One more datapoint on the equity bubble

Posted on March 17, 2014 by Mike

The latest Flow of Funds Report (link to pdf) shows that equities comprise a greater share of US household assets than at any point besides the height of the internet bubble. Of course, elevated prices alone will increase that figure, but individuals have a tendency to increase their allocations to an asset class at precisely the time that they should consider scaling back or exiting. With no significant setbacks for three years now, the mood seems to be, “come on in – the water’s fine.”

Hat tip Cyniconomics

RSI declining – final warning sign

Posted on December 18, 2013 by Mike

This is a very expensive and overbought market which few participants believe can decline meaningfully. That alone is dangerous, but now we see signs of technical exhaustion, such as the downtrend in RSI on the daily chart (credit futures.tradingcharts.com):

Chart: Secular Bear Markets Since 1900

Posted on September 4, 2013 by Mike

Secular Bear Markets (red) since 1900. Source: Crestmont Research

I like this chart, but I would change one thing: the bear that started in 1929 could extend clear through to 1948 due to inflation and multiple compression.

Inflation (regular CPI) has reached double digits in the final years of each of the last secular bears. It was inflation that made the 1910s and 1970s markets into bears, since the nominal Dow was trending sideways.

Previous secular bear markets haven’t ended until PEs are compressed to near 10. Right now the S&P 500 trailing PE is near 15, with the Shiller PE over 23.

Active investment managers more bullish than ever

Posted on February 1, 2013 by Mike

The average active manager is now leveraged long, according to NAAIM’s weekly survey:

Sustained bullishness is bearish, especially once the market starts to trend sideways. We don’t yet have that choppy sideways action on declining RSI that has been a death knell for rallies, but sooner or later it will emerge. If the market starts sidedays, this would complete the most bearish syndrome possible, though we already have a market that is overbought and overvalued, with overbullish sentiment and rising bond yields (John Hussman’s bearish syndrome that has nailed most major tops for decades).

In economic news, Q4’s negative GDP print supports the thesis that we entered a recession in the 2nd half of 2012, as leading indicators had been suggesting for months. It also comes right as the Citi Economic Surprise Index is again on the downward slope of its regular cycle, meaning surprises are more likely to be to the downside.

Are there any good buys emerging in Greece?

Posted on November 16, 2011 by Mike

It may be interesting to look at some of the public companies in the hardest-hit European countries, since the stock indices here are lower than anytime in at least a decade. Here are the results of a search for Greek shares, with an eye towards companies in defensive industries that will not be hurt, or could even benefit from a weaker currency.

All of these businesses are likely to survive a very bad economy, even if they go bankrupt – the question is how the equity holders will fare.

Athex index chart (Athex is now 60% lower than at the 2009 bottom): http://www.bloomberg.com/quote/FTASE:IND/chart

List of top 20 Greek companies by market cap as of May 2010: http://topforeignstocks.com/2010/05/09/the-top-20-greek-companies-by-market-capitalization/

Here are a few names – these first 2 look strongest to me (bottler and utility):

Coca Cola Hellenic Bottling Co:

Biggest foriegn Coke bottler

http://www.bloomberg.com/quote/EEEK:GA/chart

http://en.wikipedia.org/wiki/Coca-Cola_Hellenic

EUR 13.00, EPS 0.93 – not really cheap yet by earnings, 1.62x book. Keep an eye on this one.

Public Power Corp SA , ticker PPC

Biggest utility in Greece. To raise cash, the gov sold 17% of its until then 51% stake.

Plants are mostly coal-fired.

http://www.bloomberg.com/quote/PPC:GA

http://en.wikipedia.org/wiki/Public_Power_Corporation_of_Greece