School of Hard Knocks 02 (Jan 10 - Jan 13)

[winston]

WHERE ARE WE IN THE BUBBLE PROCESS?

Secular bear markets have a way of fooling investors at every twist and turn. Just when you think recovery is around the corner everything seems to change on a dime and the bear sinks its claws back in.

But what rarely changes throughout time is psychology in regards to bubbles. We’ve discussed the dynamics of bubbles in past articles and this instance is unlikely to be all that different.

http://pragcap.com/where-are-we-in-the-bubble-process

[Poles]

this chart deserves a posting...

[LenaHuat]

Interesting chart, Poland.
But I think the Blow-off phase will not be so steep. I doubt Angela Merkel (who whacked her fingers at the German banks during the financial crisis) can afford to ignore German sentiments against bailing out Greece.
After the financial crisis, the German mood is very cautious and less trusting.

[kennynah]

my take is that the blowoff phase already occurred in 2008/2009....

[millionairemind]

my take is that the blowoff phase already occurred in 2008/2009....

Agree. I think we are at the stage where we are reverting to the mean

[LenaHuat]

Wow, you guys are looking backwards . I'm writing abt the next blow-off
Are we moving to a new mean?

[kennynah]

naturally, the new mean has to be somewhat lower than pre2008 days, by sheer statistics...but this new mean may be breached upwards as go along into 2010/11....

germany has just announced a new growth forecast of 2.3% for 2010, eradicating an earlier 2.0% growth rate...

[Poles]

i am with Lena, I think the next blow-off is akan datang......

[winston]

Keep an eye on the Altitude

Your editor has no idea where the markets will go...only an inkling of where they ought to go. And where they ought to go is back to the mean, as everything eventually does. Right now, the S&P goes for around 22-25 times earnings, considerably higher than the long-term mean, which Yale University's Robert Shiller has at 16.35.

Typically, investors do well to buy stocks when they are trading at between 5-10 times earnings. For instance, you could have bought the S&P for slightly less than 5 times earnings in the early 1920s. As we know, the index topped out later that decade, on Black Tuesday...when the P/E ratio hit 30. Provided you adhered to the mean reversion rule and sold before that fateful day, you could have bought the index back in '32, again for around 6 times earnings. (It then rallied/bounced - to right around where it is now - before slipping back below 15 shortly after.)

For the better part of the next seven decades, the S&P 500 flew cautiously under the 25-times-earnings radar, on a handful of occasions even ducking back below 10. It wasn't until the easy money days of the mid-'90s that the index waxed up its wings and launched into the clear blue sky. For a while, it looked as though nothing could spoil the flight. Then, in December of 1999, at the lofty P/E height of 44.2, the wax started to melt. The rest, as they say, is very modern history.

All this is not to say that the S&P is about to dive into the sea tomorrow. It's more of a polite reminder to keep an eye on the altitude...

Source: Daily Reckoning

[winston]

The anatomy of a sucker

Or why smart people fall for stupid cons.

Posted by Karen Datko on Monday, February 22, 2010 2:55 PM

This guest post comes from Pop at Pop Economics.

Sometimes it mystifies me that so many people can fall for the oldest tricks in the book. Bernie Madoff’s operation was nothing more than a Ponzi scheme -- you know, that scam that was invented in the 1920s. Do people really think that a random Nigerian prince selected them to handle gigantic sums of money? Does it really never occur to a tourist that a street-side card game probably isn’t on the up-and-up?

http://articles.moneycentral.msn.com/Sm ... =1,1649098