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the quants weigh in: "not yet"

On Friday, Leuthold's CIO Paulsen suggested that it's not over:
In difficult market periods, [founder] Steve Leuthold liked to distinguish between conventionally oversold markets and those that had become “Jesus Christ oversold.” Recent action clearly qualifies as the latter. There are many ways to define a “dangerously” oversold condition, but the one that always raises our antenna is now flashing extreme selling pressure that might take longer than usual to mitigate.

Even after today's ... uhh, dip in the Dow, Rob Arnott head the same position:
Currently, Research Affiliates models point to 10-year returns of just above zero for U.S. large-cap equities . . . The recent decline really hasn’t changed the outlook, Arnott said in an interview. “It might boost the 10-year expected return by 0.5% or 1%,” he said. “Since we’re expecting roughly zero net of inflation, this might boost it into the half a percent range.”

Arnott notes that European and U.S. equities have been hit harder than those in China, largely because developed-market valuations have been higher. “Do I look at it as a buying opportunity?” he said. “Yes. For U.S. stocks? No.” Arnott said that he wouldn’t regard stocks as being in bargain territory until they are a quarter to a third below current levels, or at about 2,058 on the S&P 500 or below.
The S&P ended Monday at 2,746; 700 points above his "bargain" level.

Arnott continues to argue that EM and EM value stocks are exceedingly cheap. While the short term is really ugly there, he thinks of them as being powerfully positioned for 5-10 year returns.



  • Blaine Rollins, founder of 361 Capital and former Big Dog at Janus:
    The moves are extreme but reflect the now-dual uncertainty of something that we have not seen since the Great Financial Crisis of 2008. Don’t expect this volatility to end anytime soon. COVID-19 cases are far from peaking in the U.S. The Fed is getting more limited in its market assistance options, and Washington D.C. is failing to inspire confidence. A “V” shaped bounce to all-time news highs will not be happening for the equity and risk asset markets this time around.

    But this also does not look like a 2008 GFC panic which led to a collapse in real estate valuations and an 80-90% decline in bank stock prices. (Investor Letter, 3/9/2020)
    "Getting worse but not 2008" currently passed for calm, thoughtful optimism.
  • powerfully positioned

    a Jesus Christ buying opp

    I love technical terms
  • edited March 9
    Thanks for the two posts. Rollins comment seem reasonable. Perhaps the market will seesaw somewhat lower over the next few weeks until clarity emerges concerning how communicable the coronavirus bug is, whether its spread will subside during the warm season, and its true infection rate. Data so far has focused on those who actually exhibit symptoms. China is currently testing to determine the overall infection rate including those who do not exhibit any visible symptoms. This additional information will provide a more complete picture. A few weeks will also provide time for clarity to emerge concerning the oil price war. I did a little stock market nibbling during the day today and may do a little more at the end of this week or sometime next week. Its definitely an interesting time to be an investor.
  • Over the years, I've not been convinced Affiliated Research (Mr. Arnott, and associates); and especially in light of reviewing 2 Pimco offerings over the years; that I would have a profitable adventure from their methods.

    A simple chart review of PAUIX / PAAIX / vs FBALX and VWINX long term returns.

  • edited March 11
    Old_Skeet bought today and spent down a little bit of his cash (a sum equal to about one percent of his portfolio's value) and added to positions in my equity income sleeve. This puts me back to my neutral asset allocation in equities.

    As the weak become weary (and sell) the strong become stronger (by buying).

  • I'm not selling. Because I don't need the money to live on. Or to cover any leveraged plays.

    I'm not buying, because I don't think these professional pundits understand what's going on here.

    It's very easy to lean back and say that no one can predict a market top with any specificity. Blah blah blah.

    At the same time, I don't think there's anyone out there that can predict how markets will react to large numbers of people sitting inside their homes for fear of going outside. Or because their government quarantined them.

    But my guess is that it won't play well with the usual wisdom.

    I certainly wouldn't buy emerging markets unless I thought they were more competent than our own government in their response to what is happening..

    Cue the laugh track.

  • edited March 11
    I'm sitting tight, too. But I'd be buying if I had the cash position I wish I had. That has become more than a wish, now. Build a cash cushion! With regard to the header on this thread: my small-cap quant fund tore the cover off the ball today: PRDSX, +3.48%.
  • Good points @WABAC. You can add to that the market may be over sold but it it is not under valued. PE ratios are still historically high.
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