mgcolin

Why Jim Rogers and Robert Shiller Aren't Buying U.S. Stocks Yet

Not only are stocks not nearly cheap enough yet, the fundamentals for the US economy are a disaster. Not to say some companies won't do well (especially multi-nationals with strong brands who benefit from weak dollar) but US equities overall have little or no value.

The Fed can delay the inevitable for awhile, but with no long-term real growth or job creation, the ponzi scheme will collapse eventually. The US is finished as an economic power. Our economy is the equivalent of General Motors.

--- Aggregate Debt is 3.5X GDP, highest in history, worse than '29
--- Ugly Demographics; Boomers aging from productive consumers to overweight leeches, young people are rightly hopeless and angry, their futures have been stolen.
--- Consumer spending is 70% of the economy, service spending is easy to curtail and Healthcare system is a disaster, it's counted in GDP but doesn't create any value.
--- $50 trillion present value of medicare and social security liability
--- Housing must drop 40% further in many places just to get back to 1998 levels
--- Banks are insolvent zombies - see Japan, and the Fed can only prop things up for so long
--- All this means US GDP will be flat in real terms for next 20 years...how eager will foreigners be to buy our debt with zero real growth?

Dollar's Purchasing Power Annihilated - The Chart They Don't Want You to See

Who Cares what the dollar has done over the last 100 years? Average Standard of living has improved dramatically.

To regain competitiveness against the Asian currencies the dollar should probably drop by another 30-40%%, and labor costs also need to drop at least 30 or 40%.

Recession Is Over: Long Live Depression

If the government hadn't stepped in, we would have had the beautiful capitalist cleansing mechanism of a bunch of bank failures, many more business failures, some individuals would have been wiped out, and there might have been violence and blood in the streets. But it would have ended after 3 or 4 years, and the excesses would have been mostly eliminated.

What we got instead is the beginning of a another lost decade which will end with....a bunch of bank failures, most businesses will fail, almost all individuals will be wiped out, and there will be likely be violence and blood in the streets.

I'd wish the worst were past now, with the S&P where it belongs at 300, the equity holders in all these banks wiped out and real estate at half the value it's trading at...where it belongs.

But they chose to reinflate the bubbles. Oh what we have to look forward to.


On Aug 02 11:32 AM studiophototrope wrote:

> Glen L

2010 Market Could Be Greatest Bull of Modern Age

The implied CF growth rate for the S&P is over 10% per year in perpetuity at the current level. There is no way these companies can grow their CF 10% per year forever. Fair value for the S&P is about 650, where we were in March 2009, and will be again when the double dip recession is clear in mid-2010.

Why the Fed Is Right to Be Worried

Nothing more to say other than I find this extremely illuminating. This data in combination with the massive aggregate debt carried by US consumers, government, and business is why am a long-term bear.

Could the Dow Fall to 1600?

I agree, seems like you're using a real GDP number. The inflation adustment would put the Dow much higher than 1600...use nominal GDP and to me the Dow is valued about right.

Also don't throw away your point on foreign earnings, many of the Dow companies derive 40-50% even more of their earnings overseas.

I do however think we'll see an overshoot on the downside and S&P 400 before this is all over.


On Mar 03 10:47 AM timhope wrote:

> I think you're forgetting that GDP is inflation adjusted while your
> index returns are not. Since 1970 alone, we've had cumulative inflation
> of 560%. You should rebase them both to 1950 dollars and re-run the
> comparison.

Market Death Spiral Continues

I think an 89% decline is about right this time too. So about 1400 or so Dow...maybe 2000 since financials are already wiped out. Maybe 300 or so for S&P...still lots of opportunity to be short.


On Mar 01 11:24 AM TA wrote:

> We are far closer to the bottom than we were 16 months ago. It's
> human nature to take the recent past and extrapolate the future assuming
> it will never change which unfortunately goes both ways at extremes.
>
>
> Rationality is in short supply right now, don't give up yours either.
>

Why Macroeconomists Are Particularly Obtuse

I was no fan of Ronald Reagan...and it's tough to handicap all these what-ifs to say whether a set of policies were "net-net" right.

I think Obama/Geitner are definitely looking worse "net-net" for the country

Worst thing I feel Obama, Geithner are doing is putting pressure on Bernanke to do the wrong things...like keep the stimulus on and print more and more money to distort long interest rates longer...all designed to reinflate the asset bubble.

My Simplistic model:
Lessons from the 60's (SPEND), 70's (INFLATE), 80's (SPEND&BORRow), 90's (GROW, don't pay down debt), 00's (SPEND&BORROW), '10's (INFLATE or PAY - no more debt available)

So unless Bernanke removes the gas now, we will face massive inflation. I think the game is done already, I just need help figuring out how to play a complete collapse in late 2010 or early 2011.

Inflation is a monetary phenomena not a supply and demand phenomena. Demand will ALWAYS go up if there are no consequences for defaulting on debt or paying bubble value for asset...like completely losing your equity in a company, house, or stock. Just because there is momentarily no demand for anything doesn't mean that demand won't skyrocket if the wealth effect can somehow be recreated.

Obama and Geitner are pressuring Bernanke to let them continue to artificially reinflate the bubble. And they continue to put 'regulations' in place that really just protect the banks and speculators.

The banks should have been wiped out...nationalized, Sweden.
The S&P should have dropped to 6X trailing 10 year earnings (400)
The fed should not have printed so much money.
We should have suffered some of the consequences, not stolen from the future.

In the 30's asset values went down meaningfully and there were real consequences for taking on debt, taking too much risk...like losing your deposits in a failed bank, losing your house, family everything. Speculators suffered in the 30's...even the RICH were wiped out...you think Obama and Geitner want the rich to suffer meaningfully right now.... unfortunately the die is cast..these guys are getting the last fumes out of a worn out story...and the foreigners are figuring it out.....paying for our sins would have set up the country for 10 years of low inflation growth, but Obama and Geitner want the easy way out....which means inflation.

If by late 2010 there hasn't been any improvement in the Healthcare debacle, the S&P will be at 300 and inflation will be 12% calculated as conservatively as they can get away with....the dollar will be plummeting during election time and interest rates will need to go to 20%.

Some companies will be fine, diverse multinationals with scale benefiting from weak dollar....but the US economy will be a basket case until rates skyrocket, asset levels (houses/stocks) return to realistic levels and the debt holders are wiped out.

So 12% inflation, 20% interest rates, very cheap stocks...that's what 2012-14 will look like. It won't be the end for the US, but it will be the last few years, and by far the worst, of the US' Lost Decade and a half. It will be the seventies....but if you're in cash now...then Asia, commodities and foreign currencies you'll do fine over the next 10 years.

Relating S&P 500 Price Levels to GDP Growth Rates

With all of the headwinds facing the US economy over the next 20 years I think fair value for US companies is 6X trailing 10yr earnings (about 400):

Situation in US is as bleak as Japan in 1989 for different reasons:
--- Unfathomable Trade and Budget deficits
--- Aggregate Debt is 3.5X GDP, highest in history, worse than '29
--- Ugly Demographics; Boomers aging from productive consumers to leeches, young people are rightly hopeless and angry, their futures have been stolen.
--- Consumer spending is 70% of the economy, service spending is easy to curtail
--- $50 trillion present value of medicare and social security liability
--- Housing must drop 40% further in many places just to get back to 1998 levels
--- Banks are insolvent zombies - see Japan, and Government can't seem to figure this out. Stress tests are an insult.
--- All this means US GDP will be flat in real terms for next 20 years...how eager will foreigners be to buy our debt with zero real growth?

6X trailing earnings is about where the S&P was in 1979, and it would be a 20 year low or so, still not as bad as Japan.

This equity rally is beyond me, but corporate credit markets are still a nightmare which is reassuring.

Coming Soon: Banking Crisis of Historic Proportions

Yes right now it is frustrating for those of us who know the banks should have failed and the pain should have been much worse. But that was round one, and I relish round 2. I cannot WAIT until this Q3-Q4 when the GDP shrinks again and all these insane bulls are caught off-guard. The S&P should be trading at 400, the smart money knows it and people buying at these levels are insane. It won't be fun, but with this debt load the lost decade is coming.


On Aug 16 07:53 PM Tack wrote:

> It's precisely these kinds of histrionic, doomsaying articles (and
> comments) that give me greater confidence to maintain, and selectively
> increase, investment positions in banks and other financials. The
> same people who likely lost lots of money on the downside will watch,
> mystified, as they observe from the sidelines the recovery phase.
>
>
> And, the more the markets run away from them, the angrier they'll
> get, at everybody but themselves, of course.

2009 Mid Year Outlook: Expect Deflation and an Oil Price Drop

You're right a lot of the things you mentioned will likely not deflate, but houses in most places could easily drop further -- just compare current non-foreclosure prices to what they were in 1998. In most places housing is still double what it was in 1998. So massive drops to come there.

And all the services prices you mention could also drop. American workers are about 40% overpaid vs. their competition in Asia (adjusted for productivity).

U.S. Dollar Can and Will Drop

The Asian tree will grow to dominate every industry and scale is the reason. China/India's population is large enough to transform into a consumer market more than 4X larger than the US over the next 50 years. Japan could have done it too, but it's population just isn't large enough.


On May 02 03:58 PM bricki wrote:

> I've been hearing that for at least 30 years now, starting back when
> Japan was in it's glory. The problem is that the mercantile growth
> model does not scale beyond the point where a certain level of affluence
> is reached. After that internal demand must dominate. Nobody has
> made that transition successfully yet.
>
> Be careful of extrapolation. Most models are linear for short periods
> of time, but that linearity becomes a trap when extended beyond those
> periods. Trees do not grow to the sky no matter how promising they
> look in the beginning.
>
> On May 02 01:01 PM mgcolin wrote:

The Stock Market 'Sucker-Rally-Dead-Cat' Is Still Yowling

$50 trillion in Social Security/Medicare Liability
Aggregate debt is 3.5X US GDP
70% or the US Economy is Consumer Spending
Baby Boomers Retiring, new generation is Eco - killing consumption
See Japan, Germany, Scandinavia
Decent Housing and comm'l real estate still needs to drop 30%+
Banks are insolvent whether people want to admit it or not
It's worse than the depression for the US

Stocks are going to 6X trailing 10 yr earnings

GE's Immelt Leads Insider Buying

Russell Wilkerson where are you???

Citigroup: The End Draws Near

Historical earnings means nothing with companies like this.

The Market is essentially saying that C just won't be allowed or able to make money in the future. Everyone who is hammering their stock (hedgefunds) knows how corrupt wall street has been over the last decade and what a ponzi scheme it was in the wild Clinton/Bush years. These insiders know that the game is over and is betting Citi won't survive. The mart money targeted, Bear, then AIG, GE, Lehman, even GS, where they were all trained, C.

What will be their next target?