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George Kuan
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My long-standing pastime has been the financial markets which I believe is brimming with interesting research questions and opportunities from the technological and mathematical point of view. I have worked a bulge bracket investment bank and studied at the University of Chicago and Harvey Mudd... More
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  • Earnings, Dividend, and Treasury Yields

    Given the good Bank of America earnings announcement today, I though it is fitting to look at the earnings yield versus dividend yield of the S&P over a 50 year stretch of time. The ratio has been growing for a long, long while. Back in the 1960s, companies paid out a lot more of their earnings in dividends. Even given the rising trend, the ratio seems over-extended at this point. We have pretty high earnings yield at 7.7% but only a 2.1% dividend yield. The ratio seems to fall whenever we have some recession or slowdown, indicating that dividend cuts may lag earning declines. Assuming that earnings yield at least hold the line (a big IF), the long term trend suggests an overall dividend yield of 2.57%.

    A more telling picture is this one below that plots earnings, dividend, and 10-year treasury yields all on the same axis. Notice that around the time of the dotcom crash, earning yields and bond yields started diverging whereas they pretty much mirrored each other for the many decades before, though the path that earnings took was a much rougher ride. Movements in dividends also generally mirror that of 10-year yields. So we have both dividends and 10-year notes disagreeing with earnings at this point. There may be many possible explanations for this behavior. Market prices have largely moved in line with earnings, but dividends seem to have followed at a much slower pace (though plenty of companies raised their dividends last year). Boards and management are approaching the rise in earnings quite cautiously, being quite reticent with respect to dividends. I suppose the cut in financial dividends (financials being the traditional high yielders) also contributed to this present state of affairs. The question remains, can both corporate leadership and the bond market be wrong while the stock market be right?

    Jan 19 1:46 PM | Link | Comment!
  • Social Web IPO Performance

    Looks like Zynga's IPO day didn't start a social web frenzy (down 7.8% as of now). The broad market certainly was no help here. Quite a pattern is forming with Pandora, Groupon, Linkedin, and Renren. None of these led to an unqualified success, and most of them are doing quite poorly especially if one bought at the open of the first day. Those who bought at the IPO price did considerably better for each of those 3 names. Groupon and Pandora debuted last month and in June respectively. Linkedin and Renren debuted in May.

    StockIPO PriceFirst Day Opening12/16 Mid-Day Return from IPO12/16 Mid-Day Return from First Day Open
    P1620-35%-48%
    GRPN202811.3%-20.5%
    LNKD458344.7%-21.5%
    RENN1419.5-75.6%-82.5%

    Over the same period (starting from May 4, 2011), the S&P 500 dipped 10.5%, considerably less than the return if one purchased starts at the open on the first day of trading. The FPX (First Trust IPO-100 Index ETF) returned -10.6% over that period, so roughly inline with the large-cap market, but this is because its constituents includes many long-running large companies such as Visa, Philip Morris, Lorillard, Kinder Morgan, and Dollar General.

    Dec 16 5:54 PM | Link | Comment!
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