I Heard A Rumour That Mike Tyson IS Buying At These Levels!

That seemed to be the tone before oil ministers met in Algiers recently, but low and behold doves do fly and they came to some sort of agreement. The market roared and oil analysts started posting new price levels for Texas Tea again. Recently we have seen a post of $70 as a newly revised upward target.

This gets us back to the Mike Tyson comment. There was a time, not too long ago, that we pounded the table at $20 oil and suggested that oil was cheaper than milk. Interestingly it was, but the lesson is not in bottom fishing it is more rooted in behaviour. Like Mr. Buffett says, “Be greedy when others are fearful and be fearful when others are greedy.” So, behaviourally, has the world become greedy over oil? More importantly, to quote Donald (the Hair) Trump, “Are stocks and housing in a bubble?” If we are, Mike Tyson should be buying hand over fist – right?

Let’s look at a few investments to see what has happened and what could happen:

First, Oil

The long term chart still looks pretty ugly. Is $100 oil back on the table? Likely not anytime soon. Will we get some stability in this $40 to $60 range in the coming years? I would think this is a better bet. OPEC effectively put in a floor at or near $47 this week. Most of those oil-centric nations have felt the real brunt of the oil collapse, and finally, they started to act together. This should help longer-term. 

Source: VIP Wealth Solutions & Bloomberg

Next up – The Market

Stock prices today are not great. How do we know this? We look at the broader indexes like the S&P 500 and plot their price earnings. The chart below is a 7-year chart and it shows us that, for the last 5 years, the valuation of the index has somewhat steadily been creeping higher. The current value is 20.44 and the average is 16.95. So we are above the average. This just means that stocks are not cheap. The opposite of cheap is expensive. As we know, things can sometimes become more expensive than one would like to believe – take Toronto or Vancouver Real Estate – no one was expecting the price increases that have unfolded. Can the market still go higher? 

Source: VIP Wealth Solutions & Bloomberg

The question still persists. Is Mike Tyson buying at these levels?

What is Cheap?

This is where the world becomes super tricky. One reason is the relative value. If a house on one side of the street is selling for $2 million and right across the street there is a house listed at $1 million the answer is simple the $1 million house is cheaper – relatively. Unless of course, the $2 million house is on a lake and then the valuation question becomes more complex. One observation we have had recently that also is getting a lot of airplay. Volatility has, on occasion, become very cheap – relatively. We have condensed the chart below to a year to date view for illustrative purposes. One would expect that buying some volatility at these low prices in favour of other assets would set up for a decent spike (money making opportunity) at some point. We have seen this a few times this year and capitalised on this approach. 

Source: VIP Wealth Solutions & Bloomberg

Clearly, as illustrated above, there are some cheap assets out there when other things get expensive. Volatility is currently cheap and we are pretty sure Mike Tyson is not buying any. 

 

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