Yamaka

Equities Update: Broad Declines Wipe Out October Gains

1 Q 2009 GDP was -6.5
2 Q 2009 GDP was -1.0

This means in 2 Q GDP really grow about +5%.

I expect in 3 Q GDP growth of at least +3.5% tomorrow.

Stocks will resume the upward move towards SP500 Index 1150 for the end of 2010 slowly and steadily (P/E 18-20, not overvalued at all). For the expected "reported earnings" for SP500 Index is about $65 for 2010.

Bears / short sellers will be creamed tomorrow.

Grantham on the Markets: '860 Is Fair Value for S&P'

As per WSJ Market Data, the 12-month forward looking p/e is 17 based on the expected "reported earnings" for the SP500 Index although the 12-month trailing p/e is very high 77.

This tells me that the Market is NOT overly valued, as it looks 6-12 moths ahead of what could happen.

When the short interest rate is near zero and plenty of fiscal and monetary stimuli are in the pipeline, a p/e of 18-20 is easily acceptable valuation.

Therefore, the SP500 Index could very well settle around 1150 before the end of 2010. Afterwards, it depends on where the interest rate would go AND the growth of earnings.

Despite Declining Value, Dollar's Status as World's Reserve Currency Is Safe...For Now

1. In the view of the Fed, we face deflation as a serious threat more than any inflation NOW. Therefore, the interest rate is kept near zero.

2. Fed can very swiftly move to increase the interest rate if inflation is a serious threat (within a few days).

3. As long as US is the largest economy and consumes as much as 10 trillion dollar worth of goods and services a year, most countries will try to export their products to the US some how. Its currency will be the dominant one in the world. Eurozone, China or Russia cannot import the way US imports to serve their citizens.

4. Neither China and nor the oil-exporting countries can think of moving away from the US market. They MUST get US dollar for their goods. This dollar should be used to buy dollar denominated goods and service in the US or in elsewhere in the world.

Or they have to stop selling to the US, which is impossible for China, the OPEC or any other country in the world to do.

That's why the US dollar will remain the dominant currency of international trade.

Thoughts on Geithner's Testimony

Many of the blogs here (short-sellers and Bears) want most banks collapse and take the US economy to the toilet for ever!!!

The fact is banking is a necessary evil in any economy. We may not like them, but we all need/require them to grease the cogs of the economy via creating credits.

What Geithner wants to do is stabilize the banks via TARP, TALF and PPIP as soon as possible. Once the Stimulus money hits the pockets of the people, there will be enormous demand for credit, goods and services. He wants the credits to flow normally.

He needs our support because we all want a healthy US economy, which is very essential for the world economy. We need to create 2-3 million jobs every year here in US and we need to grow at 3-4% GDP a year, and we will do once the recession is over in about 6 months time. Fed has the dual mandate of engineering full potential growth consistent with price stability. They are doing their part to get full growth by moving the short term interest rate to near zero. They will hike the interest rate once the economy grows in full speed (in about 2-3 years).

I expect the SP500 earnings to reach a normal $90 in 2012, which means 90 x 17 = 1530 SP500 Index for the 2012 close.

Many short-sellers think about their narrow day-to-day interests, not the interest of the American economy as a whole. We need to seriously regulate short-selling for they are very disruptive to markets and the economy!

Cheers.

Stocks close out the week's first session at their lows. Buyers never showed up after stocks gapped down at the open, allowing indexes to drift to their biggest one-day losses in more than a month. DJIA -3.55% (-288.49) to 7,842.84. S&P -4.25% (-36.96) to 832.58. Nasdaq -3.88% (-64.86) to 1,608.21.

As per Birinyi Associates, as reported in the Market Data of WSJ, the P/E for SP500 Index is 13 (trailing 12 months) and 15 (forward 12 months).

The P/E could very well expand to 20 since the 10 Yr T yields below 3% and will remain low for at least another 2-3 years.

What we saw today was just "profit taking" after 6 weeks of relentless upward move.

Market is cheap. It will resume the upward swing soon, and will end the year around 1100-1200 for the SP500 Index.

Bears/short sellers will be seriously disappointed!
Cheers.

Can a Stock Market Meltdown Happen from Here?

Stocks never go up in straight line! They move up for several weeks, then go down briefly, then proceed higher. March 9th was the lowest point.

As long as the expected earnings for SP500 Index is around $60 (Briyni Associates as reported in WSJ Market Data) for 2009 there is NO way the index will meltdown to 450!

Herr Siebel is a nut. Maybe he wants to push Gold, which will oscillate between $900 and $1100, not more.

Enormous fiscal and monetary stimulus will bring the GDP growth in the last Q of 2009, which means the market will move ahead six months in advance. This is happening now.

SP500 earnings is expected to reach $90 in 2012, which means the Index will reach 90 x 18 = 1620 by the end of 2012, since the 10 y T is below 3%.

Stocks are very very cheap now.

Cheers.

Closing Update: Streak Stretches Six

When the 10 yr T is less than 3%, I would expect the P/E to expand as much as 20 (earnings yld 5%).

I expect the SP500 Index to reach 1100-1200 this year end.
As long as the T rate is very low, the market will keep slugging upwards!

No one should fight the tape and the Fed.
They are too powerful, and will pull us out of the downturn.

Cheers.


On Apr 17 07:47 PM E Nuff Sed wrote:

> Most rational observers are coming around to the idea that the we
> have now decisively bounced off the bottom. My observation of previous
> market bottoms indicate that an indica is back to back rally lasting
> 4 - 7 weeks.
> Here are my bear market charts.
> docs.google.com/Presen...;hl=en
>
>
> On a fundamental basis the S&P is now trading on a forward PE
> of between 12 - 14. This is at the same level it was in 1989-1990
> when the great bull of the 90's started.

This Rally Should Have Staying Power

I like the article and the conclusion.

1. Historically, the broad market (SP500) was trading at 3.5 X book value ($530). This means SP500 needs to be near 1855.

2. The broad market used to be 1.5 X of 1 oz of gold. This means SP500 needs to be near 1335.

3. The expected SP 500 earnings for 2009 is about $60 (as per Briyni, as reported in WSJ Market Data). When the 10 yr T is yielding under 3%, an earnings yld of 5% (P/E multiple of 20) is very reasonable. This means SP500 needs to be near 1200.

All this suggests strongly that the market will close near at least 1100 (SP 500 Index) by the end of this year, and 1300 in 2010.

When will we cross SP500 Index 1500? Probably, by the end of 2012. This means we lost nearly 4 years because of this deep recession. That's very sad.

Cheers.

Sucker's Rally Approaching an End

I totally disagree with this article:

1. This downturn is NOT like the 1930s, because the unemployment rate is under 10%. But this may be the worst recession in the last 30 years.

2. There is plenty of monetary and fiscal stimulus in the pipeline. The economy could very well show a positive GDP starting Oct 09. This means the stock market will move higher about 6 months in advance.

That's what is happening.

3. The expected SP500 Index earnings for this year is about $60 as opposed to $80 in 2007 (Briyni, as reported in WSJ Market Lab). When the 10 y treasury is less than 3%, I will give a P/E multiple of at least 17 (5.88% earnings yld), which means the year end SP500 will be 1020.

This recession will end sooner than most people believe and we will hit SP500 1200 by the end of 2010. If inflation is going to go up because of too much money in the system, it will go through the Stock Market, which is not a bad thing.

Please remember, earnings is the mother's milk of the stock market. The earnings will be lot higher than $70 next year.

Where is the problem? Maybe, you are a short seller!!

Cheers.

Goldman Sachs (GS) mulls a multibillion-dollar share offering as part of an effort to repay its $10B TARP loan. Execs privately say GS doesn't need new capital to repay the government (it holds an impressive $111B in cash and equivalents), but a successful offering would signal its financial health.

If GS is such a sound company with $110B of cash and equivalents, why didn't they say just "No, thanks" to Paulsen. I bet they didn't have that much confidence on their books and the level of their "toxic wastes" as you seem to have. That's why they took the TARP paying 5% dividend and signing on the contract.

I don't have any confidence on the balance sheet of any of these financial institutions because they keep a lot off balance sheet.

Maybe, you should send them a check transferring YOUR money as appreciation. Not public funds.

We need a massive regulation of ALL the financial institutions, including insurance companies like AIG. None should be allowed to grow so big that they become "too big to fail". Using anti-trust laws they must be broken down into small pieces.

We need complete overhaul of the Rating Agencies, who slept at the switch most of the time.

Please read Paul Krugman's article in NY Times on "Banking should be made boring"

Cheers.


On Apr 10 06:05 PM Smegma wrote:

> We all owe a debt of gratittude to GS for having pitched in to help
> alleviate the financial crisis. They didn't need TARP money in the
> first place, but took it at the behest of Paulson and did so in order
> to help the country and the world.
>
> They also deserve credit for having faciliated an orderly unwinding
> of AIG's positions by receiving pass-through dollars from the government
> bailout of AIG.
>
> The Treasury should suspend payment of any loan interest due from
> GS on and allow them to retain at least a portion of the TARP loan
> as a national gift.

Geithner's PPIP: Are We Really This Stupid? - Barron's

Thanks for the Washingtonpost article.

My point is Geithner needs the support of the Congress and the people to implement his PIPP, which will hopefully unclog the credit market pipeline, which is very important for the economy to come back to normalcy.

1. When unemployment is shooting up, Govt must act fast to bring normalcy to the economy.

2. At this point in time, the Congress should not try to overhaul the Compensation Methodology of banks and others in the private sector.

Legislation regarding BONUS payments for financial institutions which got TARP money may be legitimate, but Compensation as a whole need not be addressed now. That can wait until after the economy comes back to normalcy.

3. We need to wait and see the results of the Stress Test for banks. How many are truly failing and how many are really strong. That would dictate whether PIPP needs to go forward or not. If PIPP needs to go forward:

a. The toxic assets may not be bought for more than 50 cents to the dollar. There will not be an issue of overpayment.

b. If the market fully recovers in a few years, these toxic assets may be sold to the private sector for the full face value or at least 70 cents the dollar or at least 50 cents to the dollar (this will be "at cost").

c. PIPP will lose money only when the toxic waste cannot be sold at all and or sold less than 50 cents to the dollar - the chances of that happening is very very small.

I strongly believe PIPP could work very well, if the Congress does not intervene with counter-acting legislations.

The bottom line is the Credit Pipeline Must be unclogged for the economy to function to its fullest potential (creating at least 2.5 million new jobs per year), period.

Cheers.

On Apr 05 10:10 PM dcb wrote:

> All of these programs are a massive government fraud. The banks are
> insolvent, and they will do what ever they can to bail them out.
> It doesn't matter if it is legal or illegal. There will be some kind
> of legal justifacation, but it is a smokescreen. I really don't see
> how anyone who is rational can say otherwise at this point with all
> the evidence. Even the good old democratic washington post realizes
> this: see link below. Folks if the liberal media is saying he is
> crooked with only a few months in office, he must really be bad.
> I am not a republican by the way.
>
>
> www.washingtonpost.com...
>

Geithner's PPIP: Are We Really This Stupid? - Barron's

Yes, if the PPIP works well, the Govt and the private partner can make money. But, there are many ifs:

1. Since FASB suspended the MtoM accounting, the banks may not like to sell any asset. They believe they may not get 100% of the face value of their assets. Unless, the Fed forces the "weak/failing" banks after the stress test, no transaction may happen.

2. If all the banks pass the stress test, then no bank needs to unload its toxic waste for a fraction of its face value.

3. I believe that about 50% of the banks will fail the stress test. These banks will be forced to sell their toxic assets for 50 cents a dollar.

4. These toxic assets will be bought by the PPIP, and the private partner will manage till it can be sold for the face value. This could take 2-5 years. When a profit is made, then it is divided between the Govt and the private partner.

5. The key is whether the toxic waste is sold for 20 cents or 50 cents or 80 cents a dollar. This can be determined only by a very experienced private partner (like PIMCO, a hedge fund or any other company which had had 5 billion dollar of distressed asset management under its control). Banks will like to sell at the maximum price possible, and the PIPP will like to buy at the lowest price possible for a potential profit at a later time.

Yes, the PIPP could work well and a profit can be made or nothing may happen or Govt would be forced to take all the loss.

Geithner wants to try something and unclog the frozen credit system.

We need some good luck. We all want to normalize the credit flow and the economy.

Cheers.

6.

Three Ways China May Handle Growing U.S. Debt

China is totally dependent on US economy for its survival: W/o dumping its toxic cheap products on US consumers, its economy will collapse over night.

The Red Communist China cannot handle the civil war of their job-hungry populace if their US dependent export economy halts abruptly. That is to say the excess dollars they accumulate MUST be used in buying dollar denominated goods/services/US Treasury directly or indirectly.

Thus, the status quo will continue, unless the US consumer boycotts the toxic cheap products coming from very unscrupulous Red Communist China.

Financials Are Masking the Market's Potential

The broad market (SP 500 Index) is very over-sold.

2009 will have the worst aggregate earnings ($40), but 2010 will have at least $70.

When the 10 y treasury yield is less than 3%, the money in the sidelines (MMF has nearly 3 trillion dollars parked) will gush into stocks in another 3- 6 months:

Mark-to-market rule and uptick rule will be in place shortly. This will bring back the Financials to the historic level.

For 2010, I will expect a p/e of 17 (earnings yld = 5.88%), which means 17 x 70 = 1190 for the SP500 Index, at least.

We have seen the real bottom. Market is poised to move up to normalcy very soon.

Perma Bears will be slaughtered very soon.

Cheers.

What's Another $1.15 Trillion?

I welcome the bold move of the Fed.

They keep a watchful eye on inflation, which is very subdued NOW.

Once the economy starts growing at the normal rate of 3-4% GDP, then Fed will hike up the interest rate to contain inflation.

Today I worry more about deflation and economic deterioration, NOT inflation. Fed's hyperactivity is required at this point in time.

Jai Ho.