eternitus

Doug Kass Bearish on Equities

What happens when you adjust trailing 10-year earnings for inflation and normalize for interest rates? Looking at the non-financial sector, I bet that you'll find that the market's current valuation multiple does not require much earnings growth at all.

Gets a little dicey with the financials...

How Today’s 2.46% Dividend Yield Could Destroy Your Wealth

You have to look at PE... payout ratios have changed over time. Stripping out financial companies, the market was at a PE of less than 10 in March... that's very very low historically.

The Rally, When It Comes, Will Be a Doozy

Dow PE is 8 trailing and 10 forward with a 4.4% dividend... I'll take it. Levels like this don't last long.

ISM Index Suggests an Important Inflection Point

The 6.2% number assumes a constant decline over 4 quarters (why it says annualized). From quarter to quarter, the economy actually shrank 1.8% in Q4. If the economy declines at a 4% pace in Q1, the total decline would be 2.8% from Q3. Economic activity was not 6% lower in Q4 than Q3.

Don't Worry About Consumer Debt

3% of income is a sizable percentage change (though not alarming) at any rate and I think you would get a very different result if you excluded the top 10% (or even better 20%) of income earning households. Income in these cohorts expanded the most on percentage terms over the timeframe shown and these households tend to hold less debt.

So, this chart excluding the top 10% or top 20% of earners is what I would like to see... probably somewhat more alarming.

Low Rates, Big Problems

Excellent points, Peter. The key question is where does this all end? Are we now going to back ourselves into a corner in which our economy can't function at 10-yr rates over 3%? We have already backed ourselves into a corner where the economy doesn't work at 5%+ (see what happened last August).

We have become addicted to not just low, but constantly declining interest rates... politically influenced, of course (no politician wants us to "take our medicine" on his watch... not good for job security... as such, the natural tendency is to lower rates in bad times, and not raise them quite as much as we should in good times, resulting in a steady downward march to zero and a steady upward march in asset prices and reelection prospects).

A childish tendency to stop markets from correcting on the downside (but a great eagerness to let them fly on the upside) has led to tremendous imbalances in our economy. These are starting to unwind now, and we should not interfere the process. Paul Volcker was the last guy to force us to take our medicine, and our reward was a 20-year period of prosperity. Thank goodness he is involved again.

Thoughts on Market Volatility

Good, logical entry... love the psychology... haven't heard anyone use the term availability heuristic since college.

The Shallowest Generation

In response to the person who says interchange "black people" with "boomers" in this article... you can call boomers whatever you want, but they were in charge while we embarked on a horrible, self-indulgent and unsustainable spending binge that has left their children and grandchildren holding the bag. It's quite sickening, actually. They deserve all of the reproach in the world and I'm glad that the author has the guts to put it in writing.

In response to those harping on social security... it's probably the one sweeping government program that's ever completely served its purpose: to eliminate poverty among the elderly. I'm glad it's there, as it keeps our parents and grandparents independent and out of our homes.

The Shallowest Generation

Well said.... it's time to stop whistling past the graveyard thinking that we can make something out of nothing and start living within our means before we bankrupt the country.

While I think Boomers share much of the blame... our entire society has contributed to the mess that we're in.... from the Realtors pushing families into houses they can't afford to the borrowers taking on enormous debts to the lenders letting horrible loans go through to get this year's bonus to the politicians standing by encouraging it all (just keep the prosperity going until the next election)... we tried to borrow ourselves to riches without thinking about what was going to happen when we had to pay it all back. We also have a system that discourages saving (low interest rates that are taxed) and encourages debt (the holy grail of tax-deductibility of mortgage debt).

The thing that ticks me off the most about the Boomers, though, is that they'll be laughing all the way to the bank with Social Security and Medicare while I'm struggling to pay their entitlements AND pay back all of the debt that they left me with.

The Crash of 2008

The "everybody is calling a bottom so it isn't" argument is complete and utter nonsense. There were bottom calls every time the market has gone down this much (like both times). Guess what... someone, somewhere, was right!

Anyway, if you are a long-term investor, who cares if this is the ultimate bottom or not? You have to be insane not to put at least some money to work at these levels (unless you think people are not going to just cut back but simply stop buying hamburgers, shoes, toothpaste, etc.) You have 30% downside to TTM earnings to work with for the market not to look cheap. We might get there in terms of earnings, but I haven't seen risk/reward look this good in a very long time... especially in light of stock's competition from treasuries, where the 10-yr out-yields the Dow by an incredible (sarcasm) 50 bps.

I'm with Burton Malkiel... nobody has ever made money consistently selling America short.

The Crash of 2008

The government will stop at nothing to stabilize the financial system, avoiding a great depression scenario.

Forget charts and historical comparisons (a sample set of 2-3 tells you nothing of consequence). There are too many variables that are different right now. If you drop the Dow's profits by 30% (I think this is unlikely, given that bank profits will actually rise as a result of the TARP and Fannie and Freddie stealth TARP), the Dow will still only be trading at a PE of 15 and yielding 3%+... this will be at a time when cash on the sidelines (there is an enormous amount of this) is counting its returns in basis points.

Buy wide-moat, established companies with low debt, high cash flow, solid yields and <60% payout ratios, and get paid to wait for the flood of sideline money to float your stock values higher.

Just How Terrible Is Housing as an Asset Class? Roubini Weighs In

Friend,
You seem nice but are nonetheless largely wrong. Shelter is a must for any family, not homeownership (Did you know that more Germans rent their houses than purchase?).

Housing is a dreadful investment under normal conditions, barely keeping pace with inflation over the very long run, despite draining an enormous amount of money from the "owner" in the form of property taxes, maintenance and generally interest expense.

In the current climate, with such substantial differences in the dollar cost of renting and owning, it is much easier to build equity saving and investing the difference (in my case 100% of my rent payment) than it is owning a home, which is more likely to depreciate or stagnate in value than anything else, barring an unlikely rise in incomes in general.

However, that is not the type of investment Dr. Roubini is talking about. He is speaking of capital investment as referenced in economics. In such usage, economic participants make capital investments to improve the productivity of factor inputs (basically to improve the productivity of a worker), which makes us all richer. After shelter is provided for everyone in sufficient quantity, housing produces zero economic benefits for us. Generally, building McMansions does nothing to improve the economy, as Mr. Roubini says. That capital would have been put to better use in R&D or building infrastructure, which would benefit us today instead of sitting idly, as houses are currently doing.

U.S. Stock Market: Muddling Through the Fundamentals

PE is done on a post-tax basis, GNMA Yield is pre-tax. Adjust GNMA for taxes before making a comparison.