Screening For Stocks As The Economy Inches Forward [View article]
Hi. Thank you for your comment.
Old Line isn't for everyone. There are a couple of different ideas behind these screens I create. One is that I'm looking for companies that have certain characteristics that should help them to some degree in the anticipated economic and financial market conditions. The other is that I'm trying to highlight a list of companies that is manageable enough for someone to start picking through it to see if there are any that appeal to them. Obviously, different people have different tastes and tolerance for risk, so some people will find names that they want to learn more about; others, less so.
Screening For Stocks As The Economy Inches Forward [View article]
Hi TAS. Thank you for your reply.
I don't try to time the market, per se, so I don't have any specific red flags for saying "This is it, sell now." Instead, I look at fundamentals and valuation. Still, I watch macro variables to assess general business conditions.
Friday's rally on labor figures is a good example. Could it provide continued short-term upward momentum? Maybe. When I looked at the BLS numbers, I saw that things were modestly better but not game changing better -- there is little indication of substantially enhanced future business -- and did not justify that type of response. So, broadly speaking, we have stocks at higher valuations with no additional catalyst for future growth. That's a pretty good indication to re-evaluate positions and potentially take some money off the table, depending on the specific security.
That stated, I am not optimistic on the key indices. There are ample ETFs you could use to short those.
I did not put together a list of specific stocks to short. A short while back, I was working on a shorting model, but became involved in other things and set it aside. Perhaps I will revisit it.
Certainly. Spain is in a lousy spot. Figure, as its economy continues to contract, that will put more downward pressure on real estate and lead to more bad loans. Spanish banks will undoubtedly need additional funding to stay afloat. And you're correct is saying that Europe doesn't have the resources necessary for a real, substantial bail out. Like I said, the likelihood that this is going to work is like calling tails when someone flips a two-headed coin.
While I can appreciate the perspective that if we push off the day of reckoning a bit farther, maybe the economy will pick up sufficiently that the day of reckoning will never come. But, alas, that really seems more like a pipe dream than a practical approach to addressing the issue. This is clearly evident in the rising yields.
You're right, it seems like this thing is about to collapse. Absent a major change, the collapse can't be too long off.
Screening For Stocks As Growth Stalls [View article]
Hi. Thank you for your comment.
I try to structure screens based on the economic and market conditions, but there are many ways to chop up these numbers, especially if you're hunting takeover and merger targets.
AIR is an interesting company. I'm sure you know it better than I do.
You're correct is saying that a better measure of the real debt burden would be to remove the government part of the GDP equation. (It is important to keep in mind how much government spending is as a percent of GDP.) After all, private industry is the key driver of the economy. Whether you're talking about taxing corporations or the people who work there or buy the products that the corporations produce, that is the key source of government revenue. (Other than that, the gov't is just left selling off assets, and sooner or later you run out of those.) So, as you pointed out, the gross debt to GDP figures I used are lower than the debt/private sector figures. Perhaps I will address that in more detail in a future article.
I agree. If Greece leaves the euro, the impact on the banking sector would be... bad. And, even though Greece is small, it is connected, and so the ripple effects through much of Europe, particularly in the similarly weaker economies, will also be bad and significant.
Yes, the Fed acts domestically, and it is supposed to work towards price stability and full employment here. Still, it keeps some eye toward global macro dynamics, and the impact they will have on the US, even if it doesn't target a specific exchange rate. As you mentioned, exchange rates are driven by investor decisions. Short-term, they are driven by the flow of investor money. Longer term, the exchange rate still comes back to the economy.
I'm there with you regarding the impact of the ECB undertaking a QE policy. There will not be any magical monetary policy fix to this. It might help somewhat, but it will not be a cure.
It is important to recognize who holds the debt, and therefore who could really pressure a currency. Here's a quick article about who holds US debt. It's from earlier in the year, but its gives a pretty good idea:
I agree. The Fed, if it acts, will have to target something else. Figure, the European debt crisis led investors to seek a safe haven, that that helped push yields on US Treasuries down. Think about investing in a 10-year UST now. Any chance inflation might be higher in any given year than what this pays in interest? It's a losing proposition. The Fed will have to do something else to get things moving. You're right, it might be mortgages.
Any dollar strength would likely come, not necessarily from the Fed policy, but more from weakness in Europe and further potential risk that the euro falls apart.
And, yes, you are correct about the differences between Japan's savers and America's consumers, and that goes a long way in explaining why China holds so much of our debt -- we like to consume their products.
The issue regarding who holds a nation's debt speaks about the strength of the currency. A run on the currency could raise borrowing costs, making it more difficult for the country to finance its deficits. Japan has not seen a run on its currency partly because much of its debt is held internally. As you mentioned, they are a nation of savers.
We're in a lousy situation anyway you look at it. If Greece stays in the euro, its economy will likely struggle through a few more years of ridiculous though necessary austerity programs that will likely fuel further fires of civil discord, only to bring about the eventual conclusion of the country leaving the euro anyway. Let's face it, I don't see any significant catalyst for growth in Greece that would significantly boost its GDP and reduce its relative debt burden.
If Greece leaves the euro now that sends the signal that policymakers are incompetent to address the problem, and that would cause fear to spread. After all, Greece is a relatively small country, and if the policymakers couldn't help a relatively small country, how much could they really do for Italy and Spain.
And I agree, if you examine banks' ability to handle things, you're sort of left scratching your head, particularly if economic activity nosedives. An economy adding only 69,000 jobs a month (let's see how the trend develops) is way too weak to successfully handle shockwaves from Europe.
I agree that it's all about faith. While the market is trying to price in Greece leaving the euro, the much greater risk is the potential for contagion. And there is good reason. On a gross debt basis alone, Italy is right behind Greece, and France and Belgium are worse positioned that Spain. These are all good size economies. If Greece goes, many of these other economies could quickly follow, like dominoes falling.
Still, this does not necessarily mean that there will be an immediate run on all key currencies. The US gets a bit of a "pass" for now because we are the world's largest economy and the dollar is the major reserve currency. Otherwise, our debt/GDP ratio would be considerably more frightening. Similarly, Japan gets a "pass" for now because most of its debt is held domestically. Nonetheless, even here, faith could eventually yield to panic.
Screening For Memorial Stocks In Aerospace And Defense [View article]
Hi. Thank you for your comment.
It is a challenging environment on many levels, not the least of which is the potential hit to defense budgets. Add in the volatility in the markets, and investment exposure to this area is particularly vulnerable, as we see in the recent performance of ATRO and UTX relative to the S&P 500.
Irene And Screening Home Improvement Retailers [View article]
Hi. Thank you for your comment.
The screen required a PEG of less than 1.1. CLWY dropped out because it did not have a PEG ratio.
CLWY's P/E ratio, based on trailing twelve month earnings, is very low. But keep in mind that the company is small and the stock is thinly traded, so liquidity can be an issue.
Screening for Growth as Economy Sputters: 4 Finalists Near Fire-Sales Prices [View article]
Hi Al. Thanks for your comment.
The screening process I discussed here is by no means the only way to go. I try to develop and discuss a process based on different macroeconomic conditions.
That stated, I can understand how OLN might not have passed your screen, particularly when it comes to debt. According to Reuters, it has a long-term debt/equity ratio of 50 in an industry where the average is only about 7.4. Its total debt/equity ratio is 59, relative to the industry's average reading of 30.
Still, there are reasons to keep an eye on OLN.
And it is going to be interesting to see what happens in September when everyone comes back from summer vacation.
Screening for Growth as Economy Sputters: 4 Finalists Near Fire-Sales Prices [View article]
Hi Timothy.
Thank you for your comment and the insightful article on Valhi and Kronos. You raise very good points, which are also discussed in Seth Shaw's article.
Interested investors need to take such relationships into consideration.
The stock screening that I try to address each week is only part of the security-selection process. The idea is to arrive at some manageable list of companies, and then dive into them for further research to see which ones are worth considering. Your article drives home the importance of doing the research.
Screening For Stocks As The Economy Inches Forward [View article]
Old Line isn't for everyone. There are a couple of different ideas behind these screens I create. One is that I'm looking for companies that have certain characteristics that should help them to some degree in the anticipated economic and financial market conditions. The other is that I'm trying to highlight a list of companies that is manageable enough for someone to start picking through it to see if there are any that appeal to them. Obviously, different people have different tastes and tolerance for risk, so some people will find names that they want to learn more about; others, less so.
Good luck investing.
Screening For Stocks As The Economy Inches Forward [View article]
Yes, the TVIX could be interesting.
-Erik
Screening For Stocks As The Economy Inches Forward [View article]
I don't try to time the market, per se, so I don't have any specific red flags for saying "This is it, sell now." Instead, I look at fundamentals and valuation. Still, I watch macro variables to assess general business conditions.
Friday's rally on labor figures is a good example. Could it provide continued short-term upward momentum? Maybe. When I looked at the BLS numbers, I saw that things were modestly better but not game changing better -- there is little indication of substantially enhanced future business -- and did not justify that type of response. So, broadly speaking, we have stocks at higher valuations with no additional catalyst for future growth. That's a pretty good indication to re-evaluate positions and potentially take some money off the table, depending on the specific security.
That stated, I am not optimistic on the key indices. There are ample ETFs you could use to short those.
I did not put together a list of specific stocks to short. A short while back, I was working on a shorting model, but became involved in other things and set it aside. Perhaps I will revisit it.
Hope that answers your question. Good luck.
-Erik
Spain's Temporary Lifeline [View article]
Certainly. Spain is in a lousy spot. Figure, as its economy continues to contract, that will put more downward pressure on real estate and lead to more bad loans. Spanish banks will undoubtedly need additional funding to stay afloat. And you're correct is saying that Europe doesn't have the resources necessary for a real, substantial bail out. Like I said, the likelihood that this is going to work is like calling tails when someone flips a two-headed coin.
While I can appreciate the perspective that if we push off the day of reckoning a bit farther, maybe the economy will pick up sufficiently that the day of reckoning will never come. But, alas, that really seems more like a pipe dream than a practical approach to addressing the issue. This is clearly evident in the rising yields.
You're right, it seems like this thing is about to collapse. Absent a major change, the collapse can't be too long off.
Screening For Stocks As Growth Stalls [View article]
I try to structure screens based on the economic and market conditions, but there are many ways to chop up these numbers, especially if you're hunting takeover and merger targets.
AIR is an interesting company. I'm sure you know it better than I do.
Good luck investing.
This Euro Crisis [View article]
You're correct is saying that a better measure of the real debt burden would be to remove the government part of the GDP equation. (It is important to keep in mind how much government spending is as a percent of GDP.) After all, private industry is the key driver of the economy. Whether you're talking about taxing corporations or the people who work there or buy the products that the corporations produce, that is the key source of government revenue. (Other than that, the gov't is just left selling off assets, and sooner or later you run out of those.) So, as you pointed out, the gross debt to GDP figures I used are lower than the debt/private sector figures. Perhaps I will address that in more detail in a future article.
This Euro Crisis [View article]
Yes, the Fed acts domestically, and it is supposed to work towards price stability and full employment here. Still, it keeps some eye toward global macro dynamics, and the impact they will have on the US, even if it doesn't target a specific exchange rate. As you mentioned, exchange rates are driven by investor decisions. Short-term, they are driven by the flow of investor money. Longer term, the exchange rate still comes back to the economy.
I'm there with you regarding the impact of the ECB undertaking a QE policy. There will not be any magical monetary policy fix to this. It might help somewhat, but it will not be a cure.
This Euro Crisis [View article]
http://yhoo.it/LOXDpQ
I agree. The Fed, if it acts, will have to target something else. Figure, the European debt crisis led investors to seek a safe haven, that that helped push yields on US Treasuries down. Think about investing in a 10-year UST now. Any chance inflation might be higher in any given year than what this pays in interest? It's a losing proposition. The Fed will have to do something else to get things moving. You're right, it might be mortgages.
Any dollar strength would likely come, not necessarily from the Fed policy, but more from weakness in Europe and further potential risk that the euro falls apart.
This Euro Crisis [View article]
And, yes, you are correct about the differences between Japan's savers and America's consumers, and that goes a long way in explaining why China holds so much of our debt -- we like to consume their products.
The issue regarding who holds a nation's debt speaks about the strength of the currency. A run on the currency could raise borrowing costs, making it more difficult for the country to finance its deficits. Japan has not seen a run on its currency partly because much of its debt is held internally. As you mentioned, they are a nation of savers.
This Euro Crisis [View article]
We're in a lousy situation anyway you look at it. If Greece stays in the euro, its economy will likely struggle through a few more years of ridiculous though necessary austerity programs that will likely fuel further fires of civil discord, only to bring about the eventual conclusion of the country leaving the euro anyway. Let's face it, I don't see any significant catalyst for growth in Greece that would significantly boost its GDP and reduce its relative debt burden.
If Greece leaves the euro now that sends the signal that policymakers are incompetent to address the problem, and that would cause fear to spread. After all, Greece is a relatively small country, and if the policymakers couldn't help a relatively small country, how much could they really do for Italy and Spain.
And I agree, if you examine banks' ability to handle things, you're sort of left scratching your head, particularly if economic activity nosedives. An economy adding only 69,000 jobs a month (let's see how the trend develops) is way too weak to successfully handle shockwaves from Europe.
This Euro Crisis [View article]
I agree that it's all about faith. While the market is trying to price in Greece leaving the euro, the much greater risk is the potential for contagion. And there is good reason. On a gross debt basis alone, Italy is right behind Greece, and France and Belgium are worse positioned that Spain. These are all good size economies. If Greece goes, many of these other economies could quickly follow, like dominoes falling.
Still, this does not necessarily mean that there will be an immediate run on all key currencies. The US gets a bit of a "pass" for now because we are the world's largest economy and the dollar is the major reserve currency. Otherwise, our debt/GDP ratio would be considerably more frightening. Similarly, Japan gets a "pass" for now because most of its debt is held domestically. Nonetheless, even here, faith could eventually yield to panic.
Screening For Memorial Stocks In Aerospace And Defense [View article]
It is a challenging environment on many levels, not the least of which is the potential hit to defense budgets. Add in the volatility in the markets, and investment exposure to this area is particularly vulnerable, as we see in the recent performance of ATRO and UTX relative to the S&P 500.
Good luck investing.
Irene And Screening Home Improvement Retailers [View article]
The screen required a PEG of less than 1.1. CLWY dropped out because it did not have a PEG ratio.
CLWY's P/E ratio, based on trailing twelve month earnings, is very low. But keep in mind that the company is small and the stock is thinly traded, so liquidity can be an issue.
Good luck investing.
-Erik
Screening for Growth as Economy Sputters: 4 Finalists Near Fire-Sales Prices [View article]
The screening process I discussed here is by no means the only way to go. I try to develop and discuss a process based on different macroeconomic conditions.
That stated, I can understand how OLN might not have passed your screen, particularly when it comes to debt. According to Reuters, it has a long-term debt/equity ratio of 50 in an industry where the average is only about 7.4. Its total debt/equity ratio is 59, relative to the industry's average reading of 30.
Still, there are reasons to keep an eye on OLN.
And it is going to be interesting to see what happens in September when everyone comes back from summer vacation.
Good luck investing.
-Erik
Screening for Growth as Economy Sputters: 4 Finalists Near Fire-Sales Prices [View article]
Thank you for your comment and the insightful article on Valhi and Kronos. You raise very good points, which are also discussed in Seth Shaw's article.
Interested investors need to take such relationships into consideration.
The stock screening that I try to address each week is only part of the security-selection process. The idea is to arrive at some manageable list of companies, and then dive into them for further research to see which ones are worth considering. Your article drives home the importance of doing the research.
Thank you again for your insight.
-Erik