Hedge Fund CIO: "We’ve Realized Roughly 3 Years Of Gains In The First 6 Months Of 2017"

As part of the local Sunday ritual, here is Eric Peters with his latest Weekend Notes, providing some context on recent, and not so recent market moves.

Weekend Notes


“US stocks rise roughly 7% per year,” he said. “Same holds true for Australia; basically, for all economies uninterrupted by catastrophic war at home.”


The 7% roughly equals 5% nominal GDP growth plus an extra 2% which is due to the S&P 500 index periodically kicking out bad companies and replacing them with better ones.


“Sometimes the market runs ahead of this 7% rate of return, which doesn’t mean it’s the wrong price, it simply means it’s premature.” In a world of fiat money, high prices are never wrong, they’re only early. 


“It took fourteen years for the stock market to return to its 1968 highs,” he continued. “And at that point in 1982, with overnight interest rates at 20% and the S&P 500 price-to-earnings multiple at roughly 8, the market still had miles to run.”


By the year 2000 with the S&P 500 P/E multiple at roughly 29, it was kind of the opposite. Then roughly 13 years later, it broke back above that Jan 2000 high, with a P/E ratio of roughly 17.


Today the trailing P/E is roughly 26, with overnight rates 19% below the 1982 levels, and 4.5% below the 2000 levels. 


“So we’re obviously not at a similar point to 1982,” he continued. “But where are we?”


Nerds forecast a 3% a year S&P 500 returns for a decade. Quants say we’re in the top few percentiles of historical valuation across every asset class (except volatility).


The S&P 500 is up roughly 10% this year. Which means we’ve realized roughly 3yrs of gains in the first 6mths of 2017.


“At some point, you rally so much that your 10yr return forecast turns flat. At which point you could go sideways for a decade.” But roughly speaking, stocks either go up, or down.


larrythelogger I_rikey_lice Sun, 07/16/2017 - 10:30 Permalink

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In reply to by I_rikey_lice

Restorative_Ally Sun, 07/16/2017 - 09:34 Permalink

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lester1 Sun, 07/16/2017 - 09:46 Permalink

These stock market gains are not real people buying. It's the Fed's plunge protection team, aka PPT who are covertly buying stocks so that the rich stay rich and pension plans and 401ks stay propped up!.. If they didn't buy stocks and bonds we would see a crash that makes 1929 look like a picninc and politicians +Trump would call to end the Fed! Why else did Janet Yellen said there won't be another crash again in our lifetime ?? She knows PPT will save the day and keep her assets prices propped up too.  

mary mary Sun, 07/16/2017 - 09:43 Permalink

3% return in the SP500 is far below the amount of inflation created by the FED.  If one thinks the FED is inflating at 10%/year, then one must conclude that the SP500 returns NEGATIVE 7% per year.  This is the exact opposite of Capitalism.  I guess its proper name might be Socialism.  Capitalism replaced by Socialism, all by one privately-owned company, the FED.  Rothschild must be very proud.

lester1 Sun, 07/16/2017 - 09:42 Permalink

Who remembers August 24, 2015 when the Fed's PPT outed themselves by reversing -500 points in just 15 minutes?? Who else is powerful enough to do that  and get away with it ??

lester1 Sun, 07/16/2017 - 09:50 Permalink

Bernie Madoff didn't have a way to create unaudited electronic money like the Federal Reserve's PPT does. So basically the Federal Reserve Ponzi can go on forever. Write that down permabear Peter Schiff !

Anarchyteez Sun, 07/16/2017 - 10:06 Permalink

Now is a great time to buy. This is just the beginning...32,000 here we come.

The millenials have poured into the market trading from moms basement using student loan money and 30% cash advances off their credit cards. That is the surest timing indicator I've ever heard of.