trick

Economic Recovery: Determining the Undeterminable

It is not a rally that is based on fundamentals. I don’t think consumption will really come back to justify current stock prices. We now have a high level optimism amongst investors. The solution for too much debt and consumption cannot be more debt and consumption.

The reasons I think stocks have rallied are: (generally speaking)

1) Relief that a total financial meltdown has been averted.

2) Investors have been cashed up and with cash yields so low, investors have been thinking dividend yields on equities don’t look so bad.

3) The weak dollar & inflation outlook – your charts say it all and equities can be a benefactor of this in the short term. The fact that the stock market and gold are going up simultaneously signals something is wrong.

4) Foreign markets have had a tremendous rally it is the strength in overseas markets that is dragging U.S. stocks along for the ride.

5) Money that is being printed is going into the stock market.

6) There has been a pick-up in consumption as people buy things they need, following 2008’s dramatic fall in consumption.

7) Firms have surprised on earnings but not sales. Cost cutting and free govt money has temporarily boosted earnings but is not sustainable.

8) A stronger stock market can be self-fulfilling to a degree, as higher stock prices increase consumer net worth and improve earnings for firms managing stocks for example.

S&P 500's PE Ratio of 139 Isn't Sustainable

OK, fatal mistake in looking at that index P/E because it includes companies that are making losses, which distorts the P/E ratio much higher. As you know P/E's on a loss making companies are not meaningful. Last time I looked, Citigroup and General Motors were the main culprits distorting the index P/E.

A more meaningful index p/e is calculated by excluding any loss making companies (because these distort the p/e much higher).

** This is currently at 15.9x forward earnings for S&P500. **

I guess you also have to take into consideration that the index does have loss making companies in it but this calculation at least gives you a meaningful figure of what multiplier is being applied to the profitable stocks.

trick

Three Real Defensive Stocks

I do agree on the rationale for defense investing, especially as the Govt may see war as a way of boosting the economy and tension between countries escalate during this period of financial stress and a potential currency crisis.

I am long RTN based on my bottom up stock picking criteria, without incorporating these views. The outlook for earnings continues to improve whilst the negative sentiment towards the sector created an opportunity in the stock price.

Why I Prefer McDonald's over Apple

It's a fantastic business and has really proved it's recession beating abilities. The stock price held up pretty well, because the earnings are rock solid. My target price for MCD is currently $65. I'm not in it yet but if it goes down to $50 (perhaps on investors selling to chase the recovery story in cyclicals) I will get in for a 30% gain.

Cadbury Bid Indicates We're in a Stock Bull Market

The skeptic in me says that M&A such as this are in large due to companies with no real growth ahead of them in a benign economy trying to get some growth by acquisition. That makes sense from a directors point of view, grow the empire. However, from an investors point of view, is it the best use of your capital??

Construct a Fixed Income Portfolio with 5%+ Dividends Using ETFs

I like the dividend charts however I would have liked to see comparisons of each ETF's standard deviations for the volatility gauge instead of the 52 week high/low, and I thought you would have published the yield of each ETF since you refer to using this for construction.

I struggle with the payout ratio suggestion. If you're looking at the individual companies you would want to look at their interest coverage ratio (preferably on a forward looking basis) to gauge credit quality. If you're looking for an indication of yield you will have to look at the current trading yield of the individual issues also. Then there's the matter of duration, which along with credit quality is going to have the most impact on your bond fund performance, rather than yield. How is each ETF positioned along the yield curve? Just looking at the current running yield is really only meaningful for short-term issues.

First Solar Set to Conquer China's Growing Market

The Chinese govt has a lot of USD to spend, before it declines much further in value. Expect to see more of this.

The Curse of Being Added to the S&P 500

You're comparing a medical devices company with crane manufacturer.. over a period of 1 week. It's a meaningless piece of information.

First Solar Sell-Off Is Overdone

Agree with the title, my current TP for FSLR is close to $200 and I am long FSLR and a bunch of other stocks but short SPX.

Why This Rally Will Continue

I read this article to try and balance my bearish views on the stock market from current levels. Unfortunately though there is nothing at all convincing here. In particular you mention firms beating estimates by cost cutting. That is very worrisome to me because those are not sustainable earnings. And given the extreme level of debt on public and private balance sheets there is no capacity for spending or investment, pointing to a very bleak future for the US over an extended period of de-leveraging and probably hyperinflation is the ugly solution that will be turned to, as the gigantic leap in money supply enters circulation, increasing asset prices, inflating away debts and further weakening the dollar, which is good for US exports. That may lead other countries to debase their currencies if they are exporting to the US, trapping us in a vicious spiral of money printing. Whilst inflation may be initially good for stock prices, throughout history companies have not been able to raise their prices enough to keep up and their profit margins slide.

Four Reasons Why Aussie ETF May Dodge Recession

Agree with the longer-term story fro Australia but right now the main constituents of the Aussie index have been overbought vs my target prices. I.e. resources and banks, but then that seems to be a global theme at the moment. I cannot find a single-country ETF I would buy at the moment, only short. I am comfortable with lending to Australian banks and Telstra though.

Apollo Group: Industry Bellwether Continues Exceptional Growth

yes nice pick for the current environment

Agriculture Stocks Still Make Sense, When Selected Wisely

Agree on the agricultural thematic, however why you would want to be in terrible stocks like CAT and DE I don't know. They're excessively geared and the expected earnings for the current and next year are in a continuous downward slide at the moment. The recent rally is a selling opportunity. One real quality agricultural stock in the US is Monsanto. Just take a look at what the price was at its SP high and what the expected earnings were at that time for 09+10. Now what are the expected EPS for 09+10? I find that they have not deteriorated at all, they have actually improved! Further, MON has great financial strength with very low gearing, which is reflected in its very low Credit Default Swaps level.

Potash Sell-Off Overdone - Citi

disclosure: long IPL

Potash Sell-Off Overdone - Citi

I would agree that the broad commodity sell-off presents a good opportunity to purchase well-managed fertlizer companies. An Australian equivalent is Incitec Pivot. Further, I am positive on the outlook for corn and wheat prices given that inventory levels of these are well below their historical trends.