|
Style Model
|
Small Value
|
||
|
Sector Model
|
XLF
|
-2.29%
|
|
|
Large Portfolio
|
Date
|
Return
|
Days
|
|
TIVO
|
4/23/2014
|
10.27%
|
102
|
|
SHOO
|
4/28/2014
|
-9.75%
|
97
|
|
PM
|
5/27/2014
|
-4.40%
|
68
|
|
SR
|
6/2/2014
|
7.36%
|
62
|
|
CFI
|
6/9/2014
|
-0.17%
|
55
|
|
FRAN
|
6/16/2014
|
-15.03%
|
48
|
|
NUS
|
7/7/2014
|
-19.29%
|
27
|
|
BT
|
7/14/2014
|
-2.97%
|
20
|
|
RRD
|
7/21/2014
|
4.81%
|
13
|
|
CHFC
|
7/28/2014
|
-1.89%
|
6
|
|
(Since 5/31/2011)
|
|||
|
S&P
|
Annualized
|
11.95%
|
|
|
Sector Model
|
Annualized
|
24.87%
|
|
|
Large Portfolio
|
Annualized
|
24.40%
|
Rotation: selling NUS; buying ESI (again).
NUS is in free fall on the model, the same place ESI was in
when I sold it a few weeks ago.
Both models have taken a hit with the recent market
weakness:
And yet the matrix remains moderately bullish, with Small
Value and Financials holding the top spot:
|
Small Value
|
Mid Value
|
Large Value
|
Mid Blend
|
Small Growth
|
Small Blend
|
Large Blend
|
Large Growth
|
Mid Growth
|
|
|
Finance
|
1
|
2
|
3
|
6
|
8
|
9
|
16
|
21
|
28
|
|
Utilities
|
4
|
5
|
7
|
10
|
13
|
15
|
20
|
24
|
35
|
|
Industrial
|
11
|
12
|
14
|
17
|
18
|
19
|
22
|
32
|
47
|
|
Staples
|
23
|
25
|
26
|
30
|
33
|
36
|
50
|
67
|
73
|
|
Healthcare
|
27
|
29
|
31
|
38
|
40
|
43
|
58
|
69
|
75
|
|
Cyclicals
|
34
|
37
|
39
|
45
|
48
|
51
|
64
|
72
|
77
|
|
Materials
|
41
|
42
|
44
|
53
|
56
|
59
|
68
|
74
|
79
|
|
Technology
|
46
|
49
|
52
|
60
|
61
|
63
|
70
|
76
|
80
|
|
Energy
|
54
|
55
|
57
|
62
|
65
|
66
|
71
|
78
|
81
|
Market timers are once again calling for a total collapse,
citing Shiller PE ratios that are not meaningful during periods of QE.
The question, though, is what the end of QE will bring.
As I posted on 7/13, the CAPE ratio at the end of June should
be calculated at 16.55, instead of 25.96.
In the same way, price action relative to M1 shows us having
had no real increase in market VALUE since 2010.
Here’s a close-up of the S&P / M1 ratio from March 2009
to June 2014:
John Hussman continues to argue that the market is in a
bubble and needs to fall in real value.
He ALSO argues that at some point inflation will rise.
Put those two together, however, and you don’t NEED the
market to “fall” in nominal price.
Think about this for a moment: the market is currently above
25 on a CPI based CAPE ratio, but it is below 17 on an M1 based CAPE
ratio. That is, the market is “too high”
based on current inflation, but “about average” based on the money supply. The way to bring both readings together isn’t
for the market to fall, but instead for inflation to rise.
At some point in the next decade (probably after 2018),
inflation will rise faster than price.
When that happens the Shiller CAPE can fall from 25 to 17 without the
market having to do much at all.
CAN the market fall?
Sure it can. The
market rises and falls all the time.
But it doesn’t HAVE to fall in order for the Shiller CAPE to
correct.
And when you read about the fact that the market is in a
bubble, consider that in a QE environment, the market has drastically
UNDERPERFORMED. In reality it’s gone
NOWHERE for the past 4 years.
John Hussman is right on one point, though: when measured
against inflation, the market will probably have no real returns over the next
few years.
But those trying to time near term market price movements
based on that observation are fooling themselves.
Pick undervalued companies in beaten down sectors. Anything else is just gambling.
Tim
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