Wednesday, April 5, 2017

Observations and Sample of Recent Trades: 4/5/17 (RYPRZ,HCMLY, NSRGY, CWF:CA)/Canadian Reset Equity Preferred Stocks/ADP Jobs Report/Shiller P/E 10/Europe

Shiller P/E 10 Ratio:

This ratio takes the average of S & P 500 earnings over the past ten years and adjusts them for inflation. Then the current level of the S & P 500 is divided by that average earnings number. P/E 10 Ratio

Robert Shiller argues in the following linked column that caution is warranted at current market valuations. 

Caution Signals Are Blinking for the Trump Bull Market - The New York Times

The Shiller P/E 10 ratio is near 1929 and 1999 levels. Shiller PE Ratio

It is correct to point out that the market can remain overvalued for an extended period before correcting or entering a bear market. 

Consequently, using any valuation ratio as an exit point can result in subpar long term stock returns. Eventually earnings will have to justify the elevated P/E ratio or the market will correct to reflect a more realistic forecast of future earnings. 

I also agree with the observation that the Shiller P/E is at least partially high now since the current ten year period includes earnings from 2008 and the slow recovery that followed the Near Depression.  However, there has been no recession since the last one officially ended in June 2009, and 8 years of a recovery uninterrupted by a recession is already at the modern historical average. Generally speaking, the Shiller P/E ratio would include at least one recession and sometimes two over the prior ten year period. 

I noted in a recent comment that the three economic recovery cycles prior to 2008 lasted an average of 95 months or about 7.92 years. 

The economy: How long will the expansion last? | The Economist

The S&P 500 Dividend Yield  is currently below 2%. For most of U.S. market history, the dividend yield has been much higher.   

Is the Stock Market Cheap? - dshort - Advisor Perspectives

S&P 500 Price to Sales Ratio

S&P 500 vs Durable Goods Orders | MacroTrends
Dow to GDP Ratio | MacroTrends
S&P 500 Index - 90 Year Historical Chart | MacroTrends (inflation adjusted box checked)

While consumer confidence is high, I really do not see those high numbers translating into robust consumer spending. 

New auto sales have stagnated and have started to trend down some. 

"New-car sales slumped in March 2017, causing the already inundated inventory  on dealer lots to reach its highest level since 2004, according to Edmunds monthly sales analysis."

Car Sales Hit Their Natural Limit, Again - Bloomberg View

Non-Online retail sales are not comforting. What is striking is the number of store closures so far in 2017 and the number anticipated over 2017. 

J.C. Penney, Sears, Kmart, Macy's, Gander Mountain, MC Sports: Retailers closing stores in 2017

Payless seeks bankruptcy court protection, 400 stores to close

Personal consumption expenditures have been trending lower over the past few months: News Release: Personal Income and Outlays



ADP reported this morning that 263,000 private sector jobs were added in March.

ADP National Employment Report | March 2017

The consensus forecast was for 170,000.

In pre-market trading, treasuries have barely responded to this report. U.S. 10 Year Treasury Note



Europe is looking better in some respects.

European Manufacturing PMI, as measured by Markit, has been trending up and hit the highest level in March since 2011:

Euro Area Manufacturing PMI | 2007-2017 

Markit Press Release.

The European Composite PMI for March, which includes both services and manufacturing, was reported today by Markit at 56.4, which is a six year high. Germany accelerated to a 70 month high.

Markit Press Release

Those PMI numbers are the final numbers. The "flash" number for the March European Composite PMI was higher at 56.7.

While I regard PMI numbers to be important, particularly the new orders component as a leading economic indicator, it is important to view the entire economic picture. Many investors will simply focus on the Markit survey data and ignore the hard economic numbers released by Eurostat. 

News releases - Eurostat

The unemployment rate in the Eurozone is improving but the last report had the February 2017 at 9.5% for February 2017. What would you conclude about the U.S. economy with that kind of unemployment rate?

The Euro Area GDP growth for the 2016 4th quarter rose 1.7% Y-O-Y.

Annual inflation in the Euro Area rose to 1.9% through February 2017.

How much longer can the ECB engage in massive monthly bond purchases and/or keep its benchmark interest rate at a NEGATIVE .4%? Both of those extremely abnormal monetary policies have aided European exporters by deliberating devaluing the Euro.


1.  Intermediate Term Bond Ladder Basket Strategy

A. Bought 1 Detroit Edison  2.65% "General Mortgage Bond" Maturing on 6/15/22:

Issuer: Detroit Edison is a wholly owned subsidiary of DTE Energy Co.

Detroit Edison is now called DTE Electric Company
Finra Page: Bond Detail (prospectus linked)
YTM at Total Cost (99.984 ) = 2.653%
Credit Ratings: 
Moody's at Aa3
S & P at A
Fitch at A+

This senior secured bond is rated higher by Moody's than DTE senior unsecured debt. Moody's downgrades DTE to Baa1, affirms utility subsidiaries, outlook stable

Fitch Revises DTE Energy & DTE Electric Co.'s Outlooks to Negative; Affirms DTE Gas at 'BBB+' (DTE Electric senior secured at A+).

This bond closed at 100.41 yesterday. 

B. Bought 1 Royal Bank of Canada 1.5% Senior Unsecured Bond Maturing on 7/29/19

Issuer: Royal Bank of Canada (RY)
RY Royal Bank of Canada Page at Morningstar
Finra Page: Bond Detail
Credit Ratings: 
Fitch at AA

YTM at Total Cost (98.906 ) = 1.977%

RY Analyst Estimates

Royal Bank of Canada reports fourth quarter and record 2016 results

This bond closed at 99.706 yesterday. 

C. Bought 2 Berkshire Hathaway 3.125% Senior Unsecured Bonds Maturing on 3/15/26:

Issuer Berkshire Hathaway Inc. Cl A (BRK.A:NYSE)

Finra Page: Bond  Detail (prospectus is not linked)
Prospectus; Pricing Term Sheet
Credit Ratings:
Moody's at Aa2
Moody's rates Berkshire senior notes Aa2, stable outlook
S & P at AA
Fitch at A+
Fitch Expects to Rate Berkshire Hathaway's Planned Issuance 'A+'  

YTM at Total Cost (98.912 ) = 3.266%

Fitch Affirms Berkshire Hathaway Inc.'s Senior Unsecured at A+

2016 Annual Report
2016 4th Quarter Report

This bond closed at 100.13 yesterday.

D. Bought 2 Eversource 2.5% Senior Unsecured Bonds Maturing on 3/15/21:

Issuer: Eversource Energy (ES:NYSE)-Electric & Gas Utility Holding Company 

ES Eversource Energy Page at Morningstar
FINRA Page: Bonds Detail
Credit Ratings:
Moody's at Baa1
S & P at A-
Fitch at BBB+
Fitch Upgrades CL&P, PSNH, and WMECO; Eversource Outlook to Positive 
Eversource Website: Credit Ratings.pdf
YTM at Total Cost (99.105 ) = 2.739%

In early March 2017, Eversource sold $300M in 2.75% senior unsecured notes maturing in 2022: Prospectus 

ES Analyst Estimates 

2016 Annual Report (debt discussed starting at page 114, includes debt of operating subsidiaries) 

This bond closed at 99.42 yesterday. 

3. Continued to Take Profits in Canadian Reset Equity Preferred Stocks:

A. Sold 100 RYPRZ at C$22.6:

Profit Snapshot: +C$367

Quote: Royal Bank of Canada Non-Cumulative Preferred Series AZ

I discussed this purchase here.

RYPRZ is a non-cumulative reset equity preferred stock issued by the Royal Bank of Canada. This kind of security is similar to fixed-to floating rate U.S. preferred stocks with significant differences. This security is  still in its fixed coupon period. 

The fixed coupon is 4% applied to a C$25 par value and will remain in effect to, but excluding 5/29/19. 

Unless redeemed by RY at that time, the coupon is reset for five years at a 2.21% spread to the five year Canadian bond. 

To achieve a coupon greater than the current 4%, the five year Canadian bond would need to be over 1.79%. I view that as likely. How much higher is anyone's guess. 

As I have discussed many times earlier, a normal 5 year rate for Canada, excluding the Great Depression period and the period during and after the Near Depression, would be in the 4% to 5% range. I doubt that the lower end of that range will be hit by May 2019. Once the coupon resets, it remains in effect for five years. 

The prospectuses for RY preferred stocks are available here: Share Information

4. Continued to Pare Stock Allocation:

A. Sold 200 HCMLY at $11.74:

Profit Snapshot: +$109.05

This is an ADR for the Swiss company  LafargeHolcim Ltd. ADR  (HCMLY:OTC). The ADR is traded on the pink sheet exchange. The ordinary shares are priced in Swiss Francs: LafargeHolcim Ltd. (LHN:SWL).

1 ADR = .2 ordinary

The decline in the CHF/USD has adversely impacted the ADR compared to the ordinary share price performance.  LHN Stock Chart (10 Year). The problem started in 2011 when the Swiss National Bank launched a Jihad against the CHF's value which has continued since that time.

This was not a successful investment as shown in the snapshot. I managed to realize a small profit only after averaging down after close to a 50% decline. 

Dividends are paid annually. My last dividend was paid last year:

B. Sold 100 of the CEF CWF at C$5.07:

Profit Snapshot: +C$29

This was a recent purchase so it was jettisoned as part of the ongoing stock allocation reduction.

Canadian World Fund Ltd. (CWF:TOR)

Sponsor: Canadian World Fund | Morgan Meighen & Associates

C. Sold 50 of 100 NSRGY-Highest Cost Lot Out of Three Lots:

Position Before Pare:

Sold 50 at $77.5 Using Commission Free Trade:

Position After Pare: Average Cost Per share = $67.86

Profit: $28.96

ADR Quote: Nestle S.A. ADR  (NSRGY:OTC)

1 ADR = 1 Ordinary Share

CHF Quote:  Nestle S.A. Stock Price Today (NESN:SWL)

My last blog discussion was in this 2014 post: Added To Nestle (NSRGY) At $68.8 - South Gent | Seeking Alpha

I discussed adding to NSRGY at $66.97 in this comment.

I will be looking for an opportunity to buy back shares when and if the price declines below my current average cost per share number. I am not reinvesting the dividend.

Like many other European companies, Nestle pays an annual dividend. This is a snapshot of the relevant dividend information for NSRGY. Switzerland will withhold a 15% dividend tax.

5. Canadian Equity Preferred Stocks That Reset Coupons Quarterly at a Spread to the 3 Month Canadian Treasury Bill

This category of Canadian reset equity preferred stocks are generally not sold originally by the issuer. 

Instead, it is standard for the Canadian fixed-to-floating rate preferred stocks to pay a fixed coupon for about 5 years after the IPO and then the coupon is reset to a spread over the five year Canadian bond for five years. 

The issuer may redeem at par value at the end of the fixed coupon period and every five years thereafter. 

If the issuer does not redeem, then the coupon would be reset for 5 years or the owner may convert into another preferred stock that has the same spread percentage but that spread is applied to the 3 month Canadian treasury bill and resets quarterly. That is when the reset equity preferred stocks tied to the 3 month Canadian T Bill come into existence and start to trade.  

The owner might elect to convert when, as now, the five year Canadian bond has a low yield and the investor believes that short term rates over the next five years would give him a better income stream while starting off at a lower level. 

The floaters that pay a spread to the treasury bill and reset quarterly are generally more appealing in a period when short term rates are rising in a persistent manner. That has not yet happened in Canada, though the U.S. Federal Reserve is causing short term U.S. rates to rise by increasing the federal funds rate. 

The Canadian T Bill yield remains stuck at close to .5%, lower than the U.S. 3 month T Bill. 

Canada 3-Month Bond Yield -

That is where Canada's central bank is pegging its benchmark rate. Policy Interest Rate - Bank of Canada

The five year bond has moved up in yield over the past year but is currently hovering in the 1.1% range, significantly lower than the U.S. five year treasury note. Daily Treasury Yield Curve Rates

Selected Bond Yields - Bank of Canada

Both of those rates are abnormally low by historical standards.  

Treasury Bill Auction - Average Yields - 3 Month Since 1934 

Selected Government of Canada Benchmark Bond Yields - 5 year Since 1980 

I use floaters tied to a short rate to partially hedge my longer duration bonds from an unexpected rise in inflation and interest rates. I am also assuming that the era of extremely abnormal central bank monetary policies, which includes central banks setting their benchmark rates at Great Depression levels or lower, is nearing an end. For most of the Great Depression, Canada had a higher 3 month T bill rate than it has had over the past 8+ years.  

I have traded the floaters tied to short rates frequently because their yields have generally been unappealing, including the Synthetic Floaters and Equity Preferred Floating Rate Stocks that pay the greater of a minimum coupon or a spread over a short term rate, either the 3 month U.S. Treasury Bill or the 3 month Libor rate.   

The current yields in the Canadian resets tied to the 3 month T Bill were greater than what was available in U.S. markets so I have bought a few of them and still own several. The reason for the higher current yields is that these securities were and still are selling at well below their $25 par value. I will discuss briefly what I currently own. 


TransAlta Corp. Cumulative 1st Preferred Series B (TA.PR.E:TOR) 

This is my most recent purchase. I bought 100 shares at C$13.15 last December.

The Series B preferred stock is referenced in this prospectus. TransAlta_Series A Prospectus

The Series B is the three month floater that came into being on or about 3/31/16 when the Series A transitioned from its fixed rate coupon period to a coupon that is reset every five years at a spread to the five year Canadian bond.    

The Series B  pays cumulative dividends at a 2.03% spread to the 3 month Canadian T Bill. I discussed that purchase here. 

When I discussed that purchase, the issuer TransAlta was considering converting all of its preferred stocks into one preferred stock but has since abandoned that plan. TransAlta Corporation Determines Not to Proceed with Preferred Share Exchange | TransAlta

At C$13.15 and assuming a .5% 3 month T. Bill rate, the coupon would be 2.53% applied to a C$25 par value which produces a current yield of 4.81%. That is not interesting to me. What would be interesting is a 4% three month T Bill, producing a 6.03% coupon, and upping the current yield to 11.46% using the same cost per share assumption.   

Link to Prospectuses for TransAlta preferred stocks: Preferred Share Information | TransAlta


Fairfax Financial Holdings Ltd. Cumulative Preferred Series F Floating Rate Stock (FFH.PR.F:TOR) 

This preferred stock pays cumulative quarterly dividends at a 2.16% spread to the 3 month Canadian Treasury Bill on a C$25 par value. There is an option to convert to a 5 year reset on 3/31/2020 and on 3/31 every five years thereafter that has a 2.16% spread to the five year Canadian government bond

1. Bought 100 FFHPRF at C$12.36Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of April 1, 2016 - South Gent | Seeking Alpha


TransCanada Corp. Cumulative First Preferred Series 4  (TRP.PR.H:TOR) 

This equity preferred stock pays quarterly cumulative dividends at a 1.28% spread to the 3 month Canadian treasury bill on a C$25 par value. 

2. Bought 100 TRPPRH at C$10.25Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 5/26/2016 - South Gent | Seeking Alpha


Fortis Inc. Cumulative Preferred Series I  (FTS.PR.I:TOR) 

The Series I pays cumulative dividends at the 3 month Canadian Treasury Bill plus 1.45%.

6. Bough 100 FTSPRI AT C$10.46-Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 3/28/16 - South Gent | Seeking Alpha


Dundee Corporation Cumulative Preferred Series 3 (DC.PR.D:TOR)

This security pays quarterly dividends at a 4.1% spread to the 3 month Canadian T. Bill.   

5. Bought 100 DCPRD: 50 at C$13.45 and 50 at C$13.1-IB Taxable AccountUpdate For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 8/25/16 - South Gent | Seeking Alpha
I have sold my highest cost 100 shares. Item # 3.A 
I have sold EMAPRA which was discussed in Item # 2 here. 

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.


  1. Big reversal day in stocks 4/5/17). The DJIA was up almost 200 points intra-day and closed down 41.09.

    There was a double whammy during the day.

    Paul Ryan stated that the tax package will take longer since the Senate, House and the White House were not on the same page.

    The FED minutes released mid-day was the second negative catalyst for the reversal.

    There are a few items in the minutes that spooked stock investors.


    " Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year. . .

    Many participants discussed the implications of the rise in equity prices over the past few months, with several of them citing it as contributing to an easing of financial conditions. A few participants attributed the recent equity price appreciation to expectations for corporate tax cuts or to increased risk tolerance among investors rather than to expectations of stronger economic growth. Some participants viewed equity prices as quite high relative to standard valuation measures. Some participants viewed equity prices as quite high relative to standard valuation measures. It was observed that prices of other risk assets, such as emerging market stocks, high-yield corporate bonds, and commercial real estate, had also risen significantly in recent months.

    Nearly all participants judged that the U.S. economy was operating at or near maximum employment....

    However, several participants now anticipated that meaningful fiscal stimulus would likely not begin until 2018. In view of the substantial uncertainty, about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections. . .

    However, several other participants judged that--with the headline PCE price index rising nearly 2 percent and the core PCE index increasing close to 1-3/4 percent over the 12-month period ending in January--the Committee essentially had met its inflation goal or was poised to meet it later this year. In the view of these participants, such circumstances could warrant a faster pace of scaling back accommodation than implied by the medians of participants' assessments in the SEP. . ."

    End of Quotes

    1. The Stock Jocks do not like the FED telling them that stocks are richly valued.

    2. The FED signaled that it wants to start shrinking its balance sheet late this year by not reinvesting the proceeds of maturing securities.

    3. The FED is signaling that a gradual pace of rate increases is still anticipated.

    I noted in an earlier comment that the Bond Ghouls were not impressed with the jobs report. After falling in price slightly early in the trading day, yields ended up declining.

    iShares 20+ Year Treasury Bond ETF
    $121.38 +$0.37 +0.31%

  2. MerrimacK Pharmaceuticals (MACK) declared today a special dividend of "approximately $1.06 per common share":

    As previously discussed, MACK sold its cancer drug ONIVYDE to Ipsen and another asset for $575M in cash that was paid at closing which occurred on 4/3/17, plus up to $450M in "regulatory approval-based milestone payments."

    The company retained the " rights to receive net milestone payments pursuant to its exclusive licensing agreement with Shire plc for the ex-U.S. development and commercialization of ONIVYDE for up to $33 million."

    Onivyde had disappointing sales.

    Based on its current price adjusted for the dividend payment, the market is not contemplating much, if any, of that $450M being received and is not exactly excited or confident about the remaining three drugs in MACK's pipeline.

    The price closed today at $3.13 which gives MACK a market cap of $408+M or less than the cash payment received from Ipsen.

    I sold out of MACK last year at $6.43, realizing a $132+ gain.

    Snapshot at

    I bought thereafter 150 shares and am in the hole though close to break-even after netting out the prior realized gain.

  3. Prepping for the holiday, i haven't had much time to write anything... but I have been reading along and appreciating.

    I found that shiller article this morning too. Now I'm wondering if I found it - or clicked from here? I have been dismissing the shiller as a timing tool for years now because it smooths over valuations and they can stay extended for a long time. Shiller has said that repeatedly. I believe this is the first time I'm hearing him say caution based on the CAPE. Am I right on that? While valuations are high, they have been higher before, so it doesn't seem like a reason to avoid the market, but seems important to make sure individual buys are of decent caliber and lower PE.

    I had been wondering why you were buying laddered bonds, when you could use a high yield checking and get a better rate. It finally dawned on me that what's in bonds has a chance to increase princple if there's a market run to safety, or a recession. For myself I would continue to hold some in checking accounts, but I think I should be looking at some of these type buys. I bet I'm arriving at the idea too late!

    The fed has been slow and that's been better than overheating. Is it time to talk about balance sheets? Seems to soon, and the market certainly thought so.

    IT seems like a contradiction to say valuations are high, and we need to stop floating the balance sheets, i.e. tighten....

    Today Trump pointed fingers at Susan Rice for unmasking, even though it was HER JOB to do so, and it'd be some huge conspiracy theory if all the people involved in an unmasking all did it for nefarious political reasons. (And how could unmasking Flynn be a bad thing politically?) I'm really baffled by the logic problem that I haven't heard mentioned yet. You unmask because... YOU DOn"T WHO IT IS... so you can't possibly unmask because you are targeting a particular team or person.

    Then he support Bill O'Reilly for being a sexual predator. Guess it takes one to know, or in this case, not know one. I'm adding to the drunk driver image that some screws are coming off the wheels.

    I am very pleased that McMasters has muscled himself into control. Also Hallie Ambassador to UN is very sharp and effective so far, not just today but she on Israel too, she didn't take guff and spoke clearly.

    Taxes nearly done. Hope they don't get rid of qualified and cap gains. They come in handy. Who had the brilliant idea to make tax season and holiday season, come at the same time?

    Have a good day! Thanks for the write ups!!

    1. LMH: Yes, the Shiller P/E has crossed 30 three times. The first two saw a subsequent market decline of 86.2% and 49.1% respectively.

      The third occurred earlier this year, so caution rather than greed seems prudent.

      While I do not see any currently existing catalyst for a major reversal, there are an abundance of potential ones.


      Donald declared April to be sexual assault awareness month.

      He also defended Roger Ailes.

      List of women claiming that Donald sexually assaulted them:

      Donald repeatedly said that he was going to sue all of them for libel. No suits have yet to be filed.

      As to O'Reilly, the NYT did a good job in its article about his settling sexual assault claims:

      I quit preparing my tax returns after 2014. I am still receiving corrected 1099s which I just email to my accountant.

    2. "Shiller P/E has crossed 30 three times. The first two saw a subsequent market decline of 86.2% and 49.1% respectively."

      Thank you for this info. It's striking to note that it's been that high only those 3 times.

      I wanted to see how long after hitting over 30, the peek was, since it could be over a year and make it important to look for the indicators that haven't shown up yet.

      I haven't found the right magic google words yet to find the length of time, but came up with this with Shiller's quotes:

      Shiller is thinking this rally has more legs.

      "And while the CAPE may be at elevated levels, market sentiment is not at all reminiscent of the dot-com bubble or of the Roaring '20s.

      This is "not a typical bull market with a lot of excitement," he said. "It's more of an anxious market where people are afraid of secular stagnation, of losing their jobs to foreigners, or to computers. And they have kind of a wishful-thinking bias about investments like stocks. It's the only way I can understand it."

      Shiller is thus not convinced that reducing one's equity holdings is a smart play."

      With market sentiment being much lower, and the currently low interest rates, maybe going over 30 it's much of an indicator at this time?


      Morality in sexual predator behavior is not a strength in Mr. Donald.

      His handshake with foreign leaders turns out to show a similar disregard for boundaries and violation of others. There were a few where he got in close, pumped for an extended time, put pressure on from the top and practically yanked the foreign leader.

      Handshakes are supposed to be about making another person feel connected and welcome and engaged and like you value their presence. Not like they'd like to wipe their hands on their pants and sit at the other end of the table out of reach.

      I read that the Japanese PM was humiliated in his country and seen as weak as a result. It makes no sense to me. The person who can't do a respectful handshake and makes it a "game" is the one who should be disrespected.

      I am wondering what effect and at what point that effect will happen at FOX? Allies and O'Reilly start to add up to a culture... I wasn't nimble enough to think of shorting FOX as soon as the news came out on O'Reilly.

    3. LMH: I have criticized slavish reliance on the Shiller P/E throughout my blog writing.

      Saturday, August 10, 2013 Blog

      I do not have a reference to an interactive Shiller P/E chart, but this chart goes back to the 1880s and shows the previous two peaks:

      The buildup in exuberance usually occurs over a few years before the 30 line is crossed to the upside.

      Greenspan gave his famous "irrational exuberance" speech on December 5, 1996.

      The market continued to spiral up for another 3 years after that speech.

      I did not buy into his characterization in December 1996. By late in 1998, as the market continued to spike higher, I was a convert, and I was out of stocks entirely before 2000.

      The issue now is that a number of valuation measures are sending out caution signals as well, and those warning signals are being flashed almost 8 years into a recovery with the last recession ending in June 2009. Earnings decline in a recession and generally take some time to recover to pre-recession levels after the recession ends. This market has a large number of rosy predictions about the future and no bad ones. There is little room for error.

    4. "The buildup in exuberance usually occurs over a few years before the 30 line is crossed to the upside. " (hum, before)

      So this time is different.

      And not giving the complete set of clues from the past. (If it had, then by now everyone would have sold.)

      "The issue now is that a number of valuation measures are sending out caution signals as well"

      From what I read, there aren't any signals of a recession. The excess valuations signals are basically PE. There's the poor spending and defaults that you mentioned. That's the only economic/market negative. The rhetoric and policy signals are separate from economic/market.

      So you've probably talked a lot about this and I didn't characterize and store it in my head well enough to realize it's what you mean here. What are the valuations measures sending out caution signals?

  4. I have published a new post: