# Will history repeat?



## kcowan (Jul 1, 2010)

Comparison of current bear market to previous ones
If so we are out of the woods now and heading higher.


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## uptoolate (Oct 9, 2011)

Here I thought that it was a no-brainer!

Yes as far as the markets go, history will repeat. 

On your second question, sadly, I have absolutely no idea. Well, I have ideas but they aren't of any particular value in this instance.


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## blin10 (Jun 27, 2011)

I have a feeling it'll keep going higher slowly for a year+, then one day europe will be back with really bad news (something like greece exiting euro) and markets will tank... but then again who knows, markets can go another 2000 points up, and then have a pull back to the current level right now


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## Belguy (May 24, 2010)

I think that you can predict with some certainty that the markets will either go up, down or sideways in the shorter term but up in the longer term.

If you are a young investor, with a long time horizon, just buy the indexes, ignore the short term moves of the market, and hold them 'forever' only becoming more conservative and defensive as you approach retirement age. Unless, that is, you have a rich public or private pension in which case you can continue to hold.

Buy low.

Keith will not be able to read this reply as he has me on 'ignore'.


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## james4beach (Nov 15, 2012)

I'll only be convinced we're out of the woods (and have start of a new secular bull) if we see a new all time high in US & Canadian indices, and then another new all time high within a couple years.

If you look back at the 20 year secular bull market, every 2 year period brought a new all time high on the index, and not a single year closed below the previous year's low. So I won't be satisfied the bear is over until ~ 2015. If we're really at the start of another 20 year bull market, I can afford to wait 2 years just to be sure.

So far we're pretty far from this. The TSX is quite a bit below its all time highs. The S&P 500 is getting close to a new all time high, but I'd like to see a couple new all time highs before I'm willing to drink the kool-aid.


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## namelessone (Sep 28, 2012)

How did this advice work for a Japanese investor during the past several decades?

Buying anything without looking at the fundamental is just insane. 

If you spend a few minutes to look at the earning of many Japanese companies and you'll notice they're losing money. 





Belguy said:


> I think that you can predict with some certainty that the markets will either go up, down or sideways in the shorter term but up in the longer term.
> 
> If you are a young investor, with a long time horizon, just buy the indexes, ignore the short term moves of the market, and hold them 'forever' only becoming more conservative and defensive as you approach retirement age. Unless, that is, you have a rich public or private pension in which case you can continue to hold.
> 
> ...


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## kcowan (Jul 1, 2010)

What amazes me is that this graph relfects the effects of QE in both countries. So if that was suddenly stripped away, are we on a completely different trajectory?


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## fatcat (Nov 11, 2009)

kcowan said:


> What amazes me is that this graph relfects the effects of QE in both countries. So if that was suddenly stripped away, are we on a completely different trajectory?


yes, the middle classes (not the upper or the lower) in the united states, canada and europe are not building enough disposable income to create real growth ... this is a huge problem and we are sustained by central bank liquidity which is like playing russian roulette ... on the other hand, you can't fight the fed so you go into equities to the degree that your stomach can stand it


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## uptoolate (Oct 9, 2011)

kcowan said:


> What amazes me is that this graph relfects the effects of QE in both countries. So if that was suddenly stripped away, are we on a completely different trajectory?


Yes, it's an interesting 'what if'. I wonder whether we would look much more like the Great Depression without it and if we've just taken the 'short term gain, long term pain' path. Time will tell.


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## james4beach (Nov 15, 2012)

I think we are still in a secular bear market (i.e. long term bear market) which started in 2000. The stimulus and money printing is just distorting the usual way this unfolds. Remember, the banks just got a free pass on their bad assets... nothing has delevered yet, capital misallocation has not been solved, and the normal process of an economy fixing itself hasn't happened. It hasn't been allowed to happen... central banks keep manipulating and levitating assets to prevent deflation (this is the modern obsession).

As Kyle Bass says: "if you take all the bad assets and put them on the public balance sheet, earnings are going to look good." So far, all of these are just stimulus tricks. My personal opinion is that there has been no fundamental recovery, and in fact once Canadian housing starts to decline, things are going to get pretty rough.
http://www.greatponzi.com/articles/20120904-kyle-bass.html


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## supperfly17 (Apr 18, 2012)

Belguy said:


> I think that you can predict with some certainty that the markets will either go up, down or sideways in the shorter term but up in the longer term.
> 
> If you are a young investor, with a long time horizon, just buy the indexes, ignore the short term moves of the market, and hold them 'forever' only becoming more conservative and defensive as you approach retirement age. Unless, that is, you have a rich public or private pension in which case you can continue to hold.
> 
> ...


Would it make more sense for someone in their 20s to wait until the market starts tanking again and then look into purchasing indexes?


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## andrewf (Mar 1, 2010)

I'm not sure someone in their 20s should care about current index levels. You're going to be saving a lot more in the future. If it makes you feel better, focus more on EAFE or emerging markets as they have lower CAPE values than the US. Maybe the US will go on sale in the next few years. But I doubt trying to time it will make much difference to your long term goals.


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## praire_guy (Sep 8, 2011)

Other than calculating yourself, are there any web sites that list CAPE? 
I haven't found any sites that list cape, just the usual P/E, price, yield, etc


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## GoldStone (Mar 6, 2011)

Robert Shiller tracks US CAPE on his web site.

http://www.multpl.com/shiller-pe/

International CAPEs are hard to find. For free, anyway. Mebane Faber posts them on his blog from time to time. But not with any regularity, so it's not a reliable source.

Added: I'm talking about country CAPEs, not individual stocks.


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## doctrine (Sep 30, 2011)

CAPE is difficult to track, because you need 10 years of earnings. There are a lot of problems with CAPE. For one, it's not that difficult for companies to double or maybe even triple revenues in a decade. Therefore, comparing earnings now to 10 years ago, and valuing a company that way, means by CAPE every successful company will always be overvalued.

CAPE gets highlights because it can tell you when a market is in severe correction. You can easily look at stocks in 2008-9 and say "yeah, CAPE is low, therefore I should have bought in and now I'd be up 50-100%". But you didn't need CAPE to tell you this in 2008-09, and few people buy in anyway because of the fear in the market. 

Meanwhile, look back decades when CAPE was also overvalued and see if you would have lost money. Yeah, you could have done well buying in the flash crash of 1987, but you would have also done very well buying the day before too.


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## lonewolf (Jun 12, 2012)

Cant remember the exact dates but there was a time in hystory when gold made an important high & was lower a 100 years latter from that high. Stock markets can come & go as can currencies buy & hold for the long term might not work with a 100% money back guarntee but then again what does? Even Nasa makes mistakes & flying to the moon might be a cake walk compared to predicting the market with a 100% accuracy.


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## andrewf (Mar 1, 2010)

If you're not a stock picker, not having CAPEs for every company is not a problem. I wouldn't even consider using CAPE for individual companies, anyway.

CAPE is useful in that it blows away the noise of one side arguing that the stock market is wildly undervalued and will double and the other saying we're in a bubble that's about the burst. Currently CAPE for the US is a bit on the high side. That doesn't mean we'll have a correction in the next year or two, or that the market can't rise from here. It just means that 10 year real returns are likely to be modest, due to mean reversion.


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## sags (May 15, 2010)

The US will have to raise the debt limit............so they can borrow more money from themselves.

As Peter Schiff recently remarked.........that is what Bernie Madoff was doing.


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## andrewf (Mar 1, 2010)

The debt limit is stupidity. The US government has already budgeted the expenditure. Authorizing the borrowing to fund the expenditure should not be a separate decision.


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## thenegotiator (May 23, 2012)

this year will be the best year for all mkts.
yet again people on this board are not focusing on what really rallied, meaning what sectors and indexes.
the sub indexes is what makes the whole story.
not saying that everyone here is not paying attn.
i am sure savvy names on this board are watching this mkt.
buy the dips and sell the rips as usual.
the year end will be good whichever way u slice it.
it is a cycle and we are nearing the top of this cycle this year and maybe a little nxt year.
as usual i will highly recomend to deleverage here.
it is just too obvious and that is why i am so short atm.
GLTA anyway


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## Belguy (May 24, 2010)

Man, as difficult as it is for younger investors to know what to do, I find it so much more difficult as an older, retired investor to figure out how to manage my money when I am dependent on my portfolio to substantially fund the rest of my life. As risky as the stock market is given the macro economic climate, many are saying that bond investments are potentially even more risky. And then, today's Toronto Star claims at today's interest rates, it would take a dollar in a daily interest account, 240 years to double in value and so investing in cash equivalents is not attractive.

And so, when all is said and done, that leaves what for investors whose circumstances suggest that asset preservation should come before any further efforts at asset appreciation????????

Under the mattress may be the best alternative after all.:hopelessness::hopelessness::cower:


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## kcowan (Jul 1, 2010)

Food for thought for index investors.

The article was inspired by a firm that charges $3000 to help create an index portfolio for the inexperienced investor. Asset allocation, choice and mix of ETFs. Period for rebalancing. Since these are tough decisions, it seems to have some legs.


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## james4beach (Nov 15, 2012)

Belguy said:


> Man, as difficult as it is for younger investors to know what to do, I find it so much more difficult as an older, retired investor to figure out how to manage my money when I am dependent on my portfolio to substantially fund the rest of my life.


Central banks have screwed you - big time. Mr. Carney has screwed you. They have manipulated money rates and bond rates to the point where free market forces are not at play, and risk/reward is out of whack.

I sympathize with what you're saying, and I'm not happy about it either. Markets have been very distorted for the last 5 years... remember that this kind of money printing and bond intervention is *unprecedented in history*. It's globally coordinated, by many central banks at once (including BoC, holding rates at virtually zero).


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## andrewf (Mar 1, 2010)

James, nothing has changed. Canada's been using the same monetary policy regime for over 20 years.

Sorry to say, the current low interest rates are justified given the current macro environment. The only way in which this could be construed as undue intervention is that they could have left interest rates too high, triggered a liquidity trap and depression and mass default of debts (also bad for savers).


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## andrewf (Mar 1, 2010)

Belguy, seriously, consider annuities. That should help you to reduce the degree to which you are agonizing over your portfolio.


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## andrewf (Mar 1, 2010)

kcowan said:


> Food for thought for index investors.
> 
> The article was inspired by a firm that charges $3000 to help create an index portfolio for the inexperienced investor. Asset allocation, choice and mix of ETFs. Period for rebalancing. Since these are tough decisions, it seems to have some legs.


That's some pretty epic yellow journalism. 

No mention of the tax inefficiency of holding balanced funds. And let's see some details on the 'service' provided by the MF salespeople. A 5 minute risk questionnaire, then a once a year meeting?


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## dogcom (May 23, 2009)

James4beach is right central bankers have taken away the free market with massive QE and so forth. At this time signals are mixed everywhere and nothing is clear in direction other then the stock market goes higher until it breaks. The Canadian market because it really hasn't done QE is stable for now until the US rolls over on us. 

Interest rates can't go lower and they can't go up and the stock market can't go up without QE. Manipulation is a must to keep the illusion going or reality will destroy everything.


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## andrewf (Mar 1, 2010)

Depends what you mean. The Bank of Canada's balance sheet has grown significantly over the past few years. Stealth QE?

QE is not more interventionist than setting interest rates. The effect is the same.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Depends what you mean. The Bank of Canada's balance sheet has grown significantly over the past few years. Stealth QE?
> QE is not more interventionist than setting interest rates. The effect is the same.


Not quite the same thing.
The "classical" approach is setting the overnight rate, and letting the market take care of the other durations.
Central banks do not set the long bond rates.

However, QE enables them to manipulate the yields of various durations.
Twist is a special type of QE that enables them to slightly raise short term rates and depress medium term rates.
QE-III enables them to depress long bond rates.

Some - like Ron Paul and the Austrians - would argue that even setting overnight rates and the very existence of the Fed is unnecessary.
That is one side of the extreme.

But manipulating the yield curve to achieve certain objectives at the expense of others (esp. when some of those objectives are not entirely purely economic in nature) is nothing other than manipulation.


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## andrewf (Mar 1, 2010)

It wouldn't be necessary if inflation picked up. Your choices are deflationary spiral or QE. I'll pick QE, thanks. I have no desire to see what the 1930s were like.


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## james4beach (Nov 15, 2012)

andrewf said:


> James, nothing has changed. Canada's been using the same monetary policy regime for over 20 years.


That may be technically true (I'm not an expert on BoC policy) but even the BoC rate has never been this low before. There are several things happening now that have never been done before. It's not all the Bank of Canada; there are other actors.

Here are a few historically unprecedented interventions in the Canadian credit markets:

1. The BoC rate at 1.0% is a historical first, as far as I can tell. The closest before this was 1.5% rate in the 1940s. Remember that this low rate means the central bank is flooding the economy with cheap (practically free), easy money. This has a huge stimulative effect on all asset classes. Of course, this is why debt-to-income is 165% (also historically unprecedented) and the real estate market has been going crazy.

2. The BoC has been buying other assets in the economy. I think they had a commercial paper program at some point... their activity doesn't get much media attention or scrutiny at all. Freedom of Information requests for BoC activity have been denied (source: CCPA report of 2012-04-30). Just what have they been buying? Clearly they're doing something beyond just the overnight money market.

3. The Canadian bond market is very closely linked to the US market. Canadian bonds are arbitraged to American bonds, and the two treasury markets track each other. The Federal Reserve is engaging in unprecedented programs to buy up US treasury bonds. This impacts Canadian bonds too, even though the BoC isn't doing QE. We essentially have QE in Canada too, which translates to our corporate bond markets too. *All these interest rates are distorted by central banks.*

4. CMHC, the government, is stimulating the housing/credit market by purchasing mortgages from banks. The federal government (mostly CMHC) now backs about $800 billion in mortgages. This is a HUGE stimulus. Nothing like this has ever happened in Canada before, and it's been another big driver of the real estate bubble.


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## dogcom (May 23, 2009)

andrewf said:


> It wouldn't be necessary if inflation picked up. Your choices are deflationary spiral or QE. I'll pick QE, thanks. I have no desire to see what the 1930s were like.



At some point I think we may have to see what the 1930's are like I would think. If rates go up we are screwed under the debt load and if they don't then inflation rages until they do. So the hope is I suppose is to let enough time to pass until we naturally get out of this winter cycle we are in. Japan so far has gone nowhere since 1989 with its easing, debt and poor demographic cycle and that would be the closest example of what we may be facing. Although in North America we have a lot more natural resources then Japan does.


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## andrewf (Mar 1, 2010)

Japan is what happens when you do half hearted QE. They never managed to get inflation expectations up.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Japan is what happens when you do half hearted QE. They never managed to get inflation expectations up.


Well, Japan is what happens when you are not the reserve currency, and want to do QE.
Neither Japan nor Europe can print to infinity - only the US can.

As for the BoC, their latest gimmick is trash-talking the CAD in order to devalue it.
The low interest rates aren't working.
So Carney and Jimbo decided to try good-old Western style trash talking, and it seems to be having some effect, albeit perhaps temporary only.


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## andrewf (Mar 1, 2010)

The Yen is a reserve currency. And it has been too strong for decades. I'm not sure I catch your point.


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## uptoolate (Oct 9, 2011)

andrewf said:


> That's some pretty epic yellow journalism.
> 
> No mention of the tax inefficiency of holding balanced funds. And let's see some details on the 'service' provided by the MF salespeople. A 5 minute risk questionnaire, then a once a year meeting?


+1


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## sags (May 15, 2010)

I see no impetus to pull the economy out of the doldrums.

Consumer spending has been driving the economy and that has reached the limit.

What is the next big thing?


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## Hawkdog (Oct 26, 2012)

lets hope this guy is wrong.

http://etfdailynews.com/2013/01/11/harry-dent-stocks-will-sink-more-than-60-by-the-end-of-2014/


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## mrPPincer (Nov 21, 2011)

He's bound to get it right one of these times and then he'll be considered a stock market guru and make a fortune selling his latest book 


> In 2006 he forecast that the Dow would reach 40,000 by the late 2000s. And at the beginning of 2012, he predicted the S&P 500 would decline 30% to 50% during the year.
> 
> The S&P ended the year up 13.4%.


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## andrewf (Mar 1, 2010)

You mean the Harry Dent whose ETF just closed due to poor performance and low AUM?


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## Barwelle (Feb 23, 2011)

Funny... last week I discovered that my dad had a book by him, published somewhere in the late 90's. I perused through it a bit. He was predicting that the dow would go to 40,000+ in the late 2000's. hmm.


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## andrewf (Mar 1, 2010)

Worse than noise...


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## kcowan (Jul 1, 2010)

A perspective on the top companies by market cap

Interesting to see how the top company in 1980/90 dropped off the list in 2000. The total of $237B grew to $2554B, over 10x, a 10-bagger for the whole top 10. Talk about inflation...


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## doctrine (Sep 30, 2011)

Over 30 years yes it grew 10 times. It's not unreasonable for stock markets to double per decade (7% growth). Clearly the market was ahead of itself in 2000 but now has come down to historical levels. That suggests a double in the next 10 years is much more likely.


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## kcowan (Jul 1, 2010)

Growth from 2000 to 2010 was negative. So you conclude that growth from 2010 to 2020 will be double?

Do you understand statistics?


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## james4beach (Nov 15, 2012)

kcowan said:


> Growth from 2000 to 2010 was negative. So you conclude that growth from 2010 to 2020 will be double?
> 
> Do you understand statistics?


No, kcowan, you forget: we all try as hard as possible to forget the 2000 & 2008 double bear. Investment and pension projections are much happier if we ignore the last 13 years.

Because really, if you work with accurate numbers based on recent economic & market performance, the conclusion you get is that most pension funds are broke and most people will never be able to retire off their investment portfolios.


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## andrewf (Mar 1, 2010)

Measuring from 2000 is rather misleading. It's measuring from a peak. You'd be in trouble if you had invested all your money at that peak, but on average, the returns were not so poor.

In other words, this is cherry-picking data.


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## Sampson (Apr 3, 2009)

2 problems.

1) Past returns are no indication of future returns, but more important
2) Past returns do no drive future returns.


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