Posts filed under “Analysts”
In our discussion of Mr. Market, we made passing reference yesterday to CAPE, Yale professor Robert Shiller’s 10-year cyclically adjusted price-earnings measure. This led to quite a conversation via a series of e-mails and Twitter posts from an assortment of analysts and asset managers. I received research from or by Cliff Asness, Michael Kitces, Mebane Faber, Jeremy Siegel, Salil Mehta, Stephen E. Wilcox, Doug Short, Wade Slome, Erik Kobayashi-Solomon, Ben Carlson and Jesse Livermore. If you want a crash course in CAPE, spend the weekend digesting what they have to say.
Today, I want to focus on the pros and cons of CAPE, giving airtime to all sides of the argument. My main interest in CAPE has more to do with behavioral issues such as confirmation bias by those who cherry pick CAPE as their preferred valuation metric when it suits their market position.
Let’s start with a few words about valuation and timing. Cyclically Adjusted Price to Earnings uses the prior 10 years of trailing per-share earnings rather than just the previous four quarters. This reduces the short-term volatility. In theory, it should include at least one full business cycle, and possibly more. Shiller has said that he was trying to develop a valuation metric that would tell an investor whether equities were likely to outperform their median returns during the next decade. Continues here
David J. Merkel, CFA runs his own equity asset management shop, called Aleph Investments, running separately managed stock and bond accounts for upper middle class individuals and small institutions. He has a background as a bond manager and life actuary and hold bachelor’s and master’s degrees from Johns Hopkins University. While at RealMoney,…Read More
If you work in finance, you will invariably come across an example of single-variable analysis. Almost daily, we see terrible examples of this sort of analytic error, rife with logical weakness, yet offered with the highest degree of certainty. The way this works is as follows: Some ominous data point will be shown, along with…Read More
This week in encouraging news, we learn that the Securities and Exchange Commission may finally be pursuing one of the prime enablers of the financial crisis — the ratings companies. Previously, it was reported that disclosure violations were on the SEC’s radar, but truth be told, those are minor offenses. The SEC’s Office of Credit…Read More
These bullet points were from a (much longer) Merrill Lynch research piece last week. “With most of our market indicators flashing green, we address the bear cases below to either debunk them or provide evidence that the risks are priced into stocks.” 1. “The 5-year bull market is long in the tooth” 2. “Everybody’s bullish…Read More
Robert Arnott is Chairman ＆ Chief Executive Officer of Research Affiliates, a global leader in smart beta and asset allocation strategies, and one of the originators of fundamental (as opposed to market cap weighted). His models now drive over $100 billion in assets in various funds, and an additional $75 billion at PIMCO. ~~~ …Read More
Source: McKinsey & Company McKinsey has a new study out on the impacts of QE. I have yet to read the full report (or summary) but the graphic above and excerpt below give you some flavor: The impact that ultra-low interest rates have had on banks has been mixed. They have eroded the…Read More
This is why you don’t fuck around with the debt ceiling: “Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default.” “Although the Treasury would still have limited capacity to make payments after Oct 17th it would…Read More