wolfdog

Could the Dow Reach 4000?

Unlike some of the comments written above, I think this author has done a very thoughtful analysis which deserves reflection. My own bias is to use DJIA dividend yield as a value anchor rather than earnings, which are too flaky and volatile. Major bottom low on dividend could dwell in the range of 4500 to 4800 on the DJIA. That said, we are all being somewhat guilty of "piling on" in this current correction and trying to outgun one another w/ bearish scenarios. That is opening the contrary window for a violent countertrend bear market rally that could appear out of nowhere with just a random catalyst as yet unknown. However even such a rally would not negate the notion of this bear cycle being more extended in duration, e. g. excess of 700 days rather than the shorter historical examples. I do agree with author that the primary trend is bearish until proved otherwise, and that is the main issue to keep in focus.

Trading the Dow: What History Tells Us

I have just completed a projection of what DOW dividends will be for '09. It is highly likely that the dividend paid will decline yr/yr owing to div cuts at BAC and C. And possible cuts at AA and JPM. And GM's div decline as well although now that GM is almost a microcap stock, the keepers of the index have a big decision to make, does GM stay in or go?

Based on my estimate, DOW div will decline about 6%. And I calculate the current yield at 3.6%, which is somewhat less than the near-4 mentioned in this article.

But the more important issue is that it looks like the trend of the DOW div yield is inexorably up, since bottoming in 2000. If we are lucky, the yield will stay range bound as the author suggests, between 3 and 4% as was the case 1960 - 73. More ominously, and the case I favor slightly at this time, the yield will march higher toward 5 or even 6% over the next several years.

What could cause this? Investor repugnance toward equities after this brutal bear market. It takes a long time to reprice assets at inflection points, and now we have the reality that competition from non-Treasury instruments provides very attractive, albeit somewhat risky, yields. Moreover, notwithstanding the Fed's quantitative easing manipulation of the long end of the T-curve, how are we going to finance these massive deficits over time unless interest rates are eventually allowed to float much higher? That is, foreign investors who finance the U. S. could decide to go on strike, especially if the dollar weakens over time. Just as our goal should be higher self sufficiency in energy, we should also devise policies to enable the Federal deficit to be financed in a greater proportion from domestic saving. Only two avenues seem viable to accomplish this: tax incentives or higher interest rates.

Thus, the combination of investor demand for higher income and/or less exposure to volatile equties plus the carrot of higher competitive yields from bonds (and I need to mention how does all the TARP money attract private capital to get re-fied 3 years down the road?) seems likely to create pressure on stock valuations leading to higher yields. At some point this will put a floor on stock prices and create a historic secular bear market low.........but investors need to be thinking about the notion that we are not there yet.

Investing in Companies with High ROEs: Be Careful

This is a worthwhile elementary introduction to ROE analysis. Astute investors will always supplement ROE analysis by looking at Return on Assets (ROA) and also Pretax Return on Total Capital (PTROC). These ratios can weed out companies which have used leverage to inflate ROE

If You Think the Dow Did Well Today, You're Wrong

Making opinions on 1 day of trading is hazardous, but I will venture some anyway. This data illustrates the extent to which the global emerging markets are leveraged to prosperity (or lack thereof) in the U. S. And, maybe confirms again, that longer term more rapid (but also more volatile) growth will be found in overseas markets, not the maturing USA.

The Bedrock Case for the Return of the Gold Bull

This is a very thoughtful article. I accept the basic premise that central banks (and the politicians) will inflate to prevent deflationary tendencies of massive credit liquidation. This shakeout in gold is healthy and part of an on going bull market in AU. And 2 points: 1/ As the year winds down, hedge funds who have been long commodities have locked in some gains in order to preserve their performance fee paydays - this has nothing to do w/ the major trend of the assets, it is just a short term supply/demand factor 2/ Gold is still very cheap relative to oil. Oil is not going back to $20 or $50 soon........maybe 15 years away but the lead times on alternative energy investments are too long. So since oil will remain relatively high in nominal dollar terms, gold will also.

Skechers: Ignoring Obvious Value

Well, I thought I was writing about SKX but all the posts thus far have sparked very emotional responses about CROX!! It kind of reminds me of another crash and burn stock, Krispy Kreme (KKD) where advocates got caught up in the notion of everyone in the country eating a dozen donuts every morning..........all I know about CROX is the earnings expectations have imploded and sales growth is negative so there must be some issue with the sustainability of demand for the product? That said, it is a very statistically cheap stock in here so maybe the bulls are right and international will be the company's salvation. But products like Crocs have very little intellectual property and low barriers to competition, and that plus the fickleness of consumer tastes is what causes me to put the company in the "fad" category.

Well-Capitalized Regional Banks: The Bottom Is In

The total cash vs total debt calculation is a flawed way to look at banks. It will not lead you to differentiating between good and bad. Bank analysis is a much more detailed process whereby the loan portfolio is dissected, piece by piece, loss contents estimated in relation to reserves on the balance sheet, then worst case unaccrued losses attributed to book value, and ultimately to earning power.

I noticed there was a lot of insider buying in CNB, at higher prices. And I did not think that had any signaling power either, b/c if the management is dumb enough to go overboard on real estate lending w/out proper credit standards, they are sure not smart enough to figure out when to buy the stock.

All that said, we are in fact getting close to or at some compelling valuation levels in banks, based on tangible book values. The key is where are we in the credit loss cycle. I believe we are in the 3rd or 4th inning, but by the end of this year could be nearing the 7th inning "stretch". So it is a good time to be doing lots of homework.

American Greetings: Mea Culpa

Part of the miss was higher costs on getting stuff delivered, e. g. fuel surcharges, etc. As analysts, we probably should realize that AM is not the only company that is going to get clipped on these and other costs caused by the general inflation that the government says we don't have........just look at "core", and be happy!! That is why I do not use Street estimates, they are almost totally worthless. The sell side analysts, in general, do not do research nor do they use common sense. They just wait for the earnings to come out, then rely exclusively on management "guidance" to make estimates for the future periods. It is difficult to say who is more overpaid in relation to value received, Wall St analysts, or our Congresspeople in Washington.

4 Reasons Why Orion Energy is a Good Short Candidate

You have correctly focused on 3 items that a lot of investors fail to sufficiently appreciate: back end loaded guidance, supply/demand for the stock, and vague comments about product ramps

Steelcase's High Yield Makes It Worth the Gamble

There are a lot of things to like about SCS as a value idea. However, I would be cautious about expecting a pos surprise in the upcoming quarter for 2 reasons: 1/ The co. missed last quarter, and neg surprises tend to come in pairs especially when the first one reverses a sequence of positive surprises 2/ Many manufacturing companies are going to get hit on raw material costs this quarter, and the Street is not baking those into forecasts sufficiently at this time.