dow fut up nice again today. this is a most bizarre market. everytime the charts smell a little like a sell off: BAM !

futures are marked up pre open. once again. will there ever be a sell off ? nah.

Markets worldwide look overbought, correction should happen soon[hopefully].

In my opinion correction will be a buying opportunity.

The Real Estate cycle that we are seeing in US is nicely following UK's [lag factor of aprox 1Year, as were interest rates], if so, then Real Estate has bottomed in US now.

All recession talks by the likes of Mr Roubini will disappear in thin air if housing does not crash.

There will be a sell off -- I can guarantee that. Timing is up for speculation.

High M&A activity while positive is generally associated with market tops.

I am strting to sound like a broken clock -- which is right twice a day. It is indeed frustrating. the good news is that while I am missing the boat on the upside, I have my capital safe...

Price action on Friday and even today is not very good -- runs up and then gets back to reality...

JP : "High M&A activity while positive is generally associated with market tops."
------------------------------------------------
M&A has been increasing steadily for the past 2 to 3 years. How do we know if M&A has topped though?

http://www.bobsguide.com/guide/news/16896.html

http://today.reuters.com/news/articleinvesting.aspx?type=newIssuesNews&storyID=2006-12-14T190634Z_01_N14397869_RTRIDST_0_LEHMAN-RESULTS-M-A.XML

We do not know if it has topped, but we know it is the third best year ever -- We also know what happened last time we had similar levels.

My grey hair may show up now, but I see too many red flags here. M&A, low credit spreads, private equity getting flushed with money, corporate earnings as a percentage of GDP at record levels, several major imbalances like the US CA deficit, etc, etc, etc...

Nobody went broke for inveting their money in T-Bills. The opportunity cost of waiting may be large, but the payout is quick once things turn arround.

"The Real Estate cycle that we are seeing in US is nicely following UK's [lag factor of aprox 1Year, as were interest rates], if so, then Real Estate has bottomed in US now."

Your argument (as with most others who try to compare the US to the UK) ignores the supply issue.

The US housebuilding sector can build 1.5 to 2 million homes per year. The UK housebuilding sector is lucky if it can top 150,000 a year. The US builds between 2 and 2.5 times more homes per capita than the UK.

Best financial web site ever....

http://www.indexfunds.com/index.php

just_observing:- Your argument of Supply in UK is very valid indeed.

UK house soft landed[but not crashed] due to weak supply couple years ago.

A mini-boom then started again in UK after "Soft Landing", thanks to influx of EU Expansion, due to immigration from Eastern Europe.

Neither of these two factors are applicable to US, hence Yes your point is valid.

However, I still do not think a Real Estate crash is possible in US, at this stage.

My Reasons:-
--------
1. A crash in US house prices will make US Housing market too attractive for outsiders. Keeping in mind there is a real estate boom ongoing in emerging markets, India/Brazil/UAE to name a few.
Also, if UK real estate holds firm, then any price imbalance will only attract overseas real estate investors.

2. Weak USD :- If USD falls further, that again will make US housing market cheap. If Bill's prediction holds true for 2007, then USD will fall further. USD has already fallen over 30% (GBP) during last 5yrs.

3. Interest rates are still near the hostorical lows. 10 Yr Treasury yields[i think approx 4.5%] hint no danger of spiralling interest rates.

Bill I noticed in the UBS report that they have P.M.'s underweighted with a slight bias towards a stronger dollar; noting that on a seasonal basis dollar does well typically to the latter part of January your 60-90 day timeline per a broad sell-off jives with the type of event that would bring it on while also giving P.M.'s a lift (e.g. geopolitical, weather/crude, "a suit" sticks his foot in his mouth (e.g. reps. vs. dems.), etc...). STILL too much bullishness at-present, I suggest you give the all clear to sell-off the metals in favor of chasing "C" and "GE" :)

May you and yours have a fine holiday season...

Regarding: "Best financial web site ever....

http://www.indexfunds.com/index.php

Posted by: Bullion at December 18, 2006 5:06 PM"

Couldn't disagree more. Maybe because I used to feel the same way, but learned a lesson in 2000... A lot of the Fama/French type award winning studies were used to keep individual investors in the markets as the Broker Dealers were exiting. See the history of this from marketing pieces from the time.

My reason behind disagreeing with you is simple. In the 20th century, there were 4 bull and 4 bear markets. If you started passive investing at the start of one of the 4 bull markets you would love the website. If you started passive investing at the beginning of one of the 4 bear markets, you would hate passive investing and the website.

Btw, each of the bear markets started with low or stable interest rates/inflation, like now. Each of the bull markets started with high inflation or deflationary conditions, which we don't have now. I am long stocks at the moment, but I understand that an investor ignores history at his/hers own peril.

g034 - I agree with you, especially with regards to any growth stocks. Sharpie Ratio is way too low for passive investment over say 10yr time horizon. Over very long term where typical 30%-50% business cycle oscillations become small compared to compounded return this may be arguably OK.

ALOHA !!

Anil Passi posted:
My Reasons:-
--------
1. A crash in US house prices will make US Housing market too attractive for outsiders. Keeping in mind there is a real estate boom ongoing in emerging markets, India/Brazil/UAE to name a few.
Also, if UK real estate holds firm, then any price imbalance will only attract overseas real estate investors.

2. Weak USD :- If USD falls further, that again will make US housing market cheap. If Bill's prediction holds true for 2007, then USD will fall further. USD has already fallen over 30% (GBP) during last 5yrs.

3. Interest rates are still near the hostorical lows. 10 Yr Treasury yields[i think approx 4.5%] hint no danger of spiralling interest rates.

I am not understanding your logic here ...

#1 - As in any bubble speculation drives prices. Yes, I am sure foreigners will become interested but some foreigners(those with the cash)like the Japanese already got burned badly in US real estate in the 1980's and most are still alive to regret it. Also why would you want to invest in a market in decline in a country where infrastructure is also declining and debt and tax burdens are rising?

#2 - In 1997 I was a carpetbagging bastard scouting out deals in Australia and New Zealand where real estate was literally 50% off if you paid with a US dollar. I found a 330,000 hectacre sheep and cattle ranch in NW West Australia for $980,000USD then ran into the foreign review board ... What makes you think the USA would not also put up protectionist roadblocks. Also you overlook the entire US real estate. I could see foreigners coming to the USA for 50% deals, as I did in 1997, but they won't even look at places like North Dakota or Missouri or Maine they will concentrate in the hot zones like Hawaii, California, Florida and New York City. Great if you live in those few selected areas.

#3 - So if a US dollar tanks yields will still be at 4.5%? Foreigners will control the interest rates in the USA. Also I doubt if Americans have as much savings as Brits. Where does all this speculative real estate debt go in the USA? Add in credit card debt, car loans, remodels, medical, etc ... Add in the future tax burdens ... 36% of the US population is retiring starting in 2008. The inventory will only grow because of the baby-boomers selling off their 1975-1980 four bedroom homes to move into smaller condos. Add in the speculative inventories already piling up. The only people in the USA with rapidly expanding paychecks and bonuses are at Goldman Sachs and they don't buy cheapy little subdivision houses!

Too many odds against a "soft landing" in my view and nothing in the World's history compares to the credit disaster waiting for Americans ...

Newsflow out of Iran is beginning to pick up again.

Dollar dropped in Iran asset move
http://news.bbc.co.uk/1/hi/business/6190865.stm

US to warn Iran with naval buildup in Gulf
http://www.alertnet.org/thenews/newsdesk/N18217613.htm

Could be good for Gold if it is not already priced in.
Andy

occam-

Most investors time horizon (duration) is not long enough to produce acceptable returns from this level. I am a big believer in mean reversion. What is extended now? Profit margins are VERY extended. Volatility is very extended (low). PEs are stretched but are in my tolerable range given reported inflation and profit margins so I am long stocks. Once mean reversion of margins occurs and the concommitant expansion of volatility, we are in for a very bumpy ride IMHO. The best thing that could happen for long term investors would be a quick return to nrmal valuations. The worst is what we have occurring now: PE expansion from record profit margins. That is why I believe an absolute return strategy is imperative right now.

You could lock in 5% with no risk. You could shoot for 7.5% with just a bit more risk taken. Fully invested and held long term, especially U.S. equity, makes little sense to me.

MarkM -

Thank you for your thoughtful post.

I'm a big believer in mean reversion too. (That's what is also called a "cycle", IMHO.)

I have a question: While I hear you about avoiding U.S. equities, I wonder if buying good U.S.-based multinationals doesn't make sense? Would that give one appropriate foreign exposure?

Again, thank you for your thoughtful posting -- and not just today's

This can't be good for the US or the $.

This report was quietly put on the site. It says that the US is now insolvent. It's also from the US Treasury......

http://fms.treas.gov/fr/06frusg/06frusg.pdf

Gamma-

Although we have had a rally in $OEX from the July lows, Large Growth is about the only undervalued asset class out there. That includes some fine multinational U.S based companies.

I do not know when this class will take center stage again. My fear is after the next sell-off despite its recent move. Junk is reemerging.

I try not to take outsized bets in any one direction any more. Although I find US Equities overvalued, I still have exposure. They may just become even more overvalued here. I have sufficient cash on hand however to take advantage of any decline, and a long timeframe to benefit from it.

Diversification is a way of avoiding the risk inherent in overvaluations. NORMALLY, all asset classes do not rise at the same time. You are always able to have something in your portfolio you want to buy more of (cheap). This hasn't been true for awhile though.

On a valuation basis, emerging markets still look good comparatively. They are much more volatile though. I would only own them in conjunction with less risky assets like stable, high quality names (PG, BRK, JNJ, AXP, etc)preferably bought well.

Thanks for the advice, Mark.

I'll check out a few emerging market ETFs. Also, my Dodge & Cox International fund, held in my IRA, has done really well for me. I recently bought more.

Since patience is part of the mix that makes for a good investor, I figure that I'll wait patiently for some of the quality companies to go "on sale" again. At some point, they always do. Meanwhile, I will continue to hold a lot of cash at 5%, */-. As you said before, absolute return is important, especially when everything is dicey.

Again, thank you for the advice and help.