TEN

TENTH YEAR

I started blogging on finance on January 3, 2009 after completely retiring from the corporate world.

• To try to make sense of the mess the world was in.
• To distinguish between facts, rumours, alt-facts and fake news.
• To do thorough and objective analysis.
• To publish the pertinent facts (new$-to-use.com) and analysis to ensure thoroughness, depth and objectivity.

On March 3, 2009, I concluded that there was essentially no more downside to the S&P 500 Index then at 666 (S&P 500 P/E Ratio at Troughs: A Detailed Analysis of the Past 80 Years), re-introducing the Rule of 20 (originally from Jim Moltz in 1986) demonstrating that this was a generational low. Since then, I have written, almost daily, presenting, discussing and analysing pertinent facts, criticized poorly researched and biased articles and opinions, while regularly offering and detailing my own analysis and views so that readers could make up their own mind and act according to their own risk aversion profile.

I make extensive use of the media and blogosphere worlds since their treatment of the info shapes opinions and, therefore, valuations, positively or negatively. My own work and analysis are open and free, totally clear of advertising, for anybody to use and I fully intend to keep it that way. Hopefully, Edge and Odds can help a few people better manage their financial investments.

Several years ago, a reader sent a $5.00 donation, apologizing for the token amount, explaining that he could hardly afford any more having been “wiped out” during the Financial Crisis because he had relied on media and brokers. He wanted to encourage me to keep writing objectively. Thank you Steven, quite an inspiration!

Many readers are kind enough to voluntarily send money to Edge and Odds. This is very welcome given that the Fed’s goal of 2% inflation has been amply exceeded in financial services ten years after the trough. All donations are reinvested in research material for the blog. In 2017, I subscribed to Lowry’s Research which has been doing intelligent and sensible technical analysis since 1938. More recently, I have subscribed to a few more services to complement my own work.

As a result, Edge and Odds has added depth to the ratings of financial markets as you might have noticed in the sidebar.

The Fundamental Rating section breaks down into

• the Rule of 20 P/E rating (risk/reward ratio based on valuation)
• the 120 Yield Spread (yield curve trends)
• the earnings trends, really focused on trailing EPS
• the inflation trends which not only impact valuations but also central banks behavior

Readers can now see the trends in the 2 important components of the Rule of 20 P/E.

I have added Technical ratings, largely inspired by Lowry’s work but also using other useful indicators and a rating on investor sentiment (from Ned Davis Research) which is a contrarian indicator currently at its most negative.

Hopefully, we will all benefit, especially as this bull, also beginning its tenth year, will surely make us live another historic moment.

TENTH INNING

With just about every sensible valuation parameters having reached near historical levels (I initially wrote “histerical”!), it’s fair to say that this game is now in overtime. It took ten years to get here, ten years during which we witnessed valuations going from generational lows to near historic highs (ex-the dotcom bubble), interest rates reaching 700-year lows (!) and investor sentiment going from extreme pessimism to extreme optimism. Bernanke’s gambit worked!

We are witnessing (and actually playing in) a truly historic game.

This is more akin to baseball than to most other sports. This overtime will likely not end in sudden death like in 1987. This bull seems to be of an enduring specie thanks to its strong sponsorship from central banks around the world. Slow inflation, rising profits and ample liquidity are feeding the beast. I don’t really know in what sequence the final three strikes will occur but I would venture this:

• strike one: rising inflation and interest rates.
• strike two: declining liquidity as CBs seek to rapidly normalize.
• strike three: weaker profits either due to recession or a margin squeeze.

How many innings left?

Dunno. But I know this game will eventually end. I sure hope to be able to play a few more.