Fortune: Inside Elon Musk's $1.4 billion score (LINK)
Amazon Reveals the Robots at the Heart of Its Epic Cyber Monday Operation (LINK)
Scott Adams proposes Bill Gates as Temporary Dictator (LINK)
Paul Graham: Mean People Fail (LINK)
Don’t Waste Your Two Most Productive Hours (LINK)
Brain Pickings on Van Gogh's Letters to His Brother (LINK)
Related book: Ever Yours: The Essential LettersMutual Fund Observer, December 2014 (LINK)
Hussman Weekly Market Comment: Hard-Won Lessons and the Bird in the Hand (LINK)
The equity market is now more overvalued than at any point in history outside of the 2000 peak, and on the measures that we find best correlated with actual subsequent total returns, is 115% above reliable historical norms and only 15% below the 2000 extreme. Unless QE will persist forever, even 3-4 more years of zero short-term interest rates don’t “justify” more than a 12-16% elevation above historical norms. That increment can be calculated using any discounted cash flow method. Based on valuation metrics that are about 90% correlated with actual subsequent returns across history, we estimate that the S&P 500 is likely to experience zero or negative total returns for the next 8-9 years. At this point, the suppressed Treasury bill yields engineered by the Federal Reserve are likely tooutperform stocks over that horizon, with no downside risk. The only thing that keeps this from being obvious is the proclivity of Wall Street analysts to form opinions and quote indicators without actually testing whether their methods have any reliability at all in evidence from market cycles across history. Numerous popular metrics, including the “Fed Model” and price-to-forward-earnings as a measure of value, have a very weak relationship to market returns over the following quarters or years.
As was true at the 2000 and 2007 extremes, Wall Street is quite measurably out of its mind. There's clear evidence that valuations have little short-term impact provided that risk-aversion is in retreat (which can be read out of market internals and credit spreads, which are now going the wrong way). There's no evidence, however, that the historical relationship between valuations and longer-term returns has weakened at all. Yet somehow the awful completion of this cycle will be just as surprising as it was the last two times around – not to mention every other time in history that reliable valuation measures were similarly extreme. Honestly, you’ve all gone mad.
“But I don’t want to go among mad people,” said Alice. “Oh, you can’t help that,” said the cat. “We’re all mad here.” – Lewis Carroll