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John Lounsbury  

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  • 95 Stocks with Low Debt to Equity [View article]
    Great article, Bill.

    Even more important than just looking a debt/equity, in my opinion, is cash position. I would run a sub-screen for cash on the balance sheet.
    Oct 13, 2008. 11:32 AM | 2 Likes Like |Link to Comment
  • IBD: 1930s DOW vs NASDAQ Correlation [View article]
    Two comments:

    1. The past is prologue.
    2. This time is different.

    I think both apply to the current situation. Obviously, the two histories compared have some basic similarities. Both had declines from tech bubbles that consumed 70-90% of their market's value. Both were followed by financial system meltdown.

    What is different are the timelines. In the 1930s, the financial meltdown occurred immediately after the tech bubble (1-3 years). In the 2000s the financial crisis was delayed seven years.

    It may be more coincidence than direct relationship that makes the two charts overlay. It is very possible that the two charts may diverge substantially going forward.

    What scenario might evolve that would keep the 2000s chart tracking the 1930s, 1940s and 1950s?

    1. We get a multimonth rally inspired by stabilization of worldwide credit markets.
    2. Next there is some pullback and consolidation as the effects of the financial meltdown are digested by the world economy.
    3. Following the above events, a new economic expansion begins, stimulated by the growth of new energy systems and infrastucture investment.
    4. Finally, a new era of high productivity growth follows, stimulated by abundant cheap energy, efficient new infrstructure and growing economic power in emerging markets.
    Oct 13, 2008. 11:27 AM | 2 Likes Like |Link to Comment
  • Competitive Markets Don't Just Happen; It's Time to Regulate In the Public Interest [View article]
    Unfortunately, free market "principles" are theories, not laws. In theory, free markets are transparent and understood by all participants. In practice, some participants often know more than others because of lack of disclosure. There is a term for this situation: "caveat emptor" (spelling?) or "let the buyer beware". When the lack of disclosure goes to extremes, we can have collapses such as we are now experiencing. Obviously, in the present situation the buyer has been unaware. One might argue that the seller has been ignorant, as well.

    Regulated markets can restrict desired activity as well as prevent undesired activity. They also can add cost, as pointed out by Smarty_Pants. Obviously, regulation can slow economic activity and growth. On the otherhand, proper regulation can insure transparency and reduce systemic risk. If regulations go so far that they protect idiots from making mistakes, they are likely to be counter productive. However, regulations should be sufficient to assure that information is available and unambiguous for all cogent market participants. If a few don't pay attention, there is no systemic problem. If many don't pay attention to the information, there can be systemic risk and there may be a need for more restrictive regulation. This should be needed only occasionally. Such an occasion appears to be what has happened in the past year.

    To use a metaphor, we are all on a sailing ship. There should be rules that specify the necessary actions to keep the ship sailing and these rules should be imposed on all aboard. Beyond that, there should be rules (I'll call them "circuit breaker rules") that will prevent everyone from running to the leeward side of the ship when a wind gust hits.
    Oct 13, 2008. 11:06 AM | Likes Like |Link to Comment
  • Today's Situation: Not a Great Depression [View article]
    By September, 1930 (one year after the 1929 top) the metrics you cite were much closer to the values for 2008 than what you quote for 1932. You have not made a valid comparison.

    Do you intend to speculate what the current economy will look like two years from now? That would be a valid comparison to 1932.
    Oct 10, 2008. 12:32 PM | 2 Likes Like |Link to Comment
  • 5 Reasons Stocks Will Keep Falling [View article]
    I've said this before but must repeat it.

    Too many are still in denial. "Liberals" and "Conservatives" are still blaming each other. Get over it! There are a litany of mistakes across the political spectrum. Learn from them but get over it! After a (hopefully brief) period of anger that we could all have been so guilible and stupid, let's put our financial lives back together again.

    Facts that disagree with a political persuasion are still being denied by ideologues. It's time to face the music. We can't use mountains of unrepayable personal debt to create wealth (social engineering). We can't cut taxes and increase spending to create wealth (supply side/trickle down nonsense). Are we finally going to find a way to operate based on principles of individual responsibilty, community structure and financial integrity?
    Oct 10, 2008. 12:21 PM | Likes Like |Link to Comment
  • The Dow, One Year After the Peak [View article]
    Very nice summary chart. What are the odds that we will surpass the super cycle bear market (1974 bottom)? I say the odds are very high that we will.

    Then the question is whether we will repeat anything like the 1929-1932 collapse or not. I'm not ready to speculate on that yet.
    Oct 10, 2008. 11:50 AM | Likes Like |Link to Comment
  • Too Late to Short SPY? An Historical Perspective [View article]
    The link to my technical analysis post:
    Oct 10, 2008. 11:38 AM | Likes Like |Link to Comment
  • Too Late to Short SPY? An Historical Perspective [View article]
    Very insightful article. Combine this with my technical analysis post
    Where Are We in the Stock Market Cycle?
    to put your arms around what the possibilities are for the market.
    Oct 10, 2008. 11:33 AM | Likes Like |Link to Comment
  • History Lesson and Bear Market Advice [View article]
    Many (informed and uninformed) are saying we have the worst crisis since the Great Depression. If we are entering a period anything like that time period, only three types of investors will do well from here:
    1. Index investors with 25 years or longer investment time horizons.
    2. Careful value investors who do rigorous research to find the solid companies that will do well and grow over periods of 5-10 years.
    3. Traders. The 1930s had many primary market cycles (more than 1/3 of all the primary bull and bear market cycles of the past 107+ years).

    If the economists (and pundits) are wrong about the seriousness of the current credit crisis, comparisons to the 1930's are not important.

    How many investors think they know what the future scenario is? Not many, I believe, based on the record volatility in the market.
    Oct 10, 2008. 10:54 AM | Likes Like |Link to Comment
  • Don't Blame Deregulation For This Crisis, It's All About Lack of Regulation [View article]
    Come on, folks. Too many people are trying to blame one political viewpoint and absolve another. STOP BEING RIDICULOUS!!!!!

    This mess was created with the advice and consent of both political parties and flawed economic models. Let's get over it and start figuring out a new paradigm.
    Oct 8, 2008. 10:56 AM | Likes Like |Link to Comment
  • Never Enough Lessons on Forward P/E [View article]
    In the first quarter 2008 I suspended my stock screening activities looking for deep value based on trailing and forward earnings. Past earnings have no meaning in the current environment and published forward earnings estimates are currently "wish lists" and are unlikely to reflect informed assessments. In the same vein, many book values are suspect (obviously for financials, but possibly elsewhere as well).

    My strategy since the beginning of the year has been to look for a baby in the discarded bathwater where earnings and assets may be understood well. I haven't found much and have had to resort to holding cash and doing some short-term trading.
    Oct 8, 2008. 10:38 AM | Likes Like |Link to Comment
  • Is the End of the Crisis Near? [View article]
    There have been two times in the past 100 years when the market took a very long time to recover the previous high. After 1929, it took over 20 years to ragain the Dow high. After 1973, it took ten years to regain the Dow high. Both of these periods, like now, resulted from severe global economic shocks. It looks like the current credit crisis is the third comparable shock. Few are likely to get rich in the next several years by buying stock market indexes and holding them no matter what. If someone can time the market and buy an index at the bottom, obviously they will be okay holding long term. The problem is that sometimes a market bottom is not definitely confirmed until years later.
    Oct 8, 2008. 10:22 AM | Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Under water? It has happened before. I built my "dream home" in 1972. I owned the land and was able to finance the construction 100%, using the land value as equity. Within a few years, I am sure that the market value of the property was less than my mortgage, if I could have sold it, which was debatable .

    Because of the oil crisis I was having trouble meeting living expenses. The cost of driving to work and the cost for heating my home approximately tripled in a short period of time. All other costs increased dramatically. Inflation rates in the 70's moved well into the teens. My income did not keep pace.

    My family wore used clothes. We drove very little and had an old car. We went in the woods and dragged home firewood (by hand) so that we could use less heating oil. There were no vacations for five years. But never once did we consider foreclosure. We had a place to live and sacrificed everything else to protect it.

    I sold that home in 2004 for ten times the original cost.

    The current situation will also pass. We will come out the other side stronger. The pain may last for years. Government action may or may not help. Washing out the effects of shocks, in this case a credit bubble bursting, take time. Just remember, you don't hang the wash out to dry until all the detergent has been rinsed out.
    Oct 8, 2008. 10:07 AM | Likes Like |Link to Comment
  • Our Coming Depression [View article]
    JGQ, yes PE ratios are rising even as prices come down. This has occurred in most stock market declines because earnings fall faster than stock prices. Falling PE values often occur after the bottom of a stock market cycle, not before.

    In the early stages of a bear market, earnings are still near the top of the cycle while stock prices are dropping in anticipation of lower earnings. If earnings do not drop, we do not end up in a bear market, but simply have a correction followed by a further advance. If earnings do drop, there is often a period of denial in the market that allows prices to remain high enough that PE ratios actually rise before prices drop into bear territory and remain relatively high through the market bottom. Only with multi-year bear markets do we actually see very low PEs near a market bottom. After a market bottom, often earnings are not yet rising but stock prices are. In other words, PE values are a trailing indicator.
    Oct 7, 2008. 02:28 PM | Likes Like |Link to Comment
  • Our Coming Depression [View article]
    James Quinn, as always you present detailed data and cogent analysis.

    Cal48koho, great summary comment.

    Many others, you are still in a state of denial. A few have left denial and are now in anger. More will follow. We have to work through the stages of mourning to get to the other side and rebuild our society and economy.

    I have studied the data presented and there are clear changes in trends at certain times in our history. I draw some clear conclusions regarding what political and public policy events have played a roll in our history simply from the timeline. My conclusions would spread a rather broad range of blame across the political spectrum.

    I will not share my conclusions for three reasons:
    (1) Some would prompt political garbage comments from the "left".
    (2) Some would prompt political garbage comments from the "right".
    (3) For logically analytical people, my conclusions are obvious.

    Finally, James Quinn, please keep up these detailed analytical articles.
    Oct 7, 2008. 11:22 AM | Likes Like |Link to Comment