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Pompano Frog  

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  • 2008 And 2015 - An Economic Comparison [View article]
    Dear Reader..

    One of the strengths of Seeking Alpha is to be able to review an author's previous articles or a commentator's historical posts.

    I saw all of these charts that purport to show relationships which cannot be backed up by an historical analysis of the last 50 years of actual data.

    Here is one of the author's typical articles from 2010.

    They look the same to me. So this author has been bearish through one of the great post world war II bull markets. I think if he had his own money on the line he would have started to rethink his basic assumptions.

    My experience with friends with similar views is that they are always heavy Fox News viewers. I like Fox News. They raise good points. They exaggerate for the sake of attracting viewers.

    And most importantly, there are bull and bear markets under periods of good government and bad government.

    Let me just comment on one aspect of this analysis.

    In the headline there is an allusion to 1987. In Sept of 1987 the S&P was 329..

    Two months later, it closed November at 230..

    In Sept of 1987 BAA corporate bonds were yielding 11.54%. You can download, examine or see a chart of this data at the Federal Reserve Bank of St. Louis website. It's easy to use.

    Stocks were trading at 17x p/e or roughly an earnings yield of 5.9%.

    That is a substantial difference in yield between asset classes. Typically, over the last 55 years BAA bonds yield slightly more than the earnings yield on stocks.

    Today, it is exactly the opposite.

    The BAA bond rate is currently 5.33%..Just like 1987??

    The lack of the Central Bank's ability to achieve its inflation target is not negative, it is extremely bullish for equities. Extremely..Extremely.

    Our Central Bank is the only major central bank, unlike the Peoples Bank of China, the Bank of Japan or the European Central Bank, that has to rely on monetary policy to solely influence domestic macroeconomic variables.

    These other Central Banks work in tandem with their banking systems, the regulatory framework and government fiscal policy to jointly achieve their objectives. The Federal Reserve does what it can with the tools it has.
    Oct 7, 2015. 10:22 AM | 1 Like Like |Link to Comment
  • Bill Gross: Saved By Zero? [View article]
    Dear Reader..

    Mr. Gross has got to be a lot smarter than I am, but I have a few questions.

    If the problem with the zero bound is that it effects global savings how come there is no capital shortage?

    Rates of return are always being misjudged by savers whether you are in a high government interest rate environment of an extremely low environment.

    REIT's, utilities and the ever popular, on Seeking Alpha, dividend portfolios are selling at near 50 year highs in valuations as replacements for fixed income.

    While 20 year BAA corporate bonds are trading at near 5.5%, the CCC rated bonds are trading near 15%.

    The p/e ratio on the S&P is around 15x. That is a little less than a 7% earnings yield. Over the last 55 years BAA bonds have yielded greater than the earnings yield on equities.

    This is one of the major drivers of equity prices since the 2009 lows. Most successful long term investors practice mean reversion.

    The implications contained in this article that companies can borrow at the tbill rate is not true. The typical public company can borrow at the BAA or the CCC corporate bond interest rate or issue more stock at a 7% earnings yield cost.

    I also don't understand his comment that stocks will go down in price if the tbill rate rises to 2%.

    Interest rate rises don't cause down stock markets. You can easily download the historical interest rate numbers to an excel spreadsheet from the Federal Reserve Bank of St. Louis and check this for yourself.

    Down stock markets are caused by tight credit. Tight credit is accompanied by a rise in short term interest rates above long term rates.

    So yes, sometimes rising interest rates are bad for stock prices.
    Oct 6, 2015. 08:52 AM | 7 Likes Like |Link to Comment
  • Investing With Russian ETFs [View article]

    Thank you for your Russian coverage. I try to get to Russia every other year and the support for Mr. P by the educated classes is truly amazing. Controlling the media is indeed helpful, but is not the whole story.

    Your headline is "the mid-term outlook remains bleak, as economic and political deficiencies have suppressed business growth in the country." You are implying that investment profits are tied to business growth.

    You might want to think about that. Think the U.S. in March, 2009. What was the business outlook?

    There are an enormous amount of academic papers on the topic of
    "currency crisis."

    To be bullish on Russia you would need to be bullish on the price of oil? I am.

    But, there is another factor, valuation. What are the valuation levels of Russian securities versus the alternatives such as Brazil or China?

    I am very luck that my grandparents were running very fast from the Czar's army.
    Oct 2, 2015. 05:31 PM | 3 Likes Like |Link to Comment
  • Preparing For A Market Collapse, Part III [View article]
    Dear Reader..

    I notice that no data is presented to back up the claim that all you need to do is short investment sectors with 3 month negative relative strength.

    I would argue the exact opposite. That sectors with negative relative strength attract the least sophisticated institutional investors and they become a very crowded trade. Once a market turns the reversal has extra momentum because of the increased level of shorts not tied to fundamentals.

    Regarding China and its "artificial central bank stimulus" I personally don't rely on Fox News for my understanding of central bank policies.

    Does it seem reasonable to the reader that all of the worlds central banks operate one way and yet the writers on Seeking Alpha have economic theories that are the exact opposite? Where this hurts investors is that the stock market is the financial intermediary between Central Bank policies and the real economy.

    So as an investor you want to constantly be aligned with the direction of the central banks. Are central banks in China, Japan, the Euro zone or the U.S. tightening liquidity and credit?

    China has a savings rate in excess of 40% of GDP. They have retail sales growth in double digit. Wage growth in China is in excess of 8%. Just like the U.S.

    Meanwhile, you can buy Chinese companies trading on the Hong Kong Stock Exchange with audits by subs of the major U.S. audit firms at 7.5x p/e and a dividend of 3%. Look at First Trust AlphaDex China (FCA 19.21, S&P 1899). Download the company list with the symbols. Read a few of the annual reports.
    Sep 30, 2015. 07:38 AM | 5 Likes Like |Link to Comment
  • Bet Against The Hong Kong Dollar Peg And You Will Lose Your Shirt [View article]
    Thank you for a well done article on a complicated subject.
    Sep 28, 2015. 08:51 AM | 1 Like Like |Link to Comment
  • More Keynesian Tommyrot- Today's Punk Durables Report Showed CapEx Is Heading Down, Not Up [View article]
    lol wut..

    If the Federal Reserve did not realize that a housing bubble was forming why did they take the yield curve negative in 2005 and 2006..

    The yield curve I am using is the difference in the U.S. 10 yr government and the 3 mos tbill rate.

    Over the last 55 years it has averaged 1.6%

    2004.12 the yield curve was 2.06%

    2005.12 .40%

    2006.12 -.18%

    To be negative is 1st decile event. In other words only 10% of the months over the last 55 years was it less than zero.

    Housing starts were 2005.12 2.0 million

    That is a tenth decile event over the last 45 years. They knew they needed to get on top of it, but the Central Bank in a democracy is scared to death of the political forces of the industry segment that is causing the problem. The public does not understand that the Central Bank is the only one watching out for everyone.

    The rest of these political parties are a bunch of ... and this author is an example.
    Sep 26, 2015. 03:43 PM | 2 Likes Like |Link to Comment
  • Will Europe Benefit Economically From The Migrant Crisis? [View article]

    also Japan has been able to show a rising standard of living per capita with low economic growth because it restricts immigration unless the immigrant has a superior skill set to the population.

    In fact, all of the high growth Asian countries follow that policy. They must be ignorant of the economic benefits.

    Previous waves of immigration to the U.S. consisted of groups with roughly the same skill set as the existing population.

    Politicians of the Western democracies that allow massive immigration of unskilled workers are doing so for solely one reason. That reason is voters that will be dependent on that political party.

    As to the authors economic history lesson of England I would like to say that those waves of immigrants were highly skilled relative to the existing population. For the protestants brought with them their need for educational institutions to train a clergy. Those early universities also had schools of medicine, law and engineering.

    Scotland became the educational hub of the world in the late 1770's and teachers from Scotland were the teachers of the signers of the Declaration of Independence in the U.S.

    The immigration of unskilled workers to the U.S. and Europe is an economic disaster. Existing resources are going to be taken from the existing poor and seniors to support these new voters.
    Sep 26, 2015. 03:30 PM | 6 Likes Like |Link to Comment
  • For One Day In Brazil, Market Buys What Already Failed [View article]
    Dear Reader..

    I don't understand why the experience in Brazil will be any different than in the U.S. in 1981.

    In the U.S. in 1980.12 you had a 3 mos tbill rate of 14.3%.

    You had U.S. CPI core (CPILFENS) at 12m% at 12.2%..This is higher than currently in Brazil.

    By 1982.12 the U.S. CPI core was down to 4.5%.

    It just takes a little time and the analyst has to figure out where the right entry point is and what asset class should be chosen.
    Sep 26, 2015. 12:18 PM | 2 Likes Like |Link to Comment
  • Dry Bulk Shipping Market Macro Update [View article]
    To the author..

    Beautifully done article. This should have been an editor's pick. They certainly don't teach this type of analysis in undergraduate economics. And a political science degree will reduce your intelligence. Oh well, its another mystery.
    Sep 26, 2015. 11:57 AM | 6 Likes Like |Link to Comment
  • More Keynesian Tommyrot- Today's Punk Durables Report Showed CapEx Is Heading Down, Not Up [View article]

    They are not bubbles they are business cycles. They are global. It is not just the U.S. that has them.

    Without credit and lending there would be little economic growth. Once you start that process there is inherent volatility built into the system. There are borrowers on both sides of the transactions, as consumers and as producers.

    There is a fantastic book on this subject which you can get at the library entitled "Macroeconomic Patterns and Stories" by Edward Leamer.

    He teaches the forecasting class at the UCLA Business School and before that taught this subject in the Ph.D. program at Harvard.

    This author is expressing the views of a Congressman. They are the economic theology of 1935 for this particular political party. I think he is running a business and I am skeptical of his motivation.

    Let me end by saying the economic theology of the other political party is no better. Bernie Sanders is a wonderful speaker. If you took a speech of Woodrow Wilson versus the incumbent William Howard Taft you can see the similarities. The problem is the year was 1912. The voter is still being thrilled with the ideas of a previous era. It's very touching.

    Meanwhile as the FRB has posted on its website the long term economic growth of the U.S. is 2%.. With illegal immigration the per capita increase in income over the next 10 years for the majority of Americans is near zero. But, this has little to do with investing.
    Sep 25, 2015. 02:35 PM | 4 Likes Like |Link to Comment
  • Autumn Drought In Russia And Ukraine: Fact Or Exaggeration? [View article]
    Thanks for a great article. Keep publishing.
    Sep 25, 2015. 09:20 AM | 2 Likes Like |Link to Comment
  • More Keynesian Tommyrot- Today's Punk Durables Report Showed CapEx Is Heading Down, Not Up [View article]
    This author is one of the worst offenders in choosing specific date periods for his charts in order to hide the true trend and he is doing this intentionally.

    You can see the full chart from 1992.01 at the FRB St. Louis:

    Let me add when the chart pops up please press "graph" and click "log scale." You should, in most cases, look at economic graphs in log scale.

    Recessions in the U.S. are a measurement of changes in new home sales and auto.

    Why do these two items slowdown? It is because of changes in the availability of credit. This is why the yield curve is a great predictor of recessions. It isn't the cost of money, usually, it is the availability of money.

    Seeking Alpha had an editor's pick by Calafia Beach Pundit which covers these issues.

    Ok, I need to get started on my day.
    Sep 25, 2015. 09:16 AM | 5 Likes Like |Link to Comment
  • Why A Recession Is Very Unlikely [View article]

    I totally agree. If you look at my comments from 2009 on Seeking Alpha I was pointing out that the money supply growth rate and the yield curve were extremely bullish.

    The stock market is the transmitter of monetary policy to the real economy. The stock market does not predict the real economy through its wisdom it actually creates changes.

    That is not just me Ben Bernanke wrote a paper in 1996 entitled "The Financial Markets Accelerator Model."
    Sep 24, 2015. 10:40 PM | Likes Like |Link to Comment
  • Why McKinsey Is Still Bullish On China--And Why They Are Wrong [View article]
    The writer of this piece does not even know that the services category of GDP is mainly education and health expenditures.

    The idea that construction is shoddy is China is absolutely false. I don't believe the author of this piece has ever been to China. The quality level of the airports, roads and buildings is apparent. As someone who also has been to Russia several times I can tell you that the two societies could not be more different towards quality and maintenance issues.

    Those forecasters who are showing declining growth rates beyond 6.5% are doing simplistic trend forecasts using industrial production and electricity. The problem is that a forecaster can see that these inputs do not create an accurate forecast.

    How do you explain retail sales up in the double digits? Where is the money coming from?

    Wages are rising near double digits for all income quintiles. How is that possible if the economy is falling apart?

    With a savings rate of greater than 40% of GDP and since their economy is at a stage of development similar to Japan of the 1950's. China has a GDP per capita of 20% of U.S. GDP per capita.

    If you want to understand the latest research on global economic development there is a book available for free on the internet entitled "Bad Samaratins." It is written by a Cambridge professor of Economic Development. It is readable.

    The so-called capital outflows are not accidental. They are deliberate economic policy by China to reflow their trade balances with the rest of the world. Otherwise their currency would undergo massive appreciation which is what happened to Japan in the 1980's.

    First Trust AlphaDex China is an ETF of 50 Chinese companies trading on the Hong Kong Stock Exchange. The symbol is FCA ($20). They have an average p/e of 7.5x and pay a 3% dividend.

    You can go to the First Trust website and download the underlying portfolio with symbols. Enter the symbols in Yahoo and go to the companies websites. Look at the revenue growth rates and the cash flow.
    Sep 24, 2015. 10:28 PM | 7 Likes Like |Link to Comment
  • Why A Recession Is Very Unlikely [View article]
    I apologize..

    I just saw this article is an editor's choice and it deserves to be.
    Sep 24, 2015. 07:03 AM | 2 Likes Like |Link to Comment