Oregonrain

Lost Decade for Stocks?

I just looked at another analytical argument that we could be in a "lost decade for stocks." In essence what these people argue is that two things really drive stocks. That is real GDP and PE ratios PE ratios they argue are largely driven by inflation and inflation expectations. In a nut shell if you think that inflation is headed up...then PE ratios which are still high are going to come down. This makes the argument for a "lost decade."

I may have messed up their argument but check it out for yourself here. I have no connection with these guys at all. Just saw them mentioned in a WSJ article. crestmontresearch.com

Here is the mention in the WSJ

Ed Easterling, president of Crestmont Research, argues that record increases in earnings and profit margins in recent years make prices look artificially cheap. He prefers to look at the 10-year trends in earnings, from which he removes the impact of inflation and smooths out the short-term ups and downs in profit margins. That, he contends, provides a cleaner picture of stock valuations.

I would be interested in comments on this...and what they are saying along with our friends from bespoke

Countrywide Takeover By BoA Would Make Sense

Felix should disclose if he has a position in Countrywide. User138 does us a favor here.

I can only speculate on three things. First, as NoFate suggests the Fed is lurking here. It is hard to imagine that after getting burned the first time that BofA wants to double down without that kind of "backstop." But, who knows we have all seen large companies do really stupid things.

Two..maybe with their investment BofA got a really good look at the "muck" on the balance sheet and have convinced themselves that they know what is there and they know the "real value."

That is the only good scenario..well so long as they got it right. But in talking to many people about the sub-prime mess the one thing I hear from very knowledgeable people is that NO ONE can price these "assets" at this time. I do not know what would make BofA smarter than the type of people that thought this crap up....but who knows.

Another thought is that if BofA is not "too big to fail" now...it sure as heck will be after this acquisition. So its like being lost in the woods and gorging on poison toad stools in the hope that you will be so poisonous that no bear would ever eat you. So if you are the CEO and are worried you say to yourself...hey I know how to make it impossible for the Fed to let us go down....

Overall...it looks like rearranging the deck chairs and not much else.