It must be nearly bonus time and the S&P 500 cyclically adjusted PE (PE10 or CAPE) – November 2010 Update

If you’re a bank, particularly a bailed out tax payer owned bank, who’s about to pay out £7 billion or so in bonuses (which is the equivalent of £113 for every man, woman and child in the UK), while everyone else in the country is going through austerity and slowly being made redundant, then you have a seriously hard sell on your hands if you don’t want to be lynched. Before announcing the bonuses you need to get your PR machine into gear and show the general public that you’re not immoral or greedy but instead a warm and loveable organisation who cares about the general public and wants to help society as a whole.

No nonsense FTSE 100 cyclically adjusted PE ratio update – October 2010

No ramblings from me today. It’s just a simple update of the FTSE 100 cyclically adjusted PE (CAPE or PE10).

The first chart shows that with the nominal FTSE 100 price moving from 5371 to 5592.9, an increase of 4.1%, over the month the PE10 ratio has also risen from 13.5 to 14.1. This is still well below the FTSE 100 PE10 20 Percentile of 17.0 while the 80 Percentile is 23.7. The long run average is now 19.9 for the dataset shown in the chart. The correlation between the PE10 and the Real (inflation adjusted by the CPI) FTSE Price is a strong 0.70.

The challenges of value investing

Unlike some people out there I am not a value investor in the true sense of the word. That is I don’t go looking for individual stocks which through the use of valuation metrics appear under priced. I would more class myself as a pseudo value investor. My strategy is to be either under weight or over weight equities depending on whether the market appears over or under valued using the cyclically adjusted PE ratio (CAPE or PE10). I now track this for 3 markets:
- The UK FTSE 100 CAPE
- The US S&P 500 CAPE
- The Australian ASX 200 CAPE

Bank of England really does want to punish savers – NS&I Index Linked Savings Certificates Mature

So Charlie Bean, Bank of England Deputy Governor, has now confirmed what I suspected all along. They definitely wanted to cut the incentive to save when they decided to bail out the reckless with their 0.5% rates, which they then thought would give all those savers an incentive to go out and spend those savings. What sort of crack pot notion is that? Hey everyone you’re now going to earn no return on your money so why not just go out and spend it all! Well I for one am not taking that advice. I can think of many reasons but how is this for a few:

- I never know when I might lose my job and so might have to survive for many months before finding a new one.
- I never know if I might become ill and so need some savings to tide me over.
- One of my family or friends could need my help due to either of the above.
- I don’t believe a state pension will exist by the time I am at the end of my life and even if one does it would be about sufficient to allow me to buy baked beans and toilet paper only. I therefore fully intend to support myself when I no longer want to work so I am not forced to live in poverty.
- I don't want to work until I'm dead.
- Someday soon I might want to “retire” to take up a new career that I might enjoy more with less stress, learn something new, undertake some charity work or if I choose just sit on a beach drinking margarita’s.

How long until a house can be bought for 100 ounces of gold?

For a long time I’ve been saying that houses are overpriced. This keeps my family in rented accommodation as I refuse to buy at these prices. Instead I now watch what looks to be the early beginnings of an unravelling housing market from the sidelines. My last UK house price update was here.  Additionally, as I mentioned yesterday while gold is reaching new highs in nominal terms when prices in US Dollars it is not at new highs when priced in British Pounds although admittedly it is close. However, it is nowhere near new highs when priced in real (inflation adjusted) terms and so in my humble opinion still has plenty of upside potential if history is anything to go by.