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Christopher Mahoney

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  • Implications Of Deflation Risk For Stock Prices [View article]
    I'd say that the Fed's current stance is not very accommodative, given 6% money growth and 3-4% nominal growth which acts as a low ceiling on real growth. Hence low growth, low inflation and low employment growth (1.7%). Yellen looks like another Bernanke: a closeted dove who desires consensus and harmony over meeting her mandates. No one seems to be bothered by this aside from a few economists like Sumner and Krugman.
    Apr 13 03:10 PM | 1 Like Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    The current PE for the S&P is 18x, with the prospects for moderate earnings growth. By contrast, the current PE for the 10-year Treasury bond is twice as high at 36x, with no prospect of earnings growth, since the yield is fixed at 2.65%. In an historical context, this relationship suggests that bonds are more expensive than stocks.
    Apr 13 01:54 PM | 2 Likes Like |Link to Comment
  • S&P 500 Is Below Fair Value With A Strong Support Level Of 1668 [View article]
    It seems to me that a measure of free cash-flow per share would have greater explanatory power than the dividend yield, since many companies use FCF to buy back stock rather than to pay a dividend. Also, cash on the balance sheet represents latent cash return to the shareholder.
    Apr 13 01:47 PM | 2 Likes Like |Link to Comment
  • Implications Of Deflation Risk For Stock Prices [View article]
    I have yet to find anything in the literature that explains changes in velocity, although my suspicion is that it is related to credit growth.
    Apr 13 01:43 PM | Likes Like |Link to Comment
  • Stocks More Overvalued Than At 10 Of Last 18 Market Peaks [View article]
    John,
    The earnings yield is low because bond yields are low. Bond yields are low because inflation and expected inflation are low. Inflation is low because the FOMC is dominated by hawks. In the context of the current term structure of interest rates, stocks are fairly valued or undervalued, depending on your calculation of the equity risk premium.
    I recommend the latest paper on the equity market by Duarte and Rosa at the NY Fed:
    http://seekingalpha.co...
    Apr 13 01:40 PM | Likes Like |Link to Comment
  • Implications Of Deflation Risk For Stock Prices [View article]
    I don't think I agree with you, because what I see is a horizon of very low inflation and interest rates. We have a central bank which believes that 6% money growth constitutes "extraordinary stimulus" and that 1% inflation is okay. I see nothing that will change this mentality, given that there are only two lonely dissidents on the FOMC. In that context, 2-3% bond yields is appropriate. I would observe that between 1934 and 1954, bond yields remained in that range despite, among other things, a world war. The only thing that would upset my scenario (in my view) would be an increase in velocity caused by another credit bubble, but I don't assign a high probability to that happening.
    Apr 13 12:43 PM | 1 Like Like |Link to Comment
  • China Slowdown Will Trigger Black Swan Event [View article]
    China has $3.5T of FX reserves, a $400B trade surplus, and an unlimited supply of RMB. On the numbers, it is a AAA credit par excellance.
    Apr 13 12:03 AM | 3 Likes Like |Link to Comment
  • China Slowdown Will Trigger Black Swan Event [View article]
    There are plenty of real things for bears to point to (like deflation), but China is not one of them. China exports deflation and imports nothing. I don't lie awake at night worrying about China's exports or GDP growth or overall prosperity. If we could simply return China to the basket case that it was in 1978 (or eliminate it entirely), the West would be much more prosperous, although our appliances would have to be be made elsewhere. China has a trade surplus with the world, and is a net drag on global growth (ex-China). China is the neutron bomb of global manufacturing. If the West cares at all about the price of unskilled labor, it will build a Great Wall against Chinese imports, and will force China to open its capital market and float the yuan. A healthy China is deflationary; a sick China is helpful. The WTO is a pact with the devil. What are unskilled Americans workers supposed to do? Live in fetid dormitories like their Chinese comrades? Do we really want our HS dropouts to live like Chinese HS dropouts? As a Christian I feel sorry for starving Chinese peasants; as an American voter, I can't.
    Apr 12 11:49 PM | 3 Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    James,
    I'm not sure how one goes about "normalizing" interest rates, since they are both volatile and cyclical--especially since the end of Bretton Woods. I would observe that bond yields ranged between 2% and 3% from 1934 until 1953, which made equities a compelling investment during that period:
    http://bit.ly/1euXQ6h;category_id=
    Apr 12 12:26 PM | 2 Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    What happened in 1929 was a correction, due to an overvalued market. What happened between 1929 and 1933 was a massive deflation, which had nothing to do with stock prices.
    Apr 11 07:24 PM | 9 Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    Duarte and Rosa at the NY Fed say that PEs are high because bond yields are low, and they conclude that:
    "We should no longer rely on traditional indicators of the ERP like the price- dividend or price-earnings ratios, which all but ignore the term structure of risk-free rates."
    http://seekingalpha.co...
    Apr 11 05:25 PM | Likes Like |Link to Comment
  • The End Of The Correction-Less Fantasy Land [View article]
    Corrections have been associated with speculative overvaluations and low risk premie. The current ERP is moderate, neither too high (buy) nor too low (sell).
    Apr 11 05:18 PM | Likes Like |Link to Comment
  • Assessing The Recent Stock Market Damage [View article]
    My favored tool for fundamental valuation is the ERP, as calculated by Damodaran at NYU and Duarte at the NY Fed. By these measures, the market is fairly priced today. Damodaran's most recent estimate was 5.15% for April 1st, when the market was 3% higher than today. This suggests that the ERP is now around 5.3%, which is below the levels of the Crash, but above where it was in 2011. The ERP was at 4.2% before Lehman (9/08), and then rose to an all-time high of 7.7% afterward (3/09).
    Apr 11 05:02 PM | 3 Likes Like |Link to Comment
  • The Words Go Round And Round [View article]
    The FOMC continues to pursue disinflationary policies despite the risk of deflation. Everything has been going down: money growth, velocity, nominal growth, commodities, producer prices, consumer prices, inflation expectations. I agree with you that the risks are on the downside.
    Apr 10 10:36 AM | 1 Like Like |Link to Comment
  • Face-Off On Greece: An Interim Update [View article]
    Bernanke advocated a monetized tax cut, as did Romer, but instead we got a tax increase.
    Apr 10 10:29 AM | Likes Like |Link to Comment
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