Venetian Poker

The 10 Most Valuable U.S. Companies vs. Treasury Yields

What is the point of this article? You're comparing a company's return on market capitalization to Treasury yields? Why?

Consumer-Driven Deflation? Not Even Close

I think you're splitting hairs about consumers and their definition of inflation/deflation.

In the real world, "inflation = prices going up," and "deflation = prices going down."

Whether one "causes" the other is irrelevant at the grocery store.

Also, I know plenty of people who put off purchases because they think prices are going down (think houses, large-screen TVs, cars), just like I know plenty of people who load up when they think prices are headed higher (gasoline).

All of that aside, I do agree with you that our country's financial situation is pretty bleak. My friends and I talk often about our 10-year plan to survive the coming storm.

What Will the U.S. Economy Look Like in 10 Years? Look to Greece

You could say the exact same thing about the US, save for the "foreign" banker reference.

On Nov 28 03:53 PM nobby73 wrote:

> I often read that the Greeks do not worry too much as they feel they
> will find a way through this, but I am sorry to say my personal experience
> tells me their citizens are unaware how their economy has been hollowed
> out from the inside over the years. I have come across many situations
> where naive officials have been fleeced by devious foreign bankers,
> but in Greece's case, it was an inside job.

In Earnings Season, Who Cares About the Unemployment Rate?

To ignore a 10%-plus unemployment rate seems foolish to me. Not to mention, we all know that the *real* story surfaces when you include the underemployed and those who have simply given up.

The bottom line here is that the only way to go back to the good old days is to reinflate the credit bubble. That is NOT going to happen any time soon.

My mother just looked into a small HELOC, and I learned that -- at least in her county -- Chase Bank, for example, is limiting their HELOC LTVs to 60%. SIXTY PERCENT. When I expressed my amazement, the representative told me, "Oh, it's even lower than that in most of Florida."

And we all know that consumers are deleveraging, if not by will, then by force as accounts are closed or credit lines reduced.

None of this is going to change as long as people are either out of work, underemployed, or nervous about their current employment situation. And with a 10%-plus unemployment rate (and more likely a real number of 15-18% when you include the underemployed and those who have given up), we're not about to reignite consumer spending any time soon.

I really do think we're in for a 5-10 year period of near-zero and zero growth. That should put quite a damper on PE ratios, assuming there's any "E" to even consider...

The Proposal to Limit Commodity Positions Will Hurt Free Markets and Economic Growth

Speculators are needed in the commodity futures markets to provide liquidity so that hedgers can manage their income or expense. However, speculators should not have the power to set the prices artificially.

The price of oil and gasoline should be based on the demand for those products by those who actually buy and use them, not the demand for their underlying futures contracts.

Does anyone really think that the "real market" for oil pushed it to $140 followed by a $100 drop? Nonsense.

Banks Are Unwilling to Solve REO Problems

I'm not so sure that the accounting on these transactions really reflects the losses.

When the bank forecloses, they order up a "broker's price opinion" (BPO) from a Realtor's office to see what the house should sell for.

Problem is, many BPOs are wildly inflated as the real estate office tries to "buy the business" by putting a value out there that makes the lender happy, even though the reality is that the true value of the property could be 20-30% less.

If these assets are on the books at the BPO price, then there are still plenty of losses that will be taken when the properties are finally sold.

I think one reason that some houses remain off the market is that they are not in marketable condition. Most of the foreclosures that I've seen need at least all of the cosmetics and appliances, and in a market where there are so many choices out there, these properties can't compete. (Unless they are sold to an investor, in which case the price they will get is even lower still than the BPO, meaning there will be even more losses.)

Either way, 600,000 homes is not really that many homes, relatively speaking. In early 2008, there were about this many home sales each month, so I don't think the number is that big.

Any my experience with RealtyTrac data is that it is very out of date and often incorrect. If that's the source of this information, then I'm already skeptical.

Time To Refinance: Mortgage Rates Lowest Since 1971

I really think the 30-year mortgage rate for 2009 will bottom out below 4%, maybe as low as 3.5%.

Three No Debt Stocks with Low Price to Cash Ratio

OXPS has about $100 million in cash and a market cap of $600 million.

How to Not Pay the AIG Bonuses

I think everyone needs to know exactly what these bonuses are for before we can say what is right.

Some of these bonuses are for $1,000. I don't think anyone getting a $1,000 bonus had much of a hand in the downfall of AIG. And I'm betting that it's a lot of money to the recipient, perhaps enough to make mortgage payment.

And if someone is a top producer or earner for AIG and they're entitled to a $1 million bonus, then they should get that, too. (Won't the feds be taking 40% of it back, anyway?)

What's clear here is that bonuses should not be paid for poor performance, and if "contracts" allow such payments in the absence of a positive outcome, then we have even more insight as to why AIG is in the shape it's in today, don't we?

Stewart vs. Cramer: A Cheap Shot

Stewart owes Cramer nothing any more than Saturday Night Live owes something to someone they skewer. These are not news shows, and they don't need to pretend to be fair and balanced any more than Limbaugh. They have an agenda, and that's fine: ratings.

While I don't think Stewart is smart enough about the markets to be the one to Monday morning quarterback ANYONE here, you have to admit...the clips of all these getting it SO wrong are funny and sad to watch.

They are wonderful reminders that, at the end of the day, you have to DO YOUR OWN HOMEWORK. You don't buy Bank of America just because Cramer said on TV that it's going to $60.

The moment Stewart downplayed the importance of the stock market as an indicator as to how things are going, he 100% lost me as someone whose opinion matters.

Cramer, Stewart, Limbaugh, SNL...all ENTERTAINMENT. Nothing more. Do your own homework.

Should Google Be Paying a Dividend?

"The story asserts that Google simply doesn’t need that much cash to run the business - and that the company is unlikely to an acquisition of the size that would require that much capital."

Perhaps the people at Google know more about Google's future plans than someone else's "assertion."

And as someone else said, in the current market, cash is king.

When a company begins to pay a dividend, it's basically saying, "We're running out of opportunities to deploy this capital--either internally or externally--and hit our target ROE."

It could be that paying a dividend might in fact send the wrong message to current shareholders. Perhaps Google has big plans for that $16 billion war chest.

Siegel vs. Standard & Poor's

Yes, I read this in the WSJ, too (2/28/09, Letters to the Editor):

In his "The S&P Gets Its Earnings Wrong" (op-ed, Feb. 25), Jeremy J. Siegel claims that Standard & Poor's systematically understates the earnings of the S&P 500. In his view, the recent losses of the financial companies in the S&P 500 should be discounted because of their diminished weights in the index.

His argument, however, fails the simple tests of both logic and index mathematics. A dollar earned or lost is the same, irrespective of whether it is earned or lost by a big index constituent or a smaller one.

Prof. Siegel's example of Exxon-Mobil illustrates why S&P's method of calculating earnings works. If large Exxon-Mobil earned $10 billion and small Jones Apparel lost $10 billion, index investors collectively -- and individually -- would bear a proportionate share of both Exxon's earnings and Jones's loss, despite the fact that the value of Exxon-Mobil's shares in the index portfolio is about 1,381 times the value of the Jones's shares.

To use an analogy, we could hypothetically view the S&P 500 as a single company with 500 divisions, with each division having earnings and an implicit market value. The smallest of these divisions could have an outsized loss that wipes out the combined earnings of the entire company. Claiming that these losses should be ignored or minimized because they came from a less valuable division is flawed.

Prof. Siegel's approach -- applying the weights based on market values to the results based on a company's earnings -- effectively mixes apples and oranges.

David M. Blitzer
Managing Director, Chairman of the Index Committee
Standard & Poor's
New York

On Feb 28 12:09 AM Ricard wrote:

> I really don't get Siegel's point:
>
> "Suppose on a given day the only price changes in the S&P 500
> are that the largest stock, Exxon-Mobil, rose 10% in price and the
> smallest stock, Jones Apparel Group, fell 10%. Would S&P report
> that the S&P 500 was unchanged that day? Of course not. Exxon-Mobil
> has a market weight of over 5% in the S&P 500, while the weight
> of Jones Apparel is less than .04%, so that the return on Exxon-Mobil
> is weighted 1,381 times the return on Jones Apparel."
>
> "Yet when S&P calculates earnings, these market weights are ignored.
> If, for example, Exxon-Mobil earned $10 billion while Jones Apparel
> lost $10 billion, S&P would simply add these earnings together
> to compute the aggregate earnings of its index, ignoring the vast
> discrepancy in the relative weights on these firms. "
>
>
>
> This is as it should be. Siegel goes way off thinking that earnings
> should be weighted like price. In his example, Jones Apparel with
> that enormous loss vs market cap would have an equally enormous negative
> EPS, which then would require weighing. If done properly, you'd come
> up with the same number had you simply done what Siegel accuses S&P
> of 'improperly' doing.
>
> Or, you could choose to eliminate price weighing on the index. Exxon
> gains $30 billion in market cap, great, the index goes up by 30 billion
> points (around 10% move upward). Jones loses $20 million in market
> cap, great, the index goes down by 20 million points (around 10%
> move downward).
>
> Think of it this way - If GE's financial division reported a $30
> billion loss, while its manufacturing reported a $15 billion gain,
> GE as a whole would report a loss. Even if you weighed the loss of
> the financial division vs its size compared to GE, you'd still get
> a negative P/E for the firm. There's no way to avoid this simple
> fact.
>
> Siegel's point is utterly ridiculous. Middle school math students
> could do better.