Monday, January 12, 2015


Jason Zweig: Here’s a Tip: Buy More TIPS (LINK)
Energy stocks aren’t the only investment taking a beating from the collapse in oil prices. 
Treasury inflation-protected securities have suffered as crude’s 50% decline erodes the chances of a meaningful pickup in the cost of living. 
That creates an opportunity for investors who think that inflation is far from dead: TIPS, as the bonds are known, are priced reasonably now.
BeyondProxy: The Biggest Investment Mistakes — in the Words of Jean-Marie Eveillard, Howard Marks, et al. (LINK)
Related previous post: Quotes on the mistakes investors make…

Amazon's Instant Refund Aims to Get You Spending Again Quickly (LINK) [Sanjay Bakshi mentioned this article as an example of the types of things Amazon does with its float to widen its moat.]

Getting More Cash Out Of SaaS: Timing Is Everything (LINK)

Google Tests Car-Insurance Sales [H/T Matt] (LINK)

The Future of Medicine Is in Your Smartphone (LINK)
Related book: The Patient Will See You Now: The Future of Medicine is in Your Hands
Hedge Funds Take Cautious Line on Stocks (LINK)
Wall Street analysts are recommending investors buy stocks of large U.S. companies. But some hedge funds are holding back. 
Prominent firms like the $14 billion CQS LLP and Passport Capital LLC, which manages $4 billion, have cut their exposure to stocks recently following six straight annual gains for the Dow Jones Industrial Average and three consecutive yearly wins for the S&P 500 index. Hedge funds’ use of borrowed money, or leverage, to amplify the effect of their bets dropped last week to the lowest level in more than two years, Morgan Stanley told clients in a confidential memorandum. The drop in leverage signals a dwindling conviction that markets will push ever higher. 
The increased caution from these investors, who charge higher fees than other funds in part because of their promise to make money in good times and bad, is at odds with Wall Street banks’ predictions of another strong year for U.S. stocks. 
None of 22 bank and money-management strategists surveyed by research firm Birinyi Associates believes the S&P 500 will end 2015 below where it began. They forecast an average rise of 8.2% for the benchmark this year, a more bullish stance than they held one year ago. By contrast, roughly one-quarter of hedge-fund managers predict the S&P 500 will end the year flat or in the red, according to a survey of nearly 200 managers by Aksia, an investment consultant.
Hussman Weekly Market Comment: A Better Lesson than "This Time is Different" (LINK)
I generally discuss valuations on the basis of the measures we’ve found best correlated (about 90%) with actual subsequent 7-10 year S&P 500 total returns over a century of history. On the most reliable measures, stocks are about 120-140% above historical valuation norms – yes, more than double the level that one would associate with historically adequate expected returns. On the basis of a broader group of reliable measures, we estimate prospective 10-year S&P 500 nominal total returns of only about 1.4% annually over the coming decade, with negative returns over horizons of 8 years or less.  See Ockham’s Razor and the Market Cycle for the derivation and arithmetic of these estimates.  
Below are some alternate measures which suggest the same broad conclusion. The first chart comes from Doug Short, which shows current valuations now beyond the 1929 peak, exceeded only by the 2000 bubble. Below Doug’s chart, I’ve aligned a chart of the actual subsequent 10-year total returns of the S&P 500 on an inverted scale (so lower points on the chart represent higher subsequent returns). Note that points of “secular” undervaluation such as 1922, 1932, 1949, 1974 and 1982 typically occurred about 50% below historical mean valuations, and were associated with subsequent 10-year nominal total returns approaching 20% annually. By contrast, valuations similar to 1929, 1965 and 2000 were followed by weak or negative total returns over the following decade. That’s the range where we find ourselves today. Of course, we also won’t be surprised if the S&P 500 ends up posting weak or negative total returns in the 2007-2017 decade, which would require nothing but a run-of-the-mill bear market over the next couple of years.