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« October Employment Report Preview | Main | Debunking the 100% Recession Chart »

November 03, 2012


Sample Statements

What is the difference between the bond funds and other funds? I think in every funds people need to have ability to face risk.

Bruno V.

Jeff: Understood, will do, looking fwd to it, and thanks for the reply. --Bruno


Hawaii -- It IS an interesting map. Right now it is exacerbated by the redistricting from the last census. In Illinois, the maps were redrawn to the disadvantage of Republicans, including my district. In Ohio, the opposite happened.

Thanks for the link, which does not work in your email, so I am correcting here:



Bruno - I am working on a longer article on this subject, which I have taken up before. I will definitely get back to it.

I have read the past Asness papers on this topic, and I'll look at this one as well. Taking on a controversial and challenging topic in the comments is just not very efficient, but I will put it on the agenda.

Meanwhile, if you use the search box on my blog and enter Shiller, you will find plenty of information. Especially note that even Shiller does not really recommend his own method.


This Wall Street Journal site is awesome.

Strongholds of the Republicans

Areas that actually "work" and produce, are massively Romney. They in fact "are building that".

Strongholds of the Dems

Old school areas on large bodies of water. They are still living on past glory, looking for modern day handouts on the shoulders of our grandchildren.
Hard hit areas from oil spills, hurricanes, are quite a bit Dem, looking for handouts. Looking for Big Bro to save them.
Areas with lots of immigrants.

Pretty simple really.

The black outline ones here are the counties that Obama won, very few geographically, but high density for electoral votes. The blue shaded area have become "more democratic voting" since 2008

Below are the counties that Romney won, sheesh, anyone looking at this would say why is he not the president!

Don't hate me until you check out the charts html

Bruno V.

I enjoy reading your blog as it often challenges my bearish views of the market. I tend to put weight on good research on market valuations such as Shiller's P/E, Q-Ratio, dividend yield, historical earnings growth, overall financial leverage in the economy, etc.

I have just read your "Tips for Investors" page where you refer to your 17 April 2012 post "Confused about Stocks", linked to Dick Green's blog at talking about "The Bearish Arguments That Are Wrong", in particular arguments on "the 10-year Shiller P/E shows stocks overvalued". Dick says that the Shiller P/E is biased due to the drop in earnings in recent the financial crisis, and thus not valid to the current situation. I see something different from another view below.

Can you shed light on the recent AQR letter by Cliff Asness recently cited by the Economist? Citation and link below:

Mr Asness points out that there is a danger of small-sample bias and that the standard deviation of results is quite high. Nor is the Shiller p/e much use as a market timing signal; it was already high in the late 1990s and got even higher by the spring of 2000.

Shiller sceptics argue that the ratio is a particularly misleading indicator at the moment because of the steep plunge in earnings in 2008; this, they say, artificially depresses the 10 year earnings average. But the big fall in earnings in 2008 came in the finance sector which had enjoyed an artificial boom in previous years. Mr Asness suggests that the earnings destruction post-2008 was making up for some earnings that, for several years prior, were "too high", essentially borrowing from the future. Rather than invalidate the Shiller method, the 2008 earnings destruction is precisely why the (Shiller p/e) was created.
In any case, Mr Asness calculates cyclically-adjusted p/es based on the median earnings level of the previous 10 years, to eliminate outliers; and a version based on the maximum earnings over the past 10 years. In both cases, the p/e is significantly above the historical average. That is a big contrast with the one-year p/e which most investment bank analysts use and which shows the market fairly valued.

What this means, according to Mr Asness, is that future real returns are likely to be poor, especially as bond yields are so low. On a standard 60/40 equity/bond institutional portfolio, real returns are likely to be 3%.

Let me know what you think.


Mike Niemeyer

and just found

Golden Haarp & Allocated Gold Exposure
Jim Willie CB

I would guess that you figure Jim as a crackpot! I'm inclined to greatly discount what he says. Like Max Keiser, some entertainment value at the very least.

Mike Niemeyer

If someone has 40% in gold they must be buying into (hook-line-n-sinker) the idea that gold is money and trying to ignore price fluctuations.

I like the following explanation from James Grant; it would be interesting to see what gold would do if he became the Fed chairman (a low probability event),

James Grant:
It is the nature of gold that its valuation must forever be a mystery. It earns nothing. It pays no dividend. No conference call, no management to call up and complain to. What I do think is gold is simply the reciprocal of the world's faith in the institution of managed currencies. It is one divided by T, where T stands for trust. And trust is a shrinking number and will continue to shrink. Therefore, I am still bullish on gold.

Thank Jeff


Mike -- Your positions are very reasonable. A 5 -10% allocation, depending upon individual circumstances, can make sense. You might be surprised to learn that many have allocations of 30-50% or even more. I see it nearly every week.

Here is an article I did a couple of years ago. I don't think much has changed. I am certainly not trying to do market timing in gold, and I question those who think they can.


Mike Niemeyer

My portfolios are about 2% in DBP and 1% in GDX. The max allocations: 4.5% in DBP and 2.2% in GDX.

I searched a bit to look for your thoughts on gold and look forward to any update you might do on this subject.

Thanks for briefly sharing your thoughts,



Mike -- As I always note in the weekly article it is a place for me to share conclusions. The scope is such that I cannot do a lot of depth on each point.

With that in mind, I did not single out gold, but cited it as a pattern of behavior where investors seem to think that stocks are very risky and these other assets are safe. The recent performance is itself proof of this, since it shows where the money is flowing.

I suppose that I am overdue for an article on gold. The basic theme is that it works well when there is great fear of financial collapse or hyperinflation, what I have called the "golden goal posts." Since I see both risks as minimal, I think the fears are over-stated.

I also talk with investors who have huge allocations to gold. What would you think the normal range should be?



Mike Niemeyer

You wrote that the average investor is all wrong, piling into gold. Do you have something to back this up? For example, if the big money only had 20% ownership of GLD trust that would be a signal. Or something on the futures market...

Always enjoy reading your work.

Thanks Jeff

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