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Rebuttal to checklist :)



March 09, 2011 – Comments (15)

LOL! This might seem like it is getting ridiculous (and I concede that) but I think this is a very productive debate. We are being civil and on point and supporting our arguments with facts, not hyperbole. I think we respect each other (well, I certainly respect him at any rate) and I think this debate is of benefit to the community.

Checklist has made the point before that 3 >50% drops is uprecendented in a bear market. This is an incorrect statement. Allow me to point out my evidence. I don't have to go back 100 years, or anything fancy:


It is actually quite precedented, as evidenced by the NIKKEI above. It is a major economy that has faced many of the same macro headwinds we face now and our policy responses thus far has been amazingly similar. I am obviously not making a 1-for-1 comparison between the US and Japan, but this is a situation that cannot be easily ignored.

Okay, so what about US indices? In comparing the S&P in the 70s checklist has pointed out on many occasions that 'Low 60s in 1974...  low 100's in 1982.' (referring that the end of the secular bear was in 82, not 74). And like I have repeatedly pointed out, inflation was massive in the late 70s / early 80s. And so looking at nominal prices not only doesn't tell the whole story, it is actually highly misleading.

So allow me to retort with a chart:


In real (inflation adjusted terms) the S&P 500 made a clear lower low in 1982 vs 1974.

So one can say that in the US markets a 3x >50% drop in a secular bear is 'unprecedented', but that is highly disingenuous. We had a 41% / 57% / 44% drop. That is pretty da*n close to a 50 / 50 / 50.

checklist makes excellent points about true honest-to-goodness values at the bottom in 2009. I don't deny that at all.

But I strongly challenge the 'unprecedented' claim with regard to 3x 50% drops in a secular bear.

15 Comments – Post Your Own

#1) On March 09, 2011 at 1:16 PM, checklist34 (98.78) wrote:

I'm not being civil, I am planning your demise as we speak.  I've hired the michigan millitia and we will be invading soon.

ok, I will reply now.

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#2) On March 09, 2011 at 1:20 PM, outoffocus (23.06) wrote:

I'm going to rebuttal all your rebuttals and say "I know you are but what am I".

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#3) On March 09, 2011 at 1:23 PM, binve (< 20) wrote:


"And here lies binve. A generally bullish and optimistic guy, but made one bearish observation too many, and checklist was not to be trifled with that day..."

(funeral crowd mourns softly, and bagpipes play into the cool clean air)



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#4) On March 09, 2011 at 1:30 PM, checklist34 (98.78) wrote:


The Nikkei...

Good point.  

Here is my argument:  The Japanese business culture is fundamentally different, and inferior, to ours.  Rate of innovation, type and structure of business, and so forth.  Plus, did the Nikkei ever get cheap?  And was that bubble so blown that even after a 75% drop it still wasn't materially cheap relative to, say, the S&P or the DAX?

First and foremost, I must now confess that I am no international business expert.  My only impressions and knowledge would come from dealings with Japanese companies in my old businesses.  But its amazing how slow they move and how little they manage to get done, all while doing that little incredibly dilligently.  

I argue cultural differences, and then promptly confess a weakish argument.  Hmmm, wiat, I may have a point to throw in here, be back in a bit.

For your argument about the 70s, I have two, one very safe and boring, one very risky and exciting:

1.  there was just 1 drop of 50% plus in real terms, and the total max drop was about 67%.  We've already had 2 50% real terms drops, and the max drop has already exceeded 67%...

Thats the boring one, which pretty simply exhonorates me. 

2.  Here's the exciting one:  "its different this time".  People now realize more widely that stocks eventually beat inflation bigtime, and the penalty imposed on stock valuations from inflation will not be as severe this time around as it was then.  

OK, I have a chart in mind for this Japanese point, which I never even thought of.  Give me 5 minutes

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#5) On March 09, 2011 at 1:31 PM, checklist34 (98.78) wrote:

lol, outfocus

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#6) On March 09, 2011 at 1:37 PM, checklist34 (98.78) wrote:


Witness the failure of Japanese stocks over long periods of time.  Germanies stocks survived Weimar, Survived WW2, and got back to trend. 

Japanese stocks have failed to do so.

So I submit fundamentally - but again, I couldn't eloquently explain why - different (and worse, for investors) business culture.

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#7) On March 09, 2011 at 1:40 PM, checklist34 (98.78) wrote:

This Japanese situation requires further thought. 

What is the historical earnings of the Nikkei?  Where is a table of that?  If it crashed 50% to a p/e of 45...  that doesn't really qualify as the same kind of situation, methinks.

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#8) On March 09, 2011 at 1:46 PM, checklist34 (98.78) wrote:

this argument is lame,and just a repeating of something I read or heard somewhere, and I don't even know where:

Japanese businesses are organized to maximize employment, US businesses are organized to maximmize profits.  

acknolwedging the third party nature of that thought and its vagueness, but maintain fundamentally different business culture, and possibly radically different valuation situation.

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#9) On March 09, 2011 at 1:48 PM, binve (< 20) wrote:


Those are very good rebuttals!

Regarding the Japanese P/Es I used to have a chart! I had long term P/Es for both the NIKKEI and HSI (Hong Kong Hang Seng), but I lost them when my old computer died. But both the NIKKEI and HSI displayed high valuations (20-30 P/Es) around peaks and they bottomed in the mid single digits (5-7 ish). Fairly typical behavior.

I think we have both adequately said our peace on this topic.

I really like (and agree with most) of your arguments and rebuttals. And in fact I would even say you are the 'winner' of our debate.

I just wanted to get my points in there for the alternative view.

I think that this was very productive and (probably sadistic of me to say) fun!

Good times man :)..

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#10) On March 09, 2011 at 1:56 PM, checklist34 (98.78) wrote:

Really?  I thought the p/e of the Japanese index was like 90 at its peak in the late 80s?


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#11) On March 09, 2011 at 2:12 PM, checklist34 (98.78) wrote:

hey does your picture here:

include dividends?

Because, assuming buybacks work at all (they must help some), the low current yield on the S&P would mean that that drop to 65% loss was in fact alot less, ...

Whereas the drop to probably 70%+ in 2009 was supported by relatively little dividend addition, and so was probably much more dramatic.

But, then, we probably started at a significantly higher valuation, so that is only reasonable.

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#12) On March 10, 2011 at 2:38 AM, Valyooo (34.17) wrote:

Binve, in a few months I plan on getting into TA (theres some other stuff I need to learn first).  Any suggestions on books/articles/websites?

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#13) On March 10, 2011 at 3:29 AM, CCharing (91.02) wrote:

I have to agree wtih Checklist,

I am half japanese, and the bit about maximizing employment (with a skew towards maintaining "corporate stature") is true, it is traditionally not a very owner-oriented stucture.

Creative destruction is not regarded very positively - I suppose you could say the U.S. bailouts is something to this effect as well...  Without creative destruction and corporate failure, efficiency is bottlenecked and you get the resulting underperformance of the Nikkei.  Companies that should have gone asunder cling on to their capital (human and otherwise) despite it being put to better use elsewhere.

The U.S. isn't quite in Japan's shoes.. yet. 



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#14) On March 10, 2011 at 8:39 AM, binve (< 20) wrote:


Farley's Master Swing Trader is a great all-around TA book. Highly recommeded..

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#15) On March 10, 2011 at 10:42 PM, racchole (41.83) wrote:

Great debate.  Please keep it up or start a new topic.

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