Posts Tagged ‘cheap’

STOCKS ARE CHEAP, BUT THIS METRIC DOESN’T WORK?

STOCKS ARE CHEAP, BUT THIS METRIC DOESN’T WORK?

Courtesy of The Pragmatic Capitalist 

WHEN PEOPLE THINK OF IMPORTANT JOBS THAT CAN NOT BE LEFT OUT OF OUR LIVES THEY DO NOT NORMALLY THINK OF WASTE COLLECTORS. BUT DURING A HAULERS STRIKE GARBAGE PILES UP AND BEGINS TO SMELL. THERE IS NOWHERE TO PLACE IT ALL AND PESTS RUN RAMPANT AS THEIR AVAILABLE FOOD BECOMES ABUNDANT. DUMPSTERS OVERFILLED TRASH WASTE HAULER STRIKE

I’ll be frank – I have a special place in my heart for the PE ratio and it is the same place where all the things I hate are stored.  This simple to understand metric has, in my opinion, resulted in more misguided Wall Street thinking than just about any metric in existence.  A quick glance at the breakdown of the PE ratio shows serious flaws at work here.  It is basically a moving price target (which is never correct unless you still believe in EMH) divided by the earnings estimates that are created by analysts who have literally no idea where future earnings will be.  In other words, you might as well pick random numbers out of a hat and divide them and then go buy or sell stocks.  Naturally, proponents of the PE ratio will say that you shouldn’t use forward PE’s, but to those people I have to respond: do you always drive through your rear view mirror?  The numerator (or market price in the PE equation) could care less about past earnings so it’s less than helpful in telling us where future prices might go.

What disgusts me even more about this metric is its incessant use in selling buy and hold strategies.  You can’t read a book on value investing or buy and hold without running into the PE ratio.  “The market is cheap – stocks for the long-run!”  You’ve probably seen this slogan on every mutual fund pamphlet you’ve ever read.  Your stock broker no doubt thinks the market is “cheap” right now.  The PE ratio has become the sales pitch of an entire generation of sales people who are just herding small investors into fee based products.  “Did you know Warren Buffet is a value investor?”  “Just buy cheap stocks and hang on.  Your status on the list of the world’s richest is in the making!”  Or so goes the old sales pitch.

So, I wasn’t surprised to open Yahoo Finance this morning to see the following headline arguing that stocks are cheap according to the PE ratio.  But just two articles down is an article from the WSJ arguing that the PE ratio doesn’t work in this environment.  You can’t make this stuff up.  According to the article:

“Not only is the P/E


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Biotech/COVID-19

How coronavirus contact tracing works in a state Dr. Fauci praised as a model to follow

 

How coronavirus contact tracing works in a state Dr. Fauci praised as a model to follow

Pairing widespread testing with fast, effective contact tracing is considered essential for controlling the coronavirus’s spread as the U.S. passes 100,000 deaths. AP Images/Rick Bowmer

Courtesy of Jenny Meredith, University of South Carolina

After weeks of keeping people home to “flatten the curve,” restrictions on U.S. businesses are loosening and the coronavirus pandemic response is moving ...



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ValueWalk

Don't expect a second round of stimulus checks in June

By Michelle Jones. Originally published at ValueWalk.

Lawmakers from both parties are finally starting to agree that a second round of coronavirus stimulus checks may be needed. However, they are still a long way from making a final decision that will actually result in another round of checks for everyone. Here’s the current status on a second round of stimulus checks.

Q1 2020 hedge fund letters, conferences and more

Coronavirus stimulus checks: second round status

The Democrat-led House of Representatives passed the Health and Ec...



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Zero Hedge

Futures Tread Water In Calm Before US-China Storm, Trump Twitter Crackdown

Courtesy of ZeroHedge View original post here.

The S&P's remarkable stretch of posting gains in the overnight session continued for another day, with the S&P rising as high as 3,053, and last trading 9 points higher at 3,044, tracking global stocks higher, with Europe's Stoxx 600 rising 1.3% to session highs as investors weighed again increased friction between America and China and the official passage of China's National Security Law in defiance of Trump, against fresh fiscal stimulus promised by the European Union. Treasuries edged up, while the dollar was modestly lower even as traders "treaded water...



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Kimble Charting Solutions

Tech Indicator Suggesting A Historic Top Could Be Forming?

Courtesy of Chris Kimble

Tech stocks have been the clear leader of the stock market recovery rally, this year and since the lows back in 2007!

But within the ranks of leadership, and an important ratio may be sending a caution message to investors.

In today’s chart, we look at the ratio of large-cap tech stocks (the Nasdaq 100 Index) to the broader tech market (the Nasdaq Composite) on a “monthly” basis.

The large-cap concentrated Nasdaq 100 (only 100 stocks) has been the clear leader for several years versus the ...



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The Technical Traders

M2 Velocity Collapses - Could A Bottom In Capital Velocity Be Setting Up?

Courtesy of Technical Traders

M2 Velocity is the measurement of capital circulating within the economy.  The faster capital circulates within the economy, the more that capital is being deployed within the economy to create output and opportunities for economic growth.  When M2 Velocity contracts, capital is being deployed in investments or assets that prevent that capital from further circulation within the economy – thus preventing further output and opportunity growth features.

The decline in M2 Velocity over the past 10+ years has been dramatic and consistent with the dramatic new zero US Federal Reserve interest rates initiated since just after the 2008 credit crisis market colla...



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Lee's Free Thinking

US Southern States COVID19 Cases - Let's Give Credit Where Due

 

US Southern States COVID19 Cases – Let’s Give Credit Where Due

Courtesy of  

The number of new COVID 19 cases has been falling in the Northeast, but the South is not having the same experience. The number of new cases per day in each Southern state has been rangebound for the past month.

And that’s assuming that the numbers haven’t been manipulated. We know that in Georgia’s case at least, they have been. And there are suspicions about Florida as well, as the State now engages in a smear campaign against the fired employee who built its much praised COVID19 database and dashboar...



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Chart School

Is this your local response to COVID 19

Courtesy of Read the Ticker

This is off topic, but a bit of fun!


This is the standard reaction from the control freaks.








This is the song for post lock down!







What should be made mandatory? Vaccines, hell NO! This should be mandatory: Every one taking their tops off in the sun, they do in Africa!

Guess which family gets more Vitamin D and eats less sugary carbs, TV Show



...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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