The Dangers of Data

By Jack M. Forehand, CFA (@practicalquant)  —  “If you torture the data long enough, it will confess.” – Ronald Coase  “He uses statistics as a drunken man uses lamp posts—for support rather than for illumination.” – Andrew Lang The stock market is really overvalued. Take a look at this chart below. The current Shiller PE ratio of 32 is double the long-term average of 16 and we are now at the highest level ever seen other than during the late 90s tech bubble. It seems pretty obvious that we are in another bubble and staying out of the market until […]

Most Read Posts on Validea’s Guru Investor

Below are links to our most popular posts for this week on Validea’s Guru Investor blog. [1] Focus on Fundamentals Rather than “Expert” Forecasts [2] The Dangers of Data [3] Goldman Sachs: High Valuations Mean Pain is Coming [4] Undervalued Value Stocks Could Rebound ——- Photo: Copyright: arcady31 / 123RF Stock Photo  

The Buyback Binge is Ending

The market is seeing an end to the era of share buybacks to “one where capital spending matters,” according to a recent article in Barron’s. Companies in the S&P 500, it reports, are going to repurchase $500 billion shares this year, the lowest number since 2012 (data from INTLFCStone). The timing for this is appropriate, however, given the slowdown in quantitative easing (which had provided cheap money for repurchases). Higher borrowing costs together with high share valuations, the article says, means companies will get “less bang for their buyback buck.” Instead, it explains, “companies will need to spend on capital […]

Goldman Sachs: High Valuations Mean Pain is Coming

The current environment in which stocks, bonds and credit have been expensive at the same time—a situation last seen in the 1920’s and 1950’s–will eventually bring “pain for investors,” according to Goldman Sachs Group Inc. This according to a recent Bloomberg article. In a recent note, Goldman argues that the slowdown in quantitative easing is “pushing up the premiums investors demand to hold longer-dated bonds” which will suppress returns over the medium term. Another possibility, it says, is that both stock and bond valuations would suffer a sudden decline, the degree of which would depend on whether it is triggered […]

Undervalued Value Stocks Could Rebound

This year has seen the largest divergence between the valuations of growth and value stocks since the dot-com bubble, according to a recent article in The Wall Street Journal. This, the article says, has left investors “searching for ways to pinpoint when preferences will switch back from growth to value.” It could also signal either a market peak or a “realistic assessment of dismal log-run economic growth prospects, depending on your view.” According to Gerard Minack of Australia-based Minack Advisers, the divergence signals that the market has reached a “level of exuberance. He adds, “Markets are normally exuberant at the […]

Byron Wien on Potential Upsets to Economy

In a recent article for Barron’s, Blackstone Advisory Partners vice chairman Byron Wien shares his insights regarding factors that could potentially upset the economy. Giving an overview of the global economic and political climate, Wien highlights the general rise in populism and shares his view on the Trump presidency, Brexit vote, EU, and the economic factors affecting several European countries including France, Germany, Spain and Italy. Regarding the financial markets, Wien writes that “abundance of liquidity” and China’s 10% nominal growth have significantly and positively impacted the financial markets over the past decade. Wien offers a list of indicators that […]