Free Markets, Free People
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.
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.
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.
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.
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.