On 2009-03-14, honda.lioness[at]gmail.com <honda.lioness[at]gmail.com> wrote:
- quote -

Read the "Dow 36,000" book, it is highly instructive as an example of
flawed thinking taken rather far.

i

who thinks that Dow 36,000 may not be very far, as will be "Big Mac $36".

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<JoeTaxpa...[at]comcast.net> wrote:
- quote -

Just a thought: Perhaps these books that get things wrong are
historically instructive and so useful. They are the errors of our
ways documented. One can learn from them.

On 2009-03-14, JoeTaxpayer <JoeTaxpayer[at]comcast.net> wrote:
- quote -

According to the intelligent investor book, a good indicator that the
market is overheated, is a large number of IPOs of obviously bad quality.

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======================================= MODERATOR'S COMMENT:
Thank you for brevity.

Igor Chudov wrote:

- quote -

There's always the 1985 book "The Great Depression of 1990" by Ravi
Batra. I don't know what tomorrow will bring, but the 90's were not the
time to be scared out of the market by books like this.

You are right, it was published in 1999, so if you ignore Batra, you
were in for the 90's, then ignore your author, and you'd have been out
for the Tech Bubble's crash. You may have discovered the next great
market predictor. (Of course I say that tongue in cheek)
Joe

On 2009-03-13, honda.lioness[at]gmail.com <honda.lioness[at]gmail.com> wrote:
- quote -

Would be a bad time to sell, for sure.

- quote -

Would be interesting. If I could hazard my own answer, it would be
following institutional imperative (leverage more when yields fall).

- quote -

The only source for stock appreciation is earnings. They are used in
three ways: to pay dividends, to repurchase corporate stock, and to
reinvest in business.

If stocks become expensive, the following happens:

1) dividend yield falls proportionally

2) Share repurchases become proportionally less effective since every
dollar buys fewer shares

3) A possibility to create new firms and get many more times the
invested capital becomes much more attractive, and therefore there is
more competition for capital.

In other words, the more expensive the stocks are, the less are
expected future returns. The converse is also true.

I have been reading a funny book that is called "Dow 36,000", and the
book tries to prove that the value of the Dow is 36,000. They promised
Dow 36,000 to occur about 2005 or so.

The book completely misses the effect of high stock prices on future
returns, as far as I could tell about halfway into the book.

I heard about the book around 1999, but only bought it a month ago.
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Igor Chudov <ichu...[at]algebra.com> wrote:
[all points noted but much snipping for conciseness of response]
- quote -

Your point helps reinforce my stance not to sell.

- quote -

I think we need to put Professor Jared Diamond on a study of why banks
collapse.

- quote -

Perhaps. After six months of no buys, this week I did buy some GD.
Plus I have been watching three other companies for several weeks
now.

- quote -

I think this is so. However from reading about the history of markets,
I think it is more likely than not that corrections and stumbles as we
have seen this decade are a part of mass psychology and inevitable.
Not that this is bad news. More that it reinforces that one should not
buy purely stocks unless one's timeframe is on the order of 15 years.

On 2009-03-12, honda.lioness[at]gmail.com <honda.lioness[at]gmail.com> wrote:
- quote -

Keep in mind that the future is hard to predict. Our society may or
may not collapse, and different people attach different probabilities
to those possibilities. What ultimately matters is that if it
collapses, it would not matter too much if you keep money in stocks,
bonds or real estate. We'll all lose. So, then, it makes sense to plan
for the better case.

This is not to disparage the value of preparedness, guns, and other
such fun toys, which I love to own, but to point out that most people
cannot keep all their wealth in guns or rice.

- quote -

Yes, indeed, just slightly more or less so, as the public sentiment
swings back and forth.

- quote -

Banks that are well capitalized do not need any share price to
survive, as long as they are not forced to issue equity at distressed
prices. And not all banks are the same, as some did not make as many
foolish loans or buy junk paper, as did others.

Besides that, banks enjoy record low cost of borrowing now and are
making good money on prudent loans.

I bought some Wells Fargo shares two days ago.

- quote -

I am sure of that, yes. We need more stringent capital reserve
requirements, at the very least, fewer "too big to fail" institutions,
and eventually more conservative loan guidelines.

- quote -

Then you could buy something. Stocks are a lot less risky now, than
they were 10 years ago. I do think that now is a good time to
invest. At the same time, I hope that prices stay depressed for a few
more years. The more people get turned away from stocks, and the more
risk premium they require, the better in the long run.

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Igor Chudov <ichu...[at]algebra.com> wrote:
- quote -

For the short run I find it really hard to determine whether the U.S.
and other countries are going the path of other societies that fully
collapsed. I suppose like many, I tend to think of the short run: Will
everything be okay for the next 30 years or so? After that time, I
expect I may be so physically incapacitated that I do not care. (Maybe
those with children and grandchildren care more?) My short-sighted
attitude though is certainly very much like those of the villains in
_Collapse_.

- quote -

Point taken. (And I do not think splitting hairs over 'how socialist
this or that country really is' is all that worthwhile. I figure the
U.S. will be overwhelmingly capitalist for the rest of my life.)

- quote -

The bigger the hand the government insists on taking in running banks,
the more confusing things are. Why would I want to buy any bank stock
when things are so uncertain? I think many others feel the same, and
so banks are going to be hamstrung for some time. They need
shareholders. They need a decent price on their stock to trade on it.

Yet many believe it was the lack of government oversight that brought
us to this brink, so we need more government control.

- quote -

I tend to agree with the author's main theme and what you say above.

On 2009-03-11, Igor Chudov <ichudov[at]algebra.com> wrote:
- quote -

Here's a good example of some scary data that promoted the above
mentioned doubts. A graph called "Four bad bears" shows inflation
adjusted stock market prices, plotted on the timelines starting from
month zero of each of those bear markets.

As you can see, on its timeline, the 2008 crash is worse than even the
Great Depression crash, as well as all other bear markets.

http://dshort.com/charts/bears-nomin...our-bears-real

No predictive power, but looks scary.

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On 2009-03-11, honda.lioness[at]gmail.com <honda.lioness[at]gmail.com> wrote:
- quote -

I did read Collapse and found it to be interesting. I also am more
optimistic and do not think that the US is comparable to those failed
societies, though we were somewhat mistaken about our own level of
prosperity.

- quote -

There is plenty of socialist societies, such as Sweden, where stocks
are traded and do okay.

I also do not think that we are headed towards socialism, just to
correct stupidities of the past era that allowed the deficits to
grow and social problems that set off the mortgage crisis.

- quote -

I am delighted to witness such a great sale on various assets that
I hope will continue to pay their owners well, relatively early in my
lifespan (37).

It is always hard to buy during gloomy times, possibly even harder
than refraining from buying during exuberant times. During exuberant
times, at least, I know that there are foolish things going on, and
feel that I should not play the same game as the fools who
participate in it. So there is some moral justification.

During gloomy times, all sorts of intelligent doubts beset us, such as
some that you outlined. Plus, I cannot time the bottom, so then I have
to deal with stuff becoming even cheaper, which can possibly be
expressed as "potentially losing money".

I have recently bought a book called "Dow 36,000".

We may not be that far from "Dow 36,000, Big Mac $36". I am half
kidding (not fully serious and not fully kidding). The book is very
funny in light of what has happened so far.

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Igor Chudov <ichu...[at]algebra.com> wrote: http://www.gmo.com/websitecontent/JG...nTerrified.pdf

The author's calling out 1933 is instructive IMO: "In June 1933, long
before all the banks had failed or unemployment had peaked, the S&P
rallied 105% in 6 months." More importantly, 1933 was the low point
(of the Great Depression) for both the S&P price and the S&P's
dividend payout. (Source is Shiller's data which extrapolates the S&P
back in time.)

I am guilty of the inertia of which the author speaks. Currently my
resistance to plunking down some cash for stocks/ETFs is the now much
hackneyed loss of trust along with reading Jared Diamond's _Collapse_.
It is not just the bankers (who in the past have provided the
essential grease for growing economies, growing meant in a positive
sense like advancing the well-being of civilization and not merely its
indulgences) for whom I have contempt. I do not know which industry
and which specific company the government is going to bail out next,
and arguably using reasoning that tends to fail the common sense test.
Are we going socialist? Is the concept of stocks in a socialist
society oxymoronic?

An article in the Times right now speaks of banks wanting to return
their bailout money, because the government has attached too many
strings. They think they can become healthier without the money and so
strings. It seems like a good sign.

Just one page of rather clear thoughts:

http://www.gmo.com/websitecontent/JG...nTerrified.pdf

I personally share the same line of thinking as he does.

Specifically, I do not believe in market timing, but I do believe in
"market pricing". Which is refraining from buying stuff when it is too
expensive, and buying stuff when it is not. Right now it is in the
latter category.

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