The new Ferrari 458. You can see more pics here.
Wednesday, July 29, 2009
Monday, July 20, 2009
Jim Rogers on Radio 4 - Update
Last week on the 14th Jim Rogers was interviewed on the BBC's Radio 4 Today show. I mentioned it that day in a post. Anyway, for those of you interested in listening to the interview, you can do here. For those of you familiar with the Rogers Shtick, he's not saying much he doesn't usually say. For those of you who are not, it's worth the four minutes.
The Draw of Dubai
The British expats I spoke to believed, without exception, that the Emiratis are utterly useless, corrupt and indolent, and, according to several, some British managers are leaving rather than abide by a new law that requires them to employ a certain percentage of Arabs on every job. They’re simply not up to it, they say. As it is, the locals make up less than one-fifth of the total UAE population, the westerners roughly half that amount. The majority population in Dubai is the criminally low-paid, enchained, abused, dispossessed peasantry from south Asia.
The full article over at The Times. Rather amusing and well worth a read at work.
Sunday, July 19, 2009
Reading List
Skin in the game and pain money. SA has a brief post on why this is so important and the principal-agent dilemma. I'd extend the concept from new venture development to active fund managers - co-investing can be a solid interest aligner. The post also touches on stock options generating alignment of interest - though there are inherent issues with this thesis as Whitney Tilson and Chalie Munger have amply discussed here.
I'm a bit late to the party on this one - SA has another solid post on the 'free' business model and the back-and-forth between Malcolm Gladwell, Chris Anderson and Mark Cuban. Well worth reading if like me you haven't been following this. Not surprised to see Chris Anderson gunning for the pro-Free team - a very clever chap, though I've always suspected he's overly idealistic.
Another post from SA on the outlook for investing in Russia and the Russian economy. If the material in the dedicated "Russia's Future" reading list below didn't give Russian investors cause for concern, this detailed post should. The drop in retail sales and GDP is quite something.
For those interested in NZ - there's a good post from Bernard Hickey reporting the review of NZ's tax system and the possible imposition of CGT to target house price inflation. I've written more than once in this blog about the idiocy of NZ retail investors and their unstoppable addiction to investing in housing. Quite pragmatically PM Key is opposed to a CGT regime. Also quite pragmatically he is looking to roll back the Helengrad grip of the Resource Management Act and the Building Act on housing supply. Regulation-driven housing constraint has long been one part of the equation in the rapid house price inflation of the last decade. Those investing in NZ residential real estate have again been warned.
Lundeen's Bear Market Race to the Bottom continues with his latest issue. Though his "Bear's Eye View" chart that tracks the '29 crash seems to have an err.... upticking kink in it. I bet Lundeen has his fingers crossed that this is only temporary with this bear rally's last puff.
Infectious Greed has a repost of an Economist graph detailing car parking rates around the world. These sorts of figures often have suspect accuracy and sources. Perhaps the concept was a PPP spin on the Big Mac Index. I know for sure (from co-authoring a detailed car parking development report) that at least the Moscow rates are way too low for anywhere you would want to park near or in central Moscow.
A great chart from Flowing Data showing why cheap airlines can afford to be so cheap.
Fabrice Grinda has posted an interesting autopsy of a failed NYC fractional art ownership startup. Just goes to show how much long-trending systematic market movements can tip the balance of success or failure.
An interesting article from the Telegraph on an interview with oligarch Alex Lebedev, who he is, whether he's really dying of mercury poisoning, his deal with the Kremlin and his intentions on disrupting British media.
And finally, what may become a landmark case on division of assets in NZ divorce cases. It looks like NZ has just gone one better than the British courts awarding a portion of future earnings. The Cactus has a link to the original story and some frank commentary - well worth a click and read - here's a taste:
The Supreme Court (read Supreme) has decided in favour of a wife not just for value during her marriage, but BEFORE she was even married to the man. . . . . This woman will now be enriched in a lump sum to the tune that most working women would never independently earn in their lifetime. Why be a teacher, cleaner, policewoman, nurse, receptionist or middle manager when you can just do housework? . . . . Housework is now deemed contribution to convert separate property into relationship property. . . . The rot will now set in under New Zealand law and expand on this dramatic break through through obvious judicial activism. Look over time for more stupid decisions, less marriage and relationships, more contracting out and ultimately more poverty stricken women as men hunker down to protect their assets from not just the IRD, but the worst enemy created by the Supreme Court - a housewife.
I'm a bit late to the party on this one - SA has another solid post on the 'free' business model and the back-and-forth between Malcolm Gladwell, Chris Anderson and Mark Cuban. Well worth reading if like me you haven't been following this. Not surprised to see Chris Anderson gunning for the pro-Free team - a very clever chap, though I've always suspected he's overly idealistic.
Another post from SA on the outlook for investing in Russia and the Russian economy. If the material in the dedicated "Russia's Future" reading list below didn't give Russian investors cause for concern, this detailed post should. The drop in retail sales and GDP is quite something.
For those interested in NZ - there's a good post from Bernard Hickey reporting the review of NZ's tax system and the possible imposition of CGT to target house price inflation. I've written more than once in this blog about the idiocy of NZ retail investors and their unstoppable addiction to investing in housing. Quite pragmatically PM Key is opposed to a CGT regime. Also quite pragmatically he is looking to roll back the Helengrad grip of the Resource Management Act and the Building Act on housing supply. Regulation-driven housing constraint has long been one part of the equation in the rapid house price inflation of the last decade. Those investing in NZ residential real estate have again been warned.
Lundeen's Bear Market Race to the Bottom continues with his latest issue. Though his "Bear's Eye View" chart that tracks the '29 crash seems to have an err.... upticking kink in it. I bet Lundeen has his fingers crossed that this is only temporary with this bear rally's last puff.
Infectious Greed has a repost of an Economist graph detailing car parking rates around the world. These sorts of figures often have suspect accuracy and sources. Perhaps the concept was a PPP spin on the Big Mac Index. I know for sure (from co-authoring a detailed car parking development report) that at least the Moscow rates are way too low for anywhere you would want to park near or in central Moscow.
A great chart from Flowing Data showing why cheap airlines can afford to be so cheap.
Fabrice Grinda has posted an interesting autopsy of a failed NYC fractional art ownership startup. Just goes to show how much long-trending systematic market movements can tip the balance of success or failure.
An interesting article from the Telegraph on an interview with oligarch Alex Lebedev, who he is, whether he's really dying of mercury poisoning, his deal with the Kremlin and his intentions on disrupting British media.
And finally, what may become a landmark case on division of assets in NZ divorce cases. It looks like NZ has just gone one better than the British courts awarding a portion of future earnings. The Cactus has a link to the original story and some frank commentary - well worth a click and read - here's a taste:
The Supreme Court (read Supreme) has decided in favour of a wife not just for value during her marriage, but BEFORE she was even married to the man. . . . . This woman will now be enriched in a lump sum to the tune that most working women would never independently earn in their lifetime. Why be a teacher, cleaner, policewoman, nurse, receptionist or middle manager when you can just do housework? . . . . Housework is now deemed contribution to convert separate property into relationship property. . . . The rot will now set in under New Zealand law and expand on this dramatic break through through obvious judicial activism. Look over time for more stupid decisions, less marriage and relationships, more contracting out and ultimately more poverty stricken women as men hunker down to protect their assets from not just the IRD, but the worst enemy created by the Supreme Court - a housewife.
Reading List: Russia's Future
To anyone who follows Russia's plight, the country faces an increasing number of immediate and longer term economic, financial, geopolitical and social problems.
Two of the more serious longer term problems are demographic (which I mentioned in a recent post) and territorial. Both are becoming more of a threat to Russia's survival as time passes. And while both do not keep the average Russian from sleeping, both are at the forefront of worry for Prime Minister Putin. Both must also be a concern for any longer term investor in Russian capital assets. Especially of the illiquid sort.
Russia's demographic time bomb has been written about for many years. SA published an article last week putting this in an investment context. The article is sobering reading for anyone considering investing outside of St. Petersburg, Moscow or the larger/ more prosperous of the Millioniki. As investors become more aware of the depth of this problem, it will further swell an already bloated country risk premium.
For centuries Russia has faced the monumental task retaining territorial control and integrity. This task is becoming more difficult as both first and second derivative negative population growth increases, and the population centralises to core cities. Territorial threats from the West and the Caucasus have been widely reported in the media for some time. Not so widely reported is the threat posed by China to the East. The Telegraph has a good piece detailing this. It would appear that the population creep across the border has already begun.
Friday, July 17, 2009
New Hotel Projects
Who said luxury consumer spending was dead? And here I was thinking that high-beta, high-octane hotel developers had all crawled back under their rocks. Even the petro-dollar fueled crazies. Looks like I was wrong. The RICS monthly rag has this little spread of hotels due to come online soon. I especially like the Cairo one, by Zaha, pictured above.
Tom Cruise on Jonathan Ross
Jonathan Ross interviewed Tom Cruise on his chat show early this year. It was Ross' come back show after being banished from the BBC.
And what a come back. He ripped Cruise apart. The whole thing is worth watching if you can find it on the web. But this part is especially good. The two other guests seen out the back are Stephen Fry and Lee Evans (who for once doesn't appear to be sweating).
And what a come back. He ripped Cruise apart. The whole thing is worth watching if you can find it on the web. But this part is especially good. The two other guests seen out the back are Stephen Fry and Lee Evans (who for once doesn't appear to be sweating).
Thursday, July 16, 2009
Correlations Continued. . .
Great article posted on SA about the recent evolution of correlations between asset classes. Furthers the theme of the Felix Salmon article in yesterday's Reading List.
Like Salmon, this article posits that as more people diversify into other asset classes, correlation risk increases.
The increase in correlation between asset classes over the last decade has been huge. The article says:
Between 1991 and 1994 the correlations between the S&P 500 and high-yield bonds was ~0.2-0.3; international stocks ~0.3-0.4; REITs ~0.3 and was negligible in commodities.
Like Salmon, this article posits that as more people diversify into other asset classes, correlation risk increases.
The increase in correlation between asset classes over the last decade has been huge. The article says:
Between 1991 and 1994 the correlations between the S&P 500 and high-yield bonds was ~0.2-0.3; international stocks ~0.3-0.4; REITs ~0.3 and was negligible in commodities.
By early 2008 those numbers looked like: ~0.7-0.8 for high yield bonds; ~0.7-0.8 for international stocks; ~0.6-0.7 for REITs and slightly negative ~-0.2 to -0.3 for commodities.
An Uneven Recovery
Peter Zeihan of STRATFOR gives a good summary of the current global economy and the outlook. Skip the preamble if you wish and head straight to 90 seconds in.
Wednesday, July 15, 2009
Reading List
Prolific poster Felix Salmon has a good piece here on asset allocation. He also talks about correlation risk and the difficulties of correlation measurement. He writes: Ultimately, I suspect that any investment strategy more sophisticated than “buy low, sell high” is doomed to fail eventually. Good to see that the Margin of Safety thesis is still popular.
Robert Shiller (of Yale, who else?) is interviewed here. Well worth a watch - too many themes to list here.
Lundeen's Bear Market Race to the Bottom continues with his latest release. If you're starting to feel bullish, Lundeen will cool you off.
And for those interested in NZ, it looks like the PM is intending to streamline the tax system. It also looks like there will be a policy shift ahead to encourage productive investment - this should help kill NZ retail investors' addiction to buy-to-let housing.
Robert Shiller (of Yale, who else?) is interviewed here. Well worth a watch - too many themes to list here.
Lundeen's Bear Market Race to the Bottom continues with his latest release. If you're starting to feel bullish, Lundeen will cool you off.
And for those interested in NZ, it looks like the PM is intending to streamline the tax system. It also looks like there will be a policy shift ahead to encourage productive investment - this should help kill NZ retail investors' addiction to buy-to-let housing.
Man On The Moon. Really?
It's the 40th anniversary of the moon landing. The skeptics are on the case again. Here are the top 10 reasons why there never was any moon landing - it was faked.
What would Fox & Dana think?
What would Fox & Dana think?
EMH: Moving On
Jonathan Davis has written a good piece on his Independent Investor blog about market efficiency here.
Quoting Andrew Lo of MIT:
“Market efficiency” he says “cannot be evaluated in a vacuum, but is highly context dependent and dynamic, just as insect populations advance and decline as a function of the seasons, the number of predators and prey they face, and their abilities to adapt to an ever-changing environment”. What is at work in financial markets, he believes, is a Darwinian process of “survival of the richest”.
Davis points out some of alternatives to the Efficient Market Hypothesis and its failings. Though he notes that these alternatives lack the direct practical application that the EMH has. Worth a read.
Quoting Andrew Lo of MIT:
“Market efficiency” he says “cannot be evaluated in a vacuum, but is highly context dependent and dynamic, just as insect populations advance and decline as a function of the seasons, the number of predators and prey they face, and their abilities to adapt to an ever-changing environment”. What is at work in financial markets, he believes, is a Darwinian process of “survival of the richest”.
Davis points out some of alternatives to the Efficient Market Hypothesis and its failings. Though he notes that these alternatives lack the direct practical application that the EMH has. Worth a read.
Tuesday, July 14, 2009
Jim Rogers on Radio 4
If anyone was uncertain that Jim Rogers is an Austrian and something pretty close to a Libertarian, his Radio 4 interview comments today should clear this up. Rogers says this about the bailed-out banks:
"I would have let them collapse. . . Throughout history, people have gone bankrupt, new people have taken over the assets and started over. That's the way the world has always worked, that's the way it should work, what they're doing now has not worked and will not work.”
The IC has a piece on the interview here.
"I would have let them collapse. . . Throughout history, people have gone bankrupt, new people have taken over the assets and started over. That's the way the world has always worked, that's the way it should work, what they're doing now has not worked and will not work.”
The IC has a piece on the interview here.
Fear the Reaper. . . ?
Not so much in Russia they don't, according to new research published in the Lancet (subscription required):
More than half of all deaths in Russian 15 to 54-year-olds between 1990 and 2001 were due to excessive drinking, the authors say.
The research did source samples from Tomsk, Barnaul and Biysk. These aren't exactly run-of-the-mill millioniki. So whether the sample is representative of Moscow and St. Petersburg is debatable. What is self-evident however, is that the country as a whole has a ethanol/ methanol consumption habit that is doing the labour pool no favours.
Russia has some of the worst demographic refreshment and life expectancy rates outside of the true first-world. Perhaps this is one reason why.
There's a précis of this research here.
More than half of all deaths in Russian 15 to 54-year-olds between 1990 and 2001 were due to excessive drinking, the authors say.
The research did source samples from Tomsk, Barnaul and Biysk. These aren't exactly run-of-the-mill millioniki. So whether the sample is representative of Moscow and St. Petersburg is debatable. What is self-evident however, is that the country as a whole has a ethanol/ methanol consumption habit that is doing the labour pool no favours.
Russia has some of the worst demographic refreshment and life expectancy rates outside of the true first-world. Perhaps this is one reason why.
There's a précis of this research here.
Kiwi Retailus Investo-Erectus: Part II
As a follow-up to my earlier Retailus post, (Infometrics economist) Matthew Nolan has just posted an excellent piece here.
Furthering the theme I laid down, Nolan also notes the confusion around risk/ reward trade-offs:
The lack of income growth stemming from this investment suggests that something is amiss – even if New Zealand has not really “over-borrowed” in the strictest sense, it appears we may have invested poorly. This misallocation of investment is the unfortunate result of a policy failure, bad luck, and further misinformation regarding the return/risk to investment.
Let's be clear - there's not only misinformation disseminated by under-educated and shady personal financial advisors/ retail brokers - the much bigger problem is retail investors' lack of understanding and knowledge of sound investing. This is compounded by the laziness in performing due diligence.
And then Nolan goes on to state (in far more polite terms than I did) how stupid NZ retail investors have been with their investment choices:
Ultimately, this implies that it is not even the fact we have accumulated debt that is of concern for New Zealand; it is what we have done with it. And in this sense it appears that New Zealand [retail investors] as a whole has made poor investment decisions. We have collectively whittled away a golden opportunity to improve the New Zealand economy by borrowing to invest in things that offered very little return.
Furthering the theme I laid down, Nolan also notes the confusion around risk/ reward trade-offs:
The lack of income growth stemming from this investment suggests that something is amiss – even if New Zealand has not really “over-borrowed” in the strictest sense, it appears we may have invested poorly. This misallocation of investment is the unfortunate result of a policy failure, bad luck, and further misinformation regarding the return/risk to investment.
Let's be clear - there's not only misinformation disseminated by under-educated and shady personal financial advisors/ retail brokers - the much bigger problem is retail investors' lack of understanding and knowledge of sound investing. This is compounded by the laziness in performing due diligence.
And then Nolan goes on to state (in far more polite terms than I did) how stupid NZ retail investors have been with their investment choices:
Ultimately, this implies that it is not even the fact we have accumulated debt that is of concern for New Zealand; it is what we have done with it. And in this sense it appears that New Zealand [retail investors] as a whole has made poor investment decisions. We have collectively whittled away a golden opportunity to improve the New Zealand economy by borrowing to invest in things that offered very little return.
Monday, July 13, 2009
More Darwin Candidates. . .
This time it looks to be from Russia. . . Oh, dear. Apparently this was for real:
More Consumer Spending
The latest JPMorgan Australasian Economic Weekly becomes further bearish on the NZ consumer spending outlook:
The trend in retail sales should continue to fall, extending the most prolonged
decline on record. Kiwi consumers remain reluctant to spend in the face of
heightened anxiety about job security. Rising unemployment probably is the biggest
headwind facing the Kiwi consumer and, with the business surveys pointing to more
firms shedding workers, the unemployment rate will continue to rise.
And the business sentiment outlook is looking even less peachy, despite the improvement:
The NZIER Quarterly Survey of Business Opinion (QSBO) showed a marked
improvement, with the headline reading climbing to -25 (from -65), meaning that
“only” a net 25% of firms surveyed last quarter expected the economy to deteriorate
in the next six months. Fewer businesses surveyed expect their own trading activity,
a leading indicator of GDP growth, to decline in the next three months—only a net
10% of firms expected a decrease in output and sales, down from 36% previously.
All key activity indicators in the 2Q survey were still in negative territory, however,
supporting our view that, though the rate of slippage will ease, the economy will
continue to contract in 2Q and 3Q. . . . . The resulting fall in labor income, combined with rising gasoline prices should dampen households’ purchasing power, increasing the headwinds faced
by consumers in 2H09.
It's hard to think that all the negative news out there and the current outlook is priced into the NZX50 as tracked by the ETF FONZ.
The trend in retail sales should continue to fall, extending the most prolonged
decline on record. Kiwi consumers remain reluctant to spend in the face of
heightened anxiety about job security. Rising unemployment probably is the biggest
headwind facing the Kiwi consumer and, with the business surveys pointing to more
firms shedding workers, the unemployment rate will continue to rise.
And the business sentiment outlook is looking even less peachy, despite the improvement:
The NZIER Quarterly Survey of Business Opinion (QSBO) showed a marked
improvement, with the headline reading climbing to -25 (from -65), meaning that
“only” a net 25% of firms surveyed last quarter expected the economy to deteriorate
in the next six months. Fewer businesses surveyed expect their own trading activity,
a leading indicator of GDP growth, to decline in the next three months—only a net
10% of firms expected a decrease in output and sales, down from 36% previously.
All key activity indicators in the 2Q survey were still in negative territory, however,
supporting our view that, though the rate of slippage will ease, the economy will
continue to contract in 2Q and 3Q. . . . . The resulting fall in labor income, combined with rising gasoline prices should dampen households’ purchasing power, increasing the headwinds faced
by consumers in 2H09.
It's hard to think that all the negative news out there and the current outlook is priced into the NZX50 as tracked by the ETF FONZ.
Kiwi Retailus Investo-Erectus - The Dumbest of the Breed?
Retail investors in NZ have to be the least savvy of the species in the known world. . .
For those unfamiliar with this ongoing car crash in slow motion, the story over the last 8 years or so has had three main stars: finance companies, corporate debt, and residential real estate. Retail investors have relentlessly thrown their cash at all three.
They have woken up about finance company risk. Hard not to when many of them allocated their entire life savings to one finance company for it to go bankrupt with no prospect of principal return. Non-Kiwi readers would be spellbound at how common this was. The stupidity was astonishing. A toxic combination of greed and a lack of risk premia understanding.
A few have started to work out that a 7.5% coupon yield on corporate debt is not such a good deal when it's not much above what high-street banks are paying for similar terms. NZ's corporate debt issuance typically clocks amongst the lowest spreads (over government backed paper) when compared against similar investment-grade issuance of other first-world countries. Yet the yield-chasing masses appear to care not, corporates keep on issuing and wonder how long this party can last, and brokers are complicit with their perennial ticket clipping. All in all, more retail investor stupidity.
And then there is residential real estate. . . Unlike the two investment classes above, retail investors seem to just not get how bad an investment NZ housing currently is.
That NZ housing trades so far in excess of fair value has been explained well numerous times elsewhere (refer Bernard Hickey here, here, and here. The Economist has also covered this globally for sometime).
There are a number of things that seem immediately apparent when assessing NZ housing as an investment:
- On any fundamental measure (such as house-price to wage-earnings ratio and house-prices to GDP etc.) it is expensive;
- Prospects for the economy look pretty grim at least up to the medium-term and prospects for house price inflation for a long way out do too. Indeed a good proportion of analysts are still predicting further decreases in house prices;
- Any debt-backed investor is facing a negative yield gap from time zero, except for those with the lowest of loan-to-value ratios. (Initial yields in greater Auckland are around 3.9% and 5yr fixed mortgage rates average 8%).
And yet they're queueing up around the block for a portion.
No margin of safety. One can only conclude that they are all paid-up subscribers to the Greater Fool theory. Or just plain stupid.
Consumer Spending
In a post over the weekend, I quoted Bill Gross on unemployment and the consequences for consumer spending and corporate earnings.
The NYT has as cool interactive graph showing consumer spending trends. Have a play and you'll see how things have changed. . .
The NYT has as cool interactive graph showing consumer spending trends. Have a play and you'll see how things have changed. . .
Sunday, July 12, 2009
Case Shiller Housing Happiness [updated]
Nick Gogerty has put together a video using Shiller data showing median incomes relative to house values for selected cities in the US.
The equity build-up and subsequent value loss is sobering. A lot of people have mused retrospectively that if only they had geared themselves to the hilt in '98 and started buying up streets in London, captured all that levered yield shift, and got out in early '07, they'd be zillionaires now. If only. . .
Some missed this boat, knew it and thought they'd jump on the momentum of the convergence play and get involved in some juicy CEE buy-off-plan/ buy-to-let action. Well we know how that ended. And it wasn't such a bad idea. Timing just ended up being everything.
Negative convexity is such a great thing. Except when yields move out.
I wonder how this data would play out for London? What if you bought your London house back in say '02 or even '04? Would you now be back to Y2k levels? Maybe you don't want to know. Ouch.
Nick offers a few more comments in his post over at Designing Better Futures.
UPDATE: Check out this excellent post over at Not PC on house prices. Very good. Hat tip to Batesy.
The equity build-up and subsequent value loss is sobering. A lot of people have mused retrospectively that if only they had geared themselves to the hilt in '98 and started buying up streets in London, captured all that levered yield shift, and got out in early '07, they'd be zillionaires now. If only. . .
Some missed this boat, knew it and thought they'd jump on the momentum of the convergence play and get involved in some juicy CEE buy-off-plan/ buy-to-let action. Well we know how that ended. And it wasn't such a bad idea. Timing just ended up being everything.
Negative convexity is such a great thing. Except when yields move out.
I wonder how this data would play out for London? What if you bought your London house back in say '02 or even '04? Would you now be back to Y2k levels? Maybe you don't want to know. Ouch.
Nick offers a few more comments in his post over at Designing Better Futures.
UPDATE: Check out this excellent post over at Not PC on house prices. Very good. Hat tip to Batesy.
Margin of Safety ?
A solid article over at Clusterstock by Doug Short, showing why stocks aren't yet so cheap.
Doug says:
. . . in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. "Why the lag?" you may wonder. "How can the P/E be at a record high after the price has fallen so far?" The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of 2008 Q4 (-$23.25) is something that has never happened before in the history of the S&P 500. And Standard & Poor's earnings estimates for July through September will give us negative annual earnings. A P/E calculated with negative earnings would flip the ratio past a divide-by-zero error to a negative ratio. Make that nonsense squared!
So Doug digs up Graham's PE10, adjusts for inflation and then shows where we're really at.
Doug goes on to say:
. . . A more cautionary observation is that every time the P/E10 has fallen from the first to the fourth quintile, it has ultimately declined to the fifth quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 600. Of course, a happier alternative would be for corporate earnings to make a strong and prolonged surge. When might we see the P/E10 bottom? These secular declines have ranged in length from over 19 years to as few as three. The current decline is now in its ninth year.
Corporate earnings rebound? Not any time soon. . . Bill Gross, in his July '09 PIMCO outlook says:
"I was impressed this weekend by an article in the Op-Ed section of The New York Times by staff writer Bob Herbert. “No Recovery in Sight” was the heading and his opening sentence asked, 'How do you put together a consumer economy that works when the consumers are out of work?' That is really all one needs to ask when divining our economy’s future fortune."
David Gaffen over at Global Investing further makes the case for a bearish earnings outlook.
So if you agree that corporate earnings are not going anywhere soon, then the recent market rally has been built on multiple expansion and little else.
And multiple expansion is the flip-side of yield compression. If you believe inflation isn't too far away (because of QE), systematic risk has not decreased, and don't believe in an earnings rebound, then this yield compression is built on false hope.
So what have we then? A paradigm shift? A structural break to a new set of rules? Felix Salmon, Robert Reich, and Mohamed El-Erian certainly think so. They go further than Roubini with his alphabet soup of recovery letters, than Soros with his "stop-go economy" thesis and think that the old-normal will not return and that we now have a New-Normal and face an X-shaped recovery.
Doug says:
. . . in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. "Why the lag?" you may wonder. "How can the P/E be at a record high after the price has fallen so far?" The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of 2008 Q4 (-$23.25) is something that has never happened before in the history of the S&P 500. And Standard & Poor's earnings estimates for July through September will give us negative annual earnings. A P/E calculated with negative earnings would flip the ratio past a divide-by-zero error to a negative ratio. Make that nonsense squared!
So Doug digs up Graham's PE10, adjusts for inflation and then shows where we're really at.
Doug goes on to say:
. . . A more cautionary observation is that every time the P/E10 has fallen from the first to the fourth quintile, it has ultimately declined to the fifth quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 600. Of course, a happier alternative would be for corporate earnings to make a strong and prolonged surge. When might we see the P/E10 bottom? These secular declines have ranged in length from over 19 years to as few as three. The current decline is now in its ninth year.
Corporate earnings rebound? Not any time soon. . . Bill Gross, in his July '09 PIMCO outlook says:
"I was impressed this weekend by an article in the Op-Ed section of The New York Times by staff writer Bob Herbert. “No Recovery in Sight” was the heading and his opening sentence asked, 'How do you put together a consumer economy that works when the consumers are out of work?' That is really all one needs to ask when divining our economy’s future fortune."
David Gaffen over at Global Investing further makes the case for a bearish earnings outlook.
So if you agree that corporate earnings are not going anywhere soon, then the recent market rally has been built on multiple expansion and little else.
And multiple expansion is the flip-side of yield compression. If you believe inflation isn't too far away (because of QE), systematic risk has not decreased, and don't believe in an earnings rebound, then this yield compression is built on false hope.
So what have we then? A paradigm shift? A structural break to a new set of rules? Felix Salmon, Robert Reich, and Mohamed El-Erian certainly think so. They go further than Roubini with his alphabet soup of recovery letters, than Soros with his "stop-go economy" thesis and think that the old-normal will not return and that we now have a New-Normal and face an X-shaped recovery.
The Vertical Farm ?
Highly conceptual, but interesting nonetheless. These guys propose building high rise farms in an urban setting.
Can't see it working economically unless traditional farmland becomes hugely under-supplied, subsidies are offered and/ or the crop grown is very high-value, high-margin produce.
Looks like it's been put together by architects. Have a look.
Can't see it working economically unless traditional farmland becomes hugely under-supplied, subsidies are offered and/ or the crop grown is very high-value, high-margin produce.
Looks like it's been put together by architects. Have a look.
Saturday, July 11, 2009
SDRE reunite
Scalped from Pitchfork:
Seattle proto-emo heroes Sunny Day Real Estate have broken up twice, in 1995 and 2001. But they're back together again for a North American reunion tour, and this time, all four original members are on board.
After the band's 1995 breakup, bassist Nate Mendel and drummer William Goldsmith joined Dave Grohl's Foo Fighters. When Sunny Day got back together in 1997, Goldsmith rejoined, but Mendel remained a Foo. This time, though, Mendel is back in the fold.
In a statement from Sub Pop, Mendel said, "I wasn't around for the second version of the band that recorded the third and fourth albums, so I've always had a feeling of unfinished business there. We had all these outsized ideas back then, 'Everyone's going to learn a new instrument,' and 'Let's do a rock opera,' but before we could get anywhere with them, the band broke up. We left behind all these weird and beautiful songs, though, and they've stuck with me all this time. I'm really happy that we get a chance to play them together again."
The reunion tour kicks off September 17 in Vancouver, and yes, they will play California. To celebrate, on September 15, Sub Pop will reissue the band's two original-lineup albums: the stone classic 1994 debut Diary (one of the best-selling albums in Sub Pop history) and the 1995 follow-up LP2 (better known as The Pink Album). The reissues will include bonus tracks and new liner notes. This is going to rule.
Bear Market Race to the Bottom
For those of you who used to get my Bear Market Race to the Bottom updates by email from Mark Lundeen's site, this article from Clusterstock corroborates what Lundeen's been plugging away at for quite some time now.
Lundeen used to be labelled a bit of a crank for his research. That's pretty much dried up as the trajectory of this bear market has and continues to uncannily track that of '29-'32.
According to Lundeen we're in week 90 of 149 of the Race to the Bottom. Time to adjust those buy limit orders downwards ?
Lundeen used to be labelled a bit of a crank for his research. That's pretty much dried up as the trajectory of this bear market has and continues to uncannily track that of '29-'32.
According to Lundeen we're in week 90 of 149 of the Race to the Bottom. Time to adjust those buy limit orders downwards ?
Downturns a good thing ?
Mark Thoma has posted some interesting comments on whether depressions/ recessions are necessary and/ or ultimately good things. His post argues around ideas put forward in a recent Prospect article. Thoma says:
Chris Hayes takes up a notion I've never been very fond of, that recessions are necessary and healthy since they clear out inefficient firms, and spur the development of new innovation during the recovery phase.
Thoma goes on to say this is largely crap. Not sure the Austrians would agree with Thoma's conclusions, but despite being rather Krugmanian it's persuasive.
Chris Hayes takes up a notion I've never been very fond of, that recessions are necessary and healthy since they clear out inefficient firms, and spur the development of new innovation during the recovery phase.
Thoma goes on to say this is largely crap. Not sure the Austrians would agree with Thoma's conclusions, but despite being rather Krugmanian it's persuasive.
Genesis. . . .
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I've set this up to make it easier to pass on items of interest. Until now, I've been emailing out lots of stuff to lots of different people.
No doubt some of you want to read this stuff, some of you don't. Some of it you're interested in, some of it you're not.
So this site will centralise all of this and let you pick & choose what you read from me, or just opt out. Power to the punters.
Don't expect much original content - mostly others have said it first and often better.
You can either visit the WWW version of the site here (which is where you are right now):
http://atelegs.blogspot.com/
Or get the RSS feed from here:
http://feeds.feedburner.com/atelegs
I'm not going to cock about with the code of the site. Yawn. But if anyone has any suggestions for tweaking anything - speak up.
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