XAO Banter Thread

[CanOz]

FTSE has gone nowhere since 1998.

Both the Nikkei and Dow went nowhere for a 30 year period.

A range between 2500 and 7000 is nowhere?

 

[shouldaindex]

In 1998 FTSE was 6000.

In 2015 FTSE is 6000.

I'm assuming people know stuff happens in between.

 

[poverty]

In 1998 FTSE was 6000.

In 2015 FTSE is 6000.

I'm assuming people know stuff happens in between.

This is the beauty of regular investing, even tho it's gone nowhere, if you've bought $X amount at X intervals you are automatically buying more shares when prices are low and less when prices are high, the index has gone nowhere and you're making money, dividends are being paid out and you're making more money, but the volatility is what makes money.

 

[Toyota Lexcen]

Thats okay if you have $ to continually invest and thats very good technique,

For many people the capital has gone nowhere, and some would be down some up depending on stock selection if they managing things thenselves

At the moment it appears the world financial markets are very much up and down, very jumpy, Aus equities have been in a rout for over 6 months,

You would have to call it a bear market, all data coming out of this region is poor, the Government keeps reducing growth, estimates for world growth continue to be reduced

 

[Smurf1976]

Something I've had in my mind for a very long time, it was one of the first concepts I learned about when becoming seriously interested in investment, is that of long term secular bears and bulls measured in terms of P/E.

The basic concept is that historically, the market goes from high valuation (measured as P/E) to low valuation and back again. High P/E = 21 or above. Low P/E = around 7.

Historically at least, this does seem to have been the case with major markets (Eg USA) over an extended period with the only real questions being (1) how it gets there especially in the bear phase and (2) the extent of shorter term bulls and bears within the secular trend.

The "how" bit has more than one possible answer. In the bear phase, if profits are rising then the market could simply go sideways, or even slowly up, and in due course P/E comes down. In the bull phase then if we assume at least some growth in earnings in nominal terms then the market must go up in order to raise the P/E from low to high.

The ASX reached a high P/E circa year 2000 and hasn't yet reached a low value. What happened with the GFC didn't get us to a properly low value it seems. Same with many others overseas markets. Some useful charts are here, in particular the Trailing P/E Ratios chart. http://www.rba.gov.au/chart-pack/share-markets.html

Assuming the long term secular bull / bear trend remains valid, we are thus going to get to a properly low P/E (somewhere around 7) at some point before we see another secular bull.

I'm no guru on this stuff, I only know what I've read and listened to (but that's rather a lot on this subject) so I'll leave it to everyone to do their own research. That said, it doesn't surprise me in the slightest that the ASX has gone nowhere for a decade or so, we're in a secular bear that needs to see a low P/E in order to be over with the only question being the detail (growth in earnings and a sideways market versus an actual market decline, or some combination of the two).

Note that in the context of all this it is actual (trailing) P/E that is used for the measurement and any forecasts have no relevance.

Edit: The "Major Economies' Share Price Indices" chart on the RBA site linked is also very telling in what it shows.

 

[skyQuake]

Those FTSE divvies add up though!

2435 in 1998 vs 4662 as of last night's vomiting.

Around 4% compounded, not too bad

 

[shouldaindex]

ASX ended up back at previous levels due to 30%+ crashes in these periods:

1922 to 1930 - 8 Years
1933 to 1942 - 9 Years
1947 to 1953 - 6 Years
1959 to 1974 - 15 Years
1978 to 1982 - 4 Years
1976 to 1980 - 4 Years
2000 to 2009 - 9 Years

Total of 55 years @ 0%.

The other 45 years @ 13% (ASX 18 to 5050 from 1915 to 2015)

 

[shouldaindex]

Something I've had in my mind for a very long time, it was one of the first concepts I learned about when becoming seriously interested in investment, is that of long term secular bears and bulls measured in terms of P/E.

Hi Smurf1976 - very interesting thoughts.

Keep in mind the U.S CAPE (Cyclically Adjusted PE) has only been higher 3% of the time in history.

It's about 33% above average, so following your thoughts, if CAPE mean reverts (as it will one day) the U.S Market will need to increase earnings by 50% just to keep their market where it is today.

Australia is about 5% above average now, and has done most of it's mean revert (was previously about 20% above average) in the past 6 months.

Pretty interesting to know what you're paying for.

 

[Wysiwyg]

The potential for nasty arises when the aus. market has dropped significantly then the u.s. market tanks. I thought I was being patient before buying. and :frown:

 

[shouldaindex]

Having a look at some of the records that have been set during this bull phase:

- Record Low Interest Rates
- Record Low Bad Debts for Banks
- Record House Price Growth and Household Income and Debt Ratios
- Record U.S CAPE Valuations
- Record U.S Profit Margins and ROE
- Record U.S Buy Backs

None of those happen without Record Low Interest Rates.

As Warren Buffett says "Only when the tide goes out do you discover who's been swimming naked."

And the tide starts to go out on Wednesday (even though it's likely a 2-3 year process).

 

[kid hustlr]

Back at the critical level after a brutal week.

 

[kid hustlr]

I also wonder if there's been a dynamics shift since that late August low. Smalls out performing bigs for the first time in a LONG time.



appears to be 2 options for the foreseeable future:

- we bounce around in the range as the big boys (apparently) rotate out of big caps and look for bargains a little 'further out'
- risk appetite reduces and the market gets re-rated, index falls and heads lower (4500?)

 

[Toyota Lexcen]

Good post

I think its more about countries doing things, positioning themselves, or going it alone creating this instability across the global markets

One thing for sure though is the commodities crisis is going to go down in history as a major financial event, its like the world needs the next event to be bigger than the last

Its setting up for a very ordinary week, 4500 would be on the cards

 

[Smurf1976]

One thing for sure though is the commodities crisis is going to go down in history as a major financial event, its like the world needs the next event to be bigger than the last

There's plenty of reports that suggest the US shale oil companies are losing money in a big way.

Most of the cost was up front for development, it doesn't cost much to simply keep pumping, so they can't simply shut down and avoid the situation indeed they're better off continuing to produce.

I expect that a lot of commodities would be much the same. Huge upfront cost to get a mine etc into production and at current prices they're not profitable, or at least nowhere near as profitable as they were expected to be a few years ago. But so long as the day to day cost of operating is lower than the selling price of the commodity, they'll rationally continue to operate even if the operation as a whole is a loss.

The trouble with this, of course, is that even though continuing to operate might make sense, if you've got debts to repay and are running at an overall loss then at some point you run out of money.

Anecdotally at least, there's plenty of reports suggesting that the US shale oil companies are slowly but surely heading this way. Keep pumping because that slows the rate of cash burn, but they're still burning cash and at some point they hit the wall. Given the size of the industry and amount of capital deployed, that could well turn into a rather significant financial event especially if it turns out that one or more financial companies are heavily exposed to these shale oil companies (that bit being pure speculation on my part but it's not impossible that this is the case).

 

[Quant]

Anecdotally at least, there's plenty of reports suggesting that the US shale oil companies are slowly but surely heading this way. Keep pumping because that slows the rate of cash burn, but they're still burning cash and at some point they hit the wall. Given the size of the industry and amount of capital deployed, that could well turn into a rather significant financial event especially if it turns out that one or more financial companies are heavily exposed to these shale oil companies (that bit being pure speculation on my part but it's not impossible that this is the case).

Not heavily promoted in MSM but there is plenty of evidence out there that doubtful debt in the energy sector is as large or larger than subprime saga of GFC . I am led to believe that a large portion of this debt rolls over in 2016 . The numbers i've seen would suggest that if we don't see a significant rise in oil prices there will be bankruptcies . GFC 2 is a possibility .

Ive been researching this for a few months and the incidences of news on this is on the rise , interest rate talk by Fed will not be helping this situation . Company bonds in energy sector are giving signs of the quickly rising risk levels . """ By the end of December, about one-third of exploration and production (E&P) high yield bonds trade at distressed levels (at spreads of more than 10% over Treasuries). ""

http://www.businessinsider.com.au/high-yield-bond-spreads-by-sector-2015-10

http://www.wsj.com/articles/energy-sectors-junk-bond-pain-spreads-1449657000

The size of the doubtful debt is an extremely worrying phenomenon with a google search finding what amounts to some frightening numbers

http://www.bis.org/publ/qtrpdf/r_qt1503f.htm

http://www.bloomberg.com/news/artic...ressed-debt-traders-see-worst-losses-since-08

http://www.reuters.com/article/morocco-refinery-debts-idUSL8N13F28320151125#w5e6m4ovVk2M1I0k.97

http://www.themoscowtimes.com/busin...r-98-of-russian-corporate-profits/535337.html

http://dailyreckoning.com/oil-sector-debt/

Finding the correct numbers and an accurate debt and bond expiry schedule is a difficult task but I would suggest that being heavy on financials in 2016 is a very risky proposition along with the obvious energy sector . Interesting times ahead ...

This is probably not the correct place XAO for such a discussion as it has ramifications world wide

addition here that's a real sign of the times piece of news

http://www.forbes.com/sites/nathanv...ng-to-fuel-its-100-billion-oil-war-with-debt/

 

[Toyota Lexcen]

down 110points so far this week, won't be good if US goes negative again at close in the morning

if this is all based around the Fed raising then they just have to get on with now, imagine if they don't raise the cash rate

 

[PinguPingu]

Someone's buying! Zone of support ~4900-5000 holds again by the thinnest of margins. Now where do we bounce to eh?

 

[Toyota Lexcen]

solid day, see if can hold onto gains and move forward

 

[shouldaindex]

Here's some interesting stats from the U.S Markets (that could also drive the XAO direction).

- Made gains 24 of the last 27 years between December 15 and December 31.

- PE has contracted 13 out of the last 13 times 3 months after the first FED hike.

 

[Junior]

Here's some interesting stats from the U.S Markets (that could also drive the XAO direction).

- Made gains 24 of the last 27 years between December 15 and December 31.

- PE has contracted 13 out of the last 13 times 3 months after the first FED hike.

Thanks Index.

I guess the difference this time...is that the Fed spent at least a year priming markets for this one, small hike. Has this ever occurred before?