The Big Picture

Home Currency Issuance in Global Debt Markets
Succinct Summation of Week’s Events 8.22.14
Enjoy Your Weekend Reading on the CAPE
Weekendend Homework: Sources & Research on Shiller’s CAPE
Economic Indicators Dashboard
10 Friday AM Reads
Who’s Afraid of Shiller’s CAPE?
Pebble Beach Concours d’Elegance Best of Show: Ferrari 375 MM Scaglietti

Home Currency Issuance in Global Debt Markets

Posted: 23 Aug 2014 02:00 AM PDT

Succinct Summation of Week’s Events 8.22.14

Posted: 22 Aug 2014 01:00 PM PDT

Succinct Summations week ending August 22nd

Positives:

1. S&P 500 made a new all-time high.
2. Existing homes sales increased to 2.4%, the biggest increase in almost a year.
3. Housing starts exploded 15.7% m/o/m, the fastest pace in 8 months.
4. Jobless claims fell to 298k vs the 303k expected and down from 311k last week.
5. Philly Fed index jumped to 28 from 23.9, the highest reading since March 2011.
6. CPI rose 0.1% m/o/m and 2% y/o/y.
7. Housing permits for new construction climbed 8.1%; Permits for single-family homes climbed 0.9%, the highest level since December.
8. NAHB confidence rose 2 points to 55 (analysts expected no change).
9. Markit flash PMI rose to 58, the highest reading since April 2010.
10. Japanese exports rose 3.9%, slightly better than expected and the first rise in three months

Negatives:

1. Mortgage applications fell 0.4% w/o/w to a new 6-month low.
2. China flash PMI came in at 50.3 versus the 51.5 expected and down from 51.7.
3. The EU manufacturing and services composite fell to 52.8, from 53.8 and the lowest level since December.
4. Core inflation rose 0.1% m/o/m versus the 0.2% rise expected.

Enjoy Your Weekend Reading on the CAPE

Posted: 22 Aug 2014 11:36 AM PDT

In our discussion of Mr. Market, we made passing reference yesterday to CAPE, Yale professor Robert Shiller's 10-year cyclically adjusted price-earnings measure. This led to quite a conversation via a series of e-mails and Twitter posts from an assortment of analysts and asset managers. I received research from or by Cliff Asness, Michael Kitces, Mebane Faber, Jeremy Siegel, Salil Mehta, Stephen E. Wilcox, Doug Short, Wade Slome, Erik Kobayashi-Solomon, Ben Carlson and Jesse Livermore. If you want a crash course in CAPE, spend the weekend digesting what they have to say.

Today, I want to focus on the pros and cons of CAPE, giving airtime to all sides of the argument. My main interest in CAPE has more to do with behavioral issues such as confirmation bias by those who cherry pick CAPE as their preferred valuation metric when it suits their market position.

Let's start with a few words about valuation and timing. Cyclically Adjusted Price to Earnings uses the prior 10 years of trailing per-share earnings rather than just the previous four quarters. This reduces the short-term volatility. In theory, it should include at least one full business cycle, and possibly more. Shiller has said that he was trying to develop a valuation metric that would tell an investor whether equities were likely to outperform their median returns during the next decade. Continues here

Weekendend Homework: Sources & Research on Shiller’s CAPE

Posted: 22 Aug 2014 10:00 AM PDT

I have a fairly long piece coming out looking at CAPE, but for those of you interested, here are the research and resources I used:

Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau PHILOSOPHICAL ECONOMICS December 13, 2013 @Jesse_Livermore

An Old Friend: The Stock Market's Shiller P/E, Clifford S. Asness, Ph.D., AQR's Absolute Return Fund. Q3 2012 letter

CAPE and math Salil Mehta, Statistical Ideas, August 20, 2014

Shiller CAPE Market Valuation: Terrible For Market Timing, But Valuable For Long-Term Retirement Planning Michael Kitces, August 6th, 2014

If You Used Valuation, You Would Be Out of Stocks Since 1993, Mebane Faber Research, June 10th, 2014

Don't put faith in Cape crusaders Jeremy Siegel FT, August 19, 2013

Leaving CAPE Town Joshua M Brown Reformed Broker, January 12th, 2014

In defence of the Shiller p/e Buttonwood, The Economist May 18th 2011

Who's Afraid of Shiller's CAPE? Erik Kobayashi-Solomon, Y-Charts August 1, 2014

Market Valuation, Inflation and Treasury Yields: Clues from the Past Doug Short, Advisor Perspectives August 6, 2014

CAPE Fear Mebane Faber Research, December 18th, 2013

Understanding the CAPE Debate: The History of 24 or More Keith C. Goddard, CFA, Channing S. Smith, CFA, and Monty L. Butts ValueWalk, February 25, 2014

A Cautionary Note About Robert Shiller's CAPE by Stephen E. Wilcox AAII Journal, September 2011

Taking Stock of the S&P 500 Index Michael Rawson, Morningstar, 01-10-14

Shiller CAPE Peaches Smell Like BS Wade Slome Investing Caffeine, June 14, 2014

Shiller’s CAPE – Is It Really Just B.S. Lance Roberts 18 June 2014

Improving Risk-Adjusted Returns Using Market-Valuation-Based Tactical Asset Allocation Strategies by Kenneth R. Solow, CFP®, CLU, ChFC; Michael E. Kitces, CFP®, CLU, ChFC, RHU, REBC; and Sauro Locatelli

Is the Stock Market Cheap? Doug Short, Advisor Perspectives August 5, 2014

The CAPE Ratio and a Range of Historical Outcomes Ben Carlson A Wealth of Common Sense, April 29, 2014

That’s your homework reading for the weekend

Economic Indicators Dashboard

Posted: 22 Aug 2014 08:30 AM PDT

Source: Russell Investments

10 Friday AM Reads

Posted: 22 Aug 2014 06:15 AM PDT

Is this week over already? How'd that happen? Don’t worry, our amuse-bouche of morning reads will ease you into the weekend: (continues here):

• Investors Pour Into Vanguard, Eschewing Stock Pickers (WSJ) see also Just 35% of funds with 10-year track records beat the S&P 500 index on a 10-year annualized basis (AAII)
• Hedge Funds and the problem of structure (FT Alphaville)
• Hawks Crying Wolf: Ignore those who have been warning about soaring inflation nonstop for six years (NYT) see also Interest-Rate Fears Trample Gold (WSJ)
• The dark side of technical analysis (Adam Grimes)

Continues here

Who’s Afraid of Shiller’s CAPE?

Posted: 22 Aug 2014 04:45 AM PDT

Pebble Beach Concours d’Elegance Best of Show: Ferrari 375 MM Scaglietti

Posted: 22 Aug 2014 03:00 AM PDT

For the first time in recent history, a post-War car has won the coveted 'Best of Show' at the Pebble Beach Concours d'Elegance. It was also the first time in the 64-year history of the event that a Ferrari was named 'Best In Show.'

The winning Ferrari 375 MM Scaglietti belongs to collector former Microsoft President (and current board member) Jon Shirley. He has previously won at Pebble Beach with ahis Alfa Romeo 8C 2900 Touring Coupé in 2008.

The 375 MM is one of only five of its kind still on the road, despite having been raced in competitions. The original Spyder built by Pininfarina was in a severe accident. Carrozzeria Scaglietti constructed the form seen below some years ago on the original frame.

Spectacular automobile: