Free Markets, Free People

Daily Archives: October 4, 2011


Further Reading: Monkeys Writing Shakespeare on Flying Carpets Edition

(Cross Posted at Risk and Return)

Bring Out Your Dead-carnage on Wall Street

Dividend cash outs are EEEEVVVVIIILLLL!!!!!

“In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.” – Rudiger Dornbusch

Free Markets Work: Bailout Riven Caricatures Don’t- John Hussman conducts a beat down on certain memes.

In an absolutely shocking announcement Greece will not meet its deficit targets. Similarly we are astounded to find out that Madonna is not a virgin.

Via Michael Kitces exactly what do you do to shut down a deceased person’s social media accounts when they die? In Has Your Client Asked: What Happens To My “Tweets” When I Die? we walk through the basic policies for Twitter, Facebook, and LinkedIn to close the accounts out. It even covers how to memorialize a facebook page, so friends can leave remembrances.

Next time you are in New Orleans, I suggest you consider a tour of star bartender Chris Hannah’s favorite places. Oh, and definitely stop by the French 75 and ask for something old, classic and hardly served so he can show his stuff. Maybe a Martinez. Oh, and invite me! Just don’t tell him I called him a star, he would hate that.

The Death of Equities II: Historical Fact Should Inform Our Opinions

Is that bullish? Or is the ‘dumb money” right this time? I can believe either way for now, but longer term I believe we will see this continue until the secular bear ends in a whimper at very low valuations because nobody cares anymore. The stock market won’t be relevant to most people’s lives because they won’t be in it. See 1982.

On the coming war between investment bankers and traders as our banks shed thousands of workers. Footnote three might be missed so we quote it here:

It is also no matter of indifference in today’s environment that when an M&A banker screws up or fails to close a deal, he loses only time and a potential fee. When a prop trader or structured products banker screws up, he can blow a hole in the side of his bank larger than all the revenues earned by all of his compatriots all year. And when a whole industry of capital markets bankers screw up, it can blow a trillion dollar hole in the side of the global economy. Or so I hear.

Have you ever wondered which NFL team is most attractive? No, I haven’t either.

The Danish decide to tax fat. McQ is not amused…okay, in a way I think he is.

Further evidence that risk factors, equity risk premiums and the whole idea that volatility and beta are positively related to return doesn’t work is an anomaly that we have been pointing out for some time. Lower beta and lower volatility and high quality all outperform riskier fare. More special cases for Fama and French to explain away.

We have explained that dividends are the key to understanding stock returns for the market as a whole. Yes, even for growth stocks and other low dividend players. For reasons not unrelated to the discussion above, we will also enjoy pointing out that dividend payers have crushed the market since 2000 and the gap is continuing to grow.

Finally, progress on that whole flying carpet issue.

Can you eat decently at an indecent restaurant?

We see that the global economy is decelerating rapidly, but maybe we will avoid an out an out recession. Gavyn Davies looks at the difference between the hard (slow but positive) and soft data (heading into recession.) The question is how will the gap close?

Doug Kass’ recent bullishness has been fading. To help himself think things through has 10 Questions for the Bulls and Bears. He starts today with the Bulls.

The story of Coca Cola’s stock price in pictures. Key takeaways: Dividends made a big difference. The price went up way faster than profits, and then sat there for 13 years.

Lesson for us? It was too expensive (Buffet has admitted he should have sold) and now after 13 years we believe it is attractive as are many high quality stocks. The rest of the US market? Not so much.

The legendary value investor Jean-Marie Evillard agrees with us that the US is still not cheap, despite claims I heard on CNBC repeatedly throughout the day that stocks were “incredibly cheap.” The kool-aid is obviously still flowing. You can hear his views in this excellent TV interview.

Steve Leuthold is likewise loaded for bear. Lots of good thinking:

For me, one of the long-term tragedies is that the stock market is trading today at a level that we first crossed on the upside back in 1998. I was so bearish then, that had you told me that prices would be unchanged 13 years later, I would not have been surprised. But I certainly would have expected better value would have been re-established in the U.S. stock market by virtue of 13 years of flat action and improving fundamentals. It shows how extreme those late 1990s valuations were.

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Stunningly, Europe trades at 10 times normalized earnings. The U.S. is trading at a 65% P/E premium to Europe. The historical average has been more like 15%. You could argue maybe there should be some additional premium in this environment, given what Europe is going through, but the odds are that this is going to narrow here in the next 12 to 24 months.

{…}

We need to get through this bear market before we start planning for the next bull, but we would expect something fairly similar to what we have just gone through. This was a 26-month run, which isn’t too far off the historical median. We need to disabuse ourselves of this recently adopted notion that bull markets and economic expansion tend to last six to eight years. The historical norms are much shorter than that.

Bill Gross is sounding gloomy:

There are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years.

Bob Janjuah sounds the gloomy tune as well. He sees a lower bottom in October and then a strong rally to 1200 on the S&P with hope in effective government policy driving things upward. Then:

In or within a year from now I expect global equities to be 25% to 30% lower. My S&P500 target for the low in 2012 remains 800/900, and I think an ‘undershoot’ into the 700s is entirely possible. For the valuation-focused, assume S&P 500 EPS in 2012 of $90/$100, and P/Es in the 8 to 9 area – I see this kind of P/E as the new norm in the kind of world we are in. In this bearish outcome I would expect 10-year bund yields at 1% to 1.25%, 10 year UST yields at 1.25% to 1.5%, and 10-year gilts below 2%. The USD should do well, credit and commodities should not.

Via Tyler Cowen: Virtual monkeys write Shakespeare

In the everybody knows the truth whatever it is department, we have this from Frank Stephenson:

Today’s prize goes to John Judis who writes in The New Republic (gated),

“You know, when Herbert Hoover had to face a financial crisis and then unemployment, his strategy was to balance the budget and cut spending …”A question for Mr. Judis: In what world, sir, does spending going from $3.1 billion to $4.6 billion (during a time of deflation no less) constitute a CUT in spending?

This is also a good time to plug Steve Horwitz’s new Cato piece, “Herbert Hoover: Father of the New Deal.”

Finally I cannot recommend highly enough Ken Burns Prohibition.


Perception is reality in politics, and the perception of Obama right now is not good news for him

As mentioned yesterday, incumbent presidents usually have an advantage.   But that advantage depends on a few things such as performance, leadership and to a degree, circumstance.  For Barack Obama he’s come up 0-3 in those areas.   And the polls consistently show his numbers trending down in just about every imaginable way. 

I’ve talked about enthusiasm and how important that is to an election.  Enthusiasm translates into voters eagerly going to the polls.  It makes any Get Out The Vote program a breeze.  And usually the side that is most enthusiastic turns out the largest numbers of voters and wins the election.  The difference in enthusiasm for each side is called the “enthusiasm gap”.  In the last election, the GOP was on the wrong side of that gap.  This time, it appears the lack of enthusiasm is on the left is both evident and growing.

That leads us to something else that can doom  a campaign.   Perception.  In the world of politics, perception is reality.  How a voter perceives a candidate and his or her chances may decide how he or she votes, or whether they even bother.  And one of the polls today essentially measures perception.  And in keeping with most of the polls we’ve seen lately, it’s not good news for President Obama:

Just 37 percent in a new ABC News/Washington Post poll say they expect Obama to win re-election in November 2012; 55 percent instead expect the eventual Republican nominee to win. ABC’s George Stephanopoulos is asking the president about that result in an interview today.

That sort of perception, for whatever reason, is deadly to a politician’s future.  The ABC story talks about enthusiasm and expectations and how those drive GOTV in most cases.  Here’s the cherry on top of the sundae though:

Democrats do expect Obama to win, but they say so only by 58-33 percent – a comparatively tepid vote of confidence within his own party. Republicans, by contrast, smell victory by a vast 83-13 percent. And independents – the linchpin of national politics – by 54-36 percent expect the Republican candidate to beat Obama.

Obviously the perception among Republicans is one of victory.  Among Democrats, almost resignation to a loss (especially given 2010.  But the key demographic, the one I constantly harp on about, perceive Obama as a loser in the next election.  And since it is Independents who will decide that, this is decidedly bad news for the Obama campaign.   It also makes one wonder why, recently, he’s abandoned his “move to the center” for a more hard left (class warfare) approach.  Not smart if you want to woo the center.  But then, you also have to fire up your base when you’re in the electoral shape Obama is in.

The other poll falls into the third category I mentioned above – circumstance.   I remember saying just prior to the Obama win that I’m not sure, given the economic circumstances the country finds itself in, that I’d want to win that election.   Certainly our economic condition has not been favorable for Obama.   Not that he’s helped himself at all during his time in office.  He has, for the most part, backed exactly the wrong sort of policies and actions when he could even be bothered to address the economy.

The problem for Obama is the voters have notices and deem him to be ineffective as a leader because of the condition of the economy.  Right or wrong, that’s the way American politics works.  So again, there’s a growing perception of ineffectiveness and ineptness about the economy, which will be the main issue in the upcoming presidential election, that is going hang around Obama’s neck like an albatross.

And that brings us to the second poll of the day:

A new CBS News poll finds that nearly seven in 10 Americans believe President Obama has not made real progress in fixing the economy.

Sixty-nine percent say the president has not made real progress on the economy, which voters overwhelmingly cite as their most important issue. Twenty-five percent say he has made real progress.

Perceptions are not improving. The percentage who said Mr. Obama has made real progress has dropped 10 points from a survey 13 months ago, when 35 percent said he had made real progress.

Just 35 percent of Americans approve of Mr. Obama’s handling of the economy, and his approval rating on the issue has been below 40 percent since February. Fifty-three percent approve of his handling of the economy.

There’s that word again – perception. 

Always wanting to find a silver lining, there’s this:

Still, most don’t blame the administration for the state of the economy. Asked who was most to blame, Americans cited the Bush administration (22 percent), followed by Wall Street (16 percent), Congress (15 percent) and then the Obama administration (12 percent.) One in 10 said "all of the above."

Sorry, in terms of the 2012 election, that’s irrelevant. That won’t drive a single vote to the polling place.  Bush isn’t running and the responsibility to turn it around isn’t his.  Who is to blame isn’t relevant to who can fix this infernal mess.  And thus far the building perception is that Obama isn’t the man.

And perceptions about his leadership have fallen precipitously as well – from a high of 85% in January 2009 to 57% now saying he displays strong leadership qualities (not sure what they think constitute strong leadership qualities, but I’ve never seen anything I’d say qualified as such during his entire presidency).  That is even more bad news for his reelection campaign.

So it goes on and on, the downward trends obvious, the news not good.  Obama is battling the same sort of perception that Jimmy Carter battled, that of a weak ineffective president.   The voting public got rid of Carter, and, if the polls now coming out are to be believed (and trust me, his reelection campaign believe them) Obama is headed down the same electoral road.

In both cases, I think the voting public’s has/had it right.

~McQ

Twitter: @McQandO


Economic Statistics for 4 Oct 11

Today’s economic statistical releases:

ICSC-Goldman reports stronger chain store sales, rising 0.1% for a 3.7% year-on-year increase, up 1% from last week. Meanwhile Redbook reports a slight drop in sales, to a same-store year-on-year rate of plus 4.1%.

Factory orders fell 0.2% in August, though this is a bad comparison with the previous month due to that reports surge in vehicle orders.

~
Dale Franks
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