Inverted yield curve (again)

Deemy

free4440273 wrote:

the p/e ratio.

I'm sorry but your wrong, for most western markets including the US. the PE for the S&P 3 years ago was about 45, today its about 15.

Also, though I can't recall the exact source of data but forward profits for the S&P today are some $800 billion, as compared to $500 billion at the peak of the S&P !

Therefore stock markets look cheap ! Especially given low long interest rates.

offcourse where back to the argument - that the reasons why stocks are cheap and bonds expensive is because both are discounting a recession just around the corner !

So likely the recession is unlikely to effect stock prices that much - IF it happens - IF IT DOES NOT HAPPEN - THEN the stock markets will likely soar !!!!!!!! for several years ! none stop bull run !

Anyway , they will go up regardless of a recession, EVENtually ...

EdInvestor

blinko wrote:

so you think the markets will continue to go up !! and wont crash !!
im in japan at the moment and they are doing teribly its up n down like a yoyo anyone think that this may happen to the UK !!

I do tend to agree with al_yourpal on this:

Having lived through all those years of spiraling inflation, unemployment and turbulence, I think sophisticated western governments are at last getting a grip to control economies better. The last few years of high employment and low inflation reflect that.

Anyone who remembers the 70s knows how calm and serene the picture looks now by comparison

The problem with Japan is that their economy experienced a burst bubble before everyone else in 1990 and their bubble was just massive, much worse than our dotcom/TMT bubble 10 years later.:eek:

When their bubble burst, they didn't have the example in front of them of how to minimise the damage as we did because they were the first.So for years they stumbled around, doing all the wrong things, ending up in a deflationary spiral which made things even worse, (one reason we have survived relatively unscathed from our burst bubble is because the likes of Greenspan and the BoE studied what Japan did, and then did the opposite )

Hence it's taken more than 15 years for them to emerge from their burst bubble whereas everyone else took about 2 or 3 years.

Over the 15 years Japan also had to modernise their economy because so much of it was bankrupt. I suspect one reason their market is wobbly is because there are still pockets of "old style" corporate behaviour around - eg the Livedoor scandal. Reform is not easy and takes a long time in Japan.

al_yrpal

The stockmarket is like an excitable fool. When things are going well they get overegged, and when they are not so good, things are very very bad.

This applies particularly in Japan where its all or nothing. As they emerge from all those years of gloom the Japanese are bound to be over pessimistic which leads to huge downswings (buying opportunities). When Livedoor emerged I sold out quick and at what I gauged was the bottom of the recent swing I bought modestly back in.

Remember, if you do not have confidence, better to crystalise those losses now and go forward on another tack!

free4440273

Deemy wrote:

I'm sorry but your wrong, for most western markets including the US. the PE for the S&P 3 years ago was about 45, today its about 15.

Also, though I can't recall the exact source of data but forward profits for the S&P today are some $800 billion, as compared to $500 billion at the peak of the S&P !

Therefore stock markets look cheap ! Especially given low long interest rates.

offcourse where back to the argument - that the reasons why stocks are cheap and bonds expensive is because both are discounting a recession just around the corner !

So likely the recession is unlikely to effect stock prices that much - IF it happens - IF IT DOES NOT HAPPEN - THEN the stock markets will likely soar !!!!!!!! for several years ! none stop bull run !

Anyway , they will go up regardless of a recession, EVENtually ...

cheap?? stock markets are not fair-value at the moment. they are definetly over-priced. look at banks and mining! they have been discounting a recession for the last 3 yrs as far as i can tell. for how much longer will they carry on being this forgiving? both bernanke and king know what's round the corner - bad times ahead. and the housing market? as i said before, the recession will necessitate the crash in the housing market. in the us cheap fixed-year deals are coming to an end. we are just about reaching the tipping point. sorry to sound like a broken record, but for me the worrying thing is that the recession has not yet occured. stagflation? i think so. :eek:

EdInvestor

Don't think so.

Telegraph

"The UK market is also unrepresentative of the domestic economy, so weaker growth and a consumer slowdown does not necessarily spell trouble. Overseas sales of non-financial companies in the FTSE 100, for example, now account for 60pc of revenues, so you could ultimately argue that our own high street activity is of less consequence for the UK market than what is happening in China."

and

Mark Lyttleton, manager of the Merrill Lynch UK Dynamic Fund, said: "Overall valuations are not stretched. The p/e ratio of the market is between 13 and 14 and there are many parts of the market, such as bank and oil stocks, that have p/es nearer 10 or 11."Even though the market has risen 75pc from the trough in March 2003, earnings growth has matched this, so the market is no more expensive than it was then."

free4440273

i never believe everything i read. stagflation now on the horizon. recession on the horizon - house prices to crash soon. dow 30,000? i don't think so. say hello to mr recession :eek: (and the inverted yield curve? oh don't worry - it's different this time...)

Deemy

If you get stuck in a loop, you may find out in x years time youve missed the greatest bull market in history

You have to keep your eyes open to whats actually happening, rather than what should happen .

At the moment, stocks are 'cheap', bonds are dear, thus discounting a slowdown / recession.

Thus its not a particularly good time to hold bonds but an okay time to hold stocks awaiting clarification on whether the slowdown will turn into a recession or whether the recent slow down is it ! And anyway its not going to make much difference to the likes of say India !

free4440273

so the inverted yield curve is just an 'anomoly' this time? i don't think so. if one wants to talk about timing then those doomsters re house prices have been wrong on a number of occasions in the past. this does not mean the housing market will not crash in the future!! (which indeed it will). i simply diasgree on the causation: for me, it is recession, stagflation, and then a house price crash. but then, i am a pessimist...

Deemy

free4440273 wrote:

so the inverted yield curve is just an 'anomoly' this time? i don't think so. if one wants to talk about timing then those doomsters re house prices have been wrong on a number of occasions in the past. this does not mean the housing market will not crash in the future!! (which indeed it will). i simply diasgree on the causation: for me, it is recession, stagflation, and then a house price crash. but then, i am a pessimist...

But your jumping ahead of the curve

Everything that you say, 'COULD' happen, when investing you have to tread a fine line between what COULD happen and what IS percieved to be happening, otherwise you would never invest in anything !

House prices are over valued, inflation is rising, some economies are slowing, the yeild is showing a slight inversion, or was.

But the markets are discounting a recession by stock prices being 'cheap' and bonds expensive, which is what one would expect prior to the start of a recession, but its not happened yet, nor is there that a strong sign at this point in time that it will definetly happen, in the meantime stocks seem to be shrugging it off, as the earnings growth continues at record levels ! Thus driving prices higher.

If they do fall over the next 6 months, in my opinion it will be a very good buying opportunity !

Don't forget that the world as a whole is likely to grow by about 5% this year

cloud_dog

Ok, didn't want to start a new thread for this and this thread seemed a reasonable place to put it (based on peoples contributions / views, etc).

My mortgage deal runs out soon and I am considering whether to continue with a BRT or move to a fixed deal. My perspective is that there are likely to be inflationary pressures comming our way but I am also of the opinion that the economy (as in the world / a number of coountries) are likely to suffer with an economic correction (not sure of the severity / timescale). Similarly I'm not completely sure how immune the UK may be to this 'correction'.

Again my simple understanding is that should there be a correction interest rates are likely to be reduced in order to reflate the economy (therefore a fixed mortgage is not the best). Having said that inflation is a concern as I think inflationary pressure will (is) building.

Ok, so, any view, the morethe merrier.

cloud_dog