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  • Originally posted by Tim View Post
    I debated posting this on the Covid thread but decided it was more market.
    What would you think of a 4-6 weeks lockdown of the US? That is an economic recommendation in my view, not really healthcare. All based on new information that the “scientist” crosses lines and gets out of his expertise. There is a possibility that we could revisit the lows.

    https://www.cnbc.com/2020/11/11/bide...e-economy.html
    Well, elections have consequences and one is that we have to worry about extreme positions like this until the transition is complete. But I can think of few more certain ways to kick off a recession. Fortunately it is far more likely a Biden administration will do something annoying but not harmful (national mask mandate anyone) and claim credit for deploying the vaccines developed over the last year.

    Comment


    • Originally posted by Tim View Post
      I debated posting this on the Covid thread but decided it was more market.
      What would you think of a 4-6 weeks lockdown of the US? That is an economic recommendation in my view, not really healthcare. All based on new information that the “scientist” crosses lines and gets out of his expertise. There is a possibility that we could revisit the lows.

      https://www.cnbc.com/2020/11/11/bide...e-economy.html
      Thankfully, it’s a non-starter for me and likely the same for many Americans.

      Comment


      • Just what is a national mask mandate? This will be a federal crime? I really really want details.
        Will I be able to report violations? Will there be prosecutions etc.?
        My point, hot air simply raises the temperature.
        Political slogan primarily.
        Was the pandemic really the #1 issue? If it was, there are a ton of executive actions coming out of his “science advisors” that will impact the market.
        Maybe they won’t actually happen.

        Comment


        • Originally posted by Tim View Post
          Just what is a national mask mandate? This will be a federal crime? I really really want details.
          Will I be able to report violations? Will there be prosecutions etc.?
          My point, hot air simply raises the temperature.
          Political slogan primarily.
          Was the pandemic really the #1 issue? If it was, there are a ton of executive actions coming out of his “science advisors” that will impact the market.
          Maybe they won’t actually happen.
          Exactly. It will be hot air. POTUS has moral authority but not directive On an issue like this. He would work it through the states. I say harmless because the States will do what they they think best.

          Comment


          • So if by executive action the border with Mexico is opened (Trump orders) Texas will have both a healthcare and immigration flood. Combine that with vaccines not available (new allocations to WHO), additional strains and removal of tools spells trouble. Hypothetical (the Texas example) quite a few possibilities. Most aren’t favorable. There is real power in POTUS and it has consequences. Kind of scary.

            Comment


            • As Larry mentioned it’s all hot air and no teeth. Just a symbol of pretending to do something. This is better served at the state level and on the local level in a few states. Those who want to wear a mask will and those who don’t won’t.

              Comment


              • Originally posted by Tim View Post
                I debated posting this on the Covid thread but decided it was more market.
                What would you think of a 4-6 weeks lockdown of the US? That is an economic recommendation in my view, not really healthcare. All based on new information that the “scientist” crosses lines and gets out of his expertise. There is a possibility that we could revisit the lows.

                https://www.cnbc.com/2020/11/11/bide...e-economy.html
                Revisit the lows seems extreme. Under a new lockdown, I assume they would go into it with a plan knowing people will be compensated, hoping to reduce the plunge. Just my thoughts but another lockdown would prove to be unsuccessful as well. There would still be to much exposure from hospitals, grocery stores, etc.

                Comment


                • Originally posted by Tim View Post
                  So if by executive action the border with Mexico is opened (Trump orders) Texas will have both a healthcare and immigration flood. Combine that with vaccines not available (new allocations to WHO), additional strains and removal of tools spells trouble. Hypothetical (the Texas example) quite a few possibilities. Most aren’t favorable. There is real power in POTUS and it has consequences. Kind of scary.
                  Oh, I agree the bully pulpit is real. And the whole tone will shift. I just don’t think there is any data that changes the fundamental narrative enough to justify a panic, especially with the prospect of vaccination now concrete.

                  Comment


                  • The government so far has not “compensated” everyone, for valid reasons. Targeted groups for either social or political purposes.
                    Small example, any plan to reimburse a restaurant or apartment owner? Very substantial and life changing financial destruction. Selective people are compensated.

                    Comment


                    • Originally posted by Dont_know_mind View Post

                      My aim is to get to 60:40 international/domestic.

                      I am at target international amount and intend to buy domestic indexes when the price is more reasonable but it may never get so. In which case, I have the option of paying off debt or buying more international.
                      What do you mean by "when the price is more reasonable"? Are you looking at CAPE for US? I think I have mentioned before, one thing that I've been doing to get more exposure to US equity and minimizing concerns of over-valuations is by tilting heavily towards small cap and value (large and small). The gap between growth and value (in the US) is still fairly large and, at least up until about a few weeks ago, I was listening to and reading experts explaining why they thought value stocks were a bargain, and the rationale made sense to me.

                      I also looked back to the dot-com boom and tech wreck (arguably, somewhat analogous to the structure of the market today), and results were pretty good for value going a few years out, even starting at the peak of the tech bubble when market-wide CAPE ratios were very high. So, something to consider if you are trying to get more exposure domestically.

                      Of course, I could be totally wrong, and the reasonable sounding ideas I've read about may not pan out in reality. There's always risk of tracking error regret with this sort of strategy. But, I'm reasonably diversified and I feel comfortable with my positions right now.

                      Comment


                      • Originally posted by Perry Ict View Post

                        What do you mean by "when the price is more reasonable"? Are you looking at CAPE for US? I think I have mentioned before, one thing that I've been doing to get more exposure to US equity and minimizing concerns of over-valuations is by tilting heavily towards small cap and value (large and small). The gap between growth and value (in the US) is still fairly large and, at least up until about a few weeks ago, I was listening to and reading experts explaining why they thought value stocks were a bargain, and the rationale made sense to me.

                        I also looked back to the dot-com boom and tech wreck (arguably, somewhat analogous to the structure of the market today), and results were pretty good for value going a few years out, even starting at the peak of the tech bubble when market-wide CAPE ratios were very high. So, something to consider if you are trying to get more exposure domestically.

                        Of course, I could be totally wrong, and the reasonable sounding ideas I've read about may not pan out in reality. There's always risk of tracking error regret with this sort of strategy. But, I'm reasonably diversified and I feel comfortable with my positions right now.
                        It may not matter that much which strategy you pursue as long as it turns out to be correct and you are comfortable with it.

                        With MSCI US value index, the current PE is 19.5, which is the same as MSCI international ex-USA index PE. But to me international is more diversified than value, but you get the exchange rate risk.

                        I tend to think, but could be wrong, that overvaluation in US tech bleeds into overvaluation in other US indices including value.

                        Specifically:
                        - MSCI world value ex-USA has a PE of 14.5
                        - MSCI US value has a PE of 19.5

                        It’s a personal assessment, but I’m not comfortable tilting to just the value factor. I tend to think the taxation regime in the US in the last 10 years may have contributed to a significant amount of what I perceive to be overvaluation. But I could be wrong in this.

                        Comment


                        • Originally posted by Dont_know_mind View Post
                          I tend to think, but could be wrong, that overvaluation in US tech bleeds into overvaluation in other US indices including value.
                          You're probably right about that, generally. But I think if you look at the divergence between tech and value, that has been less true since 2018. That divergence is especially stark when you compare tech and small cap value, with tech making higher highs, and small cap value indices making lower highs, at least up until a couple weeks ago - not sure how true that is still, with the value rally this past week.

                          Here's an interesting paper written back in May on the spread between growth and value:

                          https://www.aqr.com/Insights/Perspec...Investing-Dead

                          Originally posted by Dont_know_mind View Post
                          With MSCI US value index, the current PE is 19.5, which is the same as MSCI international ex-USA index PE. But to me international is more diversified than value, but you get the exchange rate risk.
                          True. My main point, though, isn't that domestic value is a better investment than international, or vice versa. It's that, if you don't want to be 100% international, the "value" slices of the US market could be an option to diversify into domestic equities, if you are looking to avoid perceived "overvaluation" of the popular US (large) cap weighted indices. If you feel more comfortable with being 100% Ex-US equity, then that's an option too...you could end up winning big with that bet, for all anyone knows. But I know that for me, if I'm going to make a bet, I like to hedge a little - so I'm about 50-50 (US/Ex-US), give or take. I guess it all depends on what you are most comfortable with.

                          Comment


                          • Originally posted by Perry Ict View Post

                            You're probably right about that, generally. But I think if you look at the divergence between tech and value, that has been less true since 2018. That divergence is especially stark when you compare tech and small cap value, with tech making higher highs, and small cap value indices making lower highs, at least up until a couple weeks ago - not sure how true that is still, with the value rally this past week.

                            Here's an interesting paper written back in May on the spread between growth and value:

                            https://www.aqr.com/Insights/Perspec...Investing-Dead



                            True. My main point, though, isn't that domestic value is a better investment than international, or vice versa. It's that, if you don't want to be 100% international, the "value" slices of the US market could be an option to diversify into domestic equities, if you are looking to avoid perceived "overvaluation" of the popular US (large) cap weighted indices. If you feel more comfortable with being 100% Ex-US equity, then that's an option too...you could end up winning big with that bet, for all anyone knows. But I know that for me, if I'm going to make a bet, I like to hedge a little - so I'm about 50-50 (US/Ex-US), give or take. I guess it all depends on what you are most comfortable with.
                            The article is interesting.

                            I think a proxy to good value is Berkeshire Hathaway.

                            I think the value factor is not optimal. It includes good value (desirable) and crap value (value traps, arguably coal etc).

                            My opinion is that the value factor is a minor component in what I would consider. It doesn’t really cohere to me as an investable fundamental. Many have failed trying to play the value mean-reversion expectation (including a previous version of me).

                            More important to me now are 1) fundamental drivers for long term expected return : for the value factor, things will move back to the median of the period pre 2009, for international arguably that ROW will continue to improve over time
                            2) likely risk free rate for the next 5 years
                            3) resources prices and cycle
                            4) USD range for the period

                            On the one hand value may not have bottomed in terms of underperformance. On the other hand, the combination of a vaccine and central banks pledged to zero rates for the next 2 years is going to be a volatile mix. This might create the conditions for a huge tech bubble or it might be the start of a resources boom. Or both. I have no idea. All I know is that I don’t want to be anywhere near tech/SP500 at current valuations (which could of course become much higher).

                            Following value and international from 2000-2002, they survived the tech meltdown but then got hit with the 2002 recession/bear market.

                            Every cycle is different however and perhaps the virus has reset the cycle with excess capacity and we see a new cycle from now rather than the 2000-2002 rerun.

                            I think Mauboussin’s articles are good reading if you are interested in the value factor:

                            https://papers.ssrn.com/sol3/papers....act_id=3442539

                            https://www.forbes.com/sites/kevinha...h=7b3e94d962fd

                            Comment


                            • Short version of Maubassin’s critique of value factor investing, which I think is great reading and food for thought if you are a value investor and long version:

                              https://www.morningstar.com.au/stock...e-enoug/204686

                              https://www.morganstanley.com/im/pub...?1596549853128

                              Comment


                              • Originally posted by Dont_know_mind View Post

                                I think the value factor is not optimal. It includes good value (desirable) and crap value (value traps, arguably coal etc).

                                My opinion is that the value factor is a minor component in what I would consider. It doesn’t really cohere to me as an investable fundamental.
                                That's true, but I think it still has some merit, and my feeling is that it's a lot harder to separate the "desirable" value from "crap" value than a lot of people assume. I think the logic is, if you are buying a large basket of value stocks (an index), you remove some of that idiosyncratic risk of value trap companies, and over time, the good more than makes up for the bad.

                                I also notice, you seem to trust some of these value factors enough as a screening tool to arrive at your opinion of US tech ....

                                Originally posted by Dont_know_mind View Post
                                All I know is that I don’t want to be anywhere near tech/SP500 at current valuations
                                Originally posted by Dont_know_mind View Post
                                Many have failed trying to play the value mean-reversion expectation (including a previous version of me).
                                The other thing I've read with value, is that it tends to go through very long periods of underperformance, followed by periods of huge outperformance. That makes me think a lot of the issue is behavioral. I think it's really hard to stick to a strategy for years when it seems like it's not working, especially when plausible narratives follow ("cheap for a reason"), making it all the more compelling to throw in the towel. I'm not ruling out that things could be different this time, I just think it's likelier that history will repeat/rhyme.

                                I also like international for many of the same reasons.

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