The Other Street's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/475623/comments http://seekingalpha.com/article/1460361/comments?source=feed#comment-19225561 19225561 Fri, 24 May 2013 17:55:43 -0400 http://seekingalpha.com/article/1432471/comments?source=feed#comment-19011881 19011881
The Bernanke/Paulson Bazooka was the next disruptive change, which Bernanke had publicly laid out in 2002 - meaning he had thought about this long before the Bubble burst.

The tripling of the initial US QE was also disruptive. The European QE is less visible because of the way they publish data, but the Japanese, the actual inventors of QE, which they called Ryoteki Kinyu Kanwa in March 2001 - twelve years ago...are now coming out of the closet, and then some.

I think Hedge funds are going to leave substantial money on the table here. This is time to be Long Only, and use cash as the hedge. Shorting is suicide in the face of rising Earnings and P/E expansion. One example: Pulte Homes ( which combined with Centex, making it a power house in the low-to-middle housing market) is selling at a TTM P/E of around 30. Toll Brothers, higher-end builder, is selling at 11 times. Do you really want to do what the models say, long TOL, short PHM... I am long both, and JOE.]]> Sun, 19 May 2013 21:06:41 -0400
The Bernanke/Paulson Bazooka was the next disruptive change, which Bernanke had publicly laid out in 2002 - meaning he had thought about this long before the Bubble burst.

The tripling of the initial US QE was also disruptive. The European QE is less visible because of the way they publish data, but the Japanese, the actual inventors of QE, which they called Ryoteki Kinyu Kanwa in March 2001 - twelve years ago...are now coming out of the closet, and then some.

I think Hedge funds are going to leave substantial money on the table here. This is time to be Long Only, and use cash as the hedge. Shorting is suicide in the face of rising Earnings and P/E expansion. One example: Pulte Homes ( which combined with Centex, making it a power house in the low-to-middle housing market) is selling at a TTM P/E of around 30. Toll Brothers, higher-end builder, is selling at 11 times. Do you really want to do what the models say, long TOL, short PHM... I am long both, and JOE.]]> http://seekingalpha.com/article/1432471/comments?source=feed#comment-18988591 18988591 http://1.usa.gov/Z431lw
And guess what LTCM (remember them) and Bill Sharpe have in common: three Nobel Prizes in Economic Science...

Reality will ultimately determine whether the risk built into the model is appropriate. I suspect reality is still murkied by the CDS problem, which is very difficult to quantify, even when talking to BIS. But if I am right on Housing - I have a pretty good handle in the US, where I expect a wave of immigration from Europe on top of a regression to the mean -, the employment needle will continue to move and growth will take care, over time, of what's left of the skeletons in the banks' closets. Then what's not needed of the $1.7Tn will trickle down to M1, inflation expectations will revive, so will the Multiplier, all bona fide reasons for the Fed to reverse QE - first slow, then stop, then withdraw. While this may create headline related "corrections", to me these will be dips to be bought because the corollary will be an improvement in the economy and the worldwide financial system. The sooner the better, because stocks are moving up too fast.]]> Sat, 18 May 2013 17:27:27 -0400 http://1.usa.gov/Z431lw
And guess what LTCM (remember them) and Bill Sharpe have in common: three Nobel Prizes in Economic Science...

Reality will ultimately determine whether the risk built into the model is appropriate. I suspect reality is still murkied by the CDS problem, which is very difficult to quantify, even when talking to BIS. But if I am right on Housing - I have a pretty good handle in the US, where I expect a wave of immigration from Europe on top of a regression to the mean -, the employment needle will continue to move and growth will take care, over time, of what's left of the skeletons in the banks' closets. Then what's not needed of the $1.7Tn will trickle down to M1, inflation expectations will revive, so will the Multiplier, all bona fide reasons for the Fed to reverse QE - first slow, then stop, then withdraw. While this may create headline related "corrections", to me these will be dips to be bought because the corollary will be an improvement in the economy and the worldwide financial system. The sooner the better, because stocks are moving up too fast.]]> http://seekingalpha.com/article/1432471/comments?source=feed#comment-18980271 18980271
Mobyss, you are absolutely correct. I personally have looked at a the post WWII period. From 1946, which was a period when earnings troughed due to Post War conversion, to 1949, when there were strikes and a recession, Earnings more than doubled, and as a result the S&P 500 P/E went from 24 to 6, with the S&P 500 itself basically flat at around 20 (not a typo...). It then took until 1957 for the P/E to gradually inch up to 14, and the SnP basically tripled to 60. from then on, until 1974, it hovered in a range of 14 to 23. With the Oil shock, food inflation, and baby boom demand led inflation, it broke down that range to trade between 14 and 7. It took the big Volcker recession of 1981-1982 to bring it back to 14in 1983. While I have seen no explanation for this, I have my own: during that period, financial assets, stocks and bonds alike, were depreciated for fear of structural inflation. Then, after some hesitation, the previous range was restored, with an even higher peak in the Bubble years. Which brings me to the real thing - The Earnings Yield, i.e. the reverse of the P/E, which with the advent of Modern Portfolio Theory in the 60's, is to be compared to the risk-free rate, i.e. the 10-Year Note Yield usually. You can see the historical chart in my article http://seekingalpha.co... . From 1980 or so to 2003, there was a very strong correlation between the two, which checks with the 14 to 28 P/E range of the period, similar to the one from 1957 to 1974. However, this correlation broke down in 2003, and is still broken - a P/E of 16.3 translates into an Earnings Yield of 6.1%, when the 10-Year is at 1.8%. This implies that stocks are extremely cheap, the theory behind my series of articles entitled "S&P Target 1600", which I started writing in October 2011, and which I just upgraded to "S&P Target 2000". The question then becomes why would P/E expand? I am afraid you'll have to read these to get a complete picture, but the first question is "why the 2003 breakdown?". In my opinion, Sarbanes Oxley: it induced the notion that company lied about their earnings - which was true as we found out not only in the Internet Bubble, but also in the 2008 Meltdown - see my book http://bit.ly/rDjanF . This risk perception is very much still in people's mind - actually, in banks' mind as well if one is to figure out why they are holding Excess Reserves of $1.7 Trillion, compared to the $10 Billion or so (not a typo either) they were holding before the Meltdown. Now that the only sector that is capable of moving the employment needle is recovery (Housing) and that people understand QE worked, and will work for Japan too, I think this risk premium will normalize. The breakout last week seems to confirm that - I was a bit hesitant to forecast it, I must admit - I prefer Walls of Worry to exponential spikes. ]]> Sat, 18 May 2013 10:38:27 -0400
Mobyss, you are absolutely correct. I personally have looked at a the post WWII period. From 1946, which was a period when earnings troughed due to Post War conversion, to 1949, when there were strikes and a recession, Earnings more than doubled, and as a result the S&P 500 P/E went from 24 to 6, with the S&P 500 itself basically flat at around 20 (not a typo...). It then took until 1957 for the P/E to gradually inch up to 14, and the SnP basically tripled to 60. from then on, until 1974, it hovered in a range of 14 to 23. With the Oil shock, food inflation, and baby boom demand led inflation, it broke down that range to trade between 14 and 7. It took the big Volcker recession of 1981-1982 to bring it back to 14in 1983. While I have seen no explanation for this, I have my own: during that period, financial assets, stocks and bonds alike, were depreciated for fear of structural inflation. Then, after some hesitation, the previous range was restored, with an even higher peak in the Bubble years. Which brings me to the real thing - The Earnings Yield, i.e. the reverse of the P/E, which with the advent of Modern Portfolio Theory in the 60's, is to be compared to the risk-free rate, i.e. the 10-Year Note Yield usually. You can see the historical chart in my article http://seekingalpha.co... . From 1980 or so to 2003, there was a very strong correlation between the two, which checks with the 14 to 28 P/E range of the period, similar to the one from 1957 to 1974. However, this correlation broke down in 2003, and is still broken - a P/E of 16.3 translates into an Earnings Yield of 6.1%, when the 10-Year is at 1.8%. This implies that stocks are extremely cheap, the theory behind my series of articles entitled "S&P Target 1600", which I started writing in October 2011, and which I just upgraded to "S&P Target 2000". The question then becomes why would P/E expand? I am afraid you'll have to read these to get a complete picture, but the first question is "why the 2003 breakdown?". In my opinion, Sarbanes Oxley: it induced the notion that company lied about their earnings - which was true as we found out not only in the Internet Bubble, but also in the 2008 Meltdown - see my book http://bit.ly/rDjanF . This risk perception is very much still in people's mind - actually, in banks' mind as well if one is to figure out why they are holding Excess Reserves of $1.7 Trillion, compared to the $10 Billion or so (not a typo either) they were holding before the Meltdown. Now that the only sector that is capable of moving the employment needle is recovery (Housing) and that people understand QE worked, and will work for Japan too, I think this risk premium will normalize. The breakout last week seems to confirm that - I was a bit hesitant to forecast it, I must admit - I prefer Walls of Worry to exponential spikes. ]]> http://seekingalpha.com/article/1443631/comments?source=feed#comment-18979821 18979821 Sat, 18 May 2013 10:25:41 -0400 http://seekingalpha.com/article/1443631/comments?source=feed#comment-18979671 18979671 http://seekingalpha.co... . From 1980 or so to 2003, there was a very strong correlation between the two, which checks with the 14 to 28 P/E range of the period, similar to the one from 1957 to 1974. However, this correlation broke down in 2003, and is still broken - a P/E of 16.3 translates into an Earnings Yield of 6.1%, when the 10-Year is at 1.8%. This implies that stocks are extremely cheap, the theory behind my series of articles entitled "S&P Target 1600", which I started writing in October 2011, and which I just upgraded to "S&P Target 2000". The question then becomes why would P/E expand? I am afraid you'll have to read these to get a complete picture, but the first question is "why the 2003 breakdown?". In my opinion, Sarbanes Oxley: it induced the notion that company lied about their earnings - which was true as we found out not only in the Internet Bubble, but also in the 2008 Meltdown - see my book http://bit.ly/rDjanF . This risk perception is very much still in people's mind - actually, in banks' mind as well if one is to figure out why they are holding Excess Reserves of $1.7 Trillion, compared to the $10 Billion or so (not a typo either) they were holding before the Meltdown. Now that the only sector that is capable of moving the employment needle is recovery (Housing) and that people understand QE worked, and will work for Japan too, I think this risk premium will normalize. The breakout last week seems to confirm that - I was a bit hesitant to forecast it, I must admit - I prefer Walls of Worry to exponential spikes.]]> Sat, 18 May 2013 10:21:43 -0400 http://seekingalpha.co... . From 1980 or so to 2003, there was a very strong correlation between the two, which checks with the 14 to 28 P/E range of the period, similar to the one from 1957 to 1974. However, this correlation broke down in 2003, and is still broken - a P/E of 16.3 translates into an Earnings Yield of 6.1%, when the 10-Year is at 1.8%. This implies that stocks are extremely cheap, the theory behind my series of articles entitled "S&P Target 1600", which I started writing in October 2011, and which I just upgraded to "S&P Target 2000". The question then becomes why would P/E expand? I am afraid you'll have to read these to get a complete picture, but the first question is "why the 2003 breakdown?". In my opinion, Sarbanes Oxley: it induced the notion that company lied about their earnings - which was true as we found out not only in the Internet Bubble, but also in the 2008 Meltdown - see my book http://bit.ly/rDjanF . This risk perception is very much still in people's mind - actually, in banks' mind as well if one is to figure out why they are holding Excess Reserves of $1.7 Trillion, compared to the $10 Billion or so (not a typo either) they were holding before the Meltdown. Now that the only sector that is capable of moving the employment needle is recovery (Housing) and that people understand QE worked, and will work for Japan too, I think this risk premium will normalize. The breakout last week seems to confirm that - I was a bit hesitant to forecast it, I must admit - I prefer Walls of Worry to exponential spikes.]]> http://seekingalpha.com/article/1432471/comments?source=feed#comment-18872711 18872711 Wed, 15 May 2013 18:52:30 -0400 http://seekingalpha.com/article/1432471/comments?source=feed#comment-18872471 18872471 Wed, 15 May 2013 18:46:41 -0400 http://seekingalpha.com/article/1432471/comments?source=feed#comment-18872191 18872191 Wed, 15 May 2013 18:38:34 -0400 http://seekingalpha.com/article/1432711/comments?source=feed#comment-18802111 18802111 http://seekingalpha.co... , and 2000 in April 2013. Plenty of fundamental arguments. The main one you are missing, even though you have part of the story right, is that the only post WWII period during which P/Es were in a 8-14 range was 1972-1981. I found no other explanation than mine, which is that at the time, inflation was deemed structural, a combination of concerns over Oil Supply and Baby Boomers Demand-led inflation. Since 2008, the spread between the Earnings Yield and the 10-Year Note reflects the uncertainty about the economy, Sarbanes Oxley, QE, etc. However, the bet to make was, would we go back to the normalize spread and P/E trading range of 14/26? In the meantime, of course, one had to take a stand on Europe and a potential liquidity crash there. It's all in my articles if you need arguments.]]> Tue, 14 May 2013 08:21:23 -0400 http://seekingalpha.co... , and 2000 in April 2013. Plenty of fundamental arguments. The main one you are missing, even though you have part of the story right, is that the only post WWII period during which P/Es were in a 8-14 range was 1972-1981. I found no other explanation than mine, which is that at the time, inflation was deemed structural, a combination of concerns over Oil Supply and Baby Boomers Demand-led inflation. Since 2008, the spread between the Earnings Yield and the 10-Year Note reflects the uncertainty about the economy, Sarbanes Oxley, QE, etc. However, the bet to make was, would we go back to the normalize spread and P/E trading range of 14/26? In the meantime, of course, one had to take a stand on Europe and a potential liquidity crash there. It's all in my articles if you need arguments.]]> http://seekingalpha.com/article/1432471/comments?source=feed#comment-18800601 18800601 http://bit.ly/smHrcb
I don't believe QE will end before the Multiplier revives, so the first step will be a decrease in growth. ]]> Tue, 14 May 2013 07:41:16 -0400 http://bit.ly/smHrcb
I don't believe QE will end before the Multiplier revives, so the first step will be a decrease in growth. ]]> http://seekingalpha.com/article/1432471/comments?source=feed#comment-18800511 18800511
Charts are one tool in my tool box. if you care to o back to my other articles, you'll see a lot of other tools that you actually may never have heard of.]]> Tue, 14 May 2013 07:32:23 -0400
Charts are one tool in my tool box. if you care to o back to my other articles, you'll see a lot of other tools that you actually may never have heard of.]]> http://seekingalpha.com/article/1410181/comments?source=feed#comment-18574821 18574821 Wed, 08 May 2013 10:00:54 -0400 http://seekingalpha.com/article/1410181/comments?source=feed#comment-18574531 18574531 Wed, 08 May 2013 09:55:55 -0400 http://seekingalpha.com/article/1410181/comments?source=feed#comment-18574101 18574101 Wed, 08 May 2013 09:49:55 -0400 http://seekingalpha.com/article/296066/comments?source=feed#comment-18563571 18563571 Tue, 07 May 2013 23:14:52 -0400 http://seekingalpha.com/article/1410181/comments?source=feed#comment-18562461 18562461
Good to hear from you. You can't pick a P/E in absolute terms. It has to relate somehow to the risk free rate. The next question, obviously, is what is the risk free rate? Let me throw this one at you - not that I give it strong odds, but for argument's sake. Let's say that three years down the road, the budget deficits, worldwide, are on the mend. Then the risk free rate gets its risk free rating back. By the same token, as economies improve, earnings regain visibility. What number do you get to?]]> Tue, 07 May 2013 22:32:50 -0400
Good to hear from you. You can't pick a P/E in absolute terms. It has to relate somehow to the risk free rate. The next question, obviously, is what is the risk free rate? Let me throw this one at you - not that I give it strong odds, but for argument's sake. Let's say that three years down the road, the budget deficits, worldwide, are on the mend. Then the risk free rate gets its risk free rating back. By the same token, as economies improve, earnings regain visibility. What number do you get to?]]> http://seekingalpha.com/article/1410181/comments?source=feed#comment-18562261 18562261 Tue, 07 May 2013 22:24:32 -0400 http://seekingalpha.com/article/299063/comments?source=feed#comment-18493891 18493891 Mon, 06 May 2013 11:21:45 -0400 http://seekingalpha.com/article/299063/comments?source=feed#comment-18436911 18436911 Sat, 04 May 2013 08:36:49 -0400 http://seekingalpha.com/article/299063/comments?source=feed#comment-18233091 18233091 http://seekingalpha.co...

And if you believe this is just window dressing, remember, don't smoke it, bake it.]]> Mon, 29 Apr 2013 14:12:57 -0400 http://seekingalpha.co...

And if you believe this is just window dressing, remember, don't smoke it, bake it.]]> http://seekingalpha.com/article/278096/comments?source=feed#comment-18232921 18232921
For those of you who wonder about my latest market musings now that we have reached my S&P 1600 target, check my latest article http://seekingalpha.co... ]]> Mon, 29 Apr 2013 14:09:47 -0400
For those of you who wonder about my latest market musings now that we have reached my S&P 1600 target, check my latest article http://seekingalpha.co... ]]> http://seekingalpha.com/article/1362251/comments?source=feed#comment-18044111 18044111 Wed, 24 Apr 2013 15:27:07 -0400 http://seekingalpha.com/article/1362251/comments?source=feed#comment-17990471 17990471 Tue, 23 Apr 2013 14:31:25 -0400 http://seekingalpha.com/article/1324611/comments?source=feed#comment-17659861 17659861 Mon, 15 Apr 2013 16:01:51 -0400 http://seekingalpha.com/article/1324611/comments?source=feed#comment-17355681 17355681
I happen to believe that there are many tools in the tool box, which can be Keynesians or Monetarists. I also believe that expectations play a great role in economic agents behavior, which is now called Behavioral Finance. And then I believe action speaks louder than words. So, targeting, I have no clue - to me it's a moving "target" which depends on many variables, external as well as internal (demographics is a big one). By my book, and this too is quite controversial, I think Bernanke is the best chairman we've ever had. Not only does he effectively deals with what he knows, but as you point out, he uses his judgment to address what he does not know. Part of the unknown stems from the derivatives market, to include the infamous Credit Default Swaps. First issued by JPMorgan in 1997, they were exempted from regulation under the Commodity Futures Modernization Act of 2000 - signed by President Clinton on December 21, and sponsored by Phil Gramm, whose wife Wendy, previous Chair of the CFTC was on the Enron Board at the time... Even Greenspan had this to say about these in 2005: "The new instruments of risk dispersal have enabled the longest and most sophisticated banks, in their credit granting role, to divest themselves of much credit risk by passing it to institutions with far less leverage. Insurance companies, especially those in reinsurance, pension funds, and hedge funds, continue to be willing, at a price, to supply credit protection" - I did not make it up to answer your question, see page 110 of my book.

So, be assured of the fact that I am not oblivious to risk and tales. However, my job is to make money. The only way I know how to is when there is risk - I do not believe in Efficient market Theory. To be clear, I am quite uneasy, short term, for a number of reasons - either observable or not. Longer term, however, I firmly believe we are back in the historical 14 to 26 P/E range, and that equities will outperform bonds by a mile.]]> Mon, 08 Apr 2013 10:59:11 -0400
I happen to believe that there are many tools in the tool box, which can be Keynesians or Monetarists. I also believe that expectations play a great role in economic agents behavior, which is now called Behavioral Finance. And then I believe action speaks louder than words. So, targeting, I have no clue - to me it's a moving "target" which depends on many variables, external as well as internal (demographics is a big one). By my book, and this too is quite controversial, I think Bernanke is the best chairman we've ever had. Not only does he effectively deals with what he knows, but as you point out, he uses his judgment to address what he does not know. Part of the unknown stems from the derivatives market, to include the infamous Credit Default Swaps. First issued by JPMorgan in 1997, they were exempted from regulation under the Commodity Futures Modernization Act of 2000 - signed by President Clinton on December 21, and sponsored by Phil Gramm, whose wife Wendy, previous Chair of the CFTC was on the Enron Board at the time... Even Greenspan had this to say about these in 2005: "The new instruments of risk dispersal have enabled the longest and most sophisticated banks, in their credit granting role, to divest themselves of much credit risk by passing it to institutions with far less leverage. Insurance companies, especially those in reinsurance, pension funds, and hedge funds, continue to be willing, at a price, to supply credit protection" - I did not make it up to answer your question, see page 110 of my book.

So, be assured of the fact that I am not oblivious to risk and tales. However, my job is to make money. The only way I know how to is when there is risk - I do not believe in Efficient market Theory. To be clear, I am quite uneasy, short term, for a number of reasons - either observable or not. Longer term, however, I firmly believe we are back in the historical 14 to 26 P/E range, and that equities will outperform bonds by a mile.]]> http://seekingalpha.com/article/1324611/comments?source=feed#comment-17353771 17353771 Mon, 08 Apr 2013 10:28:51 -0400 http://seekingalpha.com/article/1324611/comments?source=feed#comment-17319401 17319401 Sun, 07 Apr 2013 10:28:34 -0400 http://seekingalpha.com/article/1324611/comments?source=feed#comment-17309331 17309331 Sat, 06 Apr 2013 18:38:33 -0400 http://seekingalpha.com/article/1324611/comments?source=feed#comment-17309261 17309261 Sat, 06 Apr 2013 18:31:37 -0400