An Opportunity for Patient Investors - Barron's 44 comments
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"We're in for a multi-year period of pain," Ray Dalio of Bridgewater Associates tells Barron's. All major markets are down at least 40% this year as investors seem to have resigned themselves to some form of global recession. The debate has already shifted from the R word to the D word - will the global economy slip into depression?
Still, not all is bad. The good news, Barron's says, is that governments recognize the threat and are responding with unprecedented force, commodity prices are way down, and Buffett (BRK.A) is bullish. U.S. stocks, at 10x earnings and a 3% dividend yield, look reasonable. European stocks at 1.2x book value and a 6% dividend yield look even cheaper.
The possibility of a short-term bounce looms: The S&P trades 25% below its 50-day moving average, which has happened just five times since 1928, all resulting in a rally.
While not recommending throwing all you've got at the market, Barron's thinks some ideas are worth a closer look. A sampling:
- Cash-rich firms like Microsoft (MSFT), ExxonMobil (XOM) Loews (L) and Motorola (MOT).
- Munis rallied last week. Barron's recently highlighted their appeal.
- Junk bonds yield a stunning average of 19%, vs. 8% a year ago.
- Leveraged debt is selling for $0.60-0.80 on the dollar, allowing investors to buy in at a fraction of the price paid by private-equity firms. Van Kampen Senior Income Trust (VVR) focuses on leveraged loans.
- Takeover arbitrage situations also offer rich returns due to overblown fears the deals won't close. Point in case: Anheuser-Busch (BUD) trades for $57, well below InBev's $70 offer.
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This article has 44 comments:
I know! "Animal spirits" as that great wise man John Maynard Keynes said. Maybe we need a witch doctor or something.
CAN SOMEONE SHED LIGHT ON THE MAGNITUDE OF THESE RALLIES ?
This is good news? Applying the Law of Unintended Consequences to the gub'mint's attempt to 'help' leads one to believe that things are more likely to get worse instead of better.
"U.S. stocks, at 10x earnings and a 3% dividend yield, look reasonable."
Let's look at the entire big picture. Those earnings have yet to be revised down as a result of the recession/depression, ditto for the dividends. Cash strapped businesses will be pressured to cut dividends when future profits decline and P/Es will be much higher when the earnings are slashed.
Just remember that the market rallied in 1930 for roughly 6 months only to turn and drop even further than the initial plunge in 1929.
There is plenty of time to wait and see who the survivors are before plunging back into the fray headlong.
I agree with this statement. However, don't back up the truck, one needs to stay very cash top-heavy at this point, which includes US treasuries.
If you are comfortable with the risk that entails then by all means go ahead and buy. I will stay comfortably in the camp where the primary concern is to avoid losing money until such time as I see signs that the bear market is ending and a bull market begins. I may miss the exact bottom, but experience has taught me that waiting is the better choice.
Until that time I will only consider short term plays where I believe the odds of success are very much in my favor and I will exit those positions when I feel the odds have changed sufficiently against me.
I wish you good fortune in your purchases.
investmentscientist.co.../
The last times it breached that threshold was in 5 groups in the depression:
1929 first at 295, a month later at 245
1931 first at 128 (june) 107 to 100 (October) 82-70 (Dec)
1932 65 to 45 (June)
The market didn't get back to 295 until the 1950's.
This is not a good leading indicator to trade off of, uness you are going short.
Read his outlook at:
jimrogers-investments..../
I'm as pessimistic as they come, and acknowledge that one is "gambling" on uncertainty at this point. I'm gambling on US businesses that are down around 40%, and that downturn has lessened the risk for long positions in a diverse portfolio. Unless all comes to an utter collapse I still sleep well at night.
My exposure is limited to domestic equities with a long term horizon (5+), and of course good ol' US treasuries (blah).
Barron's has been spot on all year. They called Fannie and Freddie as toast in March, for example, called the top in oil, etc.
1. The mortgage/credit mess - being handled;
2. The looming severe recession - being discounted in the markets;
3. The new world order - on the horizon, and the most freightening. US overspending, declining industrial competitiveness, and lack of financial / governmental integrity could well mean that the rest of the world will no longer support us. The answer - a carbon tax; higher taxes on those producing wealth; national healthcare; more "stimulus packages"; every effort to keep the consumer spending. Oy vei.
I sold in the spring when I thought things were going down.
In fact from a technical analysis - I should have sold in Jan but did not sell until May.
I feel comfortable buying at these levels.
Pres. George W. Bush: "I looked into his eyes,,,I saw his soul"
Fed Res. Chrm Alan Greenspan: "I made a mistake..."
Just ponder what these two "leaders" have wrought in only a decade.
Imagine what historians will write decades from now.
"great wise man John Maynard Keynes"
Say what? After writing "Treatise on Probability" ....he promptly followed up by blowing up his trading account. Guess he didn't understand much about the probability of loosing money. Maybe he forgot to read his own book. This guy has always been overrated.
“If stupidity got us into this mess, then why can't it get us out?” ~ Will Rogers
An opportunity...
Maybe they should say, An opportunity to separate a fool from his/her money.
Here is the slug header from Reuters a while ago...
* Stocks slump to new four-year low, Russian market shut
* Hong Kong sees worst fall since 1997
* IMF deal helps Hungarian forint
* Ukrainian assets still sold off despite IMF agreement
So Barron's
Prosperity is just around the corner...
Maybe for the Robber Barrons
LOL!
seekingalpha.com/artic...
When in the same breath he disqualifies it by saying "I don't know what the market is going to do short term", you better watch out. Short term for him is a couple of years. Very few small investors have the money, the patience, and most importantly...the emotional state, to watch their positions drop another 40-50% in two more years or even sit flat for 2-3 years (should they be so fortunate in their selection process). Many of the people that get sucked into these sucker rallies will be selling shares to Buffett (figuratively) over the next 2-3 years.
It may be a great time for Buffett to buy, but that doesn't mean it is for the rest of us. And Buffett d$#n well knows it's a treacherous time for Joe the Plumber to be buying stock! Anybody who thinks he doesn't know that needs to just go back to the their fantasy world and forget about reality for now until it slaps them so hard in the face that they wake up!
What does the future portend? Hopefully we will have a dynamic, truthful leader. But when one looks at all the minuses...it is extremely bleak. In this societal experiment, we may have proven that a republic, capitalistic system does not work.
" cover in August 2007, then, with their "GM could triple in the near future," cover (GM was ~18 at the time).
There is simply no way the printing presses can keep up or that we as a public can handle the ensuing inflationary warship headed our way.
So sad !!!
* Scratching head *
No. Just check out the S&P webbsite or Bloomberg TV each weekend and you will see that current/trailing earnings are around 20x, even as earnings fall and in all likelyhood will continue to fall for quite awhile.
Long term PE ratios are 15/16 AVERAGE and commonly drop to 10x or under in bear markets. BTW, we are due for a long bear market and have obviously entered one and you should expect it to last as long as 15+ years similar to 1929-1952 or 1966-1982.
Book value is still very high compared to historic norms and that must revert to the mean. Don't be fooled by stats that only go back to the 80's and 90's or you get what you deserve for ignoring history.
There will be investing opportunities but don't be foolish and think the bear market is over.