U.S. stocks are trading at their cheapest levels since at least 1990, according to such commonly used valuations as price-to-earnings and price-to-book ratios as well as dividend yield…but [we ask,] cheaper than what? Different “investments” are valued differently at different times during the artificial central-banking business cycle that we must function under. In this case, we would argue, stocks are more likely reflecting potential chaos to come than a buying opportunity. Sure, there may be rallies during this fiat bear market but they should be considered within the context of the larger trends. [Let us explain further.]

So says an article* posted at www.TheDailyBell.com that I encourage you to read.

*http://www.thedailybell.com/3534/Stocks-Are-Poisonously-Cheap

Related Articles:

1. Yardeni: Lower Unemployment in 2012 = Higher Stock Market in 2012

Initial unemployment claims may be the most important economic indicator for the stock market in 2012. It is one of the three components of our Fundamental Stock Market Indicator (FSMI), which is highly correlated with the S&P 500, [see graph below] so if initial unemployment claims remain under 400,000 and possibly continue to head lower during January, that would support the strong stock market rally that has kicked off the New Year so far. Words: 395

2. Don’t Invest in the Stock Market Without Reading This Article First

History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325

3. What Does 2012, as an Election Year, Mean for Stock Market Returns? Here Are the Facts

Next year is a Presidential election year, and the stock market is almost always positive in election years. Right? At least that assurance has been a supposed truism for many decades, and repeated as fact each year in numerous interviews and financial columns. [Let's explore just how correct those assumptions really are.] Words: 367

4. You’ll Never have a 10-bagger if you Sell a Stock after a 2-bagger! Here’s when to Ride a Winner – or Sell

One of the hardest things for individual investors to do is to know when to sell a stock. Many times, you might sell simply because a stock has gone up and you’ve made some money. More often than not, though, this is not a great reason to sell [because, as mentioned in the title of this article,] you will never – ever – have a 10-bagger if you sell a stock after a 2-bagger. That being said, what things should one consider before selling? Words: 912

5. 10 Timeless Investment Rules to Survive This Stormy Stock Market

Rules may be meant to be broken, but with investing ignoring the rules can break you – especially now. Investment rules are tailor-made for tough times, allowing you to stick to a plan just when you need it most. Indeed, a rulebook is important in any market climate, but it tends to get tossed when stocks are soaring. That’s why sage investors warn people not to confuse a bull market with brains. Here are 10 rules to survive this stormy stock market. Words: 769

[While] I do not prescribe to the 2012 end of the world or end of an era phenomenon, my recent fractal (pattern) analysis of the Dow suggests that it is forming a similar pattern to that which was formed in the late 60s to early 70s and if this pattern continues in a similar manner…the Dow could indeed have an annus horribilis (horrible year) in 2012. Let me explain. Words: 1416

So says Hubert Moolman (www.hubertmoolman.wordpress.com) in edited excerpts from his original article*.

 Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Moolman goes on to say, in part:

Below, is a long-term chart of the Dow:

I have highlighted two fractals on the chart. I have also indicated five points on both fractals to illustrate how they could be similar. Point 1 on both fractals was the exact point at which the Dow gold ratio made a significant peak. This is an important marker, and it gives credibility to the comparison of these two patterns.

It appears that the Dow is currently searching for that point 5. Point 5 could already be in, or it could be a little higher than the recent high (of 12,928). However, from a timing point of view, it is likely that we have reached point 5 already (a retest could still be possible).

If the current fractal continues its similarity to that of the late 60s to early 70s fractal, and if it stays exactly true to the past fractal (fractals do not always stay exactly true), the Dow could drop to 6,000. Since my other analysis suggests that we are at the end of era (an era of the corrupt debt-based monetary system) my worst-case scenario is a possible drop to 1000 (not necessarily in 2012), even though it appears highly unlikely.

The Dow vs. Gold

The Dow’s inflated value, relative to the value of gold, was brought about by this debt-based monetary system. It follows naturally that in the event of the debt-based monetary system collapsing (it will eventually); the Dow:gold ratio could go back to levels prior to the introduction of this system. This level could be anywhere between 0.2 and 1, in my opinion. Therefore, it is possible to have a gold price of $5000, with the Dow at 1000. I do not say that we will have these levels, but it is certainly possible. All I am saying is that we have to be prepared for extremes never before seen in our lifetime.

I have written before of how similar today’s conditions are to that of the Great Depression and, based on that analysis, today’s economic fundamentals certainly support the theory of a massive drop in the Dow, relative to gold and even the US dollar.

Now, if you think that gold cannot rise when the Dow has a massive drop as suggested above, then you should look at the following chart and think again:

I have compared the gold chart (top) from 1970 to 1975 to the Dow chart (bottom) for the same period. From the beginning of 1973, the Dow started a massive drop, while gold started a huge rally. Furthermore, the beginning of 1973 happens to be the same point as point 5 in the first chart.

Dow: Gold Ratio

From a short-term perspective, the Dow:gold ratio is “overbought”, and could drop significant lower over the coming months. Below is a 3 year chart of the Dow:gold ratio:

On the chart, I have drawn a possible blue support line, which now could be resistance. It appears that the ratio broke down from that support in July this year, and is now in the process of retesting that break-down point. The RSI seems to be at a three-year extreme, and suggests that upside potential from here, could be limited. If the ratio turns around now or closer to that blue line, it could fall very fast.

Gold

Gold appears to be at a very critical point of the bull market. See the chart below:

The gold price is currently holding just above the upward sloping line. Based on my long-term fractal analysis, this line is a critical area, and should price rebound form this line; it could rally like it did in late 1979.

*http://hubertmoolman.wordpress.com/2011/12/23/2012-the-dows-annus-horribilis-and-golds/

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Related Articles:

1. Goldrunner: Gold Now on Its Way to $3,000+ By mid-2012

Our work with Gold is based on a “Model” off the late 70’s Gold Bull that has been replicating nicely since we started the Fractal Work with Gold back in 2002 and 2003. Short-term volatile moves in Gold, as we have seen over the past weeks, do not affect our projections based on the model, leaving the expectation of a move in Gold up to $3,000 into mid-year intact as outlined in our previous article entitled Gold Tsunami: on the Cusp of $3000+? Words: 996

2. Goldrunner: Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012

With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1604

3. Gold Tsunami: on the Cusp of $3,000+?

Early this year we suggested a 50% rise in Gold to $1860 – $1,920 into mid-year. Now, we see the Gold tsunami realizing an approximate 100% rise that will crest at $3,000+ into the middle of 2012, drowning any doubters in its wake. Below are a number of factors that support that view. Words: 1250

4. Goldrunner: The Gold Tsunami Wave Cycle

The Gold (and Silver) bull continues to closely follow the giant wave formation of a tsunami. The recent more parabolic rise in Gold up to above $1,900 is analogous to the little ridge of water we first saw way out in the distance, and now, much like when the waters recede from the shore early in the tsunami wave formation, Gold is undergoing a correction. Words: 1557

5. Goldrunner: The “GOLDEN PARABOLA” & “SILVER ROCKET” Update

The parabolic rise in Gold and in Silver still have a very long way to go as measured directly off of the late 1970’s Charts. In fact, we expect the arithmetic ratio targets for Gold and for Silver, based on the late 1970’s rise for each, to get blown away since we are seeing a logarithmic rise in dollar inflation compared to the late 1970’s. We have just hit the point where the more parabolic rise in Gold set off the leverage for the Gold Stocks in the late 1970’s. Therefore, we expect the real parabolic PM Stock Index Bull is just now commencing. Let me explain. Words: 1769

6. GOLDRUNNER: Gold on Track to Reach $1860 – $1920 by Mid-year

The Golden Parabola is continuing to follow the cycle of the 70’s Gold Bull as the U.S. Dollar is further devalued against Gold to balance the budget of the United States at this point in the “paper currency cycle” where Global Competitive Currency Devaluations rule. As discussed in a recent editorial this point in the cycle suggests that Gold will soon enter into a more aggressive higher rise in price to $1,860 – $1,920 per ozt. as it starts to project the higher Vth Wave characteristics of this new Golden Parabola. Let me explain. Words: 1403

7. Goldrunner: “$52 to $56 Silver by Mid-year” Update

Back on February 18th I wrote an editorial showing that Silver could rocket up to $52 to $56 by mid-year. At the time of the writing Silver was sitting a little above $32 on the price chart. The original chart work was based off of the fractal chart work I do with Silver from previous fractal time periods. So far the rise in Silver appears to be right on track for our expected targets to be approached into mid-year. [Let me review the details with you.] Words: 1069

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com(A site for sore eyes and inquisitive minds) and www.munKNEE.com(Your Key to Making Money!) searches the internet on a daily basis and selects the absolute best (i.e., most informative and well written) articles which he then edits for the sake of clarity and brevity to ensure you, the reader, as fast and easy read and then posts them in an edited excerpted format on his site. Below are the best of the best as selected by one million plus visitors to the site over the past 12 months based on the total number of page views.

1. Don’t Invest in the Stock Market Without Reading This Article First

History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325

2. What Does 2012, as an Election Year, Mean for Stock Market Returns? Here Are the Facts

Next year is a Presidential election year, and the stock market is almost always positive in election years. Right? At least that assurance has been a supposed truism for many decades, and repeated as fact each year in numerous interviews and financial columns. [Let's explore just how correct those assumptions really are.] Words: 367

3. You’ll Never have a 10-bagger if you Sell a Stock after a 2-bagger! Here’s when to Ride a Winner – or Sell

One of the hardest things for individual investors to do is to know when to sell a stock. Many times, you might sell simply because a stock has gone up and you’ve made some money. More often than not, though, this is not a great reason to sell [because, as mentioned in the title of this article,] you will never – ever – have a 10-bagger if you sell a stock after a 2-bagger. That being said, what things should one consider before selling? Words: 912

4. 10 Timeless Investment Rules to Survive This Stormy Stock Market

Rules may be meant to be broken, but with investing ignoring the rules can break you – especially now. Investment rules are tailor-made for tough times, allowing you to stick to a plan just when you need it most. Indeed, a rulebook is important in any market climate, but it tends to get tossed when stocks are soaring. That’s why sage investors warn people not to confuse a bull market with brains. Here are 10 rules to survive this stormy stock market. Words: 769

5. Don’t Invest in the Stock Market Without Heeding These “Rules of Trading”

I’m not going to candy coat it for you: making serious money in the stock market is a ton of hard work. It takes patience, savvy, and a certain level of market smarts – and the cold, hard truth is that if you don’t have them, the big boys will drain your portfolio dry. Unfortunately, those are the three areas that most retail investors need to work on the most. Otherwise, they will simply end up in a cat-and-mouse game where they are the mice. Don’t fool yourself for one second into believing that your “due diligence” can be done by watching a show or two on CNBC. It just doesn’t work that way but if there is one voice from the markets that should grab your attention every time you hear it, it belongs to Dennis Gartman, founder and author of The Gartman Letter. He’s sort of a guru’s guru. [Here is] a glimpse into how he views and trades the markets. Words: 1061

6. Investor Fear Gauge: What Everyone Should Know About VIX

VIX is the ticker symbol for the volatility index that the Chicago Board Options Exchange created to calculate the implied volatility of options on the S&P 500 index for the next 30 calendar days. The formal name of the VIX is the CBOE Volatility Index [and informally as the investor fear guage]. Below is some introductory material on the VIX offered up in a question and answer format: Words: 915

7. Gold & Silver Warrants: An Insider’s Insights

With a tsunami of interest in the future prospects of gold and silver mining companies (and their stock prices as a result) I have been asked to publish an updated version of my one-of-a-kind proprietary index of commodity-related companies with long-term warrants (CCWI) and its sub-category of just gold and silver companies with long-term warrants (GSWI). This article gives you some insights into the ‘secret world’ of warrants and slices and dices the make-up of both indices identifying the constituents of each for your edification. Words: 1184

8. Gold & Silver Warrants: What are They? Why Own Them? How are They Bought & Sold?

With all the interest in physical gold, silver and other commodities these days, and the large/mid-cap companies who mine the metals and the juniors who are exploring for them, it begs the question: “Why is no one writing about the merits of investing in the long-term warrants associated with a few of those companies?” Merits? Absolutely! Here is a primer on virtually all that you need to know about warrants and how to invest in them for major profits. Words: 3278

9. Rosenberg: 7 Ways to Invest Given the Potential 8 Behavioral Changes Coming in 2012

The global economy is going to endure a significant deleveraging cycle as we move through 2012 – one that will affect most if not all parts of the developed world. It will be accomplished by some combination of default and write-downs, debt repayment and rising savings rates. [Below I outline 8 areas of behaviorial change to watch for in 2012 and 7 ways to invest in such a fluid economic environment.] Words: 1186

10. How the Dow 30 Stocks Compare According to Their Margins of Safety

Benjamin Graham, known as the father of value investment, is famous for his simple, yet powerful, valuation method as first explained in his 1973 book, Intelligent Investor, and later updated in his book entitled Renaissance of Value. His “Graham Number” approach has been adapted and applied to all 30 stocks listed on the Dow Jones Industrial Index to determine which of the stocks have above average safety factors – of which only 10 do. Below is an explaination of the approach, the formula and the results for all 30 stocks. Words: 1220

11. Market & Economic Cycles Suggest We’re in the Fall Season in More Ways than One – Here’s Why

The key to long term success in investing is understanding the difference between the “seasons” in the markets and the economy. [Let me explain the four "seasons" and why we might very well be in the "fall" season and, if that is indeed correct, why] it is time to pack away the summer allocations and break out the winter coats to hunker down for what may be a chilly 2012. Words: 1016

12. Market -Timing Pays BIG Dividends for Income Investors – Here’s Why

Many income investors have been taught to believe that “market-timing” is anathema to their investment objectives and/or that it can’t be done successfully… I will argue that this piece of conventional wisdom is false – dangerously false. In a three-part series of essays, I will argue that market-timing needs to be incorporated as a fundamental component of income investing. I will demonstrate why market-timing is important, when it should be applied and how it should be implemented. [Read on!] Words: 1956

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If you are tired of spending hours each week surfing the net or even visiting your up-to-now favourite financial site looking for articles that are extremely informative, relatively brief and very well-written, then go no further than munKNEE.com. Here is a sampling of articles posted on the site this past week related to what is happening in the economy and the gold market and what the future holds for its price.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) searches for the latest articles of substance to be found on the internet each day and then presents them in an edited and abridged fashion to provide the reader with a fast and easy read. Also of major merit is the “Related Articles” section under each article that provides titles, introductory paragraphs and hyperlinks to such related articles to provide for as much additional insight into the topic of interest as you have time for without having to search elsewhere.

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Below are introductory paragraphs and links to the articles posted on munKNEE over the past 7 days just on investing and the economy.

1. Economic/Currency Collapse Could Bring Martial Law and Confiscation of Your High-priced Gold! Got Silver?

Do we really honest-to-God no-fingers-crossed cherry-on-top believe that the powers-that-be will simply allow us to mosey up to the cashiers cage and redeem or convert our Gold for whatever monetary unit reigns supreme or is created [should our current financial system and currencies collapse? As such,] IF there comes a time when the best move forward is to sell most of our Gold and switch to another asset class, one more likely to survive the transition intact, will we be able to see this as obvious and a no brainer? [Let me explain what could well happen and the effect such a development would have on all things Gold.] Words: 3037

2. It’s ALL Here! Why Gold is Declining and What the Future Holds

So much has been written over the past 4 months about why the price of gold has be misbehaving that I think you will appreciate having links to all the best articles, as posted on munKNEE.com, that explain the situation from a variety of perspectives. In addition to a greater understanding of what is happening to the price of gold and why I am sure you would like to have some insights into just where the price of gold (and silver, by extension) is going in the weeks, months and years to come. To that end I have again posted links to the most enlightening articles on the subject for your review. Frankly, virtually nothing more can be written on the current and future pricing of gold than you will find in this summary article so read on and take action according to the conclusions you come to as a result of being fully informed. Words: 1975

3. $10,000 Gold is Coming in 2012/13! Here’s Why

I am increasingly confident that the consequences of fragile sovereign debt, precious metals market manipulation, insufficient physical supply, and the need for a safe haven investment refuge, will contribute to rampant price inflation and drive precious metals bullion and mining stock to a parabolic peak price of $10,000 sometime in 2012 or 2013 at the [...]

4. Momentum Trading Generated a 40% Return for Gold in 2011! Here’s How

Assessing the relative levels of greed and fear in the market at a given point in time is an effective way of timing the market. This article outlines the 6 most popular momentum indicators and concludes that trading gold using just 3 of the indicators would have generated an annual return of 39.6% compared to the YTD buy-and-hold return of only about 13%! Let me explain how, why and where they should be used and examine their specific application relative to the price movements in gold and the HUI. Words: 1450

5. Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why

The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137

6. Gold Bullion, Stocks or Bonds: Which Have More Long-term Investment Risk?

In proclaiming buy-and-hold investing to be dead, the pseudo-experts masquerading as financial advisors have abandoned the fundamental principle of investing: buying undervalued assets – and then giving those assets the time necessary to mature. Instead, these charlatans have forced their clients to become short-term gamblers. Worse still, they are now consistently steering their clients toward the worst possible asset-classes, stocks and bonds, rather than the best ones [simply because they do not] understand the fundamental conceptual difference between risk and volatility. In a market populated by panicked lemmings, we cannot avoid volatility. However, we can and must reduce risk – which begins by building an allocation of history’s true safe haven asset, precious metals. [Let me explain more about what risk and volatility are and are not.] Words: 1080

7. Don’t Invest in the Stock Market Without Reading This Article First

History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325

8. Where are Gold & Equities in the 3 Phases of Bull & Bear Markets?

Have you ever thought about when to get into an investment and when to get out? Nearly all bull and bear markets have three distinct phases, and if you learn to recognize them you will significantly increase your chances of getting in while the market still has room to go up, and getting out before the bull market is over and people start to sell en masse. Words: 1200

9. Update on Dr. Nu Yu’s Views on Gold ($1,400?), Silver ($24?) and China/India (Perfect Storm Developing?)

The Chinese and Indian stock markets have dropped over 20% in the last 6 months meeting the common definition of a bear market. Last week both of them tumbled further to below their lows of more than two years ago contributing significantly to the recent major sell-off in gold. In fact, elevated risk of housing and credit bubbles in China and India is creating the next financial perfect storm – which does not bode well for gold or silver. Words: 632

10. Get Ready for Financial Crisis 2.0 in 2012 – It’s Inevitable! Here’s Why

This analyst sees the perfect storm of converging criteria almost perfectly timed and aligned with the 2012 election cycle. When the moment arrives, the financial earthquake will rapidly demolish the existing highly precarious financial system. Government will stand by helpless, unable to shield itself, much less its vulnerable citizens or private financial institutions from the tsunami of debt and currency destruction. 2012 is shaping up to be the blockbuster main event of the ongoing financial crisis. Massive amounts of new debt, vast quantities of additional digital dollars and the spark of higher interest rates will set off version 2.0 of the credit-driven financial implosion. Let me explain. Words: 1443

11. What is Money – Really – and Why Do We Need to Own Gold – Really?

Have you ever wondered what money really is [and why we need to own some gold as a result]? You’ll notice that everyone you read has a strong opinion , but who’s right? [Let look at the situation and see if we can come to an answer that we both can agree on.] Words: 3086

12. Will This Hypothetical Outlook and Imagined Resolution of America’s Financial Crisis Occur in 2012? Let’s Hope Not!

As economic and political matters become more desperate in the U.S., so will what the government considers acceptable. If a debt default cannot be engineered via continuous inflation as the Fed’s current money-printing is attempting to do, it will occur via a direct repudiation of obligations or a quasi-surreptitious one such the hypothetical one I present in this article. Here is… a look (not a prediction) at a series of not improbable events that could develop [and which] would change our economic world overnight[ - and your financial well-being too]. Words: 1365

13. It is Imperative to Save in Physical Gold Not Stocks or Bonds! Here’s Why

This article clearly demonstrate how the millions of investors who invested in the stock market over the past decade actually fared when their performance was measured in gold instead of dollars. You will be shocked at how poorly they (and you?) have really done and you, too, will come to the consclusion that – investing in the stock market is for losers. Words: 790

14. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660

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History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression…back-tested numerous strategies, and has come to some very intriguing conclusions.

So says John Reese (www.validea.com and www.theguruinvestor.com) in edited comments from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Reese goes on to say, in part:

Given that his earlier work inspired one of my best-performing “Guru Strategies” on Validea.com (a 10-stock portfolio picked using the strategy has generated compound annualized returns of 9.9% since its July 2003 inception vs. just 2.6% for the S&P 500), I wanted to share some of his new findings with you.

One of O’Shaughnessy’s key points is…[the need to take a] broader investment approach…[rather than] the tendency to focus on recent events…[recalling] how some began calling the “abysmal” returns of the past decade the “new normal,” even though it wasn’t that long ago that commentators were declaring that the Internet had ushered in a “new era” of perpetually rising stock returns — a declaration that proved to be horribly wrong…While many investors are assuming that the poor performance of stocks during the 2000s is the start of a new era of poor returns, O’Shaughnessy says history shows something entirely different…

Looking at the worst rolling ten-year returns for equities [from] 1900 [through the end of 2010] (and the period ending in February 2009 was the second-worst over that span, with 10 other 10-year spans ending in 2008, 2009, or 2010 cracking the top 50)….[he found] that equity returns following those awful 10-year periods tended to be outstanding;

Since stocks bottomed on March 9th, 2009, that pattern has again played out, to an even greater degree:

• the S&P 500 gained 68.57% in the first year after its March 9, 2009 bottom;
• it averaged 39.68% gains in the first two years.

The S&P figures are before inflation is factored in, but the main idea — that bad periods are followed by strong rebounds — holds true.

O’Shaughnessy explains that, “historically, we have always seen reversion to the mean. After stocks have had an unusually great 10 or 20 years, they typically turn in subpar results over the next 10 or 20, and after bad 10- to 20-year stretches, the next 10 to 20 tend to be above average.” Why is that? O’Shaughnessy astutely notes that it’s largely about valuation — stocks get overvalued after good decades, and undervalued after bad decades - and disciplined investors who are willing to invest in stocks following bad decades, like the one we’ve recently had, can take advantage of that.

Using Raw Return Measurements to Analyze Stock Performance

In O’Shaughnessy’s updated version of What Works on Wall Street, he looked at how stocks that were in the top decile based on a number of valuation metrics fared from 1964 through 2009 and found that, when it comes to valuation, the price/sales ratio (PSR) was nolonger the best predictor of future performance as was the case in his original edition. Here are the average annual compound [raw, i.e. excluding the risk factor expanded upon below] returns for some of the more popular measures for the top decile based on:

(Enterprise value is equal to common equity at market value, plus debt, minority interest, and preferred equity at market value, and minus associate company at market value and all cash and cash equivalents. EBITDA is earnings before interest, taxes, depreciation, and amortization. Buyback yield is the change, percentage-wise, between the amount of shares outstanding now and a year ago. Shareholder yield is buyback yield plus dividend yield.)

Using the Sortino Ratio Measurements to Analyze Stock Performance

Of course, raw returns aren’t everything; risk is also a big factor to consider, so O’Shaughnessy looked at factors like standard deviation of returns, biggest annual declines, percentage of years in which returns were positive, and consistency of returns. One measure that takes into account both risk and return is the Sortino ratio. Here’s a look at how the various valuation metrics [for the top decile] stacked up…[based on the Sortino ratio]:

• Enterprise Value/EBITDA –0.50
• Shareholder Yield –0.47
• Price/earnings –0.46
• Price/operating cash flow –0.45
• Buyback Yield –0.44
• Dividend Yield –0.31
• Price/book value –0.30
• PSR –0.29

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Combination of Raw Return/Sortino Ratio Measurement is Best Way

So, which valuation does O’Shaughnessy recommend? None, in a manner of speaking. As the data above shows, the higher-returning strategies aren’t always the best when you factor in risk. On top of that, different approaches fare better in different environments. [the aforementioned being the case,] O’Shaughnessy… [analyzed] how stocks that had the best composite valuation fared based on a number of metrics [and] found that combining value metrics could produce even better results. [He found that] an approach that incorporated the:

• price/book,
• price/earnings,
• price/sales,
• EBITDA/EV, and
• price/cash flow ratios as well as
• buyback yield

was a top performer… To do this, he ranked all stocks by percentile in each of those categories, with those with the worst of a particular ratio (say, the PSR) getting 1, and those with the best getting 100. Then he simply added up the six scores, and split the results into deciles. He found that stocks in the top decile based on those six factors historically averaged a compound annual return of 17.30%, with a Sortino ratio of 57 — much better than any of the individual metrics.

Key Tenets

Finally, O’Shaughnessy also lays out some of his broader investing advice in the updated version of his book. Here are some of his keys to success:

1. Always Use Strategies:

You’ll get nowhere buying stocks just because they have a great story. These stocks usually come with huge price tags, and usually go down in flames. You must avoid them and always think in terms of overall strategies and not individual stocks.

2. Ignore the Short Term:

When you look only at how your investment portfolio has performed for the last quarter, year, and three- and five-year period, you are looking at a tiny snapshot of time and that snapshot can be very misleading. He recommends focusing on rolling returns vs. a benchmark over time.

3. Use Only Strategies Proven Over The Long Term:

Make sure you use an approach that has proven its worth over several different market environments. Short-term performance, or even the fact that a strategy might make intuitive sense, are no match for a long-term track record. Stocks change and industries change but the underlying reasons certain stocks are good investments remain the same. Only the fullness of time reveals which are the most sound.

4. Invest Consistently:

If you use even a mediocre strategy consistently, you’ll beat almost all investors who jump in and out of the market, change tactics in midstream, and forever second-guess their decisions.

5. Always Bet With The Base Rate:

Base rates are essentially the odds of beating the market over the time period you plan to invest. If you pay attention to the odds, you can put them on your side.

6. Never Use The Riskiest Strategies:

Always focus on strategies with the highest risk-adjusted returns.

7. Always Use More Than One Strategy:

Combining strategies that focus on different types of stocks (i.e., growth, value, large-cap, small-cap, geographic regions) can allow you to do much better than the broader market while not taking on more risk.

8. Use Multifactor Models:

Always make a stock pass several hurdles before investing in it.

*http://theguruinvestor.com/2011/11/25/new-data-on-what-works-on-wall-street/

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7. Check Out THE Number to Watch for Market Direction

While gold is slightly more volatile than the Dow 30, on average, all of the individual components are more volatile than gold and only half are less volatile than silver and platinum. [So much for] the prevailing myth…that they are risky investments due to their volatility. [Let's take a closer look at the specifics.] Words: 250

Stocks and commodities are under pressure from the rising dollar. We have already seen a sizable pullback but there may be more to come in the next few trading sessions. While my negative view on stocks and precious metals will rub gold and silver bugs the wrong way, I just want to point out what is unfolding so everyone sees both sides of the trade. Let’s take a look at some charts and dig right in.

So says Chris Vermeulen (www.thegoldandoilguy.com) in edited excerpts from his original article*.

Dollar Index Daily Chart:

SP500 Futures Index Daily Chart:

Silver Futures Daily Chart:

Gold Futures Daily Chart:

Crude Oil Futures Daily Chart:

Conclusion

Overall, the charts are starting to look very negative which the majority of traders/investors around the world are starting to notice…Now that the masses are starting to get nervous and are beginning to sell out of their positions, I am on high alert for a panic washout selling day…when everyone around the world panics at the same time and bails out of their long positions [causing] prices to drop sharply and volume to shoot through the roof.

Hold on tight as this could be a crazy few trading sessions.

*http://www.thegoldandoilguy.com/articles/

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Next year is a Presidential election year, and the stock market is almost always positive in election years. Right? At least that assurance has been a supposed truism for many decades, and repeated as fact each year in numerous interviews and financial columns. [Let's explore just how correct those assumptions really are.]

So says Sy Harding (www.streetsmartreport.com)  in edited excerpts from his original article*.

It makes sense [to assume the statement made in the opening pragraph] because, after all, the Four-Year Presidential Cycle has an unusually consistent pattern of the market experiencing most of its serious corrections in the first two years of a Presidential term and most often making a substantial recovery in the last two years… It also makes sense that election years would be positive as each Administration pulls out all the stops to make sure the economy and stock market are positive when re-election time arrives – but it’s just not true.

Wanted: contributing editors-at-large!

Send links to other articles of substance you have read to: editor [at] munKNEE.com

If versions of them are posted on the site your name will be mentioned as the contributor

I studied all election years since 1920, and here’s how the Dow fared in each. I included whether it was a Republican or a Democrat in the White House in case that made a difference [and below is a summary of what I found].

Of the 23 election years 15 were positive, or 66.7%. However, ignoring whether or not they were elections years, over those 91 years 62 were positive anyway, or 68%.

Conclusion: The market was up in 68% of years overall, and 67% in election years. So, whether it was an election year or not had no effect on the market’s performance.

Of the 23 election years, the market was up 63.3% of the years when a Democrat was in the White House, and 66.7% when it was a Republican.

Conclusion: It makes no difference which party is in the White House at election time.

So it seems investors will not be able to rely on an election year ‘indicator’ to guide them through the market next year.

*http://www.streetsmartreport.com/comm3

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