Which is very unfortunate. Singapore's much more successful healthcare system is based largely around these concepts. Obamacare goes in the complete opposite direction.
What J.C. Penney Sellers Are Missing [View article]
Zeus,
There is a price for everything. It's just that sometimes that price is $0.
Unless JCP plans to liquidate its real estate holdings sometime soon, it's difficult to imagine how an investor could extract any value from a mass retailer that's revenues are plunging and is bleeding cash. This is a "value trap".
What J.C. Penney Sellers Are Missing [View article]
Alan,
Enjoy your writings, but I'm in strong disagreement with you on this one. Just a quick glance at their last 10-Q shows that revenues have plunged 25% in the past year. That's absolutely fatal. This is a dead man walking.
So what if their inventories are down? It's not like they can liquidate their way to long-term profitability.
The turn-around case here isn't very strong either. The entire strategy revolved around turning a discount mass retailer into a high-margin one. It just doesn't work that way.
Maybe a small trendy boutique could become "high-margin", but mass retailers are all about cost and volume. Take a look at Wal-Mart, Target, and Trader Joe's --- they are about as low-margin as it gets, but they profit from volume. They do seem to be getting back on track a bit now, but I question whether it's too late.
Johnson thought he could turn this into Apple merely by re-branding and raising prices, but he's not selling hip, trendy electronic devices. He's selling the place where your grandfather buys his Sunday clothes.
About the only case one could possibly make for JCP is that maybe it's real estate is undervalued and that the enterprise could be liquidated at a higher price than it's selling today. Of course, that assumes that current management wouldn't prefer to lose money for the next 2-3 years first. And I can guarantee that Ron Johnson isn't interested in being the guy that "liquidated JC Penney", so the show will go on.
How Obamacare Could Harm Growth In 2014, Part I [View article]
Don't think anyone has ever called me a "bear" before. I've been rather bullish since late 2008. I'm still net long, but this is as conservative as I've been in several years. I'm not really bearish, so much as I see great reasons to hedge with all the economic and regulatory uncertainty.
The ACA is already causing premiums to skyrocket, so you might want to do more research on the issue.
The idea that this thing could actually harm the economy seems to be completely foreign to people, yet it essentially amounts to a large tax increase, that will affect young, middle income earners the most. That has the potential to do some major damage.
I'm also of the view that there are a lot of parallels between what we're doing right now and what happened in the 1970's. I didn't live through the 70's, but I see a lot of similar trends data-wise and policy-wise and I think people are ignoring M2 money supply growth, which is at the same levels we saw in the late 90's, only without the high economic growth accompanying it.
I've been watching real estate more than energy prices, as I believe that's where inflation will be most likely to flow through, but energy prices could definitely start to rise, as well.
Sorry Bears, We're In A Secular Bull Market [View article]
Good research, Jonathan. Though, I find myself disagreeing with the conclusions.
For one, I've never been a big believer in the whole "secular bull / bear" market thing. In my view, bull and bear markets are largely driven by macroeconomic and / or demographic currents, so there's no real magic behind them. People point to 10 - 20 year cycles, but with different policies, the 00's could have just as easily been a true bull market (with no massive crash).
The earnings yield might be slightly above-average at the moment, but it seems to convey little info about future trends. For instance, 1991 would have been one of the best times in the past four decades to have entered the stock market. Yet, the earnings yield was a dismal 4.63%. Conversely, the earnings yield was over 11% in the late 70's / early 80's, but you would have probably been better off in pure risk-adjusted terms by buying US treasuries.
So I'm not sure that the earnings yield, by itself, really tells us all that much. Corporate earnings could easily contract in the future, since they are being fattened largely by fiscal and monetary policies. Or corporate earnings could expand in the future, like they did from the early 90's onward. The result depends on other factors, and I think that corporate earnings are being fueled by a massive stimulus from the Federal government, making them more subject to collapse.
I've actually been bullish since late 2008 and bought in heavily in 2009, but the further away we get from that point, the more concerned I've become. I see little evidence that the market is being fueled by real growth --- but rather, it's being primed via artificial stimulus. That's scary and it also makes it difficult to predict when the s#@$ will hit the fan again.
The Time To Short Japanese Government Bonds Is Now [View article]
Good article, Shubhendu.
Still not sure about my own thoughts on the Japanese situation, except that I don't think the current policies will lead to much good. But I've never really been sure how to actually it will play out in the markets, so I've stayed away for the most part.
New CFPB rules aimed at protecting consumers and investors from themselves as well as bankers could over time eliminate half of the country's mortgage market, suggests CoreLogic's Sam Khater. The good news: Any loans that can actually get made will have virtually no risk. [View news story]
This is only true if you assume that underwriting risks are the primary risks. I'd content that they are not.
Bubbles don't happen because banks weaken underwriting standards. Rather, underwriting standards become weakened as a consequence of Federal government policies (including those by the central bank). These policies have a "free money" effect, so long as lenders can find people to lend out to.
Forcibly strengthening underwriting standards will not stop bubbles. It will merely deprive a large chunk of the middle class the ability to purchase housing.
Robert Shiller: Don't Invest In Housing [View article]
The idea that a house is "not an investment" is the most patently stupid financial idea routinely championed in this country. When you buy something with 19:1 leverage or even 28:1 leverage (under FHA), and it requires 30% of your take-home pay, it is most certainly an investment, even if you pretend it's not.
We keep telling people you "buy a house to live in", as if buying a house at 40x price-to-rent ratio with 19:1 leverage is a great idea, so long as you plan to stay there. We've taught homeownership as some sort of goal in and of itself, rather than making it just like any other financial decision, with risks, rewards, and returns.
A house is most certainly investment. It's no different than buying stocks or bonds, and has significantly higher risks in many cases.
Robert Shiller: Don't Invest In Housing [View article]
Thanks for the terribly insightful comment, Benny.
My point is that many economists seem to completely ignore the nuts and bolts of the things they make dramatic sweeping generalizations about. Shiller is one of the worst about doing this, and his investment advice track record is less than stellar.
He analyzes everything from 50,000 feet up, and completely ignores how things look on the ground. He's the type of economist that could be offered a brand new Mercedes for $3,000, and would conclude it's a terrible investment because cars have historically depreciated in value and Mercedes tend to have high maintenance costs.
Whether or not housing is a good investment depends very heavily on the price you obtain it at, the amount of leverage you can obtain, the market conditions of the area you are purchasing in (market rent prices), and the future outlook for the area, amongst other factors. To say with a sweeping generalization that housing is almost always a poor investment is ignorant. It's like saying that one shouldn't have invested in Microsoft in 1987 because the P/E ratio of the S&P 500 was too high.
Shiller is a great economist, but he'd make a terrible investment manager. He's almost as bad as Nouriel Roubini when it comes to being a perma-bear on everything.
Robert Shiller: Don't Invest In Housing [View article]
Shiller seems to be operating under the flawed assumption that most buyers are all-cash buyers. Real estate, in general, is a terrible investment if you are an all-cash buyer. What makes it attractive is leverage.
3% appreciation is basically equivalent to a 0% real rate of return. But with 9:1 leverage, that 3% appreciation, becomes a 30% return on equity. Even with 4:1 leverage, it's a 15% return on equity. And that is why real estate can be an attractive investment.
This seems to be a case of Shiller having an expert understanding of the historical dynamics of the housing market prices, but seemingly having virtually no understanding of real estate finance. No one gets rich "owning" a home --- but many people have made fortunes buying leveraged real estate assets.
Shiller also seems to be ignoring the economic alternatives. If you don't own a home, you must rent one. So the question isn't how much housing price appreciation is there --- it's whether the present value of buying is more attractive than renting.
Here Comes The Housing Boom -- Or Not? [View article]
Shiller is a bit of a perma-bear.
As to it being "hard to find an exact cause for the rebound", how about the fact that price-to-rent ratios are at historic lows, the Federal government is running massive budget deficits (pumping more and more money into the system), and the Federal Reserve has declared that they will leave their foot on the gas so long as unemployment stays above 6.5%?
Housing bubbles are normally created via loose monetary and / or fiscal policies. We have both of those conditions in place now. The only thing that's changed is that we've made it more difficult for banks to lend out to middle income individuals, but that's why we're seeing a massive amount of investment interest in the housing market.
Calamos Asset Management: Exceedingly Cheap At 3.5x Earnings With A 4.4% Yield [View article]
Interesting company and great article.
Difficult to understand all the implications of the crazy legal situation, though. On general principal, I don't like the idea of allowing the owning family to take full dividends, while using the holding company to store excess cash. Even if there's no malevolent intent, I can't say I'm crazy about that scenario.
I'd also ignore one-time items such as "investment income" for net income. Makes more sense to exclude that and go with net income of $116 million. Though, that wouldn't change the analysis that much and 10x seems pretty conservative.
All the same, there is a pretty good case it's undervalued and you've made it. The fact that insiders are purchasing the stock is also comforting. Still not sure if I'd want to chance buying in with a legal structure that punishes Class A shareholders.
14 Charts On Money Supply, Deficits, And Housing Prices [View article]
Velocity of money is interesting. I probably should have added it to this series. However, like all the other charts here, it has its flaws.
Velocity of money was actually declining during many of the years of the housing boom (2000 - 2003). By the time it started rising again, housing prices were already very inflated. Indeed, Alan Greenspan's actions look more justified when looking solely at velocity of money (and less justified when looking at M2 and housing price inflation).
Still, it's a useful piece of the puzzle and did indeed spike during the inflationary 1970's.
Fiscal Cliff Could Make Dividend Stocks Very Attractive For Retirement Accounts [View article]
Surfgeezer,
Income is great and I'll continue to make income investments in my lower-tax personal account, and in professional accounts I manage (though my allocations to a few classes of investments will likely shift as a result). But it's foolish to believe that the tax increases won't affect others.
I don't personally give a damn if a few rich people have to pay a little bit more in taxes. I grew up in a lower income household in rural Appalachia and only in the past few years have I even been considered "middle income", and I don't particularly think paying more taxes hurts wealthy people all that much.
But what I do care about is all the people in the middle class that will inadvertently get hit as a result of this. And the people that have fewer jobs available to them, because government expansion takes money away from entrepreneurs and business people who go out and create jobs.
Politicians love to perpetuate the lie that "taxes on the wealthy" only affect the wealthy, but they rarely do. Tax cuts for the wealthy benefit the middle class. And tax cuts for the middle class benefit the middle class even more. But tax increases (and Federal government expansion) only benefit politicians, crony capitalists, and the irresponsible.
Truthfully, though, I can't see what any of this has to do with my article. The main thrust of the article is merely that the tax changes will cause a certain class of investors to start exiting these stocks, which will temporarily suppress the prices, and will likely create a buying opportunity for tax-advantaged and lower-rate investors.
Economically, these changes are not beneficial. But if you're in an advantaged class (as you are), you might as well take advantage. I'll likely do so in my personal account (at least until I'm wealthy enough so that the higher tax rates start to hit me.)
How Obamacare Could Harm Growth In 2014, Part II [View article]
To my understanding, the ACA will make HSA accounts and high-deductible insurance plans less realistic options.
http://onforb.es/Xdjkty
Which is very unfortunate. Singapore's much more successful healthcare system is based largely around these concepts. Obamacare goes in the complete opposite direction.
What J.C. Penney Sellers Are Missing [View article]
There is a price for everything. It's just that sometimes that price is $0.
Unless JCP plans to liquidate its real estate holdings sometime soon, it's difficult to imagine how an investor could extract any value from a mass retailer that's revenues are plunging and is bleeding cash. This is a "value trap".
What J.C. Penney Sellers Are Missing [View article]
Enjoy your writings, but I'm in strong disagreement with you on this one. Just a quick glance at their last 10-Q shows that revenues have plunged 25% in the past year. That's absolutely fatal. This is a dead man walking.
So what if their inventories are down? It's not like they can liquidate their way to long-term profitability.
The turn-around case here isn't very strong either. The entire strategy revolved around turning a discount mass retailer into a high-margin one. It just doesn't work that way.
Maybe a small trendy boutique could become "high-margin", but mass retailers are all about cost and volume. Take a look at Wal-Mart, Target, and Trader Joe's --- they are about as low-margin as it gets, but they profit from volume. They do seem to be getting back on track a bit now, but I question whether it's too late.
Johnson thought he could turn this into Apple merely by re-branding and raising prices, but he's not selling hip, trendy electronic devices. He's selling the place where your grandfather buys his Sunday clothes.
About the only case one could possibly make for JCP is that maybe it's real estate is undervalued and that the enterprise could be liquidated at a higher price than it's selling today. Of course, that assumes that current management wouldn't prefer to lose money for the next 2-3 years first. And I can guarantee that Ron Johnson isn't interested in being the guy that "liquidated JC Penney", so the show will go on.
How Obamacare Could Harm Growth In 2014, Part I [View article]
The ACA is already causing premiums to skyrocket, so you might want to do more research on the issue.
http://on.wsj.com/V9DNPT
The idea that this thing could actually harm the economy seems to be completely foreign to people, yet it essentially amounts to a large tax increase, that will affect young, middle income earners the most. That has the potential to do some major damage.
Investing In 2013: Remember 1977 [View article]
I'm also of the view that there are a lot of parallels between what we're doing right now and what happened in the 1970's. I didn't live through the 70's, but I see a lot of similar trends data-wise and policy-wise and I think people are ignoring M2 money supply growth, which is at the same levels we saw in the late 90's, only without the high economic growth accompanying it.
I've been watching real estate more than energy prices, as I believe that's where inflation will be most likely to flow through, but energy prices could definitely start to rise, as well.
Sorry Bears, We're In A Secular Bull Market [View article]
For one, I've never been a big believer in the whole "secular bull / bear" market thing. In my view, bull and bear markets are largely driven by macroeconomic and / or demographic currents, so there's no real magic behind them. People point to 10 - 20 year cycles, but with different policies, the 00's could have just as easily been a true bull market (with no massive crash).
The earnings yield might be slightly above-average at the moment, but it seems to convey little info about future trends. For instance, 1991 would have been one of the best times in the past four decades to have entered the stock market. Yet, the earnings yield was a dismal 4.63%. Conversely, the earnings yield was over 11% in the late 70's / early 80's, but you would have probably been better off in pure risk-adjusted terms by buying US treasuries.
So I'm not sure that the earnings yield, by itself, really tells us all that much. Corporate earnings could easily contract in the future, since they are being fattened largely by fiscal and monetary policies. Or corporate earnings could expand in the future, like they did from the early 90's onward. The result depends on other factors, and I think that corporate earnings are being fueled by a massive stimulus from the Federal government, making them more subject to collapse.
I've actually been bullish since late 2008 and bought in heavily in 2009, but the further away we get from that point, the more concerned I've become. I see little evidence that the market is being fueled by real growth --- but rather, it's being primed via artificial stimulus. That's scary and it also makes it difficult to predict when the s#@$ will hit the fan again.
The Time To Short Japanese Government Bonds Is Now [View article]
Still not sure about my own thoughts on the Japanese situation, except that I don't think the current policies will lead to much good. But I've never really been sure how to actually it will play out in the markets, so I've stayed away for the most part.
New CFPB rules aimed at protecting consumers and investors from themselves as well as bankers could over time eliminate half of the country's mortgage market, suggests CoreLogic's Sam Khater. The good news: Any loans that can actually get made will have virtually no risk. [View news story]
Bubbles don't happen because banks weaken underwriting standards. Rather, underwriting standards become weakened as a consequence of Federal government policies (including those by the central bank). These policies have a "free money" effect, so long as lenders can find people to lend out to.
Forcibly strengthening underwriting standards will not stop bubbles. It will merely deprive a large chunk of the middle class the ability to purchase housing.
Robert Shiller: Don't Invest In Housing [View article]
We keep telling people you "buy a house to live in", as if buying a house at 40x price-to-rent ratio with 19:1 leverage is a great idea, so long as you plan to stay there. We've taught homeownership as some sort of goal in and of itself, rather than making it just like any other financial decision, with risks, rewards, and returns.
A house is most certainly investment. It's no different than buying stocks or bonds, and has significantly higher risks in many cases.
Robert Shiller: Don't Invest In Housing [View article]
My point is that many economists seem to completely ignore the nuts and bolts of the things they make dramatic sweeping generalizations about. Shiller is one of the worst about doing this, and his investment advice track record is less than stellar.
He analyzes everything from 50,000 feet up, and completely ignores how things look on the ground. He's the type of economist that could be offered a brand new Mercedes for $3,000, and would conclude it's a terrible investment because cars have historically depreciated in value and Mercedes tend to have high maintenance costs.
Whether or not housing is a good investment depends very heavily on the price you obtain it at, the amount of leverage you can obtain, the market conditions of the area you are purchasing in (market rent prices), and the future outlook for the area, amongst other factors. To say with a sweeping generalization that housing is almost always a poor investment is ignorant. It's like saying that one shouldn't have invested in Microsoft in 1987 because the P/E ratio of the S&P 500 was too high.
Shiller is a great economist, but he'd make a terrible investment manager. He's almost as bad as Nouriel Roubini when it comes to being a perma-bear on everything.
http://bit.ly/VL1xuN
Robert Shiller: Don't Invest In Housing [View article]
3% appreciation is basically equivalent to a 0% real rate of return. But with 9:1 leverage, that 3% appreciation, becomes a 30% return on equity. Even with 4:1 leverage, it's a 15% return on equity. And that is why real estate can be an attractive investment.
This seems to be a case of Shiller having an expert understanding of the historical dynamics of the housing market prices, but seemingly having virtually no understanding of real estate finance. No one gets rich "owning" a home --- but many people have made fortunes buying leveraged real estate assets.
Shiller also seems to be ignoring the economic alternatives. If you don't own a home, you must rent one. So the question isn't how much housing price appreciation is there --- it's whether the present value of buying is more attractive than renting.
Here Comes The Housing Boom -- Or Not? [View article]
As to it being "hard to find an exact cause for the rebound", how about the fact that price-to-rent ratios are at historic lows, the Federal government is running massive budget deficits (pumping more and more money into the system), and the Federal Reserve has declared that they will leave their foot on the gas so long as unemployment stays above 6.5%?
Housing bubbles are normally created via loose monetary and / or fiscal policies. We have both of those conditions in place now. The only thing that's changed is that we've made it more difficult for banks to lend out to middle income individuals, but that's why we're seeing a massive amount of investment interest in the housing market.
Calamos Asset Management: Exceedingly Cheap At 3.5x Earnings With A 4.4% Yield [View article]
Difficult to understand all the implications of the crazy legal situation, though. On general principal, I don't like the idea of allowing the owning family to take full dividends, while using the holding company to store excess cash. Even if there's no malevolent intent, I can't say I'm crazy about that scenario.
I'd also ignore one-time items such as "investment income" for net income. Makes more sense to exclude that and go with net income of $116 million. Though, that wouldn't change the analysis that much and 10x seems pretty conservative.
All the same, there is a pretty good case it's undervalued and you've made it. The fact that insiders are purchasing the stock is also comforting. Still not sure if I'd want to chance buying in with a legal structure that punishes Class A shareholders.
14 Charts On Money Supply, Deficits, And Housing Prices [View article]
Velocity of money was actually declining during many of the years of the housing boom (2000 - 2003). By the time it started rising again, housing prices were already very inflated. Indeed, Alan Greenspan's actions look more justified when looking solely at velocity of money (and less justified when looking at M2 and housing price inflation).
Still, it's a useful piece of the puzzle and did indeed spike during the inflationary 1970's.
Fiscal Cliff Could Make Dividend Stocks Very Attractive For Retirement Accounts [View article]
Income is great and I'll continue to make income investments in my lower-tax personal account, and in professional accounts I manage (though my allocations to a few classes of investments will likely shift as a result). But it's foolish to believe that the tax increases won't affect others.
I don't personally give a damn if a few rich people have to pay a little bit more in taxes. I grew up in a lower income household in rural Appalachia and only in the past few years have I even been considered "middle income", and I don't particularly think paying more taxes hurts wealthy people all that much.
But what I do care about is all the people in the middle class that will inadvertently get hit as a result of this. And the people that have fewer jobs available to them, because government expansion takes money away from entrepreneurs and business people who go out and create jobs.
Politicians love to perpetuate the lie that "taxes on the wealthy" only affect the wealthy, but they rarely do. Tax cuts for the wealthy benefit the middle class. And tax cuts for the middle class benefit the middle class even more. But tax increases (and Federal government expansion) only benefit politicians, crony capitalists, and the irresponsible.
Truthfully, though, I can't see what any of this has to do with my article. The main thrust of the article is merely that the tax changes will cause a certain class of investors to start exiting these stocks, which will temporarily suppress the prices, and will likely create a buying opportunity for tax-advantaged and lower-rate investors.
Economically, these changes are not beneficial. But if you're in an advantaged class (as you are), you might as well take advantage. I'll likely do so in my personal account (at least until I'm wealthy enough so that the higher tax rates start to hit me.)