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Latest Comments53 Comments
Last Thursday Was the Bottom - It's Time to Get Back in
Most economists are wrong.
I think if one looks at what's driving the economic decline, one has a hard time seeing it turn around anytime next year. Layoffs will continue throughout next year (with a possible seasonal uptick in temporary employment for next holiday season). The financial crisis will continue as banks, insurance cos., etc., continue to writedown bad derivatives based on residential and commercial mortgages, credit card debt, etc. And ultimately, the continuing increases in foreclosures linked to mortgages across the spectrum from prime to sub-prime will not subside next year.
About the only serious help to stem these economic forces must come from the USG. It is clear that Obama intends to try to use major fiscal stimulii to do so. The Fed has already tried to use monetary policy to ease the decline, but so far has generally failed (although things could have been a lot worse without their efforts to date, especially in preventing a complete financial sector meltdown).
NTL, I don't think anything the Obama administration can do will have significant effect until at least 2010. It just takes that long for even continuing fiscal injections (such as infrastructure development) to make their way through our economy.
The Really Scary Thing is the Debt Itself
TIPS Strips, Redux
Valuing Stocks During a Recession
Still, I find it almost impossible to see around the corner, that is, the next market upturn (or downturn in happier times). As a result, I tend to use fundamentals, especially PE ratios, as a way to look at the intermediate term. This enables me to consider the earnings issues you mention and their implication for price. Other things being equal (a rare occurrence), I find that a combination of a low PE ratio, a high dividend yield (ie--higher than USG or bank CD returns) from companies with a long history of steady or increasing dividends, and sound prospects for participating in an economic recovery (I won't be in ANF) whenever it comes makes for the basis of a pretty good quantitative valuation analysis.
Expert Predictions: Finding Value in Knife's Edge Markets
My investments have been in high yield, low P/E companies that (a) have little debt, (b) have a promising business future (not GM), and (c) a record of steady (if not growing) dividends over an extended period (25 years or more). I am not expecting these companies to cut their dividends (altho their market value has declined) and, in the meantime, reap real returns greater than most fixed income alternatives.
Nassim Taleb: Renegade Trader with Renegade Ideas - That Work
Unless we understand the underlying causes of the current financial crisis, we are certain to repeat them. And, unfortunately, even when we learn the lessons, we seem to forget in a very short period of time.
On Nov 09 10:23 AM Gtarras wrote:
> Is not Universa the reason Taleb is suddenly all over the place with
> "doom and gloom" predictions? I am curious if Dr Roubini and others
> in the same camp have vested interests in destroying the financial
> system?
Nouriel Roubini Predicts (Surprise!) a Long Recession
I just can't figure out which ones are which, but Roubini has come as close to any in recent times in accurately assessing economic trends. I'd pick him if I only had one choice.
Why Is Everybody Selling as Buffett Is Loading Up?
This capital enables him to get extremely good deals--at the front of the line in terms of preferred shares, earning interest at rates unheard of for the "common man," and having an option to buy stocks below at or below current market prices when the long-term expectation (& Warren's only concern) is that they will go up.
About the only way I can get that deal is to invest in BRK!
Don't Get Sanguine About This Bill
The proposed legislation does not focus on the right problem. The critical underlying problem in our economy is the growing number of foreclosures and associated decline in the US real estate market. This bill will not address the core problem in any meaningful way.
The proposed legislation is inadequate to the task it is intended to tackle. Even if all the $700 billion were made available as credit by the receiving banks, it would be insufficient to bail them out of the multi-trillion dollar liquidity shortfall they face. the Treasury and Federal Reserve have already extended over a trillion dollars in direct aid or guarantees to Wall Street—and credit conditions have worsened.
The proposed legislation will not result in significantly expanded credit available from Wall Street to Main Street. Because of their huge leverage—20-30 times their capital—the banks will need virtually every cent to shore up their capital reserves. The half-trillion dollars already extended to Wall Street has accomplished nothing in easing credit conditions.
The proposed legislation rewards the outrageously poor, if not outright corrupt, financial management of the banking industry. Banks that knowingly failed to be diligent about risk management and some that participated in fraud will be bailed out. Indeed, the mismanagement of major banks is systemic and has metastasized the illness in the housing industry into a global financial cancer. It needs to be cauterized, not subsidized.
The proposed legislation will ultimately leave the US taxpayer with hundreds of billions of dollars in losses added to the national debt and our taxes. To make any sense at all in achieving its intended goal, Treasury will have to pay a premium for this toxic financial waste. The taxpayer will ultimately eat this waste no matter what warrants, equity, or other arrangements are introduced.
The Economy Won't Be Ignored
The proposed legislation does not focus on the right problem. The critical underlying problem in our economy is the growing number of foreclosures and associated decline in the US real estate market. This bill will not address the core problem in any meaningful way.
The proposed legislation is inadequate to the task it is intended to tackle. Although $700 billion dollars is huge sum, the Treasury and Federal Reserve have already extended over a half-trillion dollars in direct aid or guarantees to Wall Street—and credit conditions have worsened.
The proposed legislation will not result in significantly expanded credit available from Wall Street to Main Street. Because of their huge leverage—20-30 times their capital—the banks will need virtually every sent to shore up their capital reserves. The half-trillion dollars already extended to Wall Street has accomplished nothing in easing credit conditions.
The proposed legislation will ultimately leave the US taxpayer with hundreds of billions of dollars in losses added to the national debt and our taxes. To make any sense at all in achieving its intended goal, Treasury will have to pay a premium for this toxic financial waste. The taxpayer will ultimately eat this waste no matter what warrants, equity, or other arrangements are introduced.
The additional national debt and taxation burden will come at a time when Americans will be in a substantial recession and least able to afford it.
Bush's Speech: Surprisingly Coherent
First, it was FEAR of Al Qaeda to justify the torture (OK, "enhanced interrogation") of prisoners, deprivation of civil and human rights for accused terrorists at Guantanamo, warrantless and illegal wire taps of Americans in their homes and workplaces, and the creation of the bureaucratic beast of the Department of Homeland Security.
Second, it was FEAR of a nuclear-armed Iraq that might attack the United States that led to the Bush Doctrine (ask Sara Palin if you don't know what it is), the use of an elaborate, yet seemingly authoritative lie in the Iraq WMD national intelligence estimate to justify an invasion, and the absolutely unnecessary loss of more than 4,000 brave young men and women and waste of one trillion dollars (or more depending on whose numbers you use) over nearly six years. And, the underlying premise of the invasion--a prospectively nuclear-armed Iraq tied to Al Qaeda--was known to be a lie at the outset. I won't even get into the horrendous mis-management and lack of leadership over the military campaign.
Now, having found a basis in FEAR for attacking our most precious civil liberties and destroying the century-long role of America as the moral leader of the developed world, Bush and his cronies are using FEAR to drive America to make outrageously stupid economic security policies. His speech last night was nothing except about FEAR and the warning that if Americans don't follow his lead, we will all live through an economic h***.
Leadership can not be based on FEAR alone as it has been now for eight years. It must be built on a motivating vision for a better world, a clear understanding of the complexities of achieving that vision and the limitations of the policy and other tools in that effort, and an appreciation that the American people seek the opportunity to excel, not act in irrational FEAR.
FDR said, "The only thing we have to FEAR is FEAR itself." I FEAR leaders who can only try to motivate through FEAR. It is negative, irrational, and ultimately leads to greater societal losses than gains.
We've Crossed the Line from Capitalism to Socialism
Moreover, while offering the Secretary of the Treasury unlimited authority and $700 billion to bail out his friends on Wall Street, the only thing the other 300 million Americans will get is a larger national debt and a bigger tax bill.
If there is going to be an effort to stabilize financial markets involving large sums of taxpayer money, it needs some balance. For example:
--The boards of directors and executive committees (and maybe others) at the banks receiving US taxpayer money are automatically fired, forced to return their ill-gotten bonuses for the last 3 or more years, and banned from any executive or board position in a publicly-traded US company for 5 years. (Its the Millken solution.)
--Ban the creation, sale, purchase, or brokering of any asset-backed credit derivative by any bank operating in the United States. Similarly, ban the placement of any asset-backed security in foreign credit derivatives.
--Every American taxpayer receives a stimulus check of approximately $6,300 to offset the cost he/she will absorb for this $700 billion bailout. (It makes as much sense as spending the money on banks that knowingly took excessive risks for big profits.)
--The $700 billion may only be used to acquire the mortgage-based assets of US banks (only) that are insolvent, not just illiquid. This was the way the RTC handled assets. Otherwise, the bailout only rewards the outrageous behavior of the banking sector and its shareholders--not all Americans. (So, it could buy LEH assets, but not GS or MER assets.)
--Require that the money be used to acquire a just less than 80% equity in the bank (a la AIG) to ensure effective USG control over banking practices. Also cut out preferred shareholders all together and establish a 30-70% haircut on the bank's outstanding bonds--consistent with the toxicity of its asset holdings.
--Finally, absolutely and completely eliminate any language (such as is the current draft) that puts the Secretary of the Treasury above the law ("non-reviewable&... In fact, put stringent language in that states he must obey all US laws.
The draft legislation is an outrageous effort by the Administration to bail out its buddies. It defies the Constitution, destroys free markets, insults the role of Congress in overseeing national policies and laws, and irrepairably damages all American taxpayers for the benefit of a few.
IT CAN NOT BE PASSED! WRITE YOUR CONGRESSMAN/CONGRESSWO... RIGHT NOW AND TELL HIM OR HER IN CLEAR, SIMPLE, POLITE, AND EVEN CONSTRUCTIVE TERMS WHAT YOU THINK OF THE PROPOSED BAILOUT
Is Wachovia the Worst Run Bank in America?
While Wachovia's history is ignominious, it can't undo the stupidity of previous management (at least not without a huge cost). The real investmnet question is whether the new management is making the situation better or worse. My sense is that is doing so-so which, in this case, probably won't be enough. The new management has to make almost nothing but good decisions for Wachovia to survive.
Expect the Real Rally by Mid-2009
Expect the Real Rally by Mid-2009
I'm sorry, but this doesn't withstand the smell test. If US consumers aren't buying as much and exports are stagnating as (a) the dollar strengthens relative to other currencies and (b) other economies are experiencing their own recessions, employers will continue to lay off staff. The now 6.1% official unemployment rate is likely to exceed 7% by the middle of next year.
On top of this, the boomers may have to retire much later than they want as their savings go up in smoke during the ongoing bull market. So, if you add 3-5 years to their work life (not considering how Congress may push the Social Security retirement age farther down the road to save some pennies), there will be few openings for a new generation of workers looking for jobs.
Finally, when there is an economic recovery, jobs are almost the last category to see gains as employers are uncertain that the recovery will actually continue. Employment is very much a lagging indicator of the economy, more so as the US becomes less focused on manufacturing and more focused on services.
I see no reason, employment or otherwise, that the stock market should rally into a bull market next summer. Once the housing mess has stabilized, permitting the financial sector to stabilize, then maybe we will see a bull market opportunity. I don't think that will happen before 2010 at the earliest.