Author Archive

  • +889.35
    , October 28th, 2008 at 9:21 pm

    Today was the sixth-best day ever for the Dow. The fifth-best day came just two weeks ago yesterday.
    You know you’re in a different environment when you’re up 10% and it’s not even the best day of the month.

  • The Dow to S&P Ratio
    , October 28th, 2008 at 3:00 pm

    Leaving aside arguments over price-weighted indexes, the Dow has recently been doing better—or rather—falling slightly less dramatically than the S&P 500. The two indexes generally move in tandem, but divergences aren’t unusual and we’re seeing one now.
    The ratio of the Dow to the S&P 500 is now at a six-year high. As of today’s close, the Dow is 9.64 times the S&P 500. (This is, of course, index value and not the market value of the two indexes.)
    If this trend continues, the ratio could soon reach a 32-year high—and if the trend continues further still, the ratio could break 10.0 for the first time in 42 years.
    image725.png
    If the Dow had performed as well as the S&P 500 since early 2006, it would be over 1,000 points lower today.

  • Consumer Confidence Plunges to Record Low
    , October 28th, 2008 at 12:13 pm

    Consumer confidence is now at the lowest reading since the survey started in 1967:

    The survey’s “confidence index” fell to 38 in October, down from 61.4 in September, on a scale where a reading of 100 represents the consumer outlook on the economy in 1985. Expectations for the future also reached an all-time low. The survey dates to 1967.

    I think it’s interesting that the stock market is reflecting consumers attitudes. Years ago, not many Americans participated in the market. Today, it’s a general barometer of consumers’ feelings.

  • Iceland Goes Full Volcker
    , October 28th, 2008 at 11:52 am

    The Icelandic Fed, and yes, there is such a thing, just raised interest rates to 18%.

    Iceland’s central bank has raised its key interest rate to 18% from 12% as it battles against financial collapse.
    The rise comes less than two weeks after Iceland cut rates from 15.5%.
    The central bank governor said the increase was part of its agreement with the International Monetary Fund, from which it borrowed $2bn (£1.3bn).
    Iceland’s prime minister said the country needed another $4bn in loans and had approached the European Central Bank and the US Federal Reserve.

  • Goldman Was Considering Merging with Citi
    , October 27th, 2008 at 10:58 am

    This is just frightening:

    Goldman Sachs CEO Lloyd Blankfein called Vikram Pandit, his Citigroup counterpart, last month to discuss a merger, in a dramatic example of the secret manoeuvring that preceded the government bailout of the financial sector. The call, made at the tentative suggestion of the regulatory authorities or at least with their blessing, was shortly after Goldman won surprise approval to convert itself into a commercial bank on Sept. 21. The conversation was brief as Pandit rejected the proposal at once. A deal would have been structured as a Citi takeover of Goldman. Seperately, The Telegraph reports Goldman Sachs could this week appoint its smallest number of new partners since its flotation, as the bank downsizes in the face of the financial crisis.

  • What’s America’s Most Overrated Product
    , October 25th, 2008 at 11:03 am

    Mart Nemko argues it’s the bachelor’s degree:

    Today, amazingly, a majority of the students whom colleges admit are grossly underprepared. Only 23 percent of the 1.3 million high-school graduates of 2007 who took the ACT examination were ready for college-level work in the core subjects of English, math, reading, and science.
    Perhaps more surprising, even those high-school students who are fully qualified to attend college are increasingly unlikely to derive enough benefit to justify the often six-figure cost and four to six years (or more) it takes to graduate. Research suggests that more than 40 percent of freshmen at four-year institutions do not graduate in six years. Colleges trumpet the statistic that, over their lifetimes, college graduates earn more than nongraduates, but that’s terribly misleading. You could lock the collegebound in a closet for four years, and they’d still go on to earn more than the pool of non-collegebound — they’re brighter, more motivated, and have better family connections.

    Of course, locking kids up in college does something very important: it reduces the labor supply. I remember reading in Road to Wigan Pier how the boys around 15 or 16 wanting to get into the mines. They thought staying in school was useless, boring and effeminate.

  • The S&P 500’s Real Capital Gain
    , October 24th, 2008 at 9:10 pm

    The S&P 500 reached a cyclical high on February 9, 1966 at 94.06. With today’s close of 876.77, that’s a gain of 832.14%.
    Let’s look at inflation since then. We won’t get the October inflation report for a few more weeks, but from January 1966 through September 2008, the CPI is up 588.00%.
    That works out to a real capital gain of 35.49% stretched over 42.7 years. That’s an annualized gain of 0.71%.
    Obviously I’m playing with data a little bit since I’m measuring from a cyclical high to a cyclical trough. But it’s interesting that nearly your entire gain since then has been due to dividends.

  • When Will It Turnaround?
    , October 24th, 2008 at 8:08 pm

    Now that the S&P 500 hit another new low today, investors are curious when things will finally turnaround. Is every rally just a bear market rally? The market hit a major intra-day level low exactly tow weeks ago, and we’ve been hovering above it ever since.
    I’m no technical analyst but it does seem that the market likes to test its recent lows, and if no new low is made, prices rally. Fortunately, we didn’t break through the intra-day low from October 10. What impresses me is that most of the rally since October 10 was in pretty bad stocks, while the higher quality stocks, like our Buy List, haven’t been doing too well. That just tells me that this two-week interlude was merely a reaction against the reaction.
    Today is also the 79th anniversary of Black Thursday, and it’s the 101st anniversary of J.P. Morgan bailing out the economy during the Panic of 1907. The panic ended when J.P. said so — I wish he were around today. Still, spotting a bottom is tough business, and the rally often begins when things look terrible.
    A perfect example is what happened 18 years ago. Note the chart below. The black line is the S&P 500 (left scale) and the gold line is earnings (right scale). The two axes are scaled at a ratio of 16 to 1.
    image721.png
    The market rallied while earnings continued to fall through 1990 and 1991. Due to the rising market, P/E ratios soared, but that would have been a false signal that stocks were overpriced. Earnings were still plenty lousy through 1992. It wasn’t until 1993 that earnings growth really got going. The yellow line finally caught up to the black line in 1994, but both kept on rising.
    The point is that the market can turnaround anytime now. I grew used to clients saying that they’re just “waiting for the smoke to clear.” It doesn’t work that way. The market has already crashed. It can certainly go down further, but most of the risk is gone.

  • The 30-Year T-Bond Hits Lowest Yield Ever
    , October 24th, 2008 at 12:20 pm

    The 30-year T-Bond (^TYX) fell below 4%.

    Treasuries rose, sending the yield on the 30-year bond to the lowest since regular issuance of the securities began in 1977, as widening financial turmoil wiped more than $10 trillion off stock markets worldwide this month.
    U.S. notes rallied on speculation the global slowdown will deepen. The U.K. economy shrank more than forecast, a report showed today. Trading in U.S. stock-index futures was limited after declines of more than 6 percent. U.S. government securities returned 1.6 percent in October, the most since January, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as tumbling stocks spurred demand for the safest assets.

  • It’s Official: The New York Times Is Junk
    , October 24th, 2008 at 11:25 am

    Their credit rating that is. Of course, credit ratings are also pretty much junk.