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Re: Shiller CAPE 10 — Why So High These Days?

Shiller PE ratio is almost useless in telling us where the market is going in the next year. But it is breath-takingly powerful in telling us what kinds of returns to expect on a five to ten year basis. And the Shiller PE ratio is telling us don't expect much return over the next five to ten years....
by Simplegift
Tue Nov 25, 2014 9:53 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 20
Views: 1166

Re: How did you handle the 2008 bear market ?

The 2008 market crash was unique to my experience, as it had an element of "existential fear" about the continued viability of the global financial system that I'd not personally felt before. In 1987, the market crash was brief and soon inconsequential. The 2000 tech crash had a big emotio...
by Simplegift
Tue Nov 25, 2014 4:47 pm
 
Forum: Investing - Theory, News & General
Topic: How did you handle the 2008 bear market ?
Replies: 47
Views: 1743

Re: Shiller CAPE 10 — Why So High These Days?

Historically, does the level of government bond yields help explain the level of CAPE 10? Over the long-term, there's been a fairly strong inverse relationship between PE10 and interest rates — which makes sense from the opportunity cost angle: when bond yields are relatively high, investors are le...
by Simplegift
Tue Nov 25, 2014 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 20
Views: 1166

Re: Safe Withdrawal Rates - Is the 4% rule still good?

Why do you assume that future asset returns for retirees today will be anything like past historical returns? For the time periods used in both the Bengen Study and the Trinity Study (the 1920s to the 1990s), the average U.S. asset returns were about 2.5% real for bonds and 8% real for stocks. Reaso...
by Simplegift
Tue Nov 25, 2014 2:26 pm
 
Forum: Investing - Theory, News & General
Topic: Safe Withdrawal Rates - Is the 4% rule still good?
Replies: 19
Views: 1758

Shiller CAPE 10 — Why So High These Days?

This post is a duplicate from a recent thread, but the points are important enough that they deserve wider exposure and discussion, I believe. It summarizes a long-winded blog post from Philosophical Economics last year, in which the author provides much needed historical context to the levels of th...
by Simplegift
Tue Nov 25, 2014 12:49 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 20
Views: 1166

Re: Will stocks beat bonds over next 30 years?

To continue to get positive spec return, PE has to keep going up and up. ........ I would be willing to bet that the blue line is negative at 2030. [This is just another way of saying that I think in 2030 P/E10 < 44.] Right, grayfox . From today's lofty valuations, I believe the best we can hope fo...
by Simplegift
Tue Nov 25, 2014 10:38 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 64
Views: 5076

Re: Why Alpha is getting more elusive

IMO this is cause (selling active management) that is looking for an excuse and trying to concoct one. You may be right, Larry — but If this is the hedge fund industry looking for an excuse, then you should be prepared for their arguments. Just last week, there was another article attributing the d...
by Simplegift
Tue Nov 25, 2014 10:11 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3254

Re: Will stocks beat bonds over next 30 years?

So wondering if you feel if there are normalizing factors on historic vs modern PE ratios? Certainly yes. Due to just the changing accounting standards alone, the reported earnings numbers are not consistent across time. I'm not aware of any published CAPE data series that actually tries to incorpo...
by Simplegift
Tue Nov 25, 2014 1:05 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 64
Views: 5076

Re: Why Alpha is getting more elusive

The logic of causation, as I understand the argument above, is that higher interest rates increase the cost of capital for businesses, leading to increased differentiation in the performance of companies with different capital structures. Companies with thin operating margins and too much leverage w...
by Simplegift
Tue Nov 25, 2014 12:45 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3254

Re: Why Alpha is getting more elusive

My first impression of the article's chart was that of the similarity of pattern to historic LIBOR. Could it be that alpha is higher in periods of relatively high interest rates, lower in periods of lower interest rates? Intriguing idea, Clive . A quick search turned up one study (chart below) that...
by Simplegift
Mon Nov 24, 2014 7:45 pm
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3254

Re: Update on the ascent of CAPE

The Shiller PE10 valuation measure just keeps trucking along. ………. Waiting and watching.... Over the last century and a quarter, the Shiller PE10 ratio has been below average in three types of environments (chart below): 1) war (destructive violence between countries or within countries) 2) high in...
by Simplegift
Mon Nov 24, 2014 3:05 pm
 
Forum: Investing - Theory, News & General
Topic: Update on the ascent of CAPE
Replies: 19
Views: 1426

Re: Will stocks beat bonds over next 30 years?

Just to test the oft-repeated forecasting assumption that "changes in stock market multiples tend to cancel out to zero over long holding periods," the chart below shows the annualized changes in PE10 over rolling 30-year and 50-year periods, using the Shiller data for the S&P 500, 188...
by Simplegift
Sun Nov 23, 2014 4:23 pm
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 64
Views: 5076

Re: Will stocks beat bonds over next 30 years?

grayfox wrote:What would the forecast be if there was mean reversion?

Nice analysis, grayfox, thanks. But I think you've reached the limits of your forecast model — if someone told you they could predict mean reversion for either bond or stock valuations, they would not be very believable, in my view.
by Simplegift
Sun Nov 23, 2014 11:29 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 64
Views: 5076

Re: What would be the investing strategy for a coming crash?

I think you probably agree with me that the looks-like-more-than-95% drop following World War II should not "count?" Although Dimson & al do count it, and include it when they give the real return from 1900 through 2013 as 4.1%. If you take the view that everything should "count,...
by Simplegift
Sat Nov 22, 2014 3:27 pm
 
Forum: Investing - Theory, News & General
Topic: What would be the investing strategy for a coming crash?
Replies: 81
Views: 6350

Re: What would be the investing strategy for a coming crash?

Thus, I personally think that Japan 1990-2014 should "count," but that the far worse crash, Japan 1946-1948, shouldn't. Agree that Japan 1990-2014 should count — as it can likely be seen as a precursor for many other developed nations in the coming decades. Japan has the most rapidly agin...
by Simplegift
Sat Nov 22, 2014 11:51 am
 
Forum: Investing - Theory, News & General
Topic: What would be the investing strategy for a coming crash?
Replies: 81
Views: 6350

Re: CA int municipal bond fund vs. Vanguard int muni fund

Agree with ogd here. As mentioned upthread, 50% of the bond portfolio maximum in municipals is what I've seen recommended (see "Taxable Ted" in William Bernstein's Four Pillars of Investing ). And no more than one-quarter or one-third of the bond portfolio in single-state munis. This has b...
by Simplegift
Tue Nov 18, 2014 3:19 pm
 
Forum: Investing - Help with Personal Investments
Topic: CA int municipal bond fund vs. Vanguard int muni fund
Replies: 32
Views: 2201

Re: Is investing more risky today today than before the inte

With the internet and the digital age do you feel investing is more or less risky, or the same? The behavioral risks are certainly greater. If one panics during a market correction or crash, it's much easier to sell or make portfolio changes with a few clicks of the mouse. Before the internet, one ...
by Simplegift
Tue Nov 18, 2014 10:27 am
 
Forum: Investing - Theory, News & General
Topic: Is investing more risky today today than before the internet
Replies: 30
Views: 2808

Re: Portfolio Returns — Bright Light on the Far Horizon?

fwiw, There's no evidence that demographics are destiny in terms of returns. Good point, they are not directly related. But Dimson, Marsh and Staunton in their 2014 Global Returns Yearbook report a relationship between aggregate GDP growth and real equity returns (at least for developed countries, ...
by Simplegift
Mon Nov 17, 2014 10:13 am
 
Forum: Investing - Theory, News & General
Topic: Portfolio Returns — Bright Light on the Far Horizon?
Replies: 5
Views: 1074

Re: Portfolio Returns — Bright Light on the Far Horizon?

Or will other factors intervene? Other factors often do intervene. In fact, it's common for emerging economies to experience a " middle income trap ," where they've lost their competitive edge in exporting manufactured goods (because their wages are on the rise), but they're not able to k...
by Simplegift
Sun Nov 16, 2014 8:49 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Returns — Bright Light on the Far Horizon?
Replies: 5
Views: 1074

Portfolio Returns — Bright Light on the Far Horizon?

Many recent Forum topics have focused on the "low return future" and today's historically low yields and high asset prices across the board. A few of the discussion themes have been: • Lower global GDP growth, as rates of population growth and productivity are both declining. • Low real in...
by Simplegift
Sun Nov 16, 2014 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Returns — Bright Light on the Far Horizon?
Replies: 5
Views: 1074

Re: Joel Greenblatt: Market Cap weighted indexes not recomme

Vanguard has nice research report showing that equal-weighted and fundamental indexes are simply more tilted to smaller stocks and value stocks than the broad market, cap-weighted indexes (chart below). If the small and value factors outperform, the alternative indexes will outperform (and vice vers...
by Simplegift
Sat Nov 15, 2014 10:12 pm
 
Forum: Investing - Theory, News & General
Topic: Joel Greenblatt: Market Cap weighted indexes not recommended
Replies: 15
Views: 2336

Re: CA int municipal bond fund vs. Vanguard int muni fund

As mentioned, only you can decide the tradeoff between the risks of the single-state bond fund versus the tax advantages it offers to you personally. However, several expert recommendations I've seen allocate the bond portfolio like this: • 50% Taxable Bonds • 25% National Munis • 25% CA Munis The i...
by Simplegift
Sat Nov 15, 2014 5:49 pm
 
Forum: Investing - Help with Personal Investments
Topic: CA int municipal bond fund vs. Vanguard int muni fund
Replies: 32
Views: 2201

Re: Global Growth and Expected Returns — Why So Low?

Given the decreasing rates of population growth today that we saw in the OP (for both mature and emerging economies), it's only a matter of time that individual countries start to experience negative total population growth . Japan of course is the headline nation today for a shrinking population (a...
by Simplegift
Sat Nov 15, 2014 4:03 pm
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2527

Re: Why Not 100% Treasuries if your Risk is on the Equity Si

However, if the purpose of your bonds is to protect you in worst case scenarios , isn't this why you should be 100% Treasuries? There's no argument that U.S. Treasuries have historically provided the best portfolio protection during market corrections and periods of market stress, or that they will...
by Simplegift
Fri Nov 14, 2014 5:04 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why Not 100% Treasuries if your Risk is on the Equity Side?
Replies: 40
Views: 3647

Re: David Stockman interview

Didn't listen to the interview video, but Mr. Stockman's thesis for several years has been that "when interest rates 'normalize', it's going to cause a dramatic re-pricing of the financial markets." The problem is that there's no evidence indicating that interest rates must revert upward t...
by Simplegift
Fri Nov 14, 2014 1:10 pm
 
Forum: Investing - Theory, News & General
Topic: David Stockman interview
Replies: 7
Views: 1021

Re: Why Not 100% Treasuries if your Risk is on the Equity Si

^^ Great graphic, Mountain Man. I believe it could be applied to 95% of the threads about bonds in the portfolio!
by Simplegift
Fri Nov 14, 2014 12:20 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why Not 100% Treasuries if your Risk is on the Equity Side?
Replies: 40
Views: 3647

Re: Global Growth and Expected Returns — Why So Low?

If the equation is GDP = Prod + Pop, then Prod = GDP - Pop. Put another way, productivity is calculated from GDP and labor. It's more a plug number than an explanatory variable. What you're saying makes sense. But I was just trying to point out that productivity growth far overshadows employment gr...
by Simplegift
Fri Nov 14, 2014 11:54 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2527

Re: Global Growth and Expected Returns — Why So Low?

"Productivity growth remains by far the most significant driver of GDP growth" This is a tautology. You could as easily say GDP growth is the most significant driver of productivity. Inputs to production, including technology, labor and materials, would seem a better explanation. What was...
by Simplegift
Fri Nov 14, 2014 10:12 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2527

Re: 30% In International Stocks?

Not mentioned so far is that adding international stocks and their currency risk can also provide a valuable diversification benefit against domestic fiscal and monetary policy. For example, domestic inflationary pressures are usually bad for domestic bonds and stocks and often lead to currency depr...
by Simplegift
Thu Nov 13, 2014 10:12 pm
 
Forum: Investing - Help with Personal Investments
Topic: 30% In International Stocks?
Replies: 59
Views: 5722

Re: How Do You Use the VIX (Fear & Greed Index)?

How do you use the VIX (Fear & Greed Index) in order to make or influence your personal investment decisions? The only time I ever see the VIX Index is when a well-known set of investment charts is newly published each quarter. And whenever I see this particular chart below, it reminds me again...
by Simplegift
Thu Nov 13, 2014 2:27 pm
 
Forum: Investing - Theory, News & General
Topic: How Do You Use the VIX (Fear & Greed Index)?
Replies: 15
Views: 1128

Re: Global Growth and Expected Returns — Why So Low?

Just to add: If interested in a more in-depth, comprehensive treatment of this subject, some good research was recently published by Antolin-Diaz et al. from the UK in October 2014: • Summary Paper: Is Economic Growth Permanently Lower? • Academic Version: Following the Trend: Tracking GDP When Long...
by Simplegift
Thu Nov 13, 2014 11:45 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2527

Global Growth and Expected Returns — Why So Low?

In the 2014 version of their Global Investment Returns Yearbook, the team of Dimson, Marsh and Staunton write, "Many investors and commentators have misunderstood the evidence on economic growth and equity performance. Though difficult for investors to capture in portfolio returns, stronger GDP...
by Simplegift
Thu Nov 13, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2527

Re: International Stock Diversification — A New Look

I was surprised at this data and it made me reconsider international diversification. It seems that internationalization of large cap corporations in terms of revenue generation is more pervasive than I had realized. I had the same reaction. It turns out that many countries are much more export-ori...
by Simplegift
Wed Nov 12, 2014 2:43 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

Well given this data, how do you explain the delta between international stocks and US stocks. Two points come to mind: • First, international diversification is primarily about spreading and balancing risk, not seeking higher returns — though improved risk-adjusted returns should result from addin...
by Simplegift
Wed Nov 12, 2014 12:10 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: Junk bond fund NAVs

^^ Personally, I don't have the statistics or mathematics background to always follow your analyses and posts, grayfox , but your "bulls-eye" charts are spectacular. They convey your results nicely for us visual types. Bravo! PS. Is the scale on these charts always the same? That is, do th...
by Simplegift
Wed Nov 12, 2014 3:42 am
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 86
Views: 5266

Re: International Stock Diversification — A New Look

Not sure how this factors into regional considerations for asset allocation, but don't think we need to throw 'country of domicile' out the window just yet (I don't intend to make any changes). Will be interesting to see more analysis. Agree that country-of-domicile still has relevance — if for no ...
by Simplegift
Tue Nov 11, 2014 10:04 am
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: For the next year or so, why shouldn't we be in all-cas

I have no doubt that interest rates will rise next year. Economists writing in the International Monetary Fund's 2014 World Economic Outlook note that global real interest rates have been trending lower since 1982, long before the Great Recession and the Fed's quantitative easing program — and to q...
by Simplegift
Mon Nov 10, 2014 8:14 pm
 
Forum: Investing - Theory, News & General
Topic: For the next year or so, why shouldn't we be in all-cash?
Replies: 54
Views: 6850

Re: International Stock Diversification — A New Look

Still, one unanswered question persists: What are the true numbers for an all-international portfolio? Are these the right percentages? Did the Economist or Blackrock include them? I've looked, Angst , but I've not been able to find those revenue numbers in published reports. Neither of the origina...
by Simplegift
Mon Nov 10, 2014 7:03 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

Colee is right. Something weird is going on. Suppose international has no US revenue. The 50/50 portfolio would then have 60(.5)+0(.5)=30% US revenue. The 50/50 chart says that it has 28%. But international companies do have US revenue exposure, so the number has to be higher than 30%. I believe yo...
by Simplegift
Mon Nov 10, 2014 3:22 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

I'm not following your rationale. Shouldn't 50% international be more than 30% US revenue, given that non-US companies export to the US? Maybe it will help to just start with the global market-cap portfolio as the baseline (shown below, and in the pie chart on the right in the OP), instead of the a...
by Simplegift
Mon Nov 10, 2014 1:46 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

Let me ask it another way: At 100% US, I have 60% revenue exposure to the US. I go to 50% US / 50% Cash ---> now I have 30% exposure. How does 50% US / 50% Int give me 28% exposure? No, the equity portion of your portfolio still has 60% revenue exposure to the U.S. economy. Look again at the pie ch...
by Simplegift
Mon Nov 10, 2014 1:10 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

Even though I'm not quite sure what to make of this data, it is an eye-opener. To be honest, I'm not quite sure what to make of this data either. Over the years, I've slowly increased my international stock allocation to the point where I'm currently at 60% U.S./40% International. Looking at the re...
by Simplegift
Mon Nov 10, 2014 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

So 100% US has 60% revenue exposure to the US, but 50/50 has 28% revenue exposure to the US? International would need to have negative revenue exposure to the US for that to be true. Not exactly. The U.S. is certainly a big market for U.S. companies (60% of revenue), but it's not such a big market ...
by Simplegift
Mon Nov 10, 2014 12:31 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

Ok but is that data accurate? I mean we know multinationals will use tax-havens to shelter money when they can. Is it always the case that revenue attributed to someplace is actually generated there? Maybe people in Ireland really do buy that many apple computers and iPhones but ... From what I can...
by Simplegift
Mon Nov 10, 2014 10:18 am
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: International Stock Diversification — A New Look

The data appears to be going only in one direction. What's seems to be missing is the percentage of revenue generated by international companies in US sales. The data would look quite different if international sales in the US was included. This was my thought as well. I think the message will be a...
by Simplegift
Mon Nov 10, 2014 9:59 am
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

International Stock Diversification — A New Look

As we all know, with increasing globalization and the rise of multinationals, companies today are providing more and more goods and services to customers beyond their home country. However, traditional stock indexes still use the country of domicile and primary listing to assign each company to a sp...
by Simplegift
Mon Nov 10, 2014 1:21 am
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 51
Views: 5383

Re: Emerging Market Stocks — Who Is Reaping the Rewards?

To further break down the degree of revenue exposure that developed markets have to emerging markets, The Economist provides the nice chart below for 2013. It shows that the largest developed markets today all derive from 20%-30% of their revenue from the emerging economies (dark blue): http://i.img...
by Simplegift
Sat Nov 08, 2014 5:37 pm
 
Forum: Investing - Theory, News & General
Topic: Emerging Market Stocks — Who Is Reaping the Rewards?
Replies: 7
Views: 1427

Re: Emerging Market Stocks — Who Is Reaping the Rewards?

Lots of U.S. and European companies have made significant investments in emerging markets companies over this timeframe. You probably own some portion of the "non-investable" part through ownership of U.S. and other developed market firms. Good point — and this is something I've been curi...
by Simplegift
Sat Nov 08, 2014 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: Emerging Market Stocks — Who Is Reaping the Rewards?
Replies: 7
Views: 1427

Re: Emerging Market Stocks — Who Is Reaping the Rewards?

Just to add, checking with a second source , it confirms that the average "free-float" for emerging stock markets as a whole was 55% in mid-2013 (same as the chart in the OP). However, a breakdown by individual emerging market countries (table below) shows quite a range, from a high of 66%...
by Simplegift
Sat Nov 08, 2014 8:55 am
 
Forum: Investing - Theory, News & General
Topic: Emerging Market Stocks — Who Is Reaping the Rewards?
Replies: 7
Views: 1427
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