
Thu, 01/14/2010 - 12:54 | Link to Comment Anonymous
Thu, 01/14/2010 - 13:01 | Link to Comment jd2iv987
jd2iv987's picture

thank you perma bears.

 

you are making it that much easier.

 

just like you perma bulls in '07.

 

thank you.

 

fyi...id take this analysis with a large grain of salt. it is utter nonsense.

 

 

Thu, 01/14/2010 - 13:23 | Link to Comment Anonymous
Thu, 01/14/2010 - 13:54 | Link to Comment Anonymous
Fri, 01/15/2010 - 16:24 | Link to Comment 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 inflated...im 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 sector...it 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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