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Posted 1/24/12:
What is someone to make of equities in a low-growth and potentially disinflationary environment? The FT makes the case that equities should outperform bonds here:
Financial Times - Equities can outstrip bonds in a liquidity trap
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Posted 1/21/12:
We have observed the that upper class in the U.S. (and around the world) appears to be separating from middle and lower classes in a way that extends beyond mere wealth. These groups are becoming increasingly different - when once they shared a great deal in common. This WSJ article quantifies the scope and degree of the changes:
WSJ - The New American Divide
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Posted 1/3/12:
Some people want to lose weight, stop smoking, or exercise more... David has done all that!
Now he's got something else he'd like to get resolved in the New Year.
Key economic wishes for 2012:
1) Endorse Simpson-Bowles plan, as by far and away the best long-term solution to our budget and deficit problem. Endorse tax simplification—slash the tax code, in particular most exemptions which favor one constituency over another, and enable tax rates to be cut (three rates of 15%, 20%, 25%), while raising revenues back to 21-22% of GDP, where Clinton era ended up. As part of the solution, agree to cuts in both Social Security and Medicare in the future (raise age of Social Security eligibility, try to reform health care by switching reimbursement from fee for service to fee for quality) I believe that Obama’s greatest mistake has been his ignoring the recommendations of the Simpson-Bowles Commission, which he himself formed.
2) Recognize that very few people in Congress are thinking seriously about the long-term solution. Rep. Ryan, in the House, is one of them, but while his analysis and his figures appear accurate, his philosophy is too strictly anti-tax. He wants to cap spending at 18% of GDP (too small to allow Social Security and Medicare to exist without damaging changes). However, he has recently worked with Sen. Wyden to relax his Medicare original plan which shows he is willing to listen to the other side of the aisle.
3) Recognize that a major problem in this country is lack of confidence. With corporate profit margins at an all time high, companies have the resources (cash as a percentage of total assets is now 8%, way above historical average) to invest in new plant and to hire a lot of people. But executives have little faith in government (not a surprise given the terrible way Congress went at the debt ceiling and the long-term deficit reduction plan in the past 6 months). If executives believe that the long-term future has been improved, by adopting a plan like Simpson-Bowles, they will begin a program of steady and massive investment of corporate cash, which will raise our economic growth easily by 1-2% per year for several years in a row. Too few people realize this potential, which will be greatly helped by the adoption of a territorial tax plan as apart of tax simplification. This is the surest way to get unemployment back down towards 5%.
4) When the country realizes that a sensible long-term fiscal plan has been adopted, which calls for every citizen to sacrifice something (with higher income people obviously being asked to shoulder a greater percentage of the adjustment burden), then some short-term stimulus in the way of public works spending can also be passed. But much of the intermediate and even short-term improvement in the economy can and should come from the private sector, which has the funds in the form of cash reserves to do it.
5) Protect Bernanke from the critics who do not realize that, in the absence of a good long-term fiscal plan, he has been doing and continues to do an exemplary job. It’s now time, however, for fiscal policy to take center stage.
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Posted 12/9/11:
The U.S. consumer is maintaining a herioc pace, despite the setbacks delivered by the market in the third quarter. One positive is that consumer balance sheets appear to be improving at the same time, which should yield longer-term benefits. (Courtesy of The Wall St. Journal):
Consumers Hit Shops Despite Lost Wealth
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Posted 11/17/11:
Karen has a term for it: "backwash" and she was determined that her household not experience any young college graduates coming home to roost long-term. Little did we realize that there was an economic and somewhat patriotic rationale behind her thinking too: Young people living at home, is not good for the economy! (Courtesy of The New York Times):
As New Grads Return to the Nest, Economy Also Feels the Pain - NY
Times
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Posted 11/11/11:
There has been a fair amount of talk about how solid this earnings season has been. After all, nearly 62% of companies have reported eanrings that have beaten analysts' forecasts. This is certainly better than if the opposite were true, but when framed against "beat rates" of years past... One can see that it is not exactly unprecedented, nor is it really even all that impressive. Still in this market, I think investors are taking whatever positives they can get. (Courtesy of Bespoke):
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Posted 10/28/11:
Depending on which statistical agency one relies on, the world may have just registered its seven billionth inhabitant. This is an enormous figure and demands an examination of some of the potential implications of a "mass of humanity" this size. (Courtesy of The New York Times):
Seven Billion - NY Times
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Posted 10/24/11:
One of the challenges confronting the U.S. economy -- beyond unemployment, policy gridlock, and ongoing pressure in housing -- is that people are spending less and saving more. Ultimately this is, of course, a healthy response. However, in the meantime, it means that leverage is decreasing and the key engine to the U.S. - the consumer - has reduced their role. (Courtesy of The Wall Street Journal):
Spenders Become Savers, Hurting Recovery - WSJ.com
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Posted 10/11/11:
We've talked about it here in the past, but here's an article which seeks to put some of the third quarter's record volatility into context. Unfortunately, the bi-polar nature of the market has produced record swings and correlations have spiked higher as assets move ("risk on" / "risk off") more and more in unison. (Courtesy of The Wall Street Journal):
Stocks' Volatility Is Worrisome Sign - WSJ.com
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Posted 9/30/11:
Does it feel like the market has been more volatile lately? Is that perhaps curbing the enthusiasm of some would-be market participants? The answer to the first question is, unequivocally: Yes. (Courtesy of The Wall Street Journal):
Investors Can't Shake that Volatile Feeling
CBOE Market Volatility Index (Trailing 12-Months) Source: FactSet
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Posted 9/29/11:
Whether you believe high frequency traders are to blame, or the emergence of ETFs, or changing margin requirements, or herd-like investor mood swings, there is no question that the market seems to move more and more in lock step. (Courtesy of Bespoke):
All or Nothing Days Becoming More Common
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Posted 9/20/11:
Recommended courses of action for Europe are very much in the news, but what solutions do they offer and how realistic are they? David found this piece by Larry Summers outlining the scope of the challenge to be particularly insightful (Courtesy of The Financial Times):
The World Must Insight that Europe Act
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Posted 9/20/11:
The chart is intriguing: The S&P features a dividend yield that is essentially the same as the yield available on 10-yr treasuries. This typically would indicate that the S&P is relatively attractively valued, but there is more to consider here. (Courtesy of The Big Picture)
More analysis here:
How Rare S&P Dividend Yields-vs-Treasuries
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Posted 9/16/11:
Courtesy of the blog: Pragmatic Capitalism, is this helpful reminder about contrarian indicators and the fact that struggling markets are capable of generating very strong moves even while they remain in overall decline.
6 Signs of Capitulation?
“1) The USA Today consensus showed that strategists have cut their year-end S&P 500 target by 8%.
2) Wall Street economists are at 40% recession odds, which means if the heads of research allowed them to really say what the probability was it would be 80%.
3) Bank of America let its chief equity strategist go who was calling for 1,450 on the S&P 500 and the most bullish seer of out there (we wish him well).
4) The AAII investor sentiment suvey shows 30.2% bulls and 40.3% bears.
5) The Investors Intelligence survey also did a switcheroo, with the bull camp in the past week down 3.2% to 35.5% and the bear share rising the same amount to 40.9%. That is the largest number of bears since March 2009 (was 21.5% at the July market peak). And we have the fewest bulls since the August 2010 retest of the lows back then. The “spread” is now -5.4% between bulls and bears, well off the +28% gap at the July market peak.
6) Short interest on the NYSE and Nasdaq surged nearly 4% in the second half of August; these positions are now being squeezed, which is the “buying support” the market has been experiencing in the low volume rally of the past few sessions.
Remember, it is not at all unusual to see the stock market enjoy a relief rally after the initial 20% leg down in a cyclical bear market.”
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Posted 9/14/11:
Big move in the market today... Begs the question: Where Are We Now?
http://www.raymondjames.com/images/inv_strat/110912_1lg.gif
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Posted 9/13/11:
A little snarky, but a good rundown of some of the major issues influencing the market on a day in / day out basis (courtesy of: Motley Fool)
10 Incredible Figures in 2011
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Posted 9/8/11:
Some remarkable changes in the past decade (image courtesy of: Bespoke Investment Group),
which illustrates the necessity for an adequately diversified investment portfolio.
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Posted 8/29/11:
David circulated some thoughts on the deteriorating situation in Europe recently, they are available here:
Update Europe 08-29-2011 (PDF)