The capital markets of the last quarter century have been incredibly generous to us. Since
mid-1982, the S&P 500 index has advanced at a solid 13.9% annual clip, while 10-year
Treasury bonds have posted annualized returns of 9.8%. With annual inflation averaging
just over 3%, this means that investors have seen their real wealth double every seven
years in stocks and every 11 years in bonds.
But, past is not prologue.
Would a bond investor, looking at 25-year returns of 10% and current long bond yields of
5% be foolish enough to expect the next 25 years to deliver 10%? Of course not. They’d
recognize that yields started in 1982 at 14% and had plunged to 5% over the next 25
years, earning hefty capital gains on top of a yield averaging 7% over this span. With
current yields of 5%, they’d expect 5%....Complete Article
Surprisingly, at least to me, the real star of last week was the financial complex, which jumped to the fore emboldened by remarks from Countrywide Financial’s (CFC/$17.30) CEO that the worst is over.
To wit, "In no way did I expect what happened in August, where it was a complete collapse, a seizing up," Chief Executive Angelo Mozilo said on a conference call, "There has been, in my opinion, a significant structural change in the market, a permanent structural change." And with those comments the “financials” took off.
Alas, we are underweight the financials, save some special situations like Flagstar Bancorp (FBC/$8.25/Outperform), where hereto we have been just plain w-r-o-n-g. Still, we think FBC is an investable idea and are considering taking one, or two, more tranches (read: purchases) in this nearly 5%-yielding Michigan-based bank as we approach tax loss selling season.
To this tax loss point, it is worth considering that many institutional accounts will sell their “losers” into this week’s fiscal year-end (October 2007) to offset their “winners.
” Following that will come retail investors’ tax loss selling season, where for similar reasons select investable ideas will be sold to offset gains taken in this year’s big “winners.” Even we are considering “banking” partial positions in some of our capital gainers like Vistaprint (VPRT/$46.05), which leapt more than six ponts on Friday and is up nearly 40% for the year, just to rebalance our portfolios.
The implication is that many “good” stocks will be sold for tax reasons in the next few months and not because something is wrong with the fundamentals.
This is one of the reasons we keep scaling into (read: tranching into) high-yielding big cap pharma names like Strong Buy-rated Johnson & Johnson (JNJ/$64.30) and Pfizer (PFE/$24.31). Verily, big cap pharma is cheap unto itself, cheap relative to the overall stock market, and cheap relative to the risk-free rate of return (T-bill). We continue to invest accordingly.
[...]
1. Let’s start with the good news, ECRI still doesn’t see a recession on the horizon. They’re pretty accurate, so I give them room, and mute my own views.
2. That doesn’t mean there aren’t significant pockets of weakness. Mortgage equity withdrawal is a spent factor, so to speak, and it ripples through current consumption and housing price weakness. The less equity available, the less to pad consumption, and the less buying power for homes. Credit card default rates are worsening, which can’t be good for buying power either. On the low end of the income spectrum, many Hispanic workers are finding it hard, and that affects Wal-Mart, among other retailers on the low end. That said, I have read that the Hispanic immigrants are much less likely to default on their mortgage loans than non-immigrants with similar credit characteristics.
3. CLSA predicts a record gold run, and so far, gold is cooperating. That said, it will take a lot more to get gold to $3400/ounce. We would need a real dollar collapse, and not this slow grinding selloff. That said, the grinding selloffs tend to persist; more on that later in this post.
4. Of course, we could look at the price of wheat, or even just the price of stuff. If it deals with food or energy, two items that are core to almost everyone’s budget, prices are rising. John Wasik repeats a number of my arguments for why core CPI does not represent the diminution of the average person’s buying power. I’m honestly surprised that no one has made a campaign issue out of honesty in inflation statistics so far. It helped Reagan versus Carter in 1980. [...]
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Thomas Hobson ran a thriving carrier and horse rental business in Cambridge, England around the turn of the 17th century. He rented horses mainly to Cambridge University students and was known for not giving his customers a choice as to their mount – it was simply “this or none”, i.e. Hobson’s choice.
Fast-forward to November 2007 and one cannot help wondering if the US economy has taken on the guise of a modern-day Hobson, really offering no choice at all. And on the receiving end is Fed chairman Ben Bernanke facing an increasingly recessionary economy. A worsening housing situation and the likelihood that significantly more credit losses lay ahead leave him with what Richard Russell (Dow Theory Letters) describes as a “brutal problem”.
Before digging a bit deeper into the alternatives available to Bernanke and the monetary authorities, let’s focus on the graphs of the Philadelphia Housing Index and Bank Index for a snapshot of the market’s assessment of these two intransigent sectors.
Oct. 22, 2007 - Apple Inc is scheduled to give its quarter results after the market closes today. This is expected to be one of the most highly watched reports, as shares of Apple have vaulted more than 47% since mid-August. Investors are eager to see how well Apple’s iPhone and Mac fared. Is it possible for Apple to “pull a Google” (by that we mean will Apple bury expectations)? It’s possible, with analysts’ price shares ranging from $175-$200 (see Rex Crum’s article from MarketWatch.com).
With Apple being one of the most closely followed companies today, we decided to create an IntellectSpace Knowledge Map of the Board of Directors at Apple. We were surprised to find that compared to the Directors at other large companies, the Directors at Apple have far fewer corporate connections. However, the connections that do exist are both impressive and often represent years of experience (Note: the information contained and presented in Knowledge Maps is public information from the Securities and Exchange Commission of the United States of America).
posted on: September 20, 2007 | about stocks: OIL / USO / DBO
Oil's low close of $50.48 on January 18th, 2007 seems decades away as prices are up 62% since then.
With T. Boone Pickens forecasting $100 oil (thankfully not this year), we looked back at historical price moves for the commodity since 1986.
Bull and bear markets are defined as 20% moves. Notably, the average gain for oil in a bull market is 62.89% (we are up 62.32% right now); the average length of a bull market is 226 days (we are at 245 days right now). See Chart (Complete Story)
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