The FTSE 100 cyclically adjusted PE ratio (FTSE 100 CAPE or PE10) – June 2011

While we all sit back and watch the train wreck that is Greece prepare to default (or whatever posh name they will come up with in due course) the UK goes on happily borrowing money at the rate of £17.4 billion for the month.  That’s £17,400,000,000 in a month.  What’s concerning me is that servicing our debt now takes 8.5% of government spending.  That’s more than the complete tax take from corporation tax (page 6 here).  All I can say is that the future generations will not be pleased.  I’m just a simple Average Joe but it really just doesn’t seem right asking children who are not yet born to pay for our lifestyle today.    

As this all unfolds we’ve seen stock markets around the world decrease in price in recent times.  I actually have no idea what moves prices (that’s why I don’t trade) but I can’t help feel that Greece is having a good impact but also we shouldn’t forget good news like this from China.

Is the Australian stock market cheap? - ASX 200 cyclically adjusted PE ratio (ASX 200 CAPE or ASX200 PE10) – June 2011 Update

As shown in my first chart the ASX200 cyclically adjusted PE (ASX200 PE10 or CAPE) has been steadily declining since February.  Today with the ASX200 closing at a price of 4567 the PE10 is 15.8 compared to the long run average since 1993 of 22.4.  A quick look at these two values would suggest that the ASX200 is undervalued however I’m not so sure.  The problem for me is that the data set that I have is a short period of time.  Comparing the ASX200 to the S&P500 where I have S&P500 PE10 data going back to 1881 allows for a very crude extrapolation though.  The long run average S&P500 PE10 is 16.4 however the average PE10 for the same period as my ASX200 dataset is 26.9.  Extrapolating this to a long run average ASX200 PE10 reveals (22.4/26.9)x16.4=13.7 which would imply that the ASX200 is in fact not undervalued but overvalued to the tune of about 15%.  To put this value in to perspective the PE10 low during the Global Financial Crisis (GFC) was 13.8 in February of 2009. 

The Importance of Reinvesting Dividends

The S&P500 is today yielding somewhere around 1.8% per annum.  This doesn’t sound like a lot and indeed it isn’t if the investment amount is small. To demonstrate this let’s say an Average Joe had an index tracking (to keep fund fees down) S&P 500 fund/ETF with £1,000 in it today.  Having bought a year ago he would have accrued somewhere around £18 (ignoring fees and taxes) in dividends by now.  If he didn’t know any better he could assume that amount will make no difference to his Retirement Investing Today portfolio and instead ‘blow’ it on a few beers.  What I’m going to show today with some charts is just how much damage that would do to his portfolio in the longer term.

Gold Priced in British Pounds (GBP) – June 2011 Update

It’s all very well for me to review the price of gold in USD’s however at the end of the day for a UK investor who will be living in the UK for the foreseeable future it is the price in GBP’s that is really important.  So today let’s review gold when priced in GBP’s.

I have my Index inked Savings Certificates. Do you? – UK savings interest rates – June 2011 Update

It has been a little bit of a faff and my recent adventure didn’t help but as with Salis Grano and Ermine I now have in my possession Issue 48 NS&I Index Linked Savings Certificates which offer index-linking to RPI plus 0.5% pa compound if held for 5 years.  Unfortunately I wasn’t able to buy them on the day they were re-issued for 2 reasons:

-          Following my overseas adventure I had to update my address details with NS&I.  This is quite a clunky process and takes a few days as it can’t be done via internet or telephone.  Instead I had to send off a signed letter requesting my details be changed which took a few days for them to process.

-          I had to transfer the funds from my online savings account into my current account which takes the usual 3 days.  I still can’t believe that in 2011 it takes 3 days to move money electronically.  In fact, yes I can, because we all know that this limbo period is where the banks hold on to your money and not pay you interest on it.  A nice little earner I’m sure.  What was also interesting was that my online savings account provider very quickly sent me a survey saying that I had recently moved a large sum of money from my account and they would like to understand why.  I’m amazed that they have gone to the trouble of paying somebody to set up a survey.  Surely the answer is always going to be because “I want to buy something” or “your rates are uncompetitive”.  Funnily enough they didn’t have an option that said “moving money from poor insulting interest rate to NS&I”.

When will the haircut and pain occur – Aus, UK, US and the PIGS government 10 year bond yields – June 2011 update

It’s been many months since I looked at the 10 year bond yields of Australia, the UK, the US and the PIGS.  These can be seen in today’s charts.  When I last posted in August of 2010 Greek 10 year debt was yielding 10.31%, as of the end of May 2011 that is now 16.29%.  Mish’s post yesterday raised some great points and gave plenty of food for thought prompting this post.

Is Gold in a Bubble? - Gold Priced in US Dollars (USD) – May 2011 Update

I currently hold 5% of my Retirement Investing Today portfolio in gold.  This is in the form of physical ETC’s “which are intended to provide investors with a return equivalent to movements in the gold spot price less fees” available from the likes of ETF Securities.  This is the commodities portion of my portfolio.  I hold no other commodity types as the vast majority seem to be futures based and previous experience has taught me that issues like contango can really affect the available returns for the Average Joe.

Irrational Exuberance and LinkedIn – History of Severe Real S&P 500 Stock Bear Markets – May 2011 Update

I couldn’t believe my eyes yesterday when LinkedIn (LNKD) had its flotation on the stock market.  All that I could think of during the day was irrational exuberance, the market can remain irrational longer than you can remain solvent and how quickly people forget.  For those that missed it LinkedIn floated at $45 per share which valued the company at $4.25B.  With earnings last year of $15.4M I calculate that as a Price Earnings (PE) ratio of 276.  That was shocking enough when you think that the long run cyclically adjusted PE (CAPE or PE10) for the S&P500 is 16.4.  However what I couldn’t believe was that during the days trading somebody or something (High Frequency Trading?) paid $122.70 a share for a PE ratio of 752 which is 46X the S&P500 PE10 long run average.  To me as an Average Joe this sounds like the dotcom days all over again.  The amazing thing is that it looks like plenty of others have already forgotten about the dotcom boom and its after affects in around 11 years and what’s even more amazing is that as I show today in Real (inflation adjusted terms) the market is still some 31.4% below the S&P500 real high of August 2000.  So we haven’t even recovered from the last lot of irrational exuberance.

“...it is likely that had they not occurred, inflation would have been substantially lower...” – UK Inflation - May 2011 Update

So we now have the UK CPI at 4.5% and the RPI at 5.2%.  I haven’t blogged about the UK Inflation situation since my post back in August of 2010.  Why?  Well as I wrote back then I had accepted that the Bank of England was going to steal from me and all the other savers out there by inflating away the value of my savings.  Also, while ever Mervyn and his mates (I think I’ll just call them the M&M’s from here in) keep interest rates at record lows of 0.5% this is going to continue so I really have nothing more I can add.  All I could do was protect myself as best as possible by ensuring I had my target allocation of 5% in gold and also that I held onto my NS&I Index Linked Savings Certificates (reinvesting as they came up for renewal) while I waited out the current theft that is occurring.

The S&P 500 cyclically adjusted PE (S&P500 PE10 or S&P500 CAPE) – May 2011 Update

Today I update the last May 2011 period cyclically adjusted PE ratio that I track – the S&P500 CAPE.   As I say every time I post on this index I am using this ratio to try and squeeze some extra performance out of my portfolio.  This method is used by Professor Robert Shiller however I modify it slightly by incorporating forecast earnings up to the month of interest. For new readers some background information on the CAPE is available here and if you’d like some information on why I use the CAPE then that is available here.

The ASX 200 cyclically adjusted PE ratio (ASX 200 CAPE or ASX200 PE10) – May 2011 Update

Since simultaneously getting back into the blogging world and sorting my Retirement Investing Today strategy I have already looked at the valuation of the UK Equities market (proxy FTSE100 CAPE) where I personally hold 16.8% of my net worth.  Today it’s time to value the Australian Equities market (proxy ASX200 CAPE) where I currently hold 18.9% of my net worth.

NS&I Index Linked Savings Certificates Are Back

It’s been 297 days since NS&I Index Linked Savings Certificates were withdrawn from the market and I’m happy to say that today I received an email saying there back.

The FTSE 100 cyclically adjusted PE ratio (FTSE 100 CAPE or PE10) – May 2011

Now that I’m back in the blogging world I’ve been catching up on all the great posts that I’ve missed over the past few months from My Blog List (full list in the right hand sidebar of the page).  Great UK based blogs such as Monevator, A Grain of Salt, Simple Living in Suffolk and UK Value Investor.  This post from ermine at Simple Living has however made me think about my cyclically adjusted PE (PE10 or CAPE) strategy and whether it is the right thing to be doing.  I am a big believer in the Keep It Simple Stupid (KISS) principle and if somebody like ermine can’t understand what I’m up to then have I made it all too complicated?

My Retirement Investing Today Strategy Works – And I’m Still Yet to Retire

I must first apologise to all the regular readers of Retirement Investing Today for the big gap in posts.  My life has been somewhat turned upside down over the past few months meaning I’ve had to focus my attentions elsewhere for a period.  What the past few months has taught me however is that my Retirement Investing Today strategy has worked even with me being still some 5 years or so from retirement.  How so I hear you ask.