No Free Cake

Geithner to Put Chrysler in Bankruptcy Next Week

The retiree health and pension claims are senior to debt, as I understand it. They'll come first in line in a BK. That's not unusual. Contractual obligations to employees are just as valid as contractual obligations to bondholders and anyone else.

The big question is: At what price would the Chrysler bondholders prefer their bonds become worthless? How much of it was hedged away in the CDS market?

Six Month Correlation Among iShares ETFs

User 75976, AZGM, and User 95663, correlation is a standard investment metric. We can argue it's usefulness, but, it's a common tool. Modern Portfolio Theory (MPT) is based on it.

Even before Richard commented it was obvious the baseline was the SP500. You could see that since IVV was listed with a correlation of 1.0 in the 6-month chart. Even without that, in the US correlations are generally assumed to be the S&P unless stated otherwise.

If you follow Richard long enough you'll actually learn something. But, you do have to actually know something about investing to appreciate some of his comments.

Friday Outlook: Commodities, Global Markets

S&P "As Reported" earnings for 2009 are projected to be $28 - not $13. Still a very high PE of 30+. See www2.standardandpoors....


On Apr 17 10:29 AM asaf123 wrote:

> Some fundamentals (remember those?)
>
> The S&P 500 earnings forecast for full year 2009 is around $13
> and change. And this includes the creative bank earnings.
>
> So, do we really feel the market is "fairly valued" at a P/E of 60?
>
>

Sheila Bair claims there's no mission creep at the FDIC, because the various programs it's participating in insure the stability of the financial system, which was always its goal. To which Felix Salmon responds: "No, Sheila, the goal of the Federal Deposit Insurance Corporation was always, quite narrowly, to insure deposits..."

If Sheila gets her way, the FDIC will be renamed to the FFSC - Federal Financial Stability Corporation.

A Week of Stronger than Expected Economic Reports

Many of the "improved" numbers were simply improvements over the previous month - not the year prior. That wasn't hard to do.

All of the numbers are still very poor and prospects for solid earnings any time soon are small.

The Road Ahead for Investors

I like reading Geoff's articles, and I bought his QRP, but, it still puzzles me why he and so many others necessarily think US equities must go up in any reasonable timeframe.

Japan's Nikkei index is lower today than it was 25 years ago. Certainly there were some tradeable peaks and valleys for the nimble and lucky but counter to the idea of rising equities. What is so intrinsically different about the US that this couldn't happen here?

In other words, just because the line has been going up for some time, why must it continue to do so?

How Treasury's Bank Bailout Could Make Things Worse

The Fed the other day announced a buy of $300B of mortgage backed securities to try to drive rates lower for homeowners. OK

Today, Treasury announces plan to securitize and sell a bunch more mortgages languishing on the books of banks. Of course, this will likely drive up the rates of long term mortgages (more supply, lower price, higher rate).

Are these guys talking to each other?

Financials Are Masking the Market's Potential

But, you are forgetting that if S&P is now overstating losses then the past 3 years it was overstating profits as it gave too much weight to financial sector. It's incorrect to think that the boom years were accurate and "normal" and S&P's valuation technique is only incorrect when it exaggerates losses.

You can't mix methodologies and expect them to work for historical comparison.

On Mar 21 04:21 PM roy mckoi wrote:

> you missed the whole pt!!! the p/e of the S&P is understated
> because it overweights losses!!!

Financials Are Masking the Market's Potential

Even if right, there is no historical reference to compare to. You can't use the "new Seigel" way to create a PE and compare it to one that was calculated diifferently in years past. Seigel's article would have been a lot more interesting had he refigured S&P metrics going back to say 1925. I think it was interesting that he didn't.


On Mar 21 01:55 PM Alphameister wrote:

> Siegel's got it right and so does David Van Knapp whose comment above
> is a breath of fresh air in a rather foul-smelling string of commentary.

Financials Are Masking the Market's Potential

On Mar 20 08:55 PM E Nuff Sed wrote:
> I agree with the author and Fred Voetsch comment earlier. The data
> is consistent with their conclusion. (Fred thanks for the spreadsheet).
>
> Except for financial s the market is in pretty good shape. With S&P
> earnings in Q4 at 60 (annualized) - I don't think it will get too
> much worse for all of 2009.

Ah, you might want to look at that spreadsheet again. The S&P As Reported earnings for Q4, with 98% reporting, was NEGATIVE - first time ever! Was negative even without financials. That's hardly $60 annualized.

Financials Are Masking the Market's Potential

For those of you that haven't looked at the S&P data linked to by Fred, one thing you may want to notice is that S&P's own estimate of As Reported earnings for 2010 is about $40. The estimate for 2009 is much lower.

That's 600 for the index at a normal multiple of 15 and much lower for a more typical recessionary multiple of 10-12.

Some of you think an estimate of $70 and a normal multiple should apply, but, I'm hedging my bets.

Hard to Assess Stock Valuations Here, But Major Selling Appears Wrongheaded

FE812 wrote:
I guess the point I'm really trying to make is ... If you sell at 50% down you can be 100% sure that you're losing that money. If you hold, you may lose 70% or you may come back ... but niether choice is guaranteed. I'll take my chances ...
================
Not true. Selling at any time only guarantees losses if you don't repurchase at a price at or below the selling price.

Simply, if I buy at 100 and sell at 50 and rebuy at 30, I saved money.

Barron's Calls a Bottom

Looks to me like Barron's is really reaching to find stats that show stocks are cheap. S&P is forecasting 2010 As Reported earnings for the 500 at about $40 which puts the P/E for the index around 17-18. Hardly cheap, arguably expensive.

PS: The 2009 forecast is so abysmal I"m ignoring it.

The 'Stress Test' Challenge: Transparency and Intellectual Integrity

Isn't the stress test basically a new regulatory system for banks - although implemented without the normal comment and review periods?

The concept of this test implies that the current valuation methods for regulatory capital don't work. If they did, there wouldn't be any doubt as to which banks were sound.

In the longer run, the stress test will either completely replace the current capital regulations or be a partial overlay. It will only add clarity if it becomes permanent and fairly rigid - the administration has so far not ascribed it either of these attributes

Geithner's Vagueness Explained

Oh great, thanks. I needed some cheering up.

(tongue firmly in cheek in case you can't see me)