Monday, August 8, 2011

Stock Market Risk Analysis v.2

This is an update to a post I did a year ago.

August 20, 2010
Stock Market Risk Analysis

Here are the new charts.

Here's an update to the commentary.

If nothing has changed (doubtful) and we can assume all three long-term trends are therefore still in place (also doubtful) then...

1. The average inflation adjusted fair value was 9,994 in June.
2. The potential downside risk was 3,274 in June.
3. The potential upside reward was 18,560 in June.

Put another way, I think there is plenty of long-term risk left in the stock market even at today's post-crash prices. We're not even down to the average inflation adjusted value yet, much less what I would call long-term bargain territory.

This is just an opinion of course. It is not investment advice.

Source Data:
Yahoo: Historical DJIA
St. Louis Fed: CPI


Charles Kiting said...

From Reuters:

"Benchmark 10-year Treasury note yields fell to their lowest levels since February 2009 on Monday, after a U.S. credit downgrade sparked broad risk aversion and added to the appeal of U.S. government debt."

Apparently the financial mess called "Europe" has no effect whatsoever. Let's increase the appeal of US debt even more by downgrading debt to BBB! (Are those Bernanke's initials?)

Stagflationary Mark said...

Charles Kiting,

It is amazing to me that people keep dwelling on the straw that broke the camel's back. It is nearly meaningless if one doesn't look at all the other straw too.

Rick Santelli thought the catalyst was actually the weak GDP numbers and weak economy. In my opinion, he nailed it.

As for Beranke's initials, we don't call him B.S. Bernanke for nothing.

Seriously. Shalom is his middle name.

Charles Kiting said...

Since he's taking the Japanese approach, his middle name could be Sayonara.

I have a small brokerage account and my advisor recommended liquidating last Wednesday. Santelli is more correct than anyone else but "bad GDP" really isn't a good enough bogeyman for the drama that is the forte of "news".

Stagflationary Mark said...

Charles Kiting,

Perhaps his middle name should be Sushi because we're in a never ending bubble loop.

A conveyor belt sushi boom started in 1970 after a conveyor belt sushi restaurant served sushi on the Osaka World Expo. Another boom started in 1980, when eating out became more popular, and finally in the late 1990s, when inexpensive restaurants became popular after the burst of the economic bubble.

McDonalds has become increasingly popular in recent years. Go figure.