M dub

S&P P/E Ratio Is Low, But Has Been Lower

Babak, it is nice to see someone at least writing stuff that has data or a pretty chart. I'd like to see some more details about R Schiller's chart - i assume its TTM or last year's earnings? Not sure that's comparable to 1900, but 1982 perhaps.

However, the problem with *everything* right now is precisely what the point is with this chart - that is, look at historical data and performance and predict future results. Problem is, this only works when it does then it doesn't.

The 1929 stock market crash was induced by a speculative stock lending bubble, some speculative lending, perhaps Smoot Hawley etc. The 1982 recession was energy and inflation. While it has to be something, I would say the massive credit fueled bubble now I is much broader - housing, consumer, commercial RE, and bank / finance companies. My point is that this time around, Trailing Earnings and future earnings will barely resemble one another. The "cheapness" of equities can be a complete mind *&ck as earnings get decimated and also as the government bails out creditors at the expense of equity holders.

For common stocks, in 2009, past data and future results are not a smart man's game.

Fiscal Responsibility: Obama Takes the Reins

Seems to me the only way o'bama can slash the deficit is by

1) including the cost of the war where it was not before, thereby using a somewhat inflated starting deficit number and 2) taking credit for the reduction of expenses as we withdraw from iraq.

that spending was going to go down despite who the president was. he is only being coy by calling this responsible to include it in the deficit, as he only wants personal credit for it.

Now, it is technically correct that war spending is part of the deficit, however, after all this pork money down the hole stimulus all he will be able to show is that he reduced the war spending.

it is his only hope for showing how he will not be the president that brought back socialistic welfare and big government. good thing people are stupid.

the stock market isn't so dumb, though, so don't be surprised as we take a dive.

GE: Lose AAA Rating or Cut Dividend

jegan,
i see what you are saying but i was trying to address the op's question of dividend and credit quality, not earnings downside. hopefully no one really sees GE as anything other than a bank in terms of the risk on investment, for if not then they own the common equity of an industrial with 13.5x debt/ebitda (yikes!) but as i said with a government backstop on the bank all is well and investors can put their head in the sand for a while.

i agree that the spin coming out of there is of epic proportions given the severity of conditions, not just economically but also at GE. They point to 70% of earnings coming from service revenue, and that's all nice, but what of all that (seemingly) ginormous operating leverage (ie high fixed overhead) as orders / backlog go down with cancelled orders? No, the gov't is not (yet) backstopping GE industrial, but who's to say they don't sell a few extra bonds at GMAC and upstream some cash dividends to parent?

Even that's not a stretch to consider, as even management decided to keep at the parent level buffet's $3b of preferred equity, rather than funnel it down to gmac when it needed it the most.

they want a stable rich dividend and AAA rating, and with government gty'ing the bank, why not? Its all possible, unless of course the sovereign credit rating goes down.......




On Jan 11 05:00 PM jegan ;-) wrote:

> mdub..Aside from the excessive use of CAPS, I agree with Diegojames...
> (Also agree with the leek pie and salmon)... GE has too many divisions
> that are subject to teh whims of our present economic collapse. And
> the financial guarantee only really applies to GMAC, just part of
> GE. What's the near-term upside for GE? The poor quality appliance
> division? Aerospace? Not the reconstituted finance division! That
> really only leaves the industrials. And maybe in a year that might
> start to work if our new President can actually get the infrastructure
> play moving, or if China gets back in gear.... Remember that these
> **big** projects have a lot of hurdles, EPA, lawsuits, contracts,
> engineering etc... and they don;t turn on a dime. Having said that,
> GE does seem to have activity in China now that might ramp up. The
> question there is, why buy GE and drag around everything else, when
> you can buy ABB or SI which are already working well and don't have
> the rest of the business to drag along.
>
> jegan ;-)

GE: Lose AAA Rating or Cut Dividend

question: why need to reduce the dividend when you have a backstop guarantee on refinancing / issuing debt? taxpayers have guaranteed GE's divivend ; at one time there could have very well been a run on the bank, but now hundreds of billions in its cap structure is backed by fdic (bonds) or fed (CP). Financial flexibility by taxpayers means GE dividend needs to go nowhere.

As a taxpayer, this is ludicrous, but as an investor what could be better than to have your guarantor be big daddy?

Why a Psychological Bottom Will Lag Any Real Recovery

Ross, good article. You're right, everyone under 40, maybe 50 is underwater in their 401k. Those people who are laid off with credit card debt may throw up their arms and cash out.

More importantly the boomers have pretty much only ever known a bull market for their whole investing lifetime. I haven't seen a bum rush for the door where everyone is yelling "i'm gettin out while there is still something left". Is it still to come?

Indeed there is a lot of hope on all that is being thrown into the kitchen sink in of monetary and fiscal policy.

Market Watch: Beware the Ides of February

Cam,
Nice article, nice call. I also think there will be a much bigger test of the low we printed recently. And people don't even know how desperate times will become, sadly. The american mind is very soft, and until they can get "toughened up" a bit they won't have the intentional fortitude to swallow some bitter tasting medicine. First the market psyche builds in a 1990 style recession, then 1982, then 70's style, and so on. But this is the perfect storm, and we're pressing further out to sea based on all past storms. We'll see how it works out.

At the minimum its going to be a deep world recession, but to some it will be worse. We, O keepers of giant debt balances, may be that someone.

See you in Feb.

How to Start Your Own Hedge Fund

Son you've got a lot to learn. Sure anyone can start a hedge fund, like they can open a home based envelope stuffing LLC. Does that mean they can get qualified investors? Are their shares listed on an exchange bought by main street lil old grammy grams? Will they get 5x leverage from their banks to buy stocks and leverage like its 1929? Course not. Who's gonna pay Brooklyn Benny 2 and 20 without digging around, knowing who it is. Apparently you think registering an LP qualifies someone for instant access to manage $1 billion from pension funds.

Four Commonsense Clues to a Genuine Market Bottom

Not a bad list. I don't necessarily agree with book value, as someone who has analyzed in detail thousands of financial statements, this is a broad market thing but anyone who has mae a lot of acquisitions (i.e.) has a lot of goodwill, capitalized this and that etc and you can writeoff book value and ride it all the way down. That is really a case by case analysis. Given how high valuations have been its nice to at least see people thinking about absolute valuations in general - but free cash flow is usually the beter way to go IMHO - and this is definitely one of those times.

The aunt judy contrarian signals i really agree with - and we aren't close to being there yet. All the expert (ie dumb) financial planners on TV are telling boomers to wait it out. The market still has a world of pain to inflict on this aging herd who are still confident they have a 10-20 year outlook. When the S&P hits 650 they may start puking en masse, it will be time to start paying attention. Once they have said "uncle" i'm in.

The one thing you have to think about - is that this economic situation will be a drawing line between the haves and have nots - and i'm speaking of debt. So in a sense there will be two "equity markets" to think about going forward. We have not seen debt like this - personal, corporate, government - and it is possible the bottom may not look like what we are used to seeing. I've dealt with LBO financing a lot and the one thing i will say is that it takes a long time once you are full on debt and start to have stuff blowing up around you, to get that down takes a long time and your competitors start leaving you in the dust if not smelling blood and starting an all out assault. A list of the nonbank S&P 500 who have debt to cash flow under and over 3.0 or so and no near term refinancing issues -now that would be a good index to track.

We haven't even started with stories about potential problems with China funding our gov't bailout sprees, war debt and trade deficits. No one is even thinking about inflation yet - but are printing money like its free.

Seems to me we still have a lot of mental baggage to work through and haven't even booked an appointment with the shrink yet. If I would corrolate to the Kubler Ross scale en.wikipedia.org/wiki/..., i'd have to say john q public is nearing def con 3.