A disciplined approach to investing blog
We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.
- Portfolio.com: Obama's total budget is $3.6 trillion, which works out at $34,000 per household; median household income is about $50,000. Which basically means that for every dollar that a US household earns, the US government plans to spend 68 cents next year.
- CNBC: [Obama] is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.
That is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all — either for this recession or from the standpoint of expanding our economy’s long-run potential to grow.
Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.
Source: Bespoke Investment GroupThe fact that the economy shrank at a rate of 6.2% last quarter -- the worst showing in more than a quarter century -- sounds pretty awful. But here's another way to look at it. The last time GDP dropped so precipitously (back in the first quarter of 1982) the Dow went on to gain 25% in the next 12 months.Let's hope history repeats itself as it applies to GDP centered data.
The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century.U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data.
..."It’s a greater fool theory if we always buy stocks based on earnings and we never get a penny out of it, hoping for someone to buy that stock at a higher price," said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $134 billion. "Dividends have been a cushion in bad times. If they go to zero it’s a disaster."
Recently, it seems some in this country would rather receive a fish versus learn to fish. The saying, "give a man a fish and he’ll eat for a day, teach a man to fish and he will eat for the rest of his life," reminded me of a recent email I received:A self-important college freshman walking along the beach took it upon himself to explain to a senior citizen resting on the steps why it was impossible for the older generation to understand his generation.
"You grew up in a different world, actually an almost primitive one" the student said loud enough for others to hear. "The young people of today grew up with television, jet planes, space travel and man walking on the moon. We have nuclear energy, ships and cell phones, computers with light speed...and many more."
After a brief silence the senior citizen responded as follows. "You're right son. We didn't have those things when we were young...so we invented them. Now, you arrogant young man what are you doing for the next generation? The applause was amazing!
The index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data:A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.
- production and income,
- employment, unemployment, and hours,
- personal consumption and housing, and
- sales, orders, and inventories.
When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. When the CFNAI-MA3 value moves above +0.70 more than two years into an economic expansion, there is an increasing likelihood that a period of sustained increasing inflation has begun.
The Dow Jones Industrial Average (^DJI) correction that began on October 9, 2007 is now the second worst since 1900 and only behind the correction that began in 1929. According to Chart of the Day:
The Dow put in its record high of 14,164.53 back on October 9, 2007. [On February 19, 2009],the Dow closed at 7,465.95 – down 47.3% from its peak made 499 calendar days ago. For some perspective on the magnitude of the current bear market, today's chart compares the current, 499 calendar day old Dow correction to that of all other Dow corrections, 499 calendar days after their respective peak (and that were still ongoing).
Graham believed that the defensive investor should select between 10 and 30 stocks that each have the following characteristics: large, prominent, and conservatively financed, with long records of continuous dividend payments. Such stocks should be purchased at attractive prices. As a yardstick, Graham suggested that the investor pay no more than 25 times average earnings over the past seven years, and no more than 20 times earnings over the last 12 months.
● S&P Quality Ranking > B+
● 3-Year Average ROE > 18%
● Total Debt to Invested Capital < 20%
● Enterprise Value to 3-Year Average EBIT < 7
● Free Cash Flow to Invested Capital > 40%
Source:
The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg....
Leuthold Group, whose Grizzly Short Fund returned 83 percent in 2008 thanks to bets against equities, said in its December bulletin to investors that stocks offer "one of the great buying opportunities of your lifetime."
Wednesday could be an interesting trading day as investors digest all the news out of Washington.
In the month of January dividend decreases doubled to 10 versus 5 in January 2008.
Source:
The seemingly "panic" efforts by the White House to pass this bill is representative of their lack of understanding of the the factors that are causing this economic crisis. Todd Sullivan has a brief comment that addresses the mark to market accounting issue in an article titled:
Appropriately, Howard Silverblatt indicates, "the bottom line is that investors need to do a lot more homework than in years past as the prospect for future dividends remains extremely cautious. On former President Ronald Reagan’s 98th birthday, his words still ring true today, Trust but Verify."
- sixty-two S&P 500 companies decreased their dividends in 2008 by an aggregate $40.6 billion with forty-eight of the decreases coming from Financials ($37 billion).
- Over the previous five years (2003-2007), there were only 12 dividend decreases in the Financials sector amounting to $5.1 billion.
- So far in 2009, fourteen issues (nine of which are Financials) have decreased their dividend rate by over $13.5 billion.
...And another difference is visible in the trend toward ownership of securities and, particularly, stocks by institutional investors rather than individuals. Fifty years ago, individuals owned 92 percent of all stocks and financial institutions owned 8 percent. Today, individuals own only 24 percent of all stocks and institutions own 76 percent. I think a central problem is that these institutions have not behaved in an appropriate manner....
...Investment principles used to be focused on the wisdom of longterm investing rather than the folly of short-term speculation. Yet, we are witnessing an orgy of speculation in the market, the likes of which we have literally never seen in the United States. For example, in 1928, during the old speculative high, stocks had about a 140 percent annual turnover rate. In the 1950s and 1960s, when I first came into this business, turnover in the stock exchange had dropped from that speculative level to about 30 percent a year. In 2006, it rose to 200 percent. In 2007, it was 280 percent. And this year, turnover of stock is running at 320 percent. In sum, when I came into this business, there might have been two, three, or maybe four days in the course of a year in which the stock market would go up or down by 2 percentage points or more. Since the end of July 2007, there have been not two, three, or four such days; there have been 52 2-percent moves—21 upward and 31 downward....
