The new movie from Blog’s muse is called Miss Sloane.
Hi all, fast post.
Some people are asking me what I think will happen to the SP500 now that Trump will take over. Well, first we have to remember the concept of “return to the mean” that the indexes usually have, and the actions as well. The concept says that when it is too high, it tends to lower and that when it is too low, the tendency is for it to rise, of course.
Personally, I think the market prefers Trump much more than Hillary. But the market I understand more as the will of people than the profits of companies. The index will rise if corporate earnings rise, this is the most basic basics in the stock market.
Let’s look at this photo:
The investors who started investing at the beginning of the Obama administration have given themselves a lot, VERY well, but VERY well indeed. Why was Obama so good? Not so much, see that in the last half of 2008 the subprime crisis broke out and the index fell sharply, see the disaster of the last 4 years of the Bush Era, totaled -26.3%. And as what had to fall, fell quite a bit, tending the average, it would be natural to expect that in the Obama administration the index would actually rise, and rose, a lot.
Another thing, as I’ve said here, more than half of the SP500’s profits are OUT OF US. That is, more than half of the index depends on the world economy to grow, and it went well without major crises outside of Greece that is not even so important, even hardness would be a serious crisis in Germany, UK, Japan, China and France, there would be almost the apocalypse on the exchanges.
According to this study the EDF , it is not statistically relevant content with Republicans or Democrats. I thought that with Republican governments the upward trend was greater, but it is not. I think the tendency to average is much stronger in this sense.
Now let’s also see some of the CAPE.
– The CAPE is an index created by Robert Schiffer, professor of Yale and Nobel of economics.
– The CAPE is a better indicator than the PL (P / E) because it takes into account the inflation and profits of the companies of the last 10 years.
– Then I’ll make a post to explain better and talk about CAPE in different countries and markets.
In a historical series, we will see the CAPE of the SP500 from 1881 (135 years back).
And you still have this graph to illustrate all at once:
On 10/01/2016 at the close of the CAPE value was 26.10.
See that from 2008 with a CAPE from 15 to 2016 with a cape of 26.10 the American stock market rose a lot. The CAPE historical average is close to 16.8.
Just imagine what would happen if this CAPE went from 26.10 to 16.8. It would be a beautiful fall, I think over 40%. Professor Schiller said that perhaps the era of the CAPE alto came to stay, and that those waiting for the cape to go down to buy will have to wait a lifetime, even more so because governments are not willing to pay interest PN for their Bonds or else pay negative interest like Germany and Japan (this, now governments want free money). We are currently in a larger CAPE than the CAPE that preceded the subprime crisis in 2008. But the crisis was not because of the CAPE itself, but because of the subprime, you have to see that.
That’s the current discussion, CAPE high, hard rises in the index, Trump, bonds that do not pay anything and so the investor gets cornered: it is better to stay in cash, invest in bonds and go from zero to zero or risk placing money in an overpriced market? In doubt, a little bit of each (at least for me). Staying in cash in the selic treasury is not so bad, at least it’s a cash that pays for something, getting into the market a little bit so that you do not get totally out of it and buy negative or zero interest bonds. I think it’s a big deal with the investor, Even if it is in the Brazilian TD that will give you about 3.5% above the inflation here (manipulated by the government but okay). Now is it better to earn 0-1% in hard currency than 3.5% in reais that is constantly melting? Whoever was left with the dollar under the mattress in the last 4 years made a lot more money than who was investing in fixed income in Brazil.
The Strong currency will always be the strong currency. Brazil has had more than EIGHT COINS in the last 200 years and I think that 3 or 4 cuts of three zeros (being the worst time of 1980 here, that is to say, this is zone, besides the confiscation of the Collor and the fiscals of the Sarney ). Political scoundrels generate inflation, and inflation as everyone knows, IS ROBBER, see Venezuela’s current state.
The only US currency was the dollar, from the UK to the pound (it is over 1500 years), from Switzerland the Swiss Franc (nor wanted to talk with the Euro).
So the conclusion is basically this: There is nothing to conclude (scientifically speaking).
We have no evidence to support whether Republicans or Democrats are better off for the purse.
It can not be said that the high CAPE is a harbinger of a new crisis and that a return to the average with the economy going well, low unemployment in the US (4%) and etc is quite unlikely with everyone employed and consumed.
Do not trust anything else you write there or here.