Is Sprint Making A Mistake With The iPhone Bet? [View article]
My family use Sprint. I and my wife hvae decided to get the iPhone. We are by no means tech junkies, wanting the latest gadget, so I reckon the demand from current subscribers is going to be huge. I also think subscribers will migrate from other carriers, T-Mobile being the most likely. Customer service has improved tremendously at Sprint. The share price has tanked. The market has shot first and will ask questions later. I think there is room for the stock to recover. Before the iPhone deal, investors such as Einhorn were buyers and others put a $6 price on the stock. If the apple deal is a success, the stock will easily double from here.
Sprint Shares Overreact To AT&T / T-Mobile Developments [View article]
I own Sprint. I think it is turning itself around. If the merger doesn't get done, T-Mobile is very much weakened and Sprint could take customers from them. Getting the iPhone will help longer term but not much short term (it will take awhile for customers to generate enough income to cover the subsidy Sprint pays). We subscribe to Sprint and their service has improved. The stock is cheap and the turnaround doesn't have to be massive to make the stock work.
Is the National Bank of Greece Worth the Risk? [View article]
I hold a position (sadly) in the stock. Many of the reasons you put forward were ones that made me buy the stock, but that was before the true state of affairs in Greece emerged. You're right, take away the problems in Greece and the bank is very solid. But that IS the problem the shares have been a real dog. The think there will be a debt restructuring - in or out of the euro. Despite all the posturing I can see no other way out for Greece. I actually think they should leave the euro. Their currency would get immediately revalued downwards, bonds would take a huge haircut but the country would be in a much better position to grow. I just can't see any way Greece will grow itself out of its huge mountain of debt. Leaving the euro would boost inflation in the short term but it would also stimulate growth (tourism would go through the roof). I am not sure where this leaves NBG. I think it would have to do a big capital raise to offset the haircut it would take in its bond portfolio, diluting current shareholders. However, it would benefit from faster economic growth. With uncertainty much reduced, investors would be more comfortable investing in the bank. I think the share price is discounting a lot of bad news but there could be more. I have decided to hold the stock and see what happens and am prepared to lose my investment.
The "equity cult" is dead, proclaims Citi's Robert Buckland, and it will mean trillions in outflows from stocks - a reduction in equity holdings to ~20% of total assets, implying a further $1.9T reduction in equity weightings from U.S. private sector pension funds alone. Brace yourself for "considerable institutional selling to come." [View news story]
The equity cult occured during the great bull market from 1981 to 2000. It is common to believe that we are now in a secular bear market. The doomsters think we'll revisit the 600s because for a new bull market to begin equities need to be dirt cheap i.e. there has to be a total capitulation by investors of equities. But I think the low back in march 2009 represented a total capitulation. Equities have been de-rated with a lot of stocks trading below 10x forward earnings. it's rare for stocks to trade at these valuations. When you factor in bond yields, valuations become more attractive. We now appear to be in a the latter stages of a bond cult - that worries me more than the end of the equity cult which as I say has been going on since 2000.
Analysts’ Collective Bullishness: Return to Normal? [View article]
I don't know how the McKinsey study but stock prices do follow earnings over the long term. Over the short term the two can diverge significantly. During this cycle, earnings first rose because of cost cutting but for the last couple of quarters we have started to see revenues recover. Analysts underestimated the impact of cost cutting on the bottom line. If revenues continue to grow then earnings will get a nice lift. I think the 15% correction has discounted some slow down in Europe. However, we don't know how severe the slow down will be. My impression is that the bears have had the upper hand and growth could be better than expected in Europe.
Greece vs. the EU: Who Will Flinch First? [View article]
I think a lot of the bad news is in the price. Hence, the widening of bond spreads and decline in bank shares. I would still be surprised if the IMF came to the rescue rather than the EU. It would be a blow to the reputation of the EU - basically, the message is that they will not support a weak, marginal player in the EU. It also basically reinforces the idea that the U.S. (IMF) is still the banker of last resort to the rest of the world.
Absurd Inverse and Leveraged ETF Product Whining (Updated) [View article]
My bet is that not many people make money on leveraged ETFs. I can understand why some firms will not allow their clients to own (trade) them. Dave has been bearish for some time, he is an experienced chartist and if you had followed his underlying theme - you would have been predisposed to short the market - particularly a week ago when it looked like the market was going to break to the downside as the right side of the head and shoulders looked vulnerable. Who would have guessed that the market would be up about 10% since then. Now if you had bought ultralongs a week ago you would be laughing all the way to the bank! But my guess is that not many people did and those who did probably sold out too soon. Those who were long in their equity portfolio probably outperformed them.
Jon Stewart Takes on Goldman Sachs [Video] [View article]
The bottom line is that the government bailed out the system and Goldman was a major beneficiary of the bailout. Would GS have made those profits if the system had collapsed? Of course not. Why not levy a windfall tax on GS? Of course, it will never happen - the government will just raise the tax you and I pay.
Tuesday Outlook: Commodities, Global Markets [View article]
I enjoy reading your analysis. I am not as cynical as you are about da boyz running the market. If that were true then when the market collapses as so many people believe it will, is that da boyz engineering the collapse or investors suddenly seeing the light and running for cover? If the market continues to rise, I can see the bears throwing in the towel - that will signal the top.
Multi-Year Fundamental S&P 500 Valuation [View article]
Would you not have to adjust the rate on the BBB bond in an economic expansion - just as you use a different multiple to the impled PER when you assume an expansion? I think it quite feasible that if the economy recovers the rate on the BBB will decline and in your equation this will result in a higher level for the S&P. Also, other commentators have used $67 as a normalized earnings number. This is similar to one of the examples in the article. Historically, the PER on the S&P has averaged 15x, so on that basis a reasonable expectation is about 1000.
On Apr 06 02:03 PM pslater wrote:
> I repeat from yesterday's post on the same topic...... > > All this talk of P/E ratios ignores the fact that P/E ratios ARE > a function of interest rates. I agree that the Fed model is useless > right now if you use the 10 year Treasury as the benchmark but the > concept is sound. If you substitute the BBB interest rate (the average > credit rating of the non financial S&P 500 companies is around > BBB. For reference, see the iShares investment grade corporate bond > fund - ticker LQD. Average credit rating is BBB+) for the 10 year > Treasury you get a much more accurate picture of where P/E ratios > should be. With the current BBB rate of around 8.5%, a P/E of about > 11.8 is implied. (100 / 8.5 = 11.8) > > An analysis of the last 21 years of actual year end index numbers > compared to 'fair value' estimates using the BAA interest rate to > imply P/E ratios shows that in recessions (1991, 1992, 2001, 2002, > and 2008), the S&P tends to have about a 3.0 multiple to the > implied P/E ratio (this is skewed by 2008 where the multiple is 4.8!)whereas > in economic expansions (the rest of the years) the average is 1.6 > (which is skewed upward by the 1998, 1999, and 2000 P/E spike).<br/> > > If we use the 'as reported' trailing four quarter number of $14.97 > we get a fair value for the S&P 500 of 529 ($14.97 X 11.8 P/E > * 3.0 recession adjustment). > > If we use S&P's 'as reported' EPS estimate for the next four > quarters of $34.74 (a very bad idea!) and the economic expansion > adjustment of 1.6, we get an index fair value of 655 (11.8 X $34.74 > X 1.6 expansion adjustment). > > Finally, if we use the 2008 recession multiple of 4.8 rather than > the historical multiple of 3.0 and the 'as reported' EPS of $14.97 > we get a 'fair value' of 847 ($14.97 X 11.8 X 4.8) which is less > than 1% from where the index closed Friday! > > In summary, this market is no bargain and the Fed model is useful > if you apply the appropriate interest rate.
Is Sprint Making A Mistake With The iPhone Bet? [View article]
Sprint Shares Overreact To AT&T / T-Mobile Developments [View article]
Is the National Bank of Greece Worth the Risk? [View article]
Bill Miller Versus the S&P 500 [View article]
The "equity cult" is dead, proclaims Citi's Robert Buckland, and it will mean trillions in outflows from stocks - a reduction in equity holdings to ~20% of total assets, implying a further $1.9T reduction in equity weightings from U.S. private sector pension funds alone. Brace yourself for "considerable institutional selling to come." [View news story]
Analysts’ Collective Bullishness: Return to Normal? [View article]
Greece vs. the EU: Who Will Flinch First? [View article]
Absurd Inverse and Leveraged ETF Product Whining (Updated) [View article]
Jon Stewart Takes on Goldman Sachs [Video] [View article]
Tuesday Outlook: Commodities, Global Markets [View article]
Multi-Year Fundamental S&P 500 Valuation [View article]
On Apr 06 02:03 PM pslater wrote:
> I repeat from yesterday's post on the same topic......
>
> All this talk of P/E ratios ignores the fact that P/E ratios ARE
> a function of interest rates. I agree that the Fed model is useless
> right now if you use the 10 year Treasury as the benchmark but the
> concept is sound. If you substitute the BBB interest rate (the average
> credit rating of the non financial S&P 500 companies is around
> BBB. For reference, see the iShares investment grade corporate bond
> fund - ticker LQD. Average credit rating is BBB+) for the 10 year
> Treasury you get a much more accurate picture of where P/E ratios
> should be. With the current BBB rate of around 8.5%, a P/E of about
> 11.8 is implied. (100 / 8.5 = 11.8)
>
> An analysis of the last 21 years of actual year end index numbers
> compared to 'fair value' estimates using the BAA interest rate to
> imply P/E ratios shows that in recessions (1991, 1992, 2001, 2002,
> and 2008), the S&P tends to have about a 3.0 multiple to the
> implied P/E ratio (this is skewed by 2008 where the multiple is 4.8!)whereas
> in economic expansions (the rest of the years) the average is 1.6
> (which is skewed upward by the 1998, 1999, and 2000 P/E spike).<br/>
>
> If we use the 'as reported' trailing four quarter number of $14.97
> we get a fair value for the S&P 500 of 529 ($14.97 X 11.8 P/E
> * 3.0 recession adjustment).
>
> If we use S&P's 'as reported' EPS estimate for the next four
> quarters of $34.74 (a very bad idea!) and the economic expansion
> adjustment of 1.6, we get an index fair value of 655 (11.8 X $34.74
> X 1.6 expansion adjustment).
>
> Finally, if we use the 2008 recession multiple of 4.8 rather than
> the historical multiple of 3.0 and the 'as reported' EPS of $14.97
> we get a 'fair value' of 847 ($14.97 X 11.8 X 4.8) which is less
> than 1% from where the index closed Friday!
>
> In summary, this market is no bargain and the Fed model is useful
> if you apply the appropriate interest rate.