Posts Tagged ‘Editors’ Picks’

Whoops: Stocks Now 20%+ Overvalued

Whoops: Stocks Now 20%+ Overvalued

Courtesy of Henry Blodget at Clusterstock

Stocks have jumped 65% from the March lows.  They have also blasted past fair value, which is about 900 on the S&P 500 on a cyclically-adjusted price-earnings ratio (see professor Robert Shiller’s chart below).  So, unless it’s different this time, they’re now more than 20% overvalued.

(Jeremy Grantham puts fair value at 880 on the S&P 500.  That seems a bit precise.  Let’s call it 900).

shillerpe112009.jpg

Of course, today’s overvaluation doesn’t tell you much about what stocks will do next week, next year, or even the next 5-10 years.  As the chart above shows, before the 2007 market crash, stocks were overvalued for the better part of 20 years--and observing that didn’t help you make money.  On the contrary, it usually got you fired.

What today’s valuation does suggest is that stocks are priced to return a bit less than average over the next decade, perhaps 3%-4% real per year (inflation adjusted), as compared to the 6%-7% average.

Today’s valuations also suggest that stocks may have gotten way ahead of themselves, especially in light of the structural problems that will continue to bog down the economy.

As the chart above illustrates, every one of the prior mega-busts in the past century has been followed by a "trough" in which the cyclically adjusted PE ratio hit the high single-digits.  We didn’t quite make it there in March (the P/E bottomed around 12X), although we did get close.

This, combined with what is likely to be a decade of deleveraging, consumer retrenchment, and sluggish growth as we work off our debt binge, suggests that we still yet might hit that single-digit low before we take off on another secular bull market, again.  This could be achieved either through another market crash, or a prolonged period of backing and filling as earnings growth gradually reduces the long-term PE ratio (this is what happened in the 1970s).

On the other hand, it is possible that that enormous stimulus and zero interest rates over the past two years will produce that "v-shaped" recovery.   At this point, given the extent of the recent rally, it would presumably have to be one heck of a "V" to send stocks soaring from here.  But the last eight months have already made


continue reading


Tags: , , , ,




Silly chart of the day, data-fitting edition

40% Higher? You Gotta Be Kidding!

Okay, the chart was floating around earlier but I was sufficiently skeptical that I initially ignored it. Now it’s popping up at some of my favorite sites, so let’s examine it, starting with the Bloomberg article. – Ilene

S&P 500 May Surge 40% in Duplication of Japan: Chart of the Day, Bloomberg 

By Alexis Xydias

Aug. 28 (Bloomberg) — U.S. stocks are behaving like Japanese equities in the 1990s, meaning the Standard & Poor’s 500 Index may return 40 percent in the next year, according to Bank of America Corp.

The CHART OF THE DAY shows the Nikkei 225 Stock Average since 1980 and the S&P 500 during the past two decades, when adjusted for currencies. The Nikkei doubled between October 1998 and April 2000 in dollar terms, as the chart illustrates. The S&P 500 has risen 34 percent since March when the Dollar Index, a measure of the dollar against currencies in six major U.S. trading partners, is factored in.

A “melt-up” rally in the U.S. may be triggered by central bankers keeping interest rates near record lows, an economic recovery or an undervalued dollar, Bank of America strategists wrote in an Aug. 26 report.

“Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,”…
 

japangraph.jpg

Continue reading S&P 500 May Surge 40% in Duplication of Japan here.

 

Silly chart of the day, data-fitting edition

By Felix Salmon at Reuters Blogs

Paul Kedrosky finds this chart in a Bloomberg story: it’s the kind of thing which really reinforces one’s belief in the wonders of data-fitting.  [My emphasis, bolded]

The story isn’t actually particularly clear on exactly what the graph is showing, and specifically what “adjusted for currencies” means:

The Nikkei doubled between October 1998 and April 2000 in dollar terms, as the chart illustrates. The S&P 500 has risen 34 percent since March when the Dollar Index, a measure of the dollar against currencies in six major U.S. trading partners, is factored in.

So it seems that the BofA analysts who came up with this chart first converted the Nikkei to dollars, only to then convert the S&P 500, which was in dollars all along, out of dollars. Hm. And they chose pretty random start points: what makes 1980 in…
continue reading


Tags: , , , , , , , , , , ,




You Fools Don’t Get It: This Is A V-Shaped Recovery!

You Fools Don’t Get It: This Is A V-Shaped Recovery!

jetcar.jpg v-shaped recoveryCourtesy of Henry Blodget at Clusterstock

Finally, a rip-roaring bull case supporting the idea that the market will rocket higher from here.

As we noted last week, the current consensus is that the economy will soon start growing but that the recovery in 2010 will be feeble.  (To brush up on this consensus, see the presentation below.)

This consensus is likely to be wrong--the consensus is usually wrong--but uber-bulls and uber-bears have been so shamed of late that most are afraid to come out and really bang the drum one way or the other (Gary Shilling excepted).

But now comes Tim Bond, head of asset allocation at Barclays, who puts his mouth where his money is.  Tim’s full article in the FT is here.  Here are the key points:

Economies recover much faster than most people think. "The average forecast for third-quarter US gross domestic product growth is a weak 0.8 per cent, which would be by far the slowest first quarter of any recovery on record. Since 1945, the average annualised real US growth rate in the first two quarters of recovery is 7 per cent. History provides abundant evidence that the deeper the recession, the stronger the bounce. Even the recovery from the Great Depression conformed to this rule, real US GDP grew 10.8 per cent in 1934 and 8.9 per cent in 1935."

Asia is already seeing a v-shaped recovery.   "[O]utput, employment and demand [are] all following V-shaped trajectories, and regional industrial production rapidly bouncing back above the previous peak. Yet this recovery is dismissed by western analysts, who appear unable or unwilling to believe the region is capable of endogenous growth."

10% unemployment will not derail the recovery.  "The 9.5 per cent US unemployment rate is also viewed as an obstacle…This objection ignores the many contrary examples of high unemployment rates and subsequent recoveries, not least in the US. Thus in 1982, US unemployment hit 10.8 per cent, yet GDP soared at an average annual pace of 7.7 per cent over the next six quarters."

One reason unemployment is so high is that employers over-reacted, firing too many people.  "[T]he large post-Lehman rise in US unemployment was a mistake on the part of panicky


continue reading


Tags: , , , , ,




Nope, The P-PIP Probably Still Won’t Work

Nope, The P-PIP Probably Still Won’t Work

Courtesy of John Carney at ClusterStock

geithner wrinkles tbi

Now that we’ve got the buy-side managers for the Obama adminstrations Public Private Investment Program lined up, the question is whether there will be anyone on the sell-side.  With the buy-side guys saying that the P-PIP will allow them to pay between 5% and 10% more for toxic assets, you might think banks would be all over this thing.

But that’s not how its shaping up. The P-PIP is still stumbling. Many are now wondering whether bankers will sell into the program. Today Lucian Bebchuck has a guest column on the WSJ’s Real Time Economics blog explaining why banks aren’t eager to unload toxic assets. Mostly, its that so much of what the government has done is enabling and encouraing banks to retain the junk on their balance sheets.

  • We suspended mark-to-market. "A month after the PPIP program was announced, under pressure from banks and Congress, the U.S. Financial Accounting Standards Board watered down accounting rules and made it easier for banks not to mark down the value of toxic assets. For many toxic assets whose fundamental value fell below face value, banks may avoid recognizing the loss as long as they don’t sell the assets."
  • The Stress Test Gave A Free Pass For Losses After 2010. "In another blow to banks’ potential willingness to sell toxic assets, however, bank supervisors conducting stress tests decided to avoid assessing banks’ economic losses on toxic assets that mature after 2010. The stress tests focused on whether, by the end of 2010, the accounting losses that a bank will have to recognize will leave it with sufficient capital on its financial statements. The bank supervisors explicitly didn’t take into account the decline in the economic value of toxic loans and securities that mature after 2010 and that the banks won’t have to recognize in financial statements until then."

The combined effect is that banks are strongly discouraged from selling any toxic assets that mature after 2010 for any price lower than the current mark on the books.

Bebchuck’s analysis doesn’t go far enough. The worst off banks, especially those with low levels of common equity, won’t sell because they don’t want to give up the potential upside of the assets.

"My paper


continue reading


Tags: , , , , , , , , , , , , , , , ,




It’s Great News That GM Will Keep Lobbying The Government!

Courtesy of John Carney at ClusterStock

It’s Great News That GM Will Keep Lobbying The Government!

gmlogoflagsap103008.jpgA lot of attention is being paid this morning to a story by Tim Carney* revealing that General Motors will continue its multimillion-dollar lobbying operation in Washington even after the federal government takes ownership of it. Many are questioning whether it is appropriate for a government owned firm to hire high priced lobbyists to influence policy.

GM spent $13.1 million on lobbying in 2008. In the first quarter of this year, while surviving on federal bailout money, the company’s lobbying tab was $2.8 million.

Frankly, we’re relieved that GM plans to keep lobbying the government. It’s a sign that both the government and GM still view themselves as having different interests, which US taxpayers should certainly hope is the case.

All along the debate over the bailout of GM, the specter of government control has haunted the company. Would the government use the takeover of GM in order to force the company to adopt policies and products favored by special interests? These would hurt the revenues of the company and exercise a perverse effect on the broader markets. The news that GM plans to lobby may mean the company has enough sense of self-interest intact that it will attempt to resist becoming the plaything of policy-makers.

On the other hand, there has also long been the danger that GM’s managers would use the government rescue as a chance to basically capture the government, using taxpayer dollars to privately profit. The fact that the company still feels the need to lobby indicates that, at least for now, this capture is not complete.

On a broader, more general level we’re relieved to hear that freedom to petition the government will continue despite the growth of the government’s role in the economy. 

[*Yep, you guessed it! Tim Carney is my brother.]

See Also:

 


Tags: , , , , , ,




Your Field Guide To The Mortgage Collapse

Courtesy of Henry Blodget at ClusterStock

Your Field Guide To The Mortgage Collapse

mortgage meltdown, chart 5-9The housing market is crashing, and it’s taking us, our banks, our economy, and our government down with it.  Why?  Because of the debt!  The value of our houses is plummeting, but the value of our debt is staying just the same.

You knew that already.  What you didn’t maybe know, or at least fully appreciate, is exactly what’s happening in the mortgage market that’s causing all this hideousness.

Well, thankfully, Whitney Tilson has laid it all out for us.  START THE TOUR >

Whitney’s the managing partner at T2 Partners, a hedge fund and mutual-fund company.  He’s also just published a book called More Mortgage Meltdown: 6 Ways To Profit In These Bad Times.

In the book, Whitney lays out the whole mortgage disaster in pictorial form, and he has been kind enough to allow us to reprint some of his charts here.  If you’d like to see updated, interactive versions, please visit www.moremortgagemeltdown.com.  Or just head over to Amazon and buy the book.

START YOUR FIELD GUIDE TO THE MORTGAGE COLLAPSE >

 

 


Tags: , , , , , , ,




 
 
 

Zero Hedge

Hong Kong Protests Go Global: China Demands Investigation After Lam's Justice Minister Wounded In London

Courtesy of ZeroHedge View original post here.

Chinese officials slammed American lawmakers who are advancing a bill designed to protest Hong Kong's quasi-independent status guaranteed by the legal handover agreement between the British and the Chinese, but the US isn't the only major western power that's creating problems with the increasing dangerous situation in Hong Kong.

Hong Kong's Justice Minister Teresa Cheng took a nasty tumble last night during a confrontation with pro-democracy sympathizers who came out to protest her presence in London. ...



more from Tyler

Phil's Favorites

Why telling people with diabetes to use Walmart insulin can be dangerous advice

Reminder: We are available to chat with Members, comments are found below each post.

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



more from Ilene

Biotech

Why telling people with diabetes to use Walmart insulin can be dangerous advice

Reminder: We are available to chat with Members, comments are found below each post.

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



more from Biotech

The Technical Traders

What happens To The Global Economy If Oil Collapses Below $40 - Part II

Courtesy of Technical Traders

In the first part of this research article, we shared our ADL predictive modeling research from July 10th, 2019 where we suggested that Oil prices would begin to collapse to levels near, or below, $40 throughout November and December of 2019.  Our ADL modeling system suggests that oil prices may continue lower well into early 2020 where the price is exp...



more from Tech. Traders

Chart School

Dow Jones cycle update and are we there yet?

Courtesy of Read the Ticker

Today the Dow and the SP500 are making new all time highs. However all long and strong bull markets end on a new all time high. Today no one knows how many new all time highs are to go, maybe 1 or 100+ more to go, who knows! So are we there yet?

readtheticker.com combine market tools from Richard Wyckoff, Jim Hurst and William Gann to understand and forecast price action. In concept terms (in order), demand and supply, market cycles, and time to price analysis. 

Cycle are excellent to understand the wider picture, after all markets do not move in a straight line and bear markets do follow bull markets. 



CHART 1: The Dow Jones Industrial average with the 900 period cycle.

A) Red Cycle:...

more from Chart School

Insider Scoop

What Wall Street Thinks Of Google Cache

Courtesy of Benzinga

Alphabet, Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google announced a new partnership with Citigroup Inc (NYSE: C) to launc...



http://www.insidercow.com/ more from Insider

Digital Currencies

Is Bitcoin a Macro Asset?

 

Is Bitcoin a Macro Asset?

Courtesy of 

As part of Coindesk’s popup podcast series centered around today’s Invest conference, I answered a few questions for Nolan Bauerly about Bitcoin from a wealth management perspective. I decided in December of 2017 that investing directly into crypto currencies was unnecessary and not a good use of a portfolio’s allocation slots. I remain in this posture today but I am openminded about how this may change in the future.

You can listen to this short exchange below:

...



more from Bitcoin

Kimble Charting Solutions

Silver Testing This Support For The First Time In 8-Years!

Courtesy of Chris Kimble

Its been a good while since Silver bulls could say that it is testing support. Well, this week that can be said! Will this support test hold? Silver Bulls sure hope so!

This chart looks at Silver Futures over the past 10-years. Silver has spent the majority of the past 8-years inside of the pink shaded falling channel, as it has created lower highs and lower lows.

Silver broke above the top of this falling channel around 90-days ago at (1). It quickly rallied over 15%, before creating a large bearish reversal pattern, around 5-weeks after the bre...



more from Kimble C.S.

Lee's Free Thinking

Today's Fed POMO TOMO FOMC Alphabet Soup Unspin

Courtesy of Lee Adler

But make no mistake, if the Fed wants money rates to stay down by another quarter, it will need to imagineer even more money.

That’s on top of the $281 billion it has already imagineered into existence since addressing its “one-off” repo market emergency on September 17. This came via  “Temporary” Repo Man Operations money, and $70.6 billion in Permanent Open Market Operations (POMO) money.

By my calculations that averages out to $7.4 billion per business day. That works out to a monthly pace of $155 billion or so.

If they keep this up, it will be more than enough to absorb every penny of new Treasury supply. That supply had caused the system to run out of money in mid September.  This flood of paper had been inundati...



more from Lee

Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

more from M.T.M.

Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



more from Our Members

Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

more from Promotions





About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

Market Shadows >>