Friday File, Part Two: Grant’s Conference Notes

Thoughts on the big picture, plus inflation, bitcoin, life insurers, closed-end funds, gold and more from the Spring Grant's Conference

By Travis Johnson, Stock Gumshoe, April 13, 2018

I watched the Grant’s Interest Rate Observer Conference this week via webcast, and it continues to be one of my favorite events — though I’d rather be there in person. These are some of my notes about the presentations I found most interesting… no “quick take” here, sorry, these are mostly notes and my responses.

My favorite “big picture” presentation was from David Rosenberg — and he was widely quoted on Twitter for one of his statements, which was that “the statistic that keeps me up at night is ’13 million’ — that’s the number of people who have been hired in the financial services industry since 2009, and they have never seen a contraction or a bear market.”

As with most of the quotes and notes below, this is paraphrased — sometimes my fingers don’t move quickly enough to get the exact words correct, but I’m certain that I got the meaning. I’ve blocked out the note areas to distinguish them from my own thoughts — the specific ideas that I call to mind following the blocked-out sections are my reactions and responses to the speakers, not necessarily recommendations by those speakers.

Rosenberg was quite cautions because everything went up together last year, even bonds delivered an equity-like return of 7.5%, with ultra-low volatility… and you get pretty quickly used to things like that, so people came into this year thinking this was a permanent condition.

The market hit the average S&P 500 year-end target four weeks into 2018. When the target was met, the analysts didn’t change their earnings forecast… they changed their multiple forecast, and boosted the target by more than 10%. Meaning not that they thought businesses would do better, but that they thought investors would be more optimistic.

He mentioned the CAPE, the Cyclically Adjusted PE ratio, which has been higher only twice in history — 1929 and 2001.

And is it a “hated bull market?” Not really, he thinks, because no one sold.

He shared a quote from the San Francisco Fed, which he thinks is reputable:

“We find the current price to earnings ratio predicts approximately zero growth in real equity prices over the next ten years.”

And that’s a scary way of expressing the notion that we should all have in our heads right now — things tend to revert to the mean, we go back to the average over ...

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