Ireland should go bankrupt, Jim Rogers says. "It would teach everybody a good lesson, and in the end Europe would be stronger for it... [The bailout] will cripple the Irish economy for years to come... There is no reason why taxpayers around Europe or in Ireland should pay for other people's mistakes. The bondholders and the stockholders of banks should lose money." [View news story]
Too bad they will not listen to you Jim.
The bailout will merely serve to kick the can.....this cannot go on country by country.....the flawed EFSF cannot bailout out them all.
Bernanke finds a friend: Barney Frank, chairman of the House Financial Services Committee, who says he is "appalled" that Republicans are “joining the central bank of China in attacking Bernanke." The Fed's asset purchase program is “very reasonable" and is not fueling inflation, Frank says. [View news story]
Unfortunately there are too many examples of inexplicable voting behavior.....see Mr. Rangel's re-election for one.
Bernanke finds a friend: Barney Frank, chairman of the House Financial Services Committee, who says he is "appalled" that Republicans are “joining the central bank of China in attacking Bernanke." The Fed's asset purchase program is “very reasonable" and is not fueling inflation, Frank says. [View news story]
I'm sure Bernanke is less than thrilled to have Mr. Frank's endorsement.
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
David, Thanks for the good comments and thoughts.....however I disagree with your charge of an analytical flaw.
Chart #1 and Table #1 do indeed plot the Corp Profit to GDP ratio against the 5 yr CAGR in corporate profits. This is the growth in the absolute number (level) not ratio to GDP. For example; in Q3 1966 profit to GDP was 7.3% (59.1 profit / 806.9 GDP) five years later profit to GDP was 5.2% (58.8 profit / 1,139.1 GDP). Despite an 41% increase in GDP absolute corporate profits declined at -0.1% annual rate. The same, close to average example can be found in Q2 1996. 7.2% (562.5 profit / 7800 GDP) with five years later levels at 5.5% (558.3 profit / 10,165.1 GDP). Five year CARG in absolute profit level was -0.1% with a 5.4% CARG in GDP.
When the profit RATIO is above 7% the historical average is for near zero growth in corporate profit level (ABSOLUTE LEVEL) and a 24% decrease in the RATIO over the subsequent five years.
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
Holding the P/E multiple constant I come up with a similar figure; a compound annual return near 4%. Any change in the multiple would obviously change the returns and I just see a higher probability this it contracts rather than expands. I hope to have another post up this week further expanding on potential S&P 500 returns based on likely scenarios for revenues, profit and P/E multiples.
In my mind, we are not in a new secular bull market. They tend to start with a CAPE below 10......at the March '09 the CAPE only fell to 11.40 and was only this low briefly...typically we see single digit PE's for a significant period before starting a new secular bull. Also, secular bulls tend to start with the inflation rate trending toward price stability.....with this in place currently it seems likely that we will be away from stability and towards either deflation or inflation.
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
While we very well may see S&P 500 growth higher than US GDP growth due to the global component it is still unlikely to see an expansion in profit margins. Profit margin on the S&P 500 is 7.2% (As Reported Earnings / Sales) compared to a 5.8% (6.5% median) average since 2000. I only have sales data back to 2000 but I'm guessing this would be lower if we went back past 2000.
Profit margin expansion cannot continue forever as much of corporate cost cutting was done in '08/'09 and elevated profit levels encourages increased competition; not to mention margin compression due to QE induced higher input prices.
I am arguing that the increase in the level of the S&P 500 over the next 5 years will be driven by either multiple expansion (not probable due to current levels) or revenue growth whether domestic or otherwise not do to a continued expansion of profit margin which are more likely to be a drag on returns that contribute to them.
Small Business Loans: A Look at Supply and Demand [View article]
Thanks for the comment.
To me, the problem in on the demand side not the supply side. Business does not see good opportunities to expand and therefore are not seeking funds. The fed ZIRP and easy money policy does not address the demand side but the supply side which is not the constraint.
Here's Why the Fed Believes QE2 Is Necessary [View article]
QE1 only worked because it repair the very weak banking sector balance sheets....not because it is some silver bullet.
My opinion, for what it’s worth:
Bernanke’s intention with QE2 is one of the following three things: 1) marginally lower borrowing rates from near all-time low levels in hope this spurs demand. I really hope he doesn’t believe this as there is no evidence (Japan, UK, US QE1 or Shiller above) that QE lowers rates and spurs lending. 2) Change expectations and encourage a move from risk-free assets and with the hope of a resulting wealth affect 3) Ready the QE mechanism for MBS purchases when the housing market double dips. In effect, a backdoor bank bailout.
My sense is that it is a combination of 2 & 3 neither of which help the economy long-term.
What's the Difference Between Irish and U.S. Debt Trading? [View article]
The difference is: the U.S. cannot default without choosing to while Ireland very much can default with external assistance. This is the advantage of having 100% of your debt denominated in your own currency.
Interview With David Martin, Author of 'Risk and the Smart Investor' [View article]
Thanks Jacob. I enjoyed the interview and will now be following David's blog. I especially liked the comment, "clear writing reflects clear thinking" and would add it goes both way. For me often writing helps clarify my thinking.
Number of Those Not-in-Labor-Force Suggests Unemployment Rate to Remain High [View article]
I am sorry that you feel this way. Are a significant portion of taxes revenues wasted on worthless projects and spending? Sure, I would agree with you on this. However, for me this does not equate to "why work at all?"
Ireland should go bankrupt, Jim Rogers says. "It would teach everybody a good lesson, and in the end Europe would be stronger for it... [The bailout] will cripple the Irish economy for years to come... There is no reason why taxpayers around Europe or in Ireland should pay for other people's mistakes. The bondholders and the stockholders of banks should lose money." [View news story]
The bailout will merely serve to kick the can.....this cannot go on country by country.....the flawed EFSF cannot bailout out them all.
Bernanke finds a friend: Barney Frank, chairman of the House Financial Services Committee, who says he is "appalled" that Republicans are “joining the central bank of China in attacking Bernanke." The Fed's asset purchase program is “very reasonable" and is not fueling inflation, Frank says. [View news story]
Bernanke finds a friend: Barney Frank, chairman of the House Financial Services Committee, who says he is "appalled" that Republicans are “joining the central bank of China in attacking Bernanke." The Fed's asset purchase program is “very reasonable" and is not fueling inflation, Frank says. [View news story]
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
Chart #1 and Table #1 do indeed plot the Corp Profit to GDP ratio against the 5 yr CAGR in corporate profits. This is the growth in the absolute number (level) not ratio to GDP. For example; in Q3 1966 profit to GDP was 7.3% (59.1 profit / 806.9 GDP) five years later profit to GDP was 5.2% (58.8 profit / 1,139.1 GDP). Despite an 41% increase in GDP absolute corporate profits declined at -0.1% annual rate. The same, close to average example can be found in Q2 1996. 7.2% (562.5 profit / 7800 GDP) with five years later levels at 5.5% (558.3 profit / 10,165.1 GDP). Five year CARG in absolute profit level was -0.1% with a 5.4% CARG in GDP.
When the profit RATIO is above 7% the historical average is for near zero growth in corporate profit level (ABSOLUTE LEVEL) and a 24% decrease in the RATIO over the subsequent five years.
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
In my mind, we are not in a new secular bull market. They tend to start with a CAPE below 10......at the March '09 the CAPE only fell to 11.40 and was only this low briefly...typically we see single digit PE's for a significant period before starting a new secular bull. Also, secular bulls tend to start with the inflation rate trending toward price stability.....with this in place currently it seems likely that we will be away from stability and towards either deflation or inflation.
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
Profit margin expansion cannot continue forever as much of corporate cost cutting was done in '08/'09 and elevated profit levels encourages increased competition; not to mention margin compression due to QE induced higher input prices.
I am arguing that the increase in the level of the S&P 500 over the next 5 years will be driven by either multiple expansion (not probable due to current levels) or revenue growth whether domestic or otherwise not do to a continued expansion of profit margin which are more likely to be a drag on returns that contribute to them.
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years [View article]
That said, even if only looking at post-2000 data the current margins are at levels only eclipsed during the '06/'07 peak.
Skechers and Nike: Two Great Brands - One on Sale [View article]
Small Business Loans: A Look at Supply and Demand [View article]
To me, the problem in on the demand side not the supply side. Business does not see good opportunities to expand and therefore are not seeking funds. The fed ZIRP and easy money policy does not address the demand side but the supply side which is not the constraint.
Here's Why the Fed Believes QE2 Is Necessary [View article]
My opinion, for what it’s worth:
Bernanke’s intention with QE2 is one of the following three things: 1) marginally lower borrowing rates from near all-time low levels in hope this spurs demand. I really hope he doesn’t believe this as there is no evidence (Japan, UK, US QE1 or Shiller above) that QE lowers rates and spurs lending. 2) Change expectations and encourage a move from risk-free assets and with the hope of a resulting wealth affect 3) Ready the QE mechanism for MBS purchases when the housing market double dips. In effect, a backdoor bank bailout.
My sense is that it is a combination of 2 & 3 neither of which help the economy long-term.
What's the Difference Between Irish and U.S. Debt Trading? [View article]
Interview With David Martin, Author of 'Risk and the Smart Investor' [View article]
Number of Those Not-in-Labor-Force Suggests Unemployment Rate to Remain High [View article]
Number of Those Not-in-Labor-Force Suggests Unemployment Rate to Remain High [View article]