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Jesse Felder

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45
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2016-10-29
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2016-10-29
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  1. “The FelderReport.com, I try and write one or two blog posts a week and just write about stuff that I'm thinking about scratching my own itch in the markets. And so yeah, that's kind of where you can find my stuff.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  2. “And I would just also make one other point is that, you know, Buffett's teacher, Ben Graham, would say, I'm never willing to pay anything for that goodwill, that I want to actually buy a company for half of the value of its tangible net assets. And so, yeah, it's a very interesting discussion.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  3. “Allocating the shareholders' capital. Now there are companies like Berkshire Hathaway who paid nothing for C's Candies, and they still have a little bit of goodwill probably on the balance sheet for C's, but C's is worth incredibly so much more money than they paid for it. Obviously, Buffett is maybe the best capital allocator on the planet. But that's what I would look at Goodwill Force, to evaluate, is this management team good at allocating capital in terms of acquisitions? Were they doing a bad job and overpaying for companies when you see companies that have a long-term streak of making acquisitions and then writing down goodwill? That's a real big opportunity for some financial shenanigans in the statements and for them to hide some things and whatnot valiant pharmaceuticals might be a good example of that. So that's my take on Goodwill.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  4. “This is a great question. And goodwill on the balance sheet, which is what I believe you're referring to, it mainly comes from when a company makes an acquisition and they buy a company and they pay a price above the net asset value of that company's net assets. So they pay with $100 million of assets. They pay $200 million. That $100 million of assets will go on the acquirer's balance sheet and then $100 million will go into goodwill on their balance sheet. To me, I don't use those goodwill numbers for anything when I'm looking at an individual company. It's interesting to look at those from the standpoint of are the managers of this company good capital allocators? Have they made good acquisitions in the past or not? If they're regularly having to write down that goodwill, then maybe they've made some bad acquisitions in the past and that's something to pay attention to, that they're not doing a great job.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  5. “And I blogged something about it a few months ago. If you go to the FederalReport.com, you'll see it. There's a reference, a piece written by a guy who's a volatility specialist. It's like a 70, 80-page piece. So if people are interested in this, they can really delve into it.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  6. “Whole financial stability. So, when I talk about the Minsky moment, so these investors are at the point where they've gone so highly levered because they've been encouraged by a rising market for seven years now that's just gone. We've had 10% correction or something in however long, and they feel like the Fed has my back market's never going down. I can take incredible risks that I would never dream of taking in another environment. And when those risks unwind, it creates a very difficult situation. So I just think risk is extremely high.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  7. “And he thinks Absolutely. I mean, if you think about it, it's almost, I should clarify too, all these volatility target strategies. I'm lumping them all together. They all have different strategies. They don't necessarily sell right when volatility comes up. Maybe they give it a week to see what happens and then they start selling. But essentially you have this huge short position against volatility, which is essentially a massive, massive levered long position. It's like you talk about the margin debt is a huge levered long position in the stock market. Well, that wasn't enough. That levered long position is enough. We're going to short volatility, which is leverage upon leverage. And this is why Warren Buffett calls derivatives weapons of mass financial destruction. And I think these volatility ETFs are going to be outlawed at some point because they allow these market practitioners to create a structure within the market that's very dangerous to the whole.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  8. “Saw in 1987. We're selling, we get selling, we get selling. So you have this volatility short, but then you also have $3 trillion in volatility targeting funds. This is a lot of insurance companies. We're talking about the insurance companies. If you want a variable annuity, the way they protect your downside in the annuity is they sell stocks when volatility rises. If you have this volatility short, which could be exacerbated sell-off, and then you have $3 trillion in volatility targeting funds. So volatility starts rising. Now, these guys start selling in addition to the volatility market makers, you know, you could have a situation very similar to like data. I'm not calling for a crash. Let me clarify that. Very, very low probability event. I'm just saying that the structure of the markets right now is very similar to portfolio insurance in 1987. We're selling, we get, selling, we get selling.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  9. “go higher for volatility to say low. So somebody on the other side of that trade has to buy volatility. In order to buy volatility, the market maker then offsets his risk by buying stocks. Since February, right? We see this pretty steady uptrend in the stock market. And I think a lot of that is due to this volatility selling, forcing market makers to go out and buy stocks. What happens when volatility goes up in this massive futures market and volatility ETFs? These guys have to cover some of this volatility short. They have to go buy volatility from the market maker who has to short volatility and he has to sell stocks in order to put on that trade. Volatility goes up higher because you have selling in the stock market, which creates more volatility in these guys have to buy in their volatility to cover their short. And it's a vicious cycle to me. very, very similar to portfolio insurance.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  10. “That's going on in terms of risk taking, you know, we're seeing that in junk bonds, right? So people have gotten to the point that this expansion is so long, Fed's never going to raise rates. I can go buy junk bonds because we're never going to see another down cycle in credit again. So buy junk bonds for 5%. What's going on in the volatility markets is investment managers are not just reaching for yield and junk and real estate, these things. They're selling volatility futures to try and generate premium income. And in the past, these volatility products are really only about 10 years old. We've never really seen them go through a market cycle. And shorting volatility is a very frightening trade for me, I think. First, I should probably explain what happens when you short sell volatility. Okay, while I short volatility, that means I'm betting on the market, basically going higher. Market needs to”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  11. “Reason, Titans for those guys, and they can't borrow money to even pay interest on their debt, they're forced to sell assets. And so you get a piling on of selling assets. And this ties into margin debt. And basically, Minsky's point was that over the course of an expansion, and the longer an expansion goes, the more this is true, people take on greater and greater risks such that basically the bubble or the expansion sows the seeds of its own bust. And so, you know, during the financial crisis, we saw that where, you know, the banks took on amazing risks in the mortgage market. And when they started to have to unwind those risks, everybody was selling at the same time and everybody essentially became insolvent at the same time. The firm that I worked for, you know, Bear Stearns was one of those. became a casualty of the financial crisis. So one of the”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  12. “Yeah, absolutely. Actually, he really created his theory in terms of the debt cycle. So, you know, it fits right in with what we're talking about now. So Hyman Minsky wasn't actually, nobody knew his name until the financial crisis because he wrote this theory and everybody thought he was crazy and nobody paid any attention to it. But his theory is basically there's three stages of the credit cycle. There's the initial stage where companies borrow money, you know, an amount of money that they can easily pay the interest and the principal back during the course of the loan. The next stage of the credit cycle is they borrow an amount of money that they can pay the interest on, but they can't pay principal back. They're going to have to basically refinance that debt when it matures. The last stage of the credit cycle is when companies borrow an amount of money that they can't even pay the interest on, that they have to borrow more money to pay the interest. And Minsky called that Ponzi finance. And when credit for some”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  13. “Pension funds. And, you know, I mean, yeah, absolutely. There's so many corollary effects that it's hard to argue that the ends justify the means at this point. And I absolutely do think they understand that they have encouraged a massive amount of debt creation during this cycle. It's been all spent on buybacks and mergers and stuff. And if they do raise interest rates, that credit cycle is going to unwind and it's going to be painful.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  14. “That's a good question. If she hikes rates, you know, that sends the dollar higher. I think that's what they want, right? They want the yen and the euro to drop in value. So, you know, it'd be good for them. The problem is, you know, China is still trying to peg their currency to the dollar to some extent. And with all of the dollar debts in the corporate sector and China, it could cause major problems there. So yes, you're absolutely right. We are a global economy now more than ever. And so what central bank does and look at this all ties in together? The Japanese central bank taking rates negative, I think a lot of the buying we're seeing in junk bonds and stuff here is from Japanese investors said, wait a second, I can get a negative yield here. I can get 5% in American junk bonds and hedge my currency risk.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  15. “thinking into policy. And so financial stability needs to come back as the number one mandate. That's why the Fed was created in the first place to maintain financial stability, not to try and boost employment, not to try and rein in inflation. It was to prevent bank runs and assist in the event of a bank run. And ironically, they were created to help support financial stability. And all they've done over the last 20 years is make the markets and the economy more instable. And so, yeah, if I were a Fed chairman for a day, that would be my thing. I would say forget the dual mandate, financial stability is of paramount importance, and that's what we're going to pursue.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  16. “I mean, that's kind of silly. All I do is exacerbate the credit cycle when I move interest rates up and down. So I don't have the tools to do that. And the third mandate, which nobody ever talks about, financial stability. That's the one that gets forgotten. And all of these policies that we've seen over the last 20 years, especially lately to create a wealth effect, go entirely against the Fed's mandate to pursue financial stability. And so I think we need a Fed chairman who says this is why Alan Greenspan gave his irrational exuberant speech 20 years ago. I wrote about this today, is he was worried that if we don't rein in an asset bubble, it's going to have major painful economic consequences going forward. And he was worried about that in December of 1996. 20 years later, the Fed has not incorporated any of that.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  17. “Well, that is a great question, right? And that is the question that should be put to every critic of the Fed or any central bank. It's okay. What would you do differently? And I have a lot of empathy for them right now because they're not in a very good position. You raise interest rates and we have the most overleveraged corporate sector in our country's history. You're going to start a default cycle and potentially a very painful one if you raise interest rates. Now if you don't raise interest rates, then the pension crisis is going to just get worse and worse. But I think if I were fed chairman for a day, I would immediately go to Congress and say the dual mandate is impossible. I cannot possibly control inflation and employment. I don't have the tools. I mean, I do have the tools to try and keep inflation in check. I don't have the tools to increase employment.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  18. “So, you create this wealth effect and it's not inspiring people to spend anymore. Markets are telling you it's not working anymore, but they're like a novice trader where they have this position that's going against them, but they're not going to take it off. They're going to ride it into the ground. And I wish I could have more hope than that. But that's really what I think they're kind of doing right now.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  19. “Absolutely right. I mean, look at any novice trader. What's the most common mistake they make is not cutting their losses. It's putting a trade on, and because they have an idea or an investment, whatever it is, a novice investor. And the market's telling them you're wrong, you're wrong, you're wrong. And they sell their winners to keep their losers, right? That's like the basic first most common mistake. And I think of these central bankers who are all academics and don't have any real world experience in running businesses or in the financial markets as like a novice trader, right? The markets are telling them this isn't working anymore. This is not stimulating the economy. Jason Cummins showed a great chart recently. He was a former Fed economist speaking to Fed heads at this recent conference and saying, look, in the past, when asset prices went up, it increased spending. He goes, this cycle, it's not happening.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  20. “You'd go, that's insane. I'm never going to pay that much for a car. But that's what people are doing in the financial markets. I'll buy it regardless of the price. And it's interesting to watch.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  21. “They're one of the price insensitive buyers. You have a number of these buyers. Insurance companies, you wonder who's buying these negative yielding bonds. Well, they're insurance companies and pension funds that have to hold a certain amount of their money in this asset class regardless of the price. So you have central banks, you have indexive investors, then you have insurance companies that are buying that literally have made the decision we buy regardless of price. And I think we've probably never seen that before in the history of finance, where we have a huge segment of the market of people that have just decided to buy no matter what, even if they're locking in negative returns.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  22. “Well, you know, so there's a variety of different things going on. One of the main themes that I've been looking at is the price insensitive buyers. So there are people that have decided, and this is part of the whole indexing movement, that I'm going to buy this asset class regardless of the price, right? I'm not even going to look at what my potential return is. I don't even look at the yield. I'm going to buy stocks no matter what the price is. I'm going to buy bonds no matter what the price is. I'm going to buy junk bonds no matter what the price is.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  23. “Are horrendous, and defaults are rising. So to me, I look at that and I go, and you buy junk bonds today, you're locking in a negative rate of return for any time period. You know, you're looking at. And it's fascinating. And it's just the sign of the incredible, you know, I can't remember who coined this phrase, but the zeal for yield right now. People are so desperate for any yield. They'll buy junk bond at a 5% yield when they don't realize that you need a little bit more than a 3% spread over treasuries to make money in junk bonds.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  24. “Yeah, well, you know, I have to say that my blog post was based on the work of Marty Fridson, who really is the man when it comes to corporate bonds and junk bonds in particular. And the only time in the history of his record-keeping, which is 20 plus years when junk bonds have ever been as highly valued as they are today is literally just prior to the financial crisis. And I just think, you know, junk bonds are fascinating because you buy a junk ETF and it has, what, like a 5% yield right now on the ETF, we're already passing, or we will very soon, 5% default rate in junk bonds. And the recovery on the bonds is the worst we've ever seen in history. We're not even seeing the down part of the credit cycle yet, but recoveries on junk bonds are like 20%, 20%. And so the recovery is...”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  25. “No, I agree with you. I think what's really interesting to me about this discussion is that a lot of people think, you know, okay, yes, if we have a deleveraging, that's deflationary. And typically it almost always has been deflationary. And that's bad for gold and those types of assets. There have been times in the past, though, where you have a deleveraging and interest rates are going up and inflation is going up. And that's very, very bullish for gold. And so I don't know where inflation is going. I have said that in the last six months, I think interest rates are in a bottoming process. And we're seeing signs of inflation starting to pick up. So if you get an inflationary rise in interest rates, that creates a credit crunch, but inflation is taking off at the same time. That's the one instance where it maybe is not a deflationary credit contraction. There's something else going on. So I don't know how that's all going to play out.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  26. “Assets are cheaper than they have ever been in history compared to financial assets. Now, part of that is because financial assets are very highly priced. Part of that is because commodities have just gotten crushed in recent years. And I think the most compelling case within real assets is gold because when I look around the world and go, in terms of currencies, do I want to own yuan? Do I want to own yen? Do I want to own euros? Do I want to own dollars? Or do I want to own gold? Which currency, I mean, I think of gold as a currency. I would rather own gold than any of those currencies that are potentially being manipulated and devalued, you know, consciously devalued.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  27. “That's a great question. I think Meb Faber has done some interesting work on this just generally when you add real assets to, I mean, talk about studying billionaires. He's done some great work studying some of the best asset allocators on the planet. And that's the one thing they all have in common is they don't just run a 60-40 portfolio or anything close to that. They own stocks, they own bonds, and they own a big chunk of real assets. And so we talk about real assets. People say, what are you talking about? We're talking about real estate. We're talking about commodities sometimes you can separate gold out of commodities and then things like treasury inflation protected securities so things that you know do well in an inflationary environment so i think there's a place for real assets in every diversified portfolio just to begin with but especially today when you look at real assets the valuation of real assets compared to financial assets”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  28. “At the same time, I think real assets are a very interesting idea in an era when we've seen money printing like we've never seen before in world history. So, you know, when countries are trying to devalue their currencies and inflate their way out of these massive debt creations that have happened, where do you put your money? Like Ray Dalio says, if you don't own gold, you don't understand history or you don't understand economics. And there's been times in history where gold is the only thing that can save a diversified portfolio of different asset classes. So I think there's a place for it all the time, but it's especially compelling today.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  29. “That's really what we're talking about is what matters to us. Yeah, I think that the idea of a massive dollar short out there is a very interesting idea that there's some smart people talking about that. There have been a lot of Chinese companies that have borrowed in dollar terms. And banks, Japanese banks and et cetera that have lent a lot of money in dollar terms. So there's this whole kind of shadow currency and lending market that's not stuff that the Fed really has control over, but it's really kind of part of the euro dollar banking system. I think that's some fascinating stuff to think about. I do think there is a massive dollar short out there. People who've borrowed a lot of money in dollars and may be forced to pay it back in certain circumstances. I think the gold thesis is valid regardless of what the dollar does. I think gold and the dollar can both go up.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  30. “All these smart money guys, Mohammed Al-Arian, came out today and said, I have the biggest casp in my personal money. Jeff Gunlak a couple months ago. In terms of their personal money, they have more of it in cash than they've ever had in their career”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  31. “My career, certainly, but even long before that, where cash has been more hated than it is today. People are willing to put their money into negative yielding bonds rather than keep it in cash and not just negative yielding bonds. Many, many asset classes, you put money into today, you're locking in a negative return going forward. And people would rather do that than own cash. And today, in terms of the optionality of cash, it's never cost you less to keep your money in cash, you know, because the alternatives are nothing. So when Buffett talks about the optionality of cash, he's talking about, you know, if I have cash, that's basically a call option on any asset class. So if bonds sell off and give me an opportunity, buy bonds at a better price, you know, cash allows me to take advantage of that opportunity. Or real estate, stocks, whatever it might be, cash is giving me that.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  32. “You know, one of the questions I like to ask myself on a regular Because that's where there's great opportunity. This time last year it was gold. You know, it's hard to imagine gold getting more hated than it was this time last year. And I'm no gold bug. I've almost never owned gold stocks in my career until this time last year. And that was just because they're so hated. I think cash is, you know, it's interesting today. There was a good interview with Howard Marks on Bloomberg recently talking about this and him saying, you know, investors are talking like they're concerned about the markets of things, but they're all acting bullish. Nobody's willing to raise cash. And even the moderator asked them and said, well, are you raising cash? He said, no, I can't. People are paying me to manage their money. So even if I think that we should raise cash, they're paying me to invest it. So, you know, I don't think there's ever been a time.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  33. “Yeah, and I just want to point it out because a lot of people try and say margin debt is useless and it's correlated with Sagmar, but there's no causation there. I think to me it shows potential supply and demand in the markets, right? When there's a bunch of buying power on the sidelines, that's a bunch of potential demand to come into the stocks and push prices higher. When people are fully leveraged, there's very little potential demand to push prices higher. And a lot of potential supply that could come in if they're forced to pay off those loans. So to me, it's a clear measure of potential supply and demand in the stock market.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  34. “So when margin debts really, really high the next two and a half years in stocks has usually been pretty bad when there's been a lot of cash on the sidelines measured by this number. The next two and a half years in stocks have been really, really good. So there is some utility to that for sure.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  35. “And New York Stock Exchange margin debt. Yeah, that's a really interesting measure. Because it does just show, I think it's sort of hilarious to see people talking about this week or maybe the last couple weeks, all the cash on the sidelines when you actually look at, okay, some investment managers are saying that they have higher cash levels, but actually when you look at the numbers, you look at individual investors. We can see through the Fed that they have no money at money market funds right now. They have no cash on sidelines. You look at the margin debt and it's huge debit balances. There are no credit balances. And it's much, much bigger than it's ever been. So one of the things I do with margin debt is I like to just like, you know, Buffett does with stocks to the GDP. You can look at margin debt to GDP. And it's interesting to see financial leverage, you know, leveraged speculation as a percentage of the economy. That measure has a pretty high 30 month correlation to future stock market returns.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  36. “Absolutely. And I would recommend people just pull up a chart of what TLT long bond ETF did during the financial crisis. That's how bonds typically perform during a risk-off phase. And a lot of people, instead of buying bonds, are reaching for yield in real estate investment trusts. So just pull up something like VNQ, the Vanguard Real Estate Investment Trust, ETF, and see what that did during the financial crisis. And you can see the difference between how bonds performed and real estate investment. Real estate investment trust went down something like 70% in just a few months time during the financial crisis. Bonds went up 50. So, you know, these people started looking for bond alternatives. These are not bonds.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  37. “I mean, it essentially lines up right with where we were in November 1999 So there were four more months of the dot-com bubble that we saw higher valuations in the history of our stock market The rest of the time valuation has been lower than they are today.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  38. “And when you look at that, it tells you stocks are expensive or cheap. And the reason that's valuable is when you actually flip that upside down, it basically shows you, it correlates like 90% with forward 10-year returns on the stock market. So when that measure has been really low, you get 10, 12, 15% forward 10-year returns. And stocks, awesome. When that measure is really high, like it was in late 90s, 2000, you get close to 0% or even a less negative rate of return over 10 years. Right now, that measure shows zero to 1% over the next 10 years. That's what you should compare to 2% risk free or 0% from stocks.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  39. “I think what you're trying to get at is okay, we have the risk free rate at 2%. Yeah. Obviously a dividend yield is not risk-free. So we need to demand a greater rate of return from stocks. Dividend yield is not the best predictor of total return from stocks going forward. Best predictor that I've found for long-term returns from stocks is the Warren Buffett yardstick, the total value of the stock market to the total value of the economy.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  40. “There's actually been some interesting discussion about this. The mistake that people make when they argue that low interest rates should justify higher equity valuations essentially comes back to a discounted cash flow model. And they say, okay, we're going to lower the discount rate, lower the risk-free rate of return. And so that means these asset valuations should be higher. The problem is a discounted cash flow model also assumes a growth rate for earnings. And when you lower the risk-free rate, your discount rate, but don't lower the growth rate, you know, that's either disingenuous or it's totally naive because when you look at the history of earnings, they're right in line with interest rates and inflation. Basically earnings grow at the same rate of inflation. So if you want to lower your discount rate to 2% and then keep an earnings growth rate of 3%, 4%.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  41. “You know, that's a really good question. I've been expecting a bear market for two years. I don't know if I told your audience my story about growing my beard last time I was on the podcast, but that was mid-September of 2014. I said, Forget it. I'm not shaving again until we get a 10% correction. And then the market over the next two weeks went down 9.8%. And didn't quite hit my hurdles. So then it took me 11 months to grow on my beard out. Before we finally got the 10% correction, but really what I'm looking for is a reset of overvalued asset prices. And the catalyst for that really is totally unpredictable. It could be the Italian referendum and problems in Italy. It could be Deutsche Bank issue. It could be any variety of things.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  42. “Yeah, you know, I think that's another example that people freaked out after the Brexit vote, and that's another really slow-moving dynamic where I believe the European Union is on borrowed time. And it's an experiment that will eventually unravel, but it's going to take a lot of time. There's some referendums, and most notably in Italy coming up, that'll be interesting to see how that happens. But they're not going to let the thing kind of unravel without a fight.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  43. “Signs of an earnings rebound out there. And I think that's what the Bulls really need to have happen to get another leg higher in the stock market is they need some fundamental strength to start kicking in. If it doesn't, this quarter and the third quarter reports and what's going on in the fourth quarter, the markets have kind of priced in an earnings rebound already. If it doesn't happen, it's going to be problematic, I think.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  44. “Gosh, that's a great question. You know, it just seems like the US economy and stock market is like it doesn't change on a dime. And I guess we all kind of, you know, especially those of us who watch the markets on a daily basis, kind of expecting something to happen, you know, all the time. And it just doesn't work that way. You know, I try and talk to my wife about the market sometimes. And when she'll actually listen to me, I try and explain that we're like a huge ocean liner. And whatever the market's doing, a lot of it has to do with momentum. and what's gone on over the previous months. And so it just doesn't change on a diamond as much as we'd like to, you know, have things happen on a daily basis, weekly basis. It just doesn't work that way. So not much has happened on the surface of the stock market and not much has happened underneath as well. I mean, earnings have continued to just be poor. It doesn't look like from what I've looked at in terms of third quarter earnings so far that there's really much in terms of”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT

  45. “What an awesome introduction! Wow, I'm honored to be back. I had a great time with you guys last time, so thanks for having me back on.”

    2016-10-29 · We Study Billionaires · TIP 110 : Jesse Felder and the Current Market Conditions · IDENTIFIED FROM THE TRANSCRIPT