19 maart 2010

Altucher: The Bears Are Dead Wrong


Altucher heeft de buik vol van alle beren, zie Wall Street Journal (http://blogs.wsj.com/financial-adviser/2010/03/16/the-bears-are-dead-wrong/tab/print/)
Hij beschrijft de wall of worry van de beren en relativeert dit. Bianco las het en sprong uit zijn vel van kwaadheid. Zo veel domheid bij elkaar terwijl het sentiment zo overoptimistisch is! Hij wijst op het gebrek aan beren in de sentimentssurveys en voraal het grote aantal adviseurs die geen mening hebben maar wel bullish zijn (=ze zijn de kluts kwijt). De wall of worries is kennelijk nog veel groter dan Altucher beschrijft.

"Many homes are still in foreclosure or under water:
Although forececlosures last month were still 6% higher than the year ago period, they were 2% less than last month. The 6% is the lowest year-to-year increase since January 2006. The rate of foreclosures are decreasing and the fact that we had a month-to-month decrease in foreclosures suggests that the 50-month stretch of year-to-year increases could be coming to a close.
The Case-Shiller Housing index has been up for the past six months, suggesting prices are stabilizing
When a foreclosure happens, people have more money to spend (they are no longer spending on mortgage.
The housing declines began in 2006. The market top didn’t happen until November, 2007 and the collapse didn’t happen until Lehman collapsed in September, 2008. The market collapse was more a function of the financial collapse and then the “Great Liquidation” (see below) than the housing collapse.
The 5.9% GDP growth last quarter is “just” an inventory rebuild story and not an exhibit of real organic growth in the economy. This is true, but if you look at change in private inventories, this recession had the sharpest year-to-year change in inventories since the Great Depression. All businesses assumed that the world was ending and fired all of their employees and didn’t rebuild any inventories. This Great Recession is more aptly called “The Great Liquidation” since the sharp decline in GDP and the sharp increase in unemployment was directly related to inventory liqudiation. So now they are rebuilding these inventories. This is a good thing. It will start with basic materials companies (steel, aluminum, etc) and those companies and employees will prosper, leading to more prosperity, etc.
Unemployment is at 10%
Yes, but that is unsustainable with the inventory restocking that is happening. What we are seeing in the latest employment numbers is: 1.) Hourly pay is up. Employers are paying for overtime before they rehire fulltime. 2.) Temp workers are at their highest point since 2004. Temp workers are hired before they rehire full time. 3.) Payrolls are up relative to where they were a year ago. In fact, the increase (or less decrease) in payrolls looks like a sharp V. 4.) This will not be a jobless recovery.
The Obama stimulus didn’t work.
I’m in the camp that believes we never needed stimulus. The economy was going to come back on its own. But, that said, only 30% of the stimulus was spent, with the bulk to be spent on infrastructure projects happening this year. I’m afraid the economy might overheat when the other 500 billion is spent.
P/E ratios are still way too high for an economic recovery.
Market timers often point to the lows in the ’70s or early ’80s when P/E ratios hit as low as seven and the market burst forth from there. Unfortunately for them, there is no hard and fast rule about what P/E ratios should be. If you flip over the P/E ratio so you get E/P you get the earnings yield of a company. The key is to compare earnings yields with the interest rates on products with comparable risk (corporate bonds, for instance). Interest rates were in double digits in the early ’80s, so P/E ratios had to be much lower to compete. Interest rates now are at all-time highs, so P/E ratios could be much higher and you still get better comparisons now than you did in the ’80s.
Most people are looking at last year’s P/E when we were in the middle of a recession. The forward P/E ratio of the S&P 500 is right now approximately 13.5 and that number may be even lower considering how many companies have been exceeding analysts’ earnings estimates. A P/E of 13.5 or lower puts it much lower than the 100 year average of 16.
Many stocks are still dirt cheap. Apple, despite 40% growth projections, trades at a forward P/E of 15 when you back out its cash. CSCO a forward P/E of 15. XOM a forward P/E of just 9. WMT, just 12. GOOG, just 17. MSFT, just 13. Large cap America is cheap at the moment from a bottoms-up perspective.
The Fed is printing up so much money we could be entering into a hyperflationary period where the dollar is rendered valueless.
Ron Paul likes to point out that the dollar has lost 97% of its value since 1913. My question is: Wouldn’t you have wanted to be in stocks over that time frame? You’d be up about 1,000,000%
About 40% of S&P 500 revenues come from abroad. An inflationary environment would be better for the stock market than at any time before now.
Unfortunately with 10% unemployment, and we are about 11mm jobs away from full employment, we’re more likely in a deflationary environment.
The weakness of other possibilities (the euro, the yen) keeps driving strength in the dollar.
Municipality finances are a wreck and this is the next shoe to drop.
Municipalities rarely go bankrupt and even when they do they tend to pay their bondholders at 100 cents on the dollar. The worst municipality bankruptcy ever, Orange County, Calif., in the early ’90s, paid back its bondholders in full.
Municipal bonds are being issued and bought right now at record low interest rates. People are comparing municipal bonds to subprime mortgages. But on the one hand (subprime) you had fraudulent lending and abuse backed by houses that were quickly under water and on the other hand you are backed by governments that have authorization to pay bondholders back with increased tax revenues. Most municipalities are required, by constitution, to pay back debt before paying workers.

James Altucher".

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