Tuesday, September 29, 2009

home price declines slowing

Home prices in 20 major markets fell 13% in July from a year earlier, but, increasingly, it appears that bottoms were established in those markets in April.

The S&P/Case-Shiller 20-city home price index report was better than economists' expectations of a 14.2% decline from a year earlier, and the smallest decline in 17 months. The index has fallen every month since January 2007.

Home prices in the 20 markets actually moved up 1.6% in July from June, the fourth month of gains, the report said. But don't forget: July is one of the strongest months of the year.

Homebuilding stocks moved higher on the news.

Peter Schiff on G20

As another G20 meeting rolls around, this time on home soil, the time comes once again for the economically curious but politically unconnected to wonder what is really happening behind closed doors.

Everyone agrees that the principal agenda item in Pittsburgh will be the need to rein in the 'global imbalances' that created the late economic crisis. Everyone also agrees that these imbalances involve too much spending and borrowing by Americans and too little of both by the Chinese and other developing nations. In his remarks this week at the United Nations, President Obama used his peerless rhetorical skill to frame the issues clearly and plainly. Noting that a return to pre-crisis economics is impossible, the president assured the world that his administration will pursue policies to increase savings and decrease spending at home and challenged his Chinese counterparts to enact measures with the opposite effect in their own country.

While this is roughly what needs to happen, President Obama is actually doing everything in his power to prevent it. In point of fact, every policy move undertaken by his administration has exacerbated the very imbalances he supposedly wants to curtail. To so seamlessly profess one goal while simultaneously undermining it is an impressive piece of political theater.

What exactly are the federal fiscal stimuli other than deliberate, but clumsy, efforts to get people, companies, and governments to spend money they don't have? Programs like tax credits for new homebuyers or 'cash for clunkers' are intended to encourage consumers to spend money that they otherwise might have saved.

In 2009, despite the tilted playing field, the American people have heroically managed to increase their savings (although clearly not as much as they would have in a free market). But President Obama's runaway deficit spending is undermining their efforts. The simple truth is that government debt is our debt. So if a family manages, at some cost to their lifestyle, to squirrel away an extra $1,000 in saving this year, but the government adds $20,000 in new debt per household (each family's approximate share of the $1.8 trillion fiscal 2009 deficit), that family ends up owing $19,000 more than they did at the beginning of the year!

So much for our end of the bargain. How about on the other side of the Pacific? Will the Chinese restore balance by increasing their spending? How can they while they are lending us all their money? Remember, any money the Chinese spend is money they cannot loan to us. So, if China really wanted to spur domestic consumption, the best way to do so would be to stop buying our debt. Even better, they could sell Treasuries they already own and distribute the proceeds to their citizens to spend.

However, the Obama administration is heavily lobbying the Chinese to get them to step up to the plate and buy record amounts of new Treasury debt. Obama cannot have it both ways. He cannot claim he wants the Chinese to spend more, but then beg the Chinese government to take money away from Chinese consumers and loan it to the United States Treasury.

In the end, Obama will get precisely what he publicly claims to desire but privately dreads. The Chinese government will come to its senses and stop buying Treasuries. This will cause the U.S. dollar to collapse, but it will also allow Chinese citizens to fully enjoy the fruits of their labor.

Once the Chinese begin consuming more of their own products, those products will no longer be available to Americans. Once they start spending more of their incomes on themselves, those funds will no longer be available for us to borrow. Unfortunately, that is when our real economic crisis will begin.

-- Peter Schiff [via pbo@chucks_angels, 9/27/09]

how the market works

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching
monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!

Now you have a better understanding of how the stock market works.

[Duke@chucks_angels, 2/24/09]

Friday, September 25, 2009

existing home sales fall

Existing home sales fell 2.7% month-over-month (m/m) to an annual rate of 5.1 million units, breaking a four-straight monthly streak of increases, and the report was disappointing relative to the 2.1% increase to an annual rate of 5.35 million units expected by a survey of economists conducted by Bloomberg. Positively, this marks the second month of year-over-year increases, at 3.4% for August. Single-family home sales decreased 2.8%, while multi-family sales fell 1.6%. Distressed properties and the shift to the low-end of the market continue to weigh down the median existing-home price, which fell 12.5% year-over-year (y/y) in August to $177,700, but the pace of price declines has been moderating in recent months.

[Schwab Alerts, 9/24/09]

***

Later in morning action, August existing home sales will be released, and are forecast to increase 2.1% to an annual rate of 5.35 million units, extending the upward trend to five months. July data showed the first year-over-year increase since November 2005, and the first four-straight monthly rise in five years.

Wednesday, September 23, 2009

growth stocks in the last decade

When you ask most investors for their favorite stocks, you'll rarely hear them share a blue-chip name like Johnson & Johnson, Kraft Foods or Wal-Mart. Instead they will tell you about some amazing growth stock that will be the next Google, Microsoft or Apple.

These investors believe that by simply buying stocks with the greatest earnings growth potential they will make money. Sadly, our research clearly shows this not to be true...not even close.

our research details beyond a shadow of a doubt the vast underperformance of growth stocks over the past decade. Here are the results.

Projected Earnings
Growth Rate
*Annualized %
Return
0 - 10% 5.4%
10 - 20% 2.6%
20 - 30% -0.2%
30%+ -9.7%
S&P 500 -3.3%
*The study had a 12-week rebalancing of stocks between 1/1/2000 and 9/11/2009

Stocks with the lowest projected growth rates actually generated the highest return of +5.4% per year. Yes, I know that doesn't sound like much, but remember the average return of the S&P 500 over that stretch was an anemic -3.3% thanks to 2 ferocious bear markets.

Each level of additional earnings growth came with decreasing levels of profits for investors. As we look at the most aggressive growth stocks, with 30%+ expected earnings growth, we find an embarrassingly low -9.7% return.

[Yeah, but how did they do in the previous decades? And overall??]

Tuesday, September 22, 2009

James Grant: From Bear to Bull

As if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless. But they don't know, and can't. The future is unfathomable.

Not famously a glass half-full kind of fellow, I am about to propose that the recovery will be a bit of a barn burner. Not that I can really know, either, the future being what it is. However, though I can't predict, I can guess. No, not "guess." Let us say infer.

Thursday, September 17, 2009

hedge funds in 2008

How'd they do?

2008 was a rough year for hedge funds, as evidenced by their year-end performances listed below.

[via B Johnson, 2/19/09]

Monday, September 14, 2009

Doug Kass' 20 Surprises for 2009

Though continuing on CNBC, Jim "El Capitan" Cramer announces his own reality show that will air on NBC in the fall. At the time his reality show premieres, he also writes a new book, Stay Mad for Life: How to Prosper From a Buy/Hold Investment Strategy. Dr. Nouriel Roubini continues to talk depression, but the price of his speaking engagements are cut in half. He writes a new book, The New Depression: How Leverage's Long Tail Will Result in Bread Lines. "Kudlow & Company's" Larry Kudlow proclaims that it's time to harvest the "mustard seeds" of growth and, in an admission of the Democrats' growing economic successes, officially leaves the ranks of the Republican party and returns to his Democratic roots. Yale's Dr. Robert Shiller adopts a variant and positive view on housing and the economy, joining the bullish ranks, and writes a new book, The New Financial Order: Economic Opportunity in the 21st Century.

Dow 14000 (in three years says Markman)

It's been exactly a year since the government kicked a smoldering financial crisis into a roaring blaze by letting Lehman Brothers (LEHMQ, news, msgs) collapse. Observers this week are memorializing the mistake, but investors need to look forward -- and what they should see is that the government's later reaction to its error may have actually laid the groundwork for the greatest bull market of the decade.

For while it seems unlikely and irrational in the context of all the lousy economic news you see right now, stocks are well on their way to recovering from the Lehman jolt and ambling with all deliberate speed toward all-time highs. And they don't really care if you believe it or not.

Dow 14,000? Maybe not next week. But in three years? Not a problem.

The signs are abundant, if you know where to look: in the corporate credit markets, in employment trends, in consumer credit trends, in government statements and in corporate revenue trends. You don't need to be a statistician or an insider to see them, but you do need to keep an open mind to see why the 30 goliaths of the Dow Jones Industrial Average ($INDU), companies such as Caterpillar (CAT, news, msgs), Intel (INTC, news, msgs), Bank of America (BAC, news, msgs) and Boeing (BA, news, msgs), could see their stocks rise 15% a year for three years.

Thursday, September 10, 2009

What's the deal with Dennis Kneale?

What's the deal with Dennis Kneale's hair? He always look to me like he just woke up.

(Then again, I should talk..)

Tuesday, September 01, 2009

are you richer than average?

If all the money in the world were redistributed so that everyone had the same amount, what would it be?

The global money supply is about $60 trillion. (Economists call this figure the M3 value; it includes much more than currency.) Say that we take it all—which means that you and Bill Gates would have nothing in the bank—and then distribute it equally among every individual in the world, about 6.8 billion people. Each man, woman, and child would receive about $9000. So, if your household now has less than $9000 per person, you would gain. If you have more, you would lose.

-- Ask Marilyn

pluralistic ignorance

Psychologists have an explanation for why crowds are prone to do stupid things at crucial moments. It can be action or inaction. But studies show people look to the actions of others to determine what the correct course of action is in an uncertain situation. It's called social proof. You don't want to look like an idiot, so you wait to see what everyone else is doing and go along.

If everyone's running up the street bashing windows, you'll experience pressure to join in. On the other hand, if, say, everyone is buying stocks because no one appears to be concerned that they are expensive, you'll experience subtle pressure to do the same.

In evolutionary terms, doing what other people are doing is generally a good strategy. It saves you the time and energy of thinking about the decision yourself. And you have to assume that they probably wouldn't be doing it if it didn't promote their survival in some way.

The shrinks call this phenomenon "pluralistic ignorance." We were reading about it last night over cocktails at Barney Allen's, right next door to our new head quarters in the heart of St. Kilda. It made a lot of sense, at least if you're trying to explain why so many people do so little when they have so much to lose.

[via investwise]

pending home sales

pending home sales jumped again, rising 3.6% in July to the highest level since June 2007, well above the 1.5% forecasted rise, and June's 3.6% increase was left unrevised. Pending home sales typically lead existing home sales by a month or two and have gained ground for a sixth-straight month. The momentum in pending home sales has not translated fully to a similar increase in existing home sales, but existing home sales have posted four-straight months of increases to suggest a bottom in the housing sector-a key cog in the recovery machine-adding to the argument the economy may be in recovery mode. Treasuries remain mixed but have moved lower on the mid-to-long end of the curve following the manufacturing and housing data.

[via Schwab Alerts]