Financial topics

[Matt1989]

No. Capitalism under any definition cannot exist simultaneously with central economic planning. If such a definition exists, it is perverted and wrong. "State Capitalism" is an oxymoron. What I am describing is "Corporatism" - the merging of corporate and state interests. Such an arrangement is diametrically opposed with capitalism.

This tendency reminds me of people like Noam Chomsky and other libertarian socialists to assert that the only true socialism is found in social anarchism, and the rest are just perversions. I find both characterizations foolish. Capitalism is not the free market; the free market socialists predated the free market capitalists. Socialism is not pure egalitarianism; many of the classic socialists framed it in other ways. Interestingly enough, there are about as many definitions for socialism as there are capitalism.

I realize I'm being hard-headed on this. But it is unacceptable to me that central banking, government favoritism of certain companies, and selective enforcement of fraud be confused as characteristics of a capitalistic society.

Only because you hold capitalism up as the ultimate ideal. It's just a word.

[drewster]

Freddyv,

I'm a big fan now that I see you actually shook up WSJ and made them change their quoted source for the PE ratios (I'm a big fan of the site as well, too John!). I have tried to find verifiable sources for the S&P 500 PE ratio too, and it seems almost an impossibility to find consistent data from two different sources (as a comparative check, mind you). It is interesting that Birinyi Associates switched from operating expenses to a Forward PE ratio, which from what I understand is nothing more than a future projection of the PE ratio we should expect in the future; an educated guesstimate. Which, of course, means it's based on conjecture, opinion and an interpretation of economic predictions based on past models. Kind of makes their PE ratio meaningless. Do you have any additional sources of late that use actual operating expenses?

Perhaps Birinyl is referencing the PE10 that Robert Shiller uses which, as you probably know, smooths out the one year data by calculating the PE on 10 years worth of data. On the website dshort.com, both the 1-year and 10-year PE ratios are compared on a chart entitled "Real (inflation-adjusted) Price and PE Ratio", with the 1-year PE ratio at 34, and the PE10 ratio at 14 (as of March 2009). That considerable difference shows the power of averaging-out the ratio over a longer period of time. Investor Doug Kass stated that he used 70 years worth of PE ratio data when calculating whether or not to go long into the market in early March (he did). What do you think of this longer-term "PE10" approach?

If one goes with the PE10 figure and acknowledges the single-digit trough PE10 ratios of the past, it would appear that there is still room for a significant overshoot to the downside within a mean reversion. As the market was dropping precipitiously back in late Feb/early March, a friend and I were frantrically trying to determine what the historically comparative trough PE ratios of the S&P 500 index were, and discovered how hard it was just to determine the basic PE ratio of the index. There is such a wide range of reported data out there that the correct PE ratio still escapes us. Without any understanding if we are at historic lows or not, we find it impossible to make true, qualified decisions. I am expecting the market to pull back from the large bear rally we've just experienced, and I hope by the next bottoming period that I've found a reliable source (I can have my dream, right?).

Again, nice work and I look forward to keeping track of your progress. These next two quarters should be interesting.

-Drewster

[freddyv]

Freddyv,

I'm a big fan now that I see you actually shook up WSJ and made them change their quoted source for the PE ratios (I'm a big fan of the site as well, too John!). I have tried to find verifiable sources for the S&P 500 PE ratio too, and it seems almost an impossibility to find consistent data from two different sources (as a comparative check, mind you). It is interesting that Birinyi Associates switched from operating expenses to a Forward PE ratio, which from what I understand is nothing more than a future projection of the PE ratio we should expect in the future; an educated guesstimate. Which, of course, means it's based on conjecture, opinion and an interpretation of economic predictions based on past models. Kind of makes their PE ratio meaningless. Do you have any additional sources of late that use actual operating expenses?

Perhaps Birinyl is referencing the PE10 that Robert Shiller uses which, as you probably know, smooths out the one year data by calculating the PE on 10 years worth of data. On the website dshort.com, both the 1-year and 10-year PE ratios are compared on a chart entitled "Real (inflation-adjusted) Price and PE Ratio", with the 1-year PE ratio at 34, and the PE10 ratio at 14 (as of March 2009). That considerable difference shows the power of averaging-out the ratio over a longer period of time. Investor Doug Kass stated that he used 70 years worth of PE ratio data when calculating whether or not to go long into the market in early March (he did). What do you think of this longer-term "PE10" approach?

If one goes with the PE10 figure and acknowledges the single-digit trough PE10 ratios of the past, it would appear that there is still room for a significant overshoot to the downside within a mean reversion. As the market was dropping precipitiously back in late Feb/early March, a friend and I were frantrically trying to determine what the historically comparative trough PE ratios of the S&P 500 index were, and discovered how hard it was just to determine the basic PE ratio of the index. There is such a wide range of reported data out there that the correct PE ratio still escapes us. Without any understanding if we are at historic lows or not, we find it impossible to make true, qualified decisions. I am expecting the market to pull back from the large bear rally we've just experienced, and I hope by the next bottoming period that I've found a reliable source (I can have my dream, right?).

Again, nice work and I look forward to keeping track of your progress. These next two quarters should be interesting.

-Drewster

Thanks, but I'm just one of a growing number of average people in this country who is tired of being lied to and especially tired of seeing my fellow citizens not giving a crap about it.

There's really only one place you need to go for earnings data on the S&P 500:

http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

Considering how corrupt Standard & Poor's was as a rating agency this data that they produce for the S&P 500 seems to be all one could ask for - and "it's straight from the horse's mouth" so there is no disputing it.

What Birinyi Associates is doing is nothing short of criminal and the WSJ and Bloomberg must both know this. I should point out that I don't know that Bloomberg uses data from Birinyi Associates because they seem to be as inaccesable to me as the Federal Reserve, whom they sued to get the names of the banks the Fed is supplying with emergency loans. It appears that they are using the same data.

http://www.bullandbearwise.com/NASDAQ100RealPE.asp

NASDAQ 100 data was the hardest to come by. What a lot of people do when they can't come up with the actual data is they resort to usng ETF's and bad methodology to compute an inaccurate P/E ratio. IMO, inaccurate is worse that nothing at all, especially when we are not told how the data was devised.

Let me state that I'm not a bear or a goldbug or anything like that. I simply believe that we will never get back to the point of having a healthy economy until we address our core issues and it now appears that Obama and team are not the ones to do so and in fact, appear quite willing to use even more lies and dishonesty than the Bush and Clinton administrations fed us and that got us to this point.

6 months ago I felt that we were getting close to having to face these issues (leverage, debt, dishonesty, corruption...) but now I see that we have probably years to go before we can even begin to drag ourselves up from the slime pit we are living in.

As for determining the value of the stock market as a whole it seems that the one big factor is what will the next ten years be like. Will we see steady growth and general prosperity or will we see a period of crisis and continued deleveraging? The fact that the market is currently overpriced is certain, even if you normalize earnings.

That's where this site and the "Fourth Turning" theory are extremely valuable. I have always (yes, even as a boy) had a feel for generation patterning and I see that most of the succesful stock market analysts that I have found - Louise Yamada, Richard Russell, Gene Inger - seem to have an understanding of the crisis period we are in and factor thatinto their analysis. If you believe we are simply going back to the 80's and 90's now that we have had our little correction then you can expect the economy and stock market to move onward and upward; if you believe that we are in a crisis era where the excesses of the past will cause severe trauma to our society then you can expect a revaluing of stocks and pretty much everything in society.

I, now more than ever, believe that we are in a crisis era that will find a way to revalue everything in our society and even the anointed one, Barack Obama, can not stop it.

--Fred

[freddyv]

Eliot Spitzer is my new idol:

http://www.slate.com/id/2217811/

The kerfuffle about current New York Federal Reserve Bank Chairman Stephen Friedman's purchase of some Goldman stock while the Fed was involved in reviewing major decisions about Goldman's future—well-covered by the Wall Street Journal here and here—raises a fundamental question about Wall Street's corruption. Just as the millions in AIG bonuses obscured the much more significant issue of the $70 billion-plus in conduit payments authorized by the N.Y. Fed to AIG's counterparties, the small issue of Friedman's stock purchase raises very serious issues about the competence and composition of the Federal Reserve of New York, which is the most powerful financial institution most Americans know nothing about.

...

So whom have the banks chosen to be the public representatives on the board during the past decade, as the crisis developed and unfolded? Dick Fuld, the former chairman of Lehman; Jeff Immelt, the chairman of GE; Gene McGrath, the chairman of Con Edison; Ronay Menschel, the chairwoman of Phipps Houses and also, not insignificantly, the wife of Richard Menschel, a former senior partner at Goldman. Whom did the Board of Governors choose as its public representatives? Steve Friedman, the former chairman of Goldman; Pete Peterson; Jerry Speyer, CEO of real estate giant Tishman Speyer; and Jerry Levin, the former chairman of Time Warner. These were the people who were supposedly representing our interests!

...

So is it any wonder that the N.Y. Fed has been complicit in the single greatest bailout of poorly managed banks in history? Any wonder that it has given—with virtually no strings attached—practically the entire contents of the Treasury to the very banks whose inability to manage risk has brought our economy to its knees? Any wonder that not a single CEO or senior executive of a major bank has been removed as a condition of hundreds of billions of direct cash and guarantees? Any wonder that, despite its fundamental responsibility to preserve the integrity of the banking system, it sat quietly on the sidelines as the leverage beneath the banks exploded and the capital underlying their investments shrank?

...

Eliot Spitzer is a man with little to lose at this point and much to gain by exposing a system that he likely knows inside and out.

Is Eliot Spitzer the man to bring down our corrupt power structure?

--Fred

[freddyv]

You won't hear about this on TV:

425 issues (88.94% mkt val) rptd: initial good reports long gone, actuals are -18% off ests (see Energy note), and -36.1% behind last year

Read all about it at http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

There are a lot of ways to spin this but the scary thing is that revenues are dropping like a rock and there is now limited cost-cutting to be done and the goverment can't keep bailing money to the banks forever...can they?
--Fred

[John]

Dear Fred,

> 6 months ago I felt that we were getting close to having to face
> these issues (leverage, debt, dishonesty, corruption...) but now I
> see that we have probably years to go before we can even begin to
> drag ourselves up from the slime pit we are living in.

I don't think it will take years. The fact that a genuine
generational stock market crash hasn't happened yet doesn't mean that
it's not coming.

In fact, I heard an analyst on tv say that "capitulation hasn't
occurred yet," referring to the fact that most money market funds
haven't yet been sold off.

I believe you said something similar a few days ago -- that there's
so much lying going on that the collapse will be all the greater.

In August 2007 I posted the article "The nightmare is finally
beginning," expecting the crash to occur within a few weeks.
Instead, the Fed and Treasury have found use one "liquidity
injection" after another to prop up some financial institution, in
order to head off a chain reaction.

Throughout all this time, there was one statistic that I could count
on to predict where the market was going in the short range: The P/E
ratio -- I mean the "real" P/E ratio, as shown in the chart on the
bottom of the home page of this web site.

The P/E ratio stayed at 18 for almost 4 years, from which I inferred
that computerized buy/sell programs were programmed to maintain that
valuation. Not that there was some conspiracy going on, but that
they had all been programmed with roughly the same algorithms, one of
which was to honor the valuation of 18.

A year ago, valuations started rising into the mid-20s, and I was
expecting them to fall to 18 again -- and they did in September. That
made sense to me.

But I never, NEVER dreamed that what's happening now could happen --
starting in January, as Q4's negative earnings were coming out, the
P/E ratio indexes shot up to 60, and then the whole fabric of lying
and deception began.

What I infer is this: That this change has caused all the buy/sell
programs to be reprogrammed to ignore the real P/E and use the Ouija
board version computed by Birinyi Associates and published by WSJ.

This insanity is so great that it's hard for the mind to grasp.
Your conclusion is that it's going to take years for reality to set
in again.

But I look at it the opposite way -- that the increasing insanity is
like stretching a rubber band to its limit, and when it snaps back,
it will snap back much faster and harder than it would have
otherwise.

Stein's Law: If something cannot go on forever, then it won't.

I know I keep saying this, but I just can't believe what's going on
in Washington and on Wall Street. Even as cynical as I am about the
lethal combination of Gen-Xers and Boomers, there is absolutely
nothing in my experience that prepares me for this and allows it to
make sense to me. Things are spinning so rapidly out of control that
it makes me literally dizzy and sick when I think about it.

Sincerely,

John

[jusme]

Dear John

Much appreciation to you for this site . Also your time, energy, and commitment.And to those who share their knowledge and expertise.And from those who share anything useful at this time.

I heard or read somewhere that a signal that there may be a "crash " was if the market goes down fast and oil goes up out of site that we were there? Was that stated here and /or any truth to that event ?

Sincerely, Jusme

[Marshall Kane]

Speaking of insanity:

http://www.ft.com/cms/s/0/69bc7894-3b34 ... abdc0.html

What a feeling: how emotions may yet save the economy
By Chrystia Freeland
Published: May 7 2009 20:35 | Last updated: May 7 2009 20:35

An influential Democrat who was also one of the world’s top-ten, highest-paid hedge fund managers last year thinks he knows which book is at the top of the White House reading list this spring: Animal Spirits, the powerful new blast of behavioural economics from Nobel prize-winner George Akerlof and Yale economist Robert Shiller.

Judging by the upbeat economic message we have been hearing from the White House, the Treasury and even the Federal Reserve over the past six weeks, that is a shrewd guess. The authors argue that “we will never really understand important economic events unless we confront the fact that their causes are largely mental in nature”. Our “ideas and feelings” about the economy are not purely a rational reaction to data and experience; they themselves are an important driver of economic growth – and decline.

Since mid-March President Barack Obama and his team have mounted a sophisticated effort to brighten those “ideas and feelings”, reassuring the nation with “glimmers of hope across the economy” and the assertion that “we’re starting to see progress”. The much bally-hooed stress tests – whose comprehensively leaked results were due to be fully unveiled after the markets closed on Thursday – are both an important example of this confidence-building campaign and its toughest challenge.

The sunnier rhetoric of recent weeks marked a sharp shift both from the bleak mood of the fin de regime administration of George W. Bush and from the first weeks of the Obama White House. The outgoing president’s political capital was so low in his final months in office that the mere fact of his public appearances seemed to have a depressing effect on the markets. His secretary of the Treasury, Hank Paulson, enjoyed greater confidence, but he needed to convince lawmakers the situation was dire enough to merit his $700bn Tarp programme.

Likewise, Mr Obama needed the nation to be worried enough about the economy to pass his nearly $800bn stimulus plan. And too much good cheer in the first days of his administration could have wasted one of his most powerful trump cards – the country’s belief that this recession is owned by president number 43, not number 44.

But once the stimulus bill was passed, the White House calculated that, as Mr Obama told the Financial Times, lawmakers and US voters had reached their limits. No new money to rev up the economy or revive the banks would be forthcoming until the president and his team could demonstrate concrete results from the first instalment.

Since then Americans have been hearing a decidedly more optimistic vibe from Washington. It has seemed to work. A Google search for the term “economic recovery” turned up 6,991 references to the term in January and 7,831 in February. In the first week of May the phrase occurred 24,443 times.

More traditional yardsticks show the same result. According to a recent ABC/Washington Post poll, Americans’ belief that their country is heading in the right direction has soared from 19 per cent, just before Mr Obama’s inauguration, to 50 per cent, the highest in six years. In what could be a textbook example of behavioural economics, the stock market has followed the same curve, recovering from what rightwing commentators were calling “the Obama bear market” at the beginning of the year to a healthy rally.

Thursday night’s verdict on banks’ balance sheets will also be a stress test of the administration’s experiment in behavioural economics.

Washington has clearly learned the lesson of one of its rare, early failures. In contrast with the disastrous media management of Treasury secretary Tim Geithner’s maiden economic speech, the results of the stress tests have been so thoroughly previewed that by Thursday financial pundits and punters seemed almost bored with the exercise. Ennui is not the same thing as conviction – one of America’s biggest money managers on Thursday described the exercise to me as “the feather tests” and it is hard to find anyone who doesn’t work for the government, or one of the banks, who believes the tests have been rigorous.

But, like Washington, Wall Street really does want the scheme to work and the markets to recover. Over the next few weeks the administration will be hoping those feelings are powerful enough to drive the economic data.

Copyright The Financial Times Limited 2009

[aedens]

You won't hear about this on TV:

425 issues (88.94% mkt val) rptd: initial good reports long gone, actuals are -18% off ests (see Energy note), and -36.1% behind last year

Read all about it at http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

There are a lot of ways to spin this but the scary thing is that revenues are dropping like a rock and there is now limited cost-cutting to be done and the goverment can't keep bailing money to the banks forever...can they?
--Fred

As for our Global manufactoring base we where down ~52% ". The last numbers are ~48% as seen to date. Peer review is Global ISO14001 protocol's
to contract and we are cutting addional Human Capital %2 percent to maintain divedend's. Net working capital provisions to expansions have been curtailed.
Planned expansion's to aeromotive supply sites are to reflect proper scaling and proper LEAN process diciplines to customer's needs.
The quick implosion's will be abrupt and continue to be pronounced and assert them selves quickly as seen to date in many segments.
Case: http://www.icis.com/Articles/2009/04/14 ... -cuts.html

"The point is you will not break protocol. It was conveyed off the record if you drive it in the ditch keep walking since you longer
work here. The old performance metric do not apply. We poised ourselves for this down turn. July 8th I forwarded 20% staff reduction.
Trust me on this some still do not get it. As forwarded off the record some peers do expect October numbers to happen but the trepidation
is intense.
Junk-bond investors who have spurred the biggest rally on record are getting ahead of the recovery as the rate of company failures is about to surge, according to debt strategists from at least six Wall Street firms. “This is a very dangerous bet at this time in the economic cycle,”
You better focus on value and in five years we will see who is around in Capital markets.

[StilesBC]

Matt1989 wrote:

Only because you hold capitalism up as the ultimate ideal.

1) Inaccurate. I hold individual liberty as the ultimate ideal. Capitalism is a vehicle to exercise individual liberties.

2) What do you have against ideals? Or are you just trying to be "in character" as a nihilistic GenXer?

Respectfully,

Matt