When gold prices plummet and folks like G. Gordon Liddy and Glenn Beck
start advising investors to hoard like Yosemite Sam, there's a voice
that cuts through the commodity fever to the heart of the matter: Jon
Stewart's.
Back on April 15, gold prices dropped to $1,321 per ounce and hit their lowest point since cresting $1,920 per ounce in September 2011.
As
convicted Watergate conspirator Liddy shilled for gold in commercial
breaks and Beck blamed the slide on a shadowy cabal of government, media
and otherworldly forces bent on stripping Americans of their precious
gold and damning them to a life of slavery, Stewart used the pulpit on Viacom (VIA -0.74%)-owned Comedy Central's "The Daily Show" earlier this week to suggest it might just be a market correction.
The market wasted little time proving him right, as prices climbed
roughly 7% by Wednesday to $1,453.10 per ounce. Still, that didn't
prevent Stewart from flogging Beck for his assertion that investors
should listen to God by quoting decidedly anti-gold passages from the
Bible's books of Exodus and Job.
***
[forwarded from Buddy]
The crash of the price of paper gold on Monday has unleashed an
unprecedented global frenzy to buy physical gold and silver. All over
the planet, people are recognizing that this is a unique opportunity to
be able to acquire large amounts of gold and silver at a bargain price.
So precious metals dealers now find themselves being overwhelmed with
orders in the United States, in Canada, in Europe and over in Asia.
Will this massive run on physical gold and silver soon lead to
widespread shortages of those metals? Instead of frightening people
away from gold and silver,the takedown of paper gold seems
to have had just the opposite effect. People just can’t seem to get
enough physical gold and silver right now. Those that wish that they
had gotten into gold when it was less than $1400 an ounce are able to do
so now, and it is absolutely insane that silver is sitting at about $23
an ounce.
If the big banks continue to play games with the price of
gold, we are going to see existing supplies of physical gold and silver
dry up very quickly. And once reports of physical shortages of gold and
silver become widespread, it is going to absolutely rock the financial
world. But this is what happens when you manipulate free markets – it
often has unintended consequences far beyond anything that you ever
imagined.
[so doesn't this mean that that gold has bottomed?]
Thursday, April 25, 2013
Wednesday, April 03, 2013
CAPE
There are three popular P/E ratios:
There are several problems with the construction of the CAPE, detailed in a terrific report by Steve Wilcox for The American Association of Individual Investors posted on the Seeking Alpha site in 2011, from which I'll pull some data.
The problem with using a 10-year period for earnings is that the average business cycle only lasts about six years. More recently, recessions have become shorter and expansions longer (notwithstanding the long "Great Recession" which ended in 2009), as you can see in the table below. As a result, CAPE tends to overestimate "true" average earnings during a contraction and underestimate "true" average earnings during an expansion.
In the present bull market, the first month the CAPE crossed into overvalued territory (i.e. went above its median) was May 2009, just two months after the market's bottom, since which time the market has more than doubled. Even more dramatic was the cross into overvalued territory by the CAPE in February 1991, a mere nine years shy of the top of the great 1990s' bull market.
- Forward P/E (on subsequent 12-month earnings forecasts)
- Trailing 12-month (TTM) P/E (on most recent 12-month past earnings)
- Robert Shiller's Cyclically Adjusted P/E (CAPE)
There are several problems with the construction of the CAPE, detailed in a terrific report by Steve Wilcox for The American Association of Individual Investors posted on the Seeking Alpha site in 2011, from which I'll pull some data.
The problem with using a 10-year period for earnings is that the average business cycle only lasts about six years. More recently, recessions have become shorter and expansions longer (notwithstanding the long "Great Recession" which ended in 2009), as you can see in the table below. As a result, CAPE tends to overestimate "true" average earnings during a contraction and underestimate "true" average earnings during an expansion.
In the present bull market, the first month the CAPE crossed into overvalued territory (i.e. went above its median) was May 2009, just two months after the market's bottom, since which time the market has more than doubled. Even more dramatic was the cross into overvalued territory by the CAPE in February 1991, a mere nine years shy of the top of the great 1990s' bull market.
Saturday, March 23, 2013
Timeless Investment Classics
I just picked up Where Are the Customer's Yachts? from BookOff today.
Looking at the reviews of the book, I noticed one by Joseph L. Shaefer at Seeking Alpha ran a series reviewing 10 books that he considered "timeless investment classic"s
1. Extraordinary Popular Delusions and the Madness of Crowds (1841)
2. The Crowd: A Study of the Popular Mind (1896)
3. The Battle for Investment Survival (1935)
4. Where Are the Customers Yachts? (1940)
5. Reminiscences of a Stock Operator (1923)
6. Security Analysis (1934)
7. The Intelligent Investor (1949)
8. The Art of Contrary Thinking (1954)
9. Common Stocks and Uncommon Profits (1958)
10. The Money Game (1967)
*** [8/25/13]
Tanner Pilatzke's 27 must-read books for investors
*** [8/29/14] 26 more books reviewed
Looking at the reviews of the book, I noticed one by Joseph L. Shaefer at Seeking Alpha ran a series reviewing 10 books that he considered "timeless investment classic"s
1. Extraordinary Popular Delusions and the Madness of Crowds (1841)
2. The Crowd: A Study of the Popular Mind (1896)
3. The Battle for Investment Survival (1935)
4. Where Are the Customers Yachts? (1940)
5. Reminiscences of a Stock Operator (1923)
6. Security Analysis (1934)
7. The Intelligent Investor (1949)
8. The Art of Contrary Thinking (1954)
9. Common Stocks and Uncommon Profits (1958)
10. The Money Game (1967)
*** [8/25/13]
Tanner Pilatzke's 27 must-read books for investors
*** [8/29/14] 26 more books reviewed
Wednesday, March 20, 2013
don't fear the high
Until the Dow's record on March 5 this year, it had gone 1,973 days
without hitting an all-time high. According to Bespoke Investment Group
(BIG), that's the sixth-longest stretch the Dow has ever gone without
closing at a new all-time high. It's also the second time in the past
decade that the Dow has gone more than two years without closing at a
new all-time high.
These periods of "drought" are very rare.
As you can see in the table below, going back to 1900, there have only been 10 periods when the Dow went two or more years without closing at a new all-time high. For each period, also shown is how the index performed over the following one, three, six and 12 months.
Looking at the average returns, there isn't much credence to the argument that you shouldn't be buying stocks when the Dow is trading at an all-time high. Over the following one, six and 12 months, the Dow saw better-than-average returns. Furthermore, while the average maximum drawdown (loss) was a decline of 8.5% over the following 12 months, the magnitude of the average maximum gain was more than twice that at over 20%.
These periods of "drought" are very rare.
As you can see in the table below, going back to 1900, there have only been 10 periods when the Dow went two or more years without closing at a new all-time high. For each period, also shown is how the index performed over the following one, three, six and 12 months.
Looking at the average returns, there isn't much credence to the argument that you shouldn't be buying stocks when the Dow is trading at an all-time high. Over the following one, six and 12 months, the Dow saw better-than-average returns. Furthermore, while the average maximum drawdown (loss) was a decline of 8.5% over the following 12 months, the magnitude of the average maximum gain was more than twice that at over 20%.
Tuesday, March 19, 2013
the President's economic report
Morgan Housel highlights four charts
[1] The budget forecasts that promise trillion-dollar deficits for decades to come overwhelmingly rely on the assumption that health-care costs will spiral higher, just as they did over the past few decades. But lately, per-beneficiary cost growth for Medicare has actually been below the rate of overall economic growth. I've written more extensively about this here, but the bottom line is that we're really bad at forecasting, so the discrepancy between forecasts and reality shouldn't be surprising. And if the trend of recent years holds up, it's a true game-changer: A majority of projected budget deficits will disappear without lifting a finger.
[2] Evan Soltas of Bloomberg writes:
The importance of that can't be overstated enough, which is why I've written about it a lot. People look back at the housing bubble with a sense of amazement. The market was out of control! It was so crazy! Everything was out of balance! But it's virtually the same today. Except this time, rather than a bust, the end game is likely to be a surge in construction.
[4] Yes, real federal government spending has risen sharply since 2008. But real state and local spending declined sharply during that period. Not only is that unheard of in modern recoveries, but it offset part of the rise in government spending. With the recent federal spending sequestration, total state, local, and federal government spending as a share of GDP will probably be the same in 2013 as it was in 2007, before the recession (36%).
[bottom line: it might not be as bad as people think]
[1] The budget forecasts that promise trillion-dollar deficits for decades to come overwhelmingly rely on the assumption that health-care costs will spiral higher, just as they did over the past few decades. But lately, per-beneficiary cost growth for Medicare has actually been below the rate of overall economic growth. I've written more extensively about this here, but the bottom line is that we're really bad at forecasting, so the discrepancy between forecasts and reality shouldn't be surprising. And if the trend of recent years holds up, it's a true game-changer: A majority of projected budget deficits will disappear without lifting a finger.
[2] Evan Soltas of Bloomberg writes:
For much of the middle class, the real net cost of college has not changed significantly [over the past two decades]. ... Data from the College Board show effectively no change in real net tuition and fees for dependent students at four-year public or private universities whose families are in the lower-two income quartiles.[3] Not only are we currently building too few homes to keep up with demographics, but the skew is almost as large today as it was during last decade's housing bubble -- just in the other direction.
The importance of that can't be overstated enough, which is why I've written about it a lot. People look back at the housing bubble with a sense of amazement. The market was out of control! It was so crazy! Everything was out of balance! But it's virtually the same today. Except this time, rather than a bust, the end game is likely to be a surge in construction.
[4] Yes, real federal government spending has risen sharply since 2008. But real state and local spending declined sharply during that period. Not only is that unheard of in modern recoveries, but it offset part of the rise in government spending. With the recent federal spending sequestration, total state, local, and federal government spending as a share of GDP will probably be the same in 2013 as it was in 2007, before the recession (36%).
[bottom line: it might not be as bad as people think]
Wednesday, March 13, 2013
Sunday, March 10, 2013
the effects of sequestration
The Federal government has agreed to reduce spending by $1.2 trillion
over the next nine years, which amounts to $130 billion a year. This is
set to start immediately and then ramp up over time. This fiscal year,
$85 billion in cuts are required, and then $85 billion the year after.
Subsequently, the spending cuts ratchet up in the years following.
Keep in mind, U.S. GDP is $16 trillion, and the budget deficit is 5.3%, or $840 billion. Therefore, spending cuts of $85 billion takes the U.S. deficit to roughly $760 billion. As U.S. government spending decreases, it reduces GDP, reduces corporate earnings, and could have a negative effect on the market over the short-term.
***
While the sequestration will be a negative for economic growth in the short term, we believe the spending cuts will result in a rise in private growth over the long term.
The U.S. Federal deficit needs to be reduced in order to raise the long-term growth rate potential of the economy. As the U.S. government continues to run a deficit, there is an increasing amount of debt that is issued in the form of treasury bonds.
This debt crowds out investing in the private sector. In the private sector, new ideas, products and companies may not get funded at a lower rate because investors tend to purchase government debt as opposed to lending to corporations. As the debt is reduced, or at least stops growing at such a rapid rate, the economy will benefit over the long term because it will lead to positive growth for the private sector. We believe this is why the market has not reacted negatively to the sequestration. At the end of the day, cutting spending helps long-term GDP growth.
***
The biggest problem with sequestration is that it does not address entitlement programs. Medicare and Social Security are not being touched. Politically, both sides of the aisle do not want to touch entitlement programs that support the elderly because of the historic consequences on national elections.
***
The stock market is soaring to new highs, largely, because of the Fed’s quantitative easing programs. The biggest risk to the market is the reversal of those programs as we believe that would trigger a massive sell-off in the equity market.
Cutting spending actually reduces the risk that quantitative easing will stop. This is because the budget cuts soften the economy, which allows the Fed to continue to essentially print money. Effectively, budget cuts increase unemployment and therefore reduce the chance that the Fed is going to scale back their quantitative easing programs anytime soon.
Cutting spending has become a sideshow. The Fed is the key. The fact that the stock market is approaching new highs is proof that the market and economy are fine with these cuts.
What’s Next
Down the road, we need to see the politicians agree to more spending cuts, and agree to do it rationally. This would help the stock market and the economy. So far, they are not doing it in a coherent, economically efficient, fashion.
-- Mitch Zacks, ZIM Weekly Update
***
The sequester has been advertised as “cutting” discretionary spending over a ten year period by $995 billion. After inflation adjustments and exempting more than a trillion dollars of defense and non defense discretionary spending from the sequester, the CBO projects (in its Table 1.1) discretionary spending to increase by $110 billion over the decade. There is no actual $995 billion cut after the CBO applies its magic adjustments. Rather there is a $110 billion increase.
[In other words, instead of increasing by $1105 billion, it will increase by $110 billion. So about a 90% reduction of increased spending.]
Keep in mind, U.S. GDP is $16 trillion, and the budget deficit is 5.3%, or $840 billion. Therefore, spending cuts of $85 billion takes the U.S. deficit to roughly $760 billion. As U.S. government spending decreases, it reduces GDP, reduces corporate earnings, and could have a negative effect on the market over the short-term.
***
While the sequestration will be a negative for economic growth in the short term, we believe the spending cuts will result in a rise in private growth over the long term.
The U.S. Federal deficit needs to be reduced in order to raise the long-term growth rate potential of the economy. As the U.S. government continues to run a deficit, there is an increasing amount of debt that is issued in the form of treasury bonds.
This debt crowds out investing in the private sector. In the private sector, new ideas, products and companies may not get funded at a lower rate because investors tend to purchase government debt as opposed to lending to corporations. As the debt is reduced, or at least stops growing at such a rapid rate, the economy will benefit over the long term because it will lead to positive growth for the private sector. We believe this is why the market has not reacted negatively to the sequestration. At the end of the day, cutting spending helps long-term GDP growth.
***
The biggest problem with sequestration is that it does not address entitlement programs. Medicare and Social Security are not being touched. Politically, both sides of the aisle do not want to touch entitlement programs that support the elderly because of the historic consequences on national elections.
***
The stock market is soaring to new highs, largely, because of the Fed’s quantitative easing programs. The biggest risk to the market is the reversal of those programs as we believe that would trigger a massive sell-off in the equity market.
Cutting spending actually reduces the risk that quantitative easing will stop. This is because the budget cuts soften the economy, which allows the Fed to continue to essentially print money. Effectively, budget cuts increase unemployment and therefore reduce the chance that the Fed is going to scale back their quantitative easing programs anytime soon.
Cutting spending has become a sideshow. The Fed is the key. The fact that the stock market is approaching new highs is proof that the market and economy are fine with these cuts.
What’s Next
Down the road, we need to see the politicians agree to more spending cuts, and agree to do it rationally. This would help the stock market and the economy. So far, they are not doing it in a coherent, economically efficient, fashion.
-- Mitch Zacks, ZIM Weekly Update
***
The sequester has been advertised as “cutting” discretionary spending over a ten year period by $995 billion. After inflation adjustments and exempting more than a trillion dollars of defense and non defense discretionary spending from the sequester, the CBO projects (in its Table 1.1) discretionary spending to increase by $110 billion over the decade. There is no actual $995 billion cut after the CBO applies its magic adjustments. Rather there is a $110 billion increase.
[In other words, instead of increasing by $1105 billion, it will increase by $110 billion. So about a 90% reduction of increased spending.]
Friday, March 08, 2013
jobless rate at four year low
Job growth surged last month as auto makers, builders and retailers
pushed the unemployment rate to a four-year low, defying concerns that
budget battles in Washington would harm the economic expansion.
Employment rose 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed today in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped to 7.7 percent, the lowest since December 2008, from 7.9 percent.
Stocks, the dollar and Treasury yields all rose on signs the world’s largest economy is gaining strength in the face of federal budget cuts and higher payroll taxes. The report may fuel debate among Federal Reserve policy makers considering how long to maintain record stimulus to boost growth and employment.
[which could be bad for the stock market. when the unemployment rate drops and gdp grows, the Fed will stop buying bonds, raise the interest rate, making stocks less attractive]
Employment rose 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed today in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped to 7.7 percent, the lowest since December 2008, from 7.9 percent.
Stocks, the dollar and Treasury yields all rose on signs the world’s largest economy is gaining strength in the face of federal budget cuts and higher payroll taxes. The report may fuel debate among Federal Reserve policy makers considering how long to maintain record stimulus to boost growth and employment.
[which could be bad for the stock market. when the unemployment rate drops and gdp grows, the Fed will stop buying bonds, raise the interest rate, making stocks less attractive]
Thursday, March 07, 2013
the next Berkshire Hathaway
I'm looking at this blurb (via junk mail) touting the next Berkshire Hathaway. [It's trying to push a subscription to Charles Mizrahi's Inevitable Weath Portolio.]
I'm not about to send for the free report, but I'm sort of curious who it might be.
Googling the next Berkshire Hathaway reveals some candidates:
Sears
Loews, Leucadia National, PICO Holdings, Biglari Holdings
Markel
JSHLY, SNFCA
Ah, here's the answer. It's Leucadia.
I remember I bought OTTR because there was an article comparing it to Berkshire Hathaway. Let me see if I can dig it up.
It was a 2008 CNBC video interviewing James Altucher. He mentions OTTR, MKL, and LUK.
I'm not about to send for the free report, but I'm sort of curious who it might be.
Googling the next Berkshire Hathaway reveals some candidates:
Sears
Loews, Leucadia National, PICO Holdings, Biglari Holdings
Markel
JSHLY, SNFCA
Ah, here's the answer. It's Leucadia.
I remember I bought OTTR because there was an article comparing it to Berkshire Hathaway. Let me see if I can dig it up.
It was a 2008 CNBC video interviewing James Altucher. He mentions OTTR, MKL, and LUK.
Tuesday, March 05, 2013
Dow sets all-time high
The Dow climbed
more than 125 points to close at a record high of 14,253.77, topping
the prior record set in October 2007. Earlier, the blue chip index
climbed to an intraday record of 14,286.37.
The S&P 500 added 15 points and finished at its highest level since October 2007 and is now only about 2% away from its record closing high.
"We're back to the highest levels in history, but we've got more things going for the economy and the market than we did last time," said Art Hogan, managing director at Lazard Capital.
Back in 2007, the economy was on the verge of winding down and heading into a tailspin, he said, whereas now it's continuing to improve, albeit slowly.
Stocks are also cheaper now. They were trading at 17 times earnings estimates in 2007. Currently, stocks are valued at about 14 times earnings estimates for 2013.
Plus, both consumers and businesses have more cash and less debt, said Hogan.
Still, not all stocks are at record highs. The Nasdaq, which rose more than 42 points Tuesday, is nearly 40% below its all-time highs that were set in March 2000, prior to the collapse of the dotcom bubble. The Nasdaq is trading at its highest level since November 2000 though.
The S&P 500 added 15 points and finished at its highest level since October 2007 and is now only about 2% away from its record closing high.
"We're back to the highest levels in history, but we've got more things going for the economy and the market than we did last time," said Art Hogan, managing director at Lazard Capital.
Back in 2007, the economy was on the verge of winding down and heading into a tailspin, he said, whereas now it's continuing to improve, albeit slowly.
Stocks are also cheaper now. They were trading at 17 times earnings estimates in 2007. Currently, stocks are valued at about 14 times earnings estimates for 2013.
Plus, both consumers and businesses have more cash and less debt, said Hogan.
Still, not all stocks are at record highs. The Nasdaq, which rose more than 42 points Tuesday, is nearly 40% below its all-time highs that were set in March 2000, prior to the collapse of the dotcom bubble. The Nasdaq is trading at its highest level since November 2000 though.
the wild circus
Value investing ultimately wins, but in the process it passes through a wild circus of lunacy.
-- Ron Suskind
January 2013 has gone down in the books as having the highest levels of inflows into U.S. equity mutual funds since March 2000, the dying days of the dot-com bubble. The week ended Jan. 11 alone saw net inflows into funds of $8.9 billion -- the fourth-largest amount ever recorded, according to B of A Merrill Lynch Global Investment Strategy, EPFR Global, and Lipper FMI. This, of course, came right on the heels of the legislative agreement to avoid the fiscal cliff that solved the most recent in a too-long series of macroeconomic crises that threatened the global economy.
Well, consider us saved -- at least for a few months.
Take a look at that opening paragraph again and consider the implications. The last time so much money came pouring into stocks (using stock mutual funds as a reasonable proxy), valuations were really, really high. About that time, Warren Buffett said stocks were so richly priced that he expected the overall market returns for the decade to be in the low single digits. For this, and for his unwillingness to buy into the "New Economy" companies, Buffett was derided as having lost his touch. The scoreboard suggests otherwise.
It's my observation that intelligence and analytical firepower are less important for long-term investing success than simply having the confidence to invest when others are fearful. Those who bought in March 2000 have, on average, suffered more than a decade's worth of negative returns.
-- Ron Suskind
January 2013 has gone down in the books as having the highest levels of inflows into U.S. equity mutual funds since March 2000, the dying days of the dot-com bubble. The week ended Jan. 11 alone saw net inflows into funds of $8.9 billion -- the fourth-largest amount ever recorded, according to B of A Merrill Lynch Global Investment Strategy, EPFR Global, and Lipper FMI. This, of course, came right on the heels of the legislative agreement to avoid the fiscal cliff that solved the most recent in a too-long series of macroeconomic crises that threatened the global economy.
Well, consider us saved -- at least for a few months.
Take a look at that opening paragraph again and consider the implications. The last time so much money came pouring into stocks (using stock mutual funds as a reasonable proxy), valuations were really, really high. About that time, Warren Buffett said stocks were so richly priced that he expected the overall market returns for the decade to be in the low single digits. For this, and for his unwillingness to buy into the "New Economy" companies, Buffett was derided as having lost his touch. The scoreboard suggests otherwise.
It's my observation that intelligence and analytical firepower are less important for long-term investing success than simply having the confidence to invest when others are fearful. Those who bought in March 2000 have, on average, suffered more than a decade's worth of negative returns.
Saturday, March 02, 2013
Martin Zweig
Martin E. Zweig, who predicted the
1987 stock market crash and whose newsletters influenced U.S.investors for a quarter century, has died. He was 70.
He died yesterday, according to Zweig-DiMenna Associates LLC, his New York-based firm. No cause of death was given.
Zweig wrote “Martin Zweig’s Winning on Wall Street,” his book first published in 1986, and stock-picking newsletters such as the Zweig Forecast for 26 years, helping start his career in hedge funds and philanthropy. He co-founded Zweig-DiMenna Partners in 1984 and, according to the New York Times, bought a 16-room apartment at Manhattan’s Pierre hotel in 1999 for $21.5 million. He also had a residence in Fisher Island, Florida.
“I was on the road show with Marty for the Zweig Fund in 1986 and he was like a rock star,” Gene Glaser, a business partner with Zweig from 1989 to 1999, said today in an interview. “People would wait around to get his autograph and ask him questions about the market.”
Zweig began his career in the 1970s writing investment newsletters, which became the Zweig Forecast, published from 1971 to 1997, the company said in a statement through Business Wire. In 1984, Zweig and Joe DiMenna founded Zweig-DiMenna Partners, their first long-short hedge fund, followed by the Zweig Fund in 1986 and the Zweig Total Return Fund in 1988.
A regular guest on the PBS television show “Wall Street Week With Louis Rukeyser,” Zweig is credited with developing the technical analysis tool known as the put-call ratio, according to his firm. The indicator plots bearish versus bullish options as a way of determining investor sentiment.
Zweig’s best-known call came during Rukeyser’s program on Oct. 16, 1987, when he predicted stocks were poised for a “vicious” decline reminiscent of the crash of 1929. The Dow Jones Industrial Average plunged 508 points, or a record 23 percent, in the next session, now known as Black Monday.
“I haven’t been looking for a bear market per se, really, in my own mind I’m looking for a crash,” Zweig said in the PBS interview. “I only look for a brief decline, but a vicious one.” The Dow declined 23 percent in October 1987 and climbed 2.3 percent that year, according to data compiled by Bloomberg.
“He was a pioneer in technical analysis,” said Richard Russell, editor of the Dow Theory Letters newsletter, in a telephone interview. Zweig was a “terrible worrier,” said Russell, who took over Zweig’s investment advisory service.
***
Liz Ann Sonders remembers:
On February 18, while on vacation, I received a shocking phone call. My first mentor and boss, Wall Street icon Marty Zweig, had passed away. I've been extremely blessed throughout my 27-year career to work with some of the most transformative and legendary folks in the business. Marty was one.
I worked for him (and his partner at Avatar Associates, Ned Babbitt) for 13 years, starting in 1986 after I graduated from college. Another would be Louis Rukeyser, with whom Marty and I shared the "stage" on Wall $treet Week for many years as regular panelists. And of course, I've had the great thrill of working for Chuck Schwab since 2000. It doesn't get any better than learning from these legends over the past 27 years.
After degrees from Wharton, University of Miami and Michigan State, Marty started his career in academia but ultimately became one of the most respected stock market "gurus" in the modern era. I have years' worth of memories of Marty, and hope readers will indulge me as I reminisce and share some of the most important market lessons I learned from one of the greats.
But first, the personal stuff. Marty was brilliant, there's no doubt; but he was also quirky, goofy and affable. He was the consummate worrier... but he was also the ultimate warrior. He lived, ate and breathed the markets and perpetually (and tirelessly) strived to "figure it out."
One of my greatest memories is getting to see first-hand his now-famous memorabilia collection—to which there are no comparables. Among them, there was the dress Marilyn Monroe wore while singing Happy Birthday to John F. Kennedy in 1962; the suits worn by the Beatles on the Ed Sullivan Show in 1964; the 1992 Olympics' US "Dream Team" basketball jerseys; the booking sheet from one of Al Capone's arrests; a letter from Madonna to Michigan State declining acceptance so she could pursue a music career; guitars of many rock stars, including Bruce Springsteen and Jimi Hendrix; the fedora worn by Humphrey Bogart in Casablanca; the original Terminator costume worn by Arnold Schwarzenegger; and multiple boxing championship belts, Super Bowl rings and Heisman Trophies.
Probably the coolest one, which I got to sit on at his home in Connecticut, was the Harley Davidson Hydra-Glide motorcycle ridden by Peter Fonda in Easy Rider. It was bolted to the floor in his game room. How cool is that?! Apparently, last year he also had a banana yellow 1934 Packard convertible installed in his Florida living room. Marty was loads of fun.
In Marty's book Winning on Wall Street, he called Jesse Livermore one of his heroes and "one of the most fabulous traders of all time;" recommending that people read the 1923 book about Livermore, Reminiscences of a Stock Operator by Edwin Lefevre. It was the first book about the market I read; it remains one of my favorites, and one I always recommend when people ask about the best market books.
Here's a quote from Livermore: "People don't seem to grasp easily the fundamentals of stock trading. I have often said that to buy into a rising market is the most comfortable way of buying stocks… Remember that stocks are never too high for you to begin buying or too low to begin selling." These words were quoted often by Marty, because he believed in "buying strength, selling weakness and staying in gear with the tape."
Marty is also given credit for popularizing the phrase "The trend is your friend." He was a trend follower, not a trend fighter; smart enough to realize that "a slap is easier to recover from than a beating…" He considered himself both conservative and aggressive. By nature he was conservative and risk-averse, wanting to protect himself and the people to whom he gave advice. But he also believed there were times to be aggressive. "The problem with most people who play the market is that they are not flexible."
"Summing it up, to succeed in the market you must have discipline, flexibility—and patience. You have to wait for the tape to give its message before you buy or sell." These words from Marty still ring true, and it's why I cringe when I'm asked about market tops and bottoms as if anyone can call them precisely. "…you must forget about trying to catch the exact tops or bottoms, which no one can consistently do anyhow. But success in the market doesn't require catching those tops and bottoms. Success means making profits and avoiding losses. By using [his theories] and waiting for a trend to develop, you can make money, stay in tune with the tape and interest rates, and, best of all, sleep better at night."
He died yesterday, according to Zweig-DiMenna Associates LLC, his New York-based firm. No cause of death was given.
Zweig wrote “Martin Zweig’s Winning on Wall Street,” his book first published in 1986, and stock-picking newsletters such as the Zweig Forecast for 26 years, helping start his career in hedge funds and philanthropy. He co-founded Zweig-DiMenna Partners in 1984 and, according to the New York Times, bought a 16-room apartment at Manhattan’s Pierre hotel in 1999 for $21.5 million. He also had a residence in Fisher Island, Florida.
“I was on the road show with Marty for the Zweig Fund in 1986 and he was like a rock star,” Gene Glaser, a business partner with Zweig from 1989 to 1999, said today in an interview. “People would wait around to get his autograph and ask him questions about the market.”
Zweig began his career in the 1970s writing investment newsletters, which became the Zweig Forecast, published from 1971 to 1997, the company said in a statement through Business Wire. In 1984, Zweig and Joe DiMenna founded Zweig-DiMenna Partners, their first long-short hedge fund, followed by the Zweig Fund in 1986 and the Zweig Total Return Fund in 1988.
A regular guest on the PBS television show “Wall Street Week With Louis Rukeyser,” Zweig is credited with developing the technical analysis tool known as the put-call ratio, according to his firm. The indicator plots bearish versus bullish options as a way of determining investor sentiment.
Zweig’s best-known call came during Rukeyser’s program on Oct. 16, 1987, when he predicted stocks were poised for a “vicious” decline reminiscent of the crash of 1929. The Dow Jones Industrial Average plunged 508 points, or a record 23 percent, in the next session, now known as Black Monday.
“I haven’t been looking for a bear market per se, really, in my own mind I’m looking for a crash,” Zweig said in the PBS interview. “I only look for a brief decline, but a vicious one.” The Dow declined 23 percent in October 1987 and climbed 2.3 percent that year, according to data compiled by Bloomberg.
“He was a pioneer in technical analysis,” said Richard Russell, editor of the Dow Theory Letters newsletter, in a telephone interview. Zweig was a “terrible worrier,” said Russell, who took over Zweig’s investment advisory service.
***
Liz Ann Sonders remembers:
On February 18, while on vacation, I received a shocking phone call. My first mentor and boss, Wall Street icon Marty Zweig, had passed away. I've been extremely blessed throughout my 27-year career to work with some of the most transformative and legendary folks in the business. Marty was one.
I worked for him (and his partner at Avatar Associates, Ned Babbitt) for 13 years, starting in 1986 after I graduated from college. Another would be Louis Rukeyser, with whom Marty and I shared the "stage" on Wall $treet Week for many years as regular panelists. And of course, I've had the great thrill of working for Chuck Schwab since 2000. It doesn't get any better than learning from these legends over the past 27 years.
After degrees from Wharton, University of Miami and Michigan State, Marty started his career in academia but ultimately became one of the most respected stock market "gurus" in the modern era. I have years' worth of memories of Marty, and hope readers will indulge me as I reminisce and share some of the most important market lessons I learned from one of the greats.
But first, the personal stuff. Marty was brilliant, there's no doubt; but he was also quirky, goofy and affable. He was the consummate worrier... but he was also the ultimate warrior. He lived, ate and breathed the markets and perpetually (and tirelessly) strived to "figure it out."
One of my greatest memories is getting to see first-hand his now-famous memorabilia collection—to which there are no comparables. Among them, there was the dress Marilyn Monroe wore while singing Happy Birthday to John F. Kennedy in 1962; the suits worn by the Beatles on the Ed Sullivan Show in 1964; the 1992 Olympics' US "Dream Team" basketball jerseys; the booking sheet from one of Al Capone's arrests; a letter from Madonna to Michigan State declining acceptance so she could pursue a music career; guitars of many rock stars, including Bruce Springsteen and Jimi Hendrix; the fedora worn by Humphrey Bogart in Casablanca; the original Terminator costume worn by Arnold Schwarzenegger; and multiple boxing championship belts, Super Bowl rings and Heisman Trophies.
Probably the coolest one, which I got to sit on at his home in Connecticut, was the Harley Davidson Hydra-Glide motorcycle ridden by Peter Fonda in Easy Rider. It was bolted to the floor in his game room. How cool is that?! Apparently, last year he also had a banana yellow 1934 Packard convertible installed in his Florida living room. Marty was loads of fun.
In Marty's book Winning on Wall Street, he called Jesse Livermore one of his heroes and "one of the most fabulous traders of all time;" recommending that people read the 1923 book about Livermore, Reminiscences of a Stock Operator by Edwin Lefevre. It was the first book about the market I read; it remains one of my favorites, and one I always recommend when people ask about the best market books.
Here's a quote from Livermore: "People don't seem to grasp easily the fundamentals of stock trading. I have often said that to buy into a rising market is the most comfortable way of buying stocks… Remember that stocks are never too high for you to begin buying or too low to begin selling." These words were quoted often by Marty, because he believed in "buying strength, selling weakness and staying in gear with the tape."
Marty is also given credit for popularizing the phrase "The trend is your friend." He was a trend follower, not a trend fighter; smart enough to realize that "a slap is easier to recover from than a beating…" He considered himself both conservative and aggressive. By nature he was conservative and risk-averse, wanting to protect himself and the people to whom he gave advice. But he also believed there were times to be aggressive. "The problem with most people who play the market is that they are not flexible."
"Summing it up, to succeed in the market you must have discipline, flexibility—and patience. You have to wait for the tape to give its message before you buy or sell." These words from Marty still ring true, and it's why I cringe when I'm asked about market tops and bottoms as if anyone can call them precisely. "…you must forget about trying to catch the exact tops or bottoms, which no one can consistently do anyhow. But success in the market doesn't require catching those tops and bottoms. Success means making profits and avoiding losses. By using [his theories] and waiting for a trend to develop, you can make money, stay in tune with the tape and interest rates, and, best of all, sleep better at night."
Friday, March 01, 2013
gravestone doji candlestick (uh oh)
Buddy has called for a bearish reversal of the market as a gravestone doji candlestick pattern occurred (on 2/28/13).
What's that?
A type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day. The long upper shadow suggests that the day's buying buying pressure was countered by the sellers and that the forces of supply and demand are nearing a balance. This pattern is commonly used to suggest that the direction of the trend maybe be nearing a major turning point.
What's that?
A type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day. The long upper shadow suggests that the day's buying buying pressure was countered by the sellers and that the forces of supply and demand are nearing a balance. This pattern is commonly used to suggest that the direction of the trend maybe be nearing a major turning point.
***
After being down earlier, the market finished up, forming a hammer. Gravestone followed by a hammer. That means ... (who knows?)
Thursday, February 28, 2013
deficit falling?
Although Wall Street hasn't reacted to Washington lately, we have to
consider that the deficit problem isn't as big as it was just a few
years ago. In 2009, the country ran a $1.41 trillion deficit. This year,
the Congressional Budget Office predicts the deficit will be down to
$845 billion, or 5.3% of GDP, and if Congress does nothing (which looks
likely) by 2015, the deficit will be $459 billion, or 2.4% of the
economy.
These numbers look large, but in the grand scheme of the world's biggest economy they're not anywhere near uncharted territory. Since 1980 the federal government has run a deficit larger than 3% in 18 years -- more than half of the time. A 3% deficit is widely considered to be sustainable, because if the deficit grows as much as or less than the economy does, then the debt-to-GDP ratio will fall. And 3% should be an attainable long-term level of economic growth -- at least, that's the theory at least.
These numbers look large, but in the grand scheme of the world's biggest economy they're not anywhere near uncharted territory. Since 1980 the federal government has run a deficit larger than 3% in 18 years -- more than half of the time. A 3% deficit is widely considered to be sustainable, because if the deficit grows as much as or less than the economy does, then the debt-to-GDP ratio will fall. And 3% should be an attainable long-term level of economic growth -- at least, that's the theory at least.
Friday, February 22, 2013
the repatriation tax
If an American company earns profit in another country, it has to pay
that country's income taxes. But if it then chooses to bring that cash
back to America, it owes U.S. taxes, minus a credit for foreign taxes
already paid.
So imagine Cisco earns $1 billion profit in Switzerland. It will owe Switzerland's 8.5% corporate tax. But if Cisco then brings the remaining $915 million back to the U.S. to pay dividends or expand its workforce, it will owe another 26.5% to the IRS -- the difference between Switzerland's 8.5% tax rate and America's 35% rate. It's called the repatriation tax.
Cisco's other option is to keep the money in Switzerland (or whatever country it earns overseas profit in). Not surprisingly, that's what most global corporations choose to do. As of last March, U.S. companies held about $1.2 trillion in total cash. But almost 60% of that was sitting in foreign bank accounts, according to Moody's.
Some companies hold the vast majority of their loot abroad. About 80% of Oracle's (NASDAQ: ORCL) cash is held overseas. Apple (NASDAQ: AAPL) holds close to 70% of its cash outside the U.S.
There are two crazy things about the repatriation tax. The first is that it doesn't raise much money for the U.S. Treasury. Using the most bearish assumptions, The Joint Tax Committee estimates that ending the repatriation tax altogether would raise deficits by about $8 billion per year -- a rounding error measured against $2.9 trillion in total revenue. A separate estimate from the Congressional Budget Office shows that ending repatriation taxes would actually raise federal tax revenue, since companies would likely bring more cash home to pay dividends, which are then taxed. Either way, repatriation taxes have a trivial impact on the federal budget.
Second, the repatriation tax is virtually unique to America. Of the G-7 group of nations, only America exercises a repatriation tax. Among the 34 OECD nations, 26 impose a "territorial" tax system, where profits are only taxed where they are earned, with no repatriation owed when earnings are brought back to a company's home country. Two of the last holdouts, Japan and the United Kingdom, switched to a territorial tax system in 2009.
With the competition based in countries that use territorial tax systems, American companies are at a disadvantage. The easiest way for them to compete is to keep foreign profits in foreign bank accounts. The loser is the U.S. economy.
So imagine Cisco earns $1 billion profit in Switzerland. It will owe Switzerland's 8.5% corporate tax. But if Cisco then brings the remaining $915 million back to the U.S. to pay dividends or expand its workforce, it will owe another 26.5% to the IRS -- the difference between Switzerland's 8.5% tax rate and America's 35% rate. It's called the repatriation tax.
Cisco's other option is to keep the money in Switzerland (or whatever country it earns overseas profit in). Not surprisingly, that's what most global corporations choose to do. As of last March, U.S. companies held about $1.2 trillion in total cash. But almost 60% of that was sitting in foreign bank accounts, according to Moody's.
Some companies hold the vast majority of their loot abroad. About 80% of Oracle's (NASDAQ: ORCL) cash is held overseas. Apple (NASDAQ: AAPL) holds close to 70% of its cash outside the U.S.
There are two crazy things about the repatriation tax. The first is that it doesn't raise much money for the U.S. Treasury. Using the most bearish assumptions, The Joint Tax Committee estimates that ending the repatriation tax altogether would raise deficits by about $8 billion per year -- a rounding error measured against $2.9 trillion in total revenue. A separate estimate from the Congressional Budget Office shows that ending repatriation taxes would actually raise federal tax revenue, since companies would likely bring more cash home to pay dividends, which are then taxed. Either way, repatriation taxes have a trivial impact on the federal budget.
Second, the repatriation tax is virtually unique to America. Of the G-7 group of nations, only America exercises a repatriation tax. Among the 34 OECD nations, 26 impose a "territorial" tax system, where profits are only taxed where they are earned, with no repatriation owed when earnings are brought back to a company's home country. Two of the last holdouts, Japan and the United Kingdom, switched to a territorial tax system in 2009.
With the competition based in countries that use territorial tax systems, American companies are at a disadvantage. The easiest way for them to compete is to keep foreign profits in foreign bank accounts. The loser is the U.S. economy.
best investment sector for the next decade
I understand there's plenty of animosity toward the sector because of
high branded-drug prices and a long, drawn-out, drug development
process, but there are five reasons why health care represents your best investment choice over the coming decade rather than traditionally
strong sectors like technology or financials.
(1) There is one primary reason why research costs are contributing to better drugs coming down our pipeline: Big technological advancements over the past decade.
Drug research all begins in the lab. According to the U.S. National Institutes of Health, there are more than 140,000 clinical studies currently under way. This figure has ballooned since 2000 as higher quality genome-sequencing equipment and better in-lab instrumentation has allowed researchers to conduct significantly more studies for the same previous cost.
The chart above means a big boost in human genome sequencing demand for Life Technologies (NASDAQ: LIFE) . Life Tech introduced its Benchtop Ion Proton Sequencer in January last year for a price of just $149,000 and touted its ability to sequence the human genome in a single day for just $1,000. Previous versions had cost anywhere from $500,000-$750,000 and took weeks or months to sequence the human genome at a cost of $5,000 to $10,000 a pop.
As you can see, human genome sequencing costs have dropped through the floor, falling from north of $95 million in 2001 to less than $7,700 as recently as January 2012. The introduction of Life Technologies' Benchtop Ion Proton Sequencer should send these costs heading even lower.
DNA sequencing is becoming increasingly important in cancer research, as sequencing tumors can lead to personalized therapy. Scientists at the Washington University School of Medicine in St. Louis, Mo., for instance, had fully sequenced 700 cancer patients' genomes, including healthy and cancerous cells, as of April last year, according to Science Daily. The lower cost of genome mapping and faster turnaround time will speed up the process of identifying mutations and could offer personalized cancer therapies in the not-so-distant future as opposed to a "one-size-fits-all" therapy.
Considering that health-care research budgets are only expanding, genome sequencing costs are falling, and that the sheer number of clinical studies being undertaken is rising, I can only assume that the next decade will see FDA approvals at a well-above-average rate than in the previous decade.
(2) The Congressional Budget Office released a long-term budget forecast in June 2009 that projected that the cost of Medicare -- which is social health-care coverage offered to those age 65 and older, as well as younger people with disabilities -- would practically double from 3.5% of GDP in 2009 to 6.9% of GDP by 2035, about six years after the last group of boomers retires. Even more pressing, better treatments and healthier eating habits are greatly extending the lives of retirees beyond just the age of 65.
All facets of the health care sector appear likely to benefit from this trend of longer life -- from hospital and insurers, to pharmaceutical companies and medical device makers geared toward an aging population.
One company that really stands out is Medtronic (NYSE: MDT) . If we simply extrapolate out the fact that cardiovascular diseases are the leading cause of death in this country based on PhRMA's research, then a dramatic jump in those aged 65 and older should lead to a large boost in pacemakers, stents, and valve replacements -- all markets that Medtronic operates in. Another area of solid growth that should be spurred by boomers is spinal implants, an area where Medtronic is the head honcho.
(3) Regardless of whether you support the Affordable Care Act, one thing is for certain: It will bring millions of uninsured Americans under the fold of government-sponsored Medicaid. As I noted, the baby boomers were one of the hardest-hit groups during the recession, so they may be one of the primary beneficiaries of the beginning of Obamacare in 2014.
Obamacare definitely has its share of critics, but it's expected to bring approximately 16 million newly insured Americans under the scope of government-sponsored health care. These are people who previously either avoided going to the doctor unless absolutely necessary or put holes in the pockets of hospitals because of their inability to pay their health care service costs. In addition, Obamacare mandates individuals to carry -- and businesses to provide -- health insurance or face potential tax penalties on a per-person basis.
Not surprisingly, no group of companies stands to benefit more from the streamlining of the health-care process more than hospitals. HCA Holdings (NYSE: HCA) , the nation's largest hospital operator, can, as a result of Obamacare, expect its bad-debt provision to fall dramatically. This should ultimately free up funds that can be used in other aspects of its business -- including acquisitions, funding future hospital construction, purchasing new medical equipment, and perhaps even paying shareholders a dividend.
(4) One of the biggest threats of the technology sector is that everything is slowly being commoditized. From memory to assembly line parts, many technical components can now be duplicated with ease, placing long-term downside pressure of many technology companies' margins. The same can't be said about the majority of health-care companies.
The effects against commoditization are even more readily apparent in medical device makers. Intuitive Surgical (NASDAQ: ISRG) , manufacturer of the da Vinci surgical system, offers the only commercially profitable surgical robotic system. Period! With few competitors on the horizon and an incredibly complex technology, I'd say its market share is safe for quite a long time.
(5) Some of the most basic illnesses continue to go untreated in emerging-market countries around the globe and offer a jumping-off point for growth beyond just domestic markets.
One company that's taking the bull by the horns in expansion abroad is Merck (NYSE: MRK) . Merck's annual report, filed earlier this month, demonstrates that it now generates 57% of its total revenue abroad. Burgeoning growth markets like India and China are where Merck's investment dollars are currently headed, with opportunities seen in cholesterol and diabetes medications, which are highly contested and largely saturated (no pun intended) in the United States.
(1) There is one primary reason why research costs are contributing to better drugs coming down our pipeline: Big technological advancements over the past decade.
Drug research all begins in the lab. According to the U.S. National Institutes of Health, there are more than 140,000 clinical studies currently under way. This figure has ballooned since 2000 as higher quality genome-sequencing equipment and better in-lab instrumentation has allowed researchers to conduct significantly more studies for the same previous cost.
The chart above means a big boost in human genome sequencing demand for Life Technologies (NASDAQ: LIFE) . Life Tech introduced its Benchtop Ion Proton Sequencer in January last year for a price of just $149,000 and touted its ability to sequence the human genome in a single day for just $1,000. Previous versions had cost anywhere from $500,000-$750,000 and took weeks or months to sequence the human genome at a cost of $5,000 to $10,000 a pop.
As you can see, human genome sequencing costs have dropped through the floor, falling from north of $95 million in 2001 to less than $7,700 as recently as January 2012. The introduction of Life Technologies' Benchtop Ion Proton Sequencer should send these costs heading even lower.
DNA sequencing is becoming increasingly important in cancer research, as sequencing tumors can lead to personalized therapy. Scientists at the Washington University School of Medicine in St. Louis, Mo., for instance, had fully sequenced 700 cancer patients' genomes, including healthy and cancerous cells, as of April last year, according to Science Daily. The lower cost of genome mapping and faster turnaround time will speed up the process of identifying mutations and could offer personalized cancer therapies in the not-so-distant future as opposed to a "one-size-fits-all" therapy.
Considering that health-care research budgets are only expanding, genome sequencing costs are falling, and that the sheer number of clinical studies being undertaken is rising, I can only assume that the next decade will see FDA approvals at a well-above-average rate than in the previous decade.
(2) The Congressional Budget Office released a long-term budget forecast in June 2009 that projected that the cost of Medicare -- which is social health-care coverage offered to those age 65 and older, as well as younger people with disabilities -- would practically double from 3.5% of GDP in 2009 to 6.9% of GDP by 2035, about six years after the last group of boomers retires. Even more pressing, better treatments and healthier eating habits are greatly extending the lives of retirees beyond just the age of 65.
All facets of the health care sector appear likely to benefit from this trend of longer life -- from hospital and insurers, to pharmaceutical companies and medical device makers geared toward an aging population.
One company that really stands out is Medtronic (NYSE: MDT) . If we simply extrapolate out the fact that cardiovascular diseases are the leading cause of death in this country based on PhRMA's research, then a dramatic jump in those aged 65 and older should lead to a large boost in pacemakers, stents, and valve replacements -- all markets that Medtronic operates in. Another area of solid growth that should be spurred by boomers is spinal implants, an area where Medtronic is the head honcho.
(3) Regardless of whether you support the Affordable Care Act, one thing is for certain: It will bring millions of uninsured Americans under the fold of government-sponsored Medicaid. As I noted, the baby boomers were one of the hardest-hit groups during the recession, so they may be one of the primary beneficiaries of the beginning of Obamacare in 2014.
Obamacare definitely has its share of critics, but it's expected to bring approximately 16 million newly insured Americans under the scope of government-sponsored health care. These are people who previously either avoided going to the doctor unless absolutely necessary or put holes in the pockets of hospitals because of their inability to pay their health care service costs. In addition, Obamacare mandates individuals to carry -- and businesses to provide -- health insurance or face potential tax penalties on a per-person basis.
Not surprisingly, no group of companies stands to benefit more from the streamlining of the health-care process more than hospitals. HCA Holdings (NYSE: HCA) , the nation's largest hospital operator, can, as a result of Obamacare, expect its bad-debt provision to fall dramatically. This should ultimately free up funds that can be used in other aspects of its business -- including acquisitions, funding future hospital construction, purchasing new medical equipment, and perhaps even paying shareholders a dividend.
(4) One of the biggest threats of the technology sector is that everything is slowly being commoditized. From memory to assembly line parts, many technical components can now be duplicated with ease, placing long-term downside pressure of many technology companies' margins. The same can't be said about the majority of health-care companies.
The effects against commoditization are even more readily apparent in medical device makers. Intuitive Surgical (NASDAQ: ISRG) , manufacturer of the da Vinci surgical system, offers the only commercially profitable surgical robotic system. Period! With few competitors on the horizon and an incredibly complex technology, I'd say its market share is safe for quite a long time.
(5) Some of the most basic illnesses continue to go untreated in emerging-market countries around the globe and offer a jumping-off point for growth beyond just domestic markets.
One company that's taking the bull by the horns in expansion abroad is Merck (NYSE: MRK) . Merck's annual report, filed earlier this month, demonstrates that it now generates 57% of its total revenue abroad. Burgeoning growth markets like India and China are where Merck's investment dollars are currently headed, with opportunities seen in cholesterol and diabetes medications, which are highly contested and largely saturated (no pun intended) in the United States.
Tuesday, February 19, 2013
a sign of the top?
The second defining event of the past few days is the surge of publicity surrounding the 16-year-old Hollywood actress who claims to be making a killing as a daytrader.
So daytrading is back! Remember how the media lionized Barbra Streisand as a daytrading genius in 1999? It was a sign of a historic top forming for stocks.
Now our media savants have gone one better: The new daytrading queen they've anointed is only a teenager. (Gosh, why did it take me so long to figure out how easy it is to get rich?)
Think about this angle for a moment: Would our media gatekeepers have dared to hype a story about a teenage daytrader during the Lehman crisis in 2008? Hardly. We find the tale entertaining today, and even sort of plausible, because stock prices have roared higher for the past four years. The excesses of a bull market manifest themselves near the top, not the bottom.
-- Richard Band, 2/19/13
So daytrading is back! Remember how the media lionized Barbra Streisand as a daytrading genius in 1999? It was a sign of a historic top forming for stocks.
Now our media savants have gone one better: The new daytrading queen they've anointed is only a teenager. (Gosh, why did it take me so long to figure out how easy it is to get rich?)
Think about this angle for a moment: Would our media gatekeepers have dared to hype a story about a teenage daytrader during the Lehman crisis in 2008? Hardly. We find the tale entertaining today, and even sort of plausible, because stock prices have roared higher for the past four years. The excesses of a bull market manifest themselves near the top, not the bottom.
-- Richard Band, 2/19/13
Friday, February 15, 2013
goodbye stocks, hello funds
Someone must have sounded an all-clear signal on New Year’s Day
because in January, after five years of fasting and penitence in the
bond market, investors poured money into U.S. stocks.
But much of that money probably went into stock funds and exchange-traded funds, not individual stocks. Though few statistics are available, there are many indications individuals have abandoned individual stocks as their preferred form of equity investing.
Remember how people worshipped Cisco Systems (CSCO), Qualcomm (QCOM) and JDS Uniphase (JDSU) back in the 1990s? Now they’re buying target funds, index funds, and their close cousins, ETFs, instead of individual stocks. With one big, bright red exception, which we’ll get to later, individual stock investors may be a dying breed.
Nothing brought that out more starkly than an article last week in The Wall Street Journal, which dealt with the demise of investing clubs, that former pop-culture icon. (Remember the Beardstown Ladies?)
Investment clubs flourished in the era of do-it-yourself investing, when every man and woman was his or her own stock picker. Who needed professional managers when all the data was right at your fingertips? Especially when friends and neighbors could help each other find winning stock ideas.
Well, it didn’t quite work out that way. As The Journal reported, BetterInvesting (formerly the National Association of Investors) has seen membership at investor clubs plummet from 400,000 at its peak in 1998 to only 39,000. That’s a plunge of 90% and reflects the ravages of a decade that saw two major bear markets. The problem, The Journal wrote: “Stocks aren’t fun anymore; they are scary.”
[which means there may be less dumb money now]
But much of that money probably went into stock funds and exchange-traded funds, not individual stocks. Though few statistics are available, there are many indications individuals have abandoned individual stocks as their preferred form of equity investing.
Remember how people worshipped Cisco Systems (CSCO), Qualcomm (QCOM) and JDS Uniphase (JDSU) back in the 1990s? Now they’re buying target funds, index funds, and their close cousins, ETFs, instead of individual stocks. With one big, bright red exception, which we’ll get to later, individual stock investors may be a dying breed.
Nothing brought that out more starkly than an article last week in The Wall Street Journal, which dealt with the demise of investing clubs, that former pop-culture icon. (Remember the Beardstown Ladies?)
Investment clubs flourished in the era of do-it-yourself investing, when every man and woman was his or her own stock picker. Who needed professional managers when all the data was right at your fingertips? Especially when friends and neighbors could help each other find winning stock ideas.
Well, it didn’t quite work out that way. As The Journal reported, BetterInvesting (formerly the National Association of Investors) has seen membership at investor clubs plummet from 400,000 at its peak in 1998 to only 39,000. That’s a plunge of 90% and reflects the ravages of a decade that saw two major bear markets. The problem, The Journal wrote: “Stocks aren’t fun anymore; they are scary.”
[which means there may be less dumb money now]
Wednesday, February 06, 2013
startling facts
Morgan Housel presents 100 startling facts about the economy. Here's a few of them.
1. As of January 2013, there are 16 people left in the world who were born in the 1800s, according to the Gerontology Research Group. With dividends reinvested, U.S. stocks have increased 28,000-fold during their lifetimes.
5. According to a study by Harvard professor David Wise and two colleagues, 46.1% of Americans die with less than $10,000 in assets.
6. There are 3.8 million fewer Americans aged 30 to 44 today than there were a decade ago.
7. Related: The population of Americans aged 30 to 44 is about to start increasing for the first time since 2000.
8. Since 1928, the Dow Jones has increased more than 10% in a single day eight times, declined more than 10% in a single day four times, and gone either up or down more than 5% in a single day 136 times.
14. Including dividends, the S&P 500 gained 135% from March 2009 through January 2013, during what people remember as the "Great Recession." It gained the exact same amount from 1996 to 2000, during what people remember as the "greatest bull market in history."
15. "97% of the world's population now lives in countries where the fertility rate is falling," writes author Jonathan Last.
17. In 1980, there were 15,099 Americans aged 100 years or more. By 1990, there were 36,486, and by 2012 there were 88,510, according to the Census Bureau.
21. Despite the overall population doubling, more babies were born in the U.S. in 1956 than were born in 2009, 2010, or 2011.
22. According to The Telegraph, "Four in 10 girls born today is expected to live to 100. ... If trends continue, the majority of girls born in 2060 -- some 60 per cent -- will live to see 2160."
24. Netflix surged more than 50% on Jan. 24 from the previous day's low. $1,000 invested in short-term call options would have been worth $2 million in less than 24 hours. (Please don't try this at home.)
27. According to Bloomberg, "The 50 stocks in the S&P 500 with the lowest analyst ratings at the end of 2011 posted an average return of 23 percent [in 2012], outperforming the index by 7 percentage points."
29. Thanks in large part to cellphone cameras, "Ten percent of all of the photographs made in the entire history of photography were made last year," according to Time.
32. Fortune magazine published an article titled "10 Stocks To Last the Decade" in August, 2000. By December 2012, the portfolio had lost 74.3% of its value, according to analyst Barry Ritholtz.
40. Two news headlines published on the same day last September summed up the U.S. economy perfectly: "U.S. Median Income Lowest Since 1995, " and "Ferrari sales surge to record highs."
41. According to ConvergEx Group, "Only 58% of us are even saving for retirement in the first place. Of that group, 60% have less than $25,000 put away. ... A full 30% have less than $1,000."
43. Since 1928, the S&P 500 has closed at a new all-time high 1,024 times, or 4.8% of all trading days.
45. One in seven crimes committed in New York City now involves an Apple product being stolen, according to NYPD records cited by ABC News.
46. In the first quarter of 2012, the number of iPhones Apple sold per day surpassed the number of babies born per day worldwide (402,000 vs. 300,000), according to Mobile First.
48. According to economist Glen Weyl, "Of Harvard students graduating in early '90s and pursuing careers in finance, 1/3 were making over $1 million a year by 2005."
49. According to the Center for Economic and Policy Research, 44% of those working for minimum wage in 2010 had attended at least some college, up from 25% in 1979.
52. The number of workers aged 55 and up is about to surpass the number of workers aged 24 to 34 for the first time ever.
53. In 2011, Asia had more millionaires than North America for the first time ever, according to RBC Wealth Management.
55. The IRS estimates that illegal tax-evasion reduced government tax revenue by $450 billion in 2006 (the most recent year calculated). That's roughly equal to what the government spends annually on Medicare.
56. According to The Wall Street Journal, "The average monthly mortgage payment on a median-price home in October, assuming a 10% down payment, fell to $720 at prevailing rates, down from nearly $1,270 at the end of 2005."
59. In 2012, the Greek stock market (ATHEX Index) outperformed the Chinese stock market (Shanghai Composite) by 48 percentage points.
62. According to BetterInvesting, the number of investment clubs has declined by 90% since 1998 from 400,000 to 39,000.
68. Last year, Franklin Templeton asked 1,000 investors whether the S&P 500 went up or down in 2009 and 2010. Sixty-six percent thought it went down in 2009, while 48% said it declined in 2010. In reality, the index gained 26.5% in 2009 and 15.1% in 2010.
70. "Of the Americans who earn over $150,000, 82 percent had a bachelor's degree. Just 6.5 percent had no more than a high school diploma," writes Catherine Rampell of The New York Times.
75. According to economist Stephen Bronars, the new 39.6% federal tax bracket will only affect 0.7% of taxpayers but will hit 9.5% of aggregate personal income, as top earners earn a disproportionate share of the national income.
77. According to Gallup, 51.3% of Americans consider themselves "thriving," 45.1% say they are "struggling," and 3.6% say they're "suffering."
78. An average couple will pay $155,000 in in 401(k) fees over their careers, according to Demos, reducing an average account balance from $510,000 to $355,000.
79. Related: 84% of actively managed U.S. stock funds underperformed the S&P 500 in 2011.
80. According to The Wall Street Journal, 49.1% of Americans live in a household "where at least one member received some type of government benefit in the first quarter of 2011."
83. "By 2050, workers' median age in China and Japan will be about 50, a decade higher than in America," writes Robert Samuelson.
85. The U.S. birthrate declined 8% from 2007 to 2010, according to Pew. At 63.2 per 1,000 women of childbearing age, the 2011 U.S. birthrate was the lowest since records began in 1920.
86. According to Wired magazine, "In a 2006 survey, 30 percent of people without a high school degree said that playing the lottery was a wealth-building strategy. ... On average, households that make less than $12,400 a year spend 5 percent of their income on lotteries."
88. We are used to hearing how much faster the earnings of the top 1% grow compared with everyone else's, but we often forget that it used to be the other way around. From 1943 to 1980, the annual incomes of the bottom 90% of Americans doubled in real terms, while the average income of the top 1% grew just 23%, according to Robert Frank.
89. According to Vanguard founder John Bogle, the average equity mutual fund gained 173% from 1997 to 2011, but the average equity mutual fund investor earned only 110%, thanks to the tendency to buy high and sell low.
94. According to The Economist, "Over the past ten years, hedge-fund managers have underperformed not just the stock market, but inflation as well."
95. According to Bloomberg, "Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.
97. S&P 500 companies held $900 billion in cash at the end of June, according to Thomson Reuters. That was up 40% since 2008.
98. "More than 50 million Americans couldn't afford to buy food at some point in 2011," writes CNNMoney, citing U.S. Department of Agriculture data. In June 2012, 46.7 million Americans received food stamps.
99. Japan's working-age population is on track to decline from 62.6% of its population in 2012 to just 49.1% by 2050.
100. The unemployment rate for those with a bachelor's degree is just 3.7% -- less than half the nationwide average.
1. As of January 2013, there are 16 people left in the world who were born in the 1800s, according to the Gerontology Research Group. With dividends reinvested, U.S. stocks have increased 28,000-fold during their lifetimes.
5. According to a study by Harvard professor David Wise and two colleagues, 46.1% of Americans die with less than $10,000 in assets.
6. There are 3.8 million fewer Americans aged 30 to 44 today than there were a decade ago.
7. Related: The population of Americans aged 30 to 44 is about to start increasing for the first time since 2000.
8. Since 1928, the Dow Jones has increased more than 10% in a single day eight times, declined more than 10% in a single day four times, and gone either up or down more than 5% in a single day 136 times.
14. Including dividends, the S&P 500 gained 135% from March 2009 through January 2013, during what people remember as the "Great Recession." It gained the exact same amount from 1996 to 2000, during what people remember as the "greatest bull market in history."
15. "97% of the world's population now lives in countries where the fertility rate is falling," writes author Jonathan Last.
17. In 1980, there were 15,099 Americans aged 100 years or more. By 1990, there were 36,486, and by 2012 there were 88,510, according to the Census Bureau.
21. Despite the overall population doubling, more babies were born in the U.S. in 1956 than were born in 2009, 2010, or 2011.
22. According to The Telegraph, "Four in 10 girls born today is expected to live to 100. ... If trends continue, the majority of girls born in 2060 -- some 60 per cent -- will live to see 2160."
24. Netflix surged more than 50% on Jan. 24 from the previous day's low. $1,000 invested in short-term call options would have been worth $2 million in less than 24 hours. (Please don't try this at home.)
27. According to Bloomberg, "The 50 stocks in the S&P 500 with the lowest analyst ratings at the end of 2011 posted an average return of 23 percent [in 2012], outperforming the index by 7 percentage points."
29. Thanks in large part to cellphone cameras, "Ten percent of all of the photographs made in the entire history of photography were made last year," according to Time.
32. Fortune magazine published an article titled "10 Stocks To Last the Decade" in August, 2000. By December 2012, the portfolio had lost 74.3% of its value, according to analyst Barry Ritholtz.
40. Two news headlines published on the same day last September summed up the U.S. economy perfectly: "U.S. Median Income Lowest Since 1995, " and "Ferrari sales surge to record highs."
41. According to ConvergEx Group, "Only 58% of us are even saving for retirement in the first place. Of that group, 60% have less than $25,000 put away. ... A full 30% have less than $1,000."
43. Since 1928, the S&P 500 has closed at a new all-time high 1,024 times, or 4.8% of all trading days.
45. One in seven crimes committed in New York City now involves an Apple product being stolen, according to NYPD records cited by ABC News.
46. In the first quarter of 2012, the number of iPhones Apple sold per day surpassed the number of babies born per day worldwide (402,000 vs. 300,000), according to Mobile First.
48. According to economist Glen Weyl, "Of Harvard students graduating in early '90s and pursuing careers in finance, 1/3 were making over $1 million a year by 2005."
49. According to the Center for Economic and Policy Research, 44% of those working for minimum wage in 2010 had attended at least some college, up from 25% in 1979.
52. The number of workers aged 55 and up is about to surpass the number of workers aged 24 to 34 for the first time ever.
53. In 2011, Asia had more millionaires than North America for the first time ever, according to RBC Wealth Management.
55. The IRS estimates that illegal tax-evasion reduced government tax revenue by $450 billion in 2006 (the most recent year calculated). That's roughly equal to what the government spends annually on Medicare.
56. According to The Wall Street Journal, "The average monthly mortgage payment on a median-price home in October, assuming a 10% down payment, fell to $720 at prevailing rates, down from nearly $1,270 at the end of 2005."
59. In 2012, the Greek stock market (ATHEX Index) outperformed the Chinese stock market (Shanghai Composite) by 48 percentage points.
62. According to BetterInvesting, the number of investment clubs has declined by 90% since 1998 from 400,000 to 39,000.
68. Last year, Franklin Templeton asked 1,000 investors whether the S&P 500 went up or down in 2009 and 2010. Sixty-six percent thought it went down in 2009, while 48% said it declined in 2010. In reality, the index gained 26.5% in 2009 and 15.1% in 2010.
70. "Of the Americans who earn over $150,000, 82 percent had a bachelor's degree. Just 6.5 percent had no more than a high school diploma," writes Catherine Rampell of The New York Times.
75. According to economist Stephen Bronars, the new 39.6% federal tax bracket will only affect 0.7% of taxpayers but will hit 9.5% of aggregate personal income, as top earners earn a disproportionate share of the national income.
77. According to Gallup, 51.3% of Americans consider themselves "thriving," 45.1% say they are "struggling," and 3.6% say they're "suffering."
78. An average couple will pay $155,000 in in 401(k) fees over their careers, according to Demos, reducing an average account balance from $510,000 to $355,000.
79. Related: 84% of actively managed U.S. stock funds underperformed the S&P 500 in 2011.
80. According to The Wall Street Journal, 49.1% of Americans live in a household "where at least one member received some type of government benefit in the first quarter of 2011."
83. "By 2050, workers' median age in China and Japan will be about 50, a decade higher than in America," writes Robert Samuelson.
85. The U.S. birthrate declined 8% from 2007 to 2010, according to Pew. At 63.2 per 1,000 women of childbearing age, the 2011 U.S. birthrate was the lowest since records began in 1920.
86. According to Wired magazine, "In a 2006 survey, 30 percent of people without a high school degree said that playing the lottery was a wealth-building strategy. ... On average, households that make less than $12,400 a year spend 5 percent of their income on lotteries."
88. We are used to hearing how much faster the earnings of the top 1% grow compared with everyone else's, but we often forget that it used to be the other way around. From 1943 to 1980, the annual incomes of the bottom 90% of Americans doubled in real terms, while the average income of the top 1% grew just 23%, according to Robert Frank.
89. According to Vanguard founder John Bogle, the average equity mutual fund gained 173% from 1997 to 2011, but the average equity mutual fund investor earned only 110%, thanks to the tendency to buy high and sell low.
94. According to The Economist, "Over the past ten years, hedge-fund managers have underperformed not just the stock market, but inflation as well."
95. According to Bloomberg, "Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.
97. S&P 500 companies held $900 billion in cash at the end of June, according to Thomson Reuters. That was up 40% since 2008.
98. "More than 50 million Americans couldn't afford to buy food at some point in 2011," writes CNNMoney, citing U.S. Department of Agriculture data. In June 2012, 46.7 million Americans received food stamps.
99. Japan's working-age population is on track to decline from 62.6% of its population in 2012 to just 49.1% by 2050.
100. The unemployment rate for those with a bachelor's degree is just 3.7% -- less than half the nationwide average.
Thursday, January 31, 2013
Super Bowl indicator says up
Superstitious investors watch the Super Bowl results closely to get a
sense of where the market's going. It sounds rather silly, but the
so-called Super Bowl Indicator is often correct.
But this year, the prediction is a little odd. According to the indicator, stocks will go up this year no matter which team wins the championship.
The indicator says the market will rise when a team from the original National Football League wins the Super Bowl. This goes back to the time when there was also an American Football League in operation from 1960 to 1969. The AFL teams became part of the NFL in 1970.
This year, both teams hail from the original National Football League. Well, the Baltimore Ravens technically didn't exist until 1996, but the team originated from the Cleveland Browns, which was part of the NFL. So it counts, right? One could argue that the San Francisco 49ers might have a little more NFL cred, so maybe investors should be rooting for a 49er victory.
At any rate, it seems like this year's game is a big green light for jumping back into the market. But wait, let's look at what happened the last time two original NFL teams played each other. That happened in 2001, when the Ravens absolutely trounced New York Giants.
That was not the best year for the markets, according to the Wall Street Sector Selector site. The Dow Jones Industrial Average ($INDU -0.36%) fell 7.1% and the Standard & Poor's 500 Index ($INX -0.26%) fell 13.04%.
In other words, don't rely on one football game for your investing strategy this year. But if you want another sign that stocks might behave nicely this year, check out the "January effect." MSN Money's Charley Blaine writes that this indicator shows that a higher market (measured by the S&P 500) in January leads to a higher market for the year, and it's correct about 75% of the time.
But this year, the prediction is a little odd. According to the indicator, stocks will go up this year no matter which team wins the championship.
The indicator says the market will rise when a team from the original National Football League wins the Super Bowl. This goes back to the time when there was also an American Football League in operation from 1960 to 1969. The AFL teams became part of the NFL in 1970.
This year, both teams hail from the original National Football League. Well, the Baltimore Ravens technically didn't exist until 1996, but the team originated from the Cleveland Browns, which was part of the NFL. So it counts, right? One could argue that the San Francisco 49ers might have a little more NFL cred, so maybe investors should be rooting for a 49er victory.
At any rate, it seems like this year's game is a big green light for jumping back into the market. But wait, let's look at what happened the last time two original NFL teams played each other. That happened in 2001, when the Ravens absolutely trounced New York Giants.
That was not the best year for the markets, according to the Wall Street Sector Selector site. The Dow Jones Industrial Average ($INDU -0.36%) fell 7.1% and the Standard & Poor's 500 Index ($INX -0.26%) fell 13.04%.
In other words, don't rely on one football game for your investing strategy this year. But if you want another sign that stocks might behave nicely this year, check out the "January effect." MSN Money's Charley Blaine writes that this indicator shows that a higher market (measured by the S&P 500) in January leads to a higher market for the year, and it's correct about 75% of the time.
Saturday, January 26, 2013
new home sales down (but up)
New home sales unexpectedly
fell 7.3% month-over-month (m/m) in December to an annual rate of
369,000, below the 385,000 rate expected, but the disappointing report
was offset by an upward revision of November's figure to a 398,000
annual rate from the previously reported 377,000 rate. The median home
price rose 1.3% m/m and 13.9% y/y to $248,900. The inventory of new
homes of 151,000 was slightly up from the 149,000 recorded last month,
representing 4.9 months of supply at the current sales rate. New home
sales are considered a timely indicator of conditions in the housing
market as they are based on signings instead of closings. The decline in
sales was led by a 29% fall in sales in the northeast in December,
coming on the heels of a 48% jump in November.
Despite the somewhat disappointing report, for all of 2012, new home sales gained 19.9%, the biggest jump since 1983 according to Bloomberg, and the first increase since 2005.
[But according to AP], For the year, sales rose nearly 20 percent to 367,000. That's the most since 2009, although the increase is coming off the worst year for new-home sales since the government began keeping records in 1963. Sales are still below the 700,000 level that economists consider healthy.
Despite the somewhat disappointing report, for all of 2012, new home sales gained 19.9%, the biggest jump since 1983 according to Bloomberg, and the first increase since 2005.
[But according to AP], For the year, sales rose nearly 20 percent to 367,000. That's the most since 2009, although the increase is coming off the worst year for new-home sales since the government began keeping records in 1963. Sales are still below the 700,000 level that economists consider healthy.
Friday, January 25, 2013
Ackman vs. Icahn
Carl Icahn and Bill Ackman really hate each other.
The two billionaires duked it out in an amazing show of verbal hostility on live television Friday, letting loose with a torrent of insults and obscenities. It was an unprecedented spectacle, one that the financial world won't forget anytime soon.
And the stock at the center of it all, Herbalife (HLF +0.79%), went nuts during the conversation.
The two investors have been fighting for years, going back to 2003, when Ackman's former company was under investigation by the Securities and Exchange Commission. Icahn bought Ackman's shares in a real estate company called Hallwood Realty, but the issue turned into a nasty legal battle later.
There's so much animosity between the two, in fact, that New York restaurants know not to seat them near each other, according to The New York Times.
The two are feuding again over Herbalife, a stock that Ackman has made a well-publicized bet against. Ackman has called the company a pyramid scheme. News reports later said that Icahn had bought a position in Herbalife -- something Icahn has not publicly confirmed.
The tension between the two has been building for days. In an interview with Bloomberg television, Icahn said he didn't respect Ackman and challenged his "holier than thou" attitude. Ackman went on CNBC to defend himself, and Icahn joined in as well.
*** [7/16/14]
NEW YORK, July 16 (Reuters) - Carl Icahn and William Ackman are friends again.
The billionaire investors, who have been at odds over nutrition and diet company Herbalife, made up in public on Wednesday, ending a decade long feud that exploded on cable television 18 months ago.
Icahn, 78, who made his reputation in the 1980s, and Ackman, 48, seen by some as a young version of the older corporate raider, sparred over opposing bets on Herbalife on CNBC in January 2013. Icahn has taken a long position on the stock and Ackman is short.
On Wednesday at the CNBC Institutional Investor Delivering Alpha Conference, the men hugged and then praised each other over their investor activism.
When asked about who would win the Herbalife bet, Ackman said "it is not about winning. I would love to get Carl out of Herbalife."
He added that Icahn could walk away with a handsome profit.
The war of words that began when Icahn called Ackman a cry baby in a school yard and Ackman shot back that Icahn was not an honest man captivated Wall Street for roughly half an hour on CNBC and was played repeatedly by the network.
The network provided the stage for the reconciliation at its CNBC Institutional Investor Delivering Alpha conference after suggesting the move to Ackman three weeks ago.
The detente has been months in the making, with both sides saying relations improved in late April and hinting they might even team up. Each man took pains to say nice things about the other in recent weeks, often while appearing on CNBC.
On Wednesday, Ackman appeared as a "mystery guest" at the conference, causing the audience to applaud when he walked onto the stage and gave Icahn a hug.
The men agreed good corporate chiefs need to run companies and that boards should let executives do their jobs, as long as they do them well.
Icahn said there was room for their kind of activism.
"At the risk of sounding immodest, there is no one better at finance than us," Icahn said to Ackman.
The two billionaires duked it out in an amazing show of verbal hostility on live television Friday, letting loose with a torrent of insults and obscenities. It was an unprecedented spectacle, one that the financial world won't forget anytime soon.
And the stock at the center of it all, Herbalife (HLF +0.79%), went nuts during the conversation.
The two investors have been fighting for years, going back to 2003, when Ackman's former company was under investigation by the Securities and Exchange Commission. Icahn bought Ackman's shares in a real estate company called Hallwood Realty, but the issue turned into a nasty legal battle later.
There's so much animosity between the two, in fact, that New York restaurants know not to seat them near each other, according to The New York Times.
The two are feuding again over Herbalife, a stock that Ackman has made a well-publicized bet against. Ackman has called the company a pyramid scheme. News reports later said that Icahn had bought a position in Herbalife -- something Icahn has not publicly confirmed.
The tension between the two has been building for days. In an interview with Bloomberg television, Icahn said he didn't respect Ackman and challenged his "holier than thou" attitude. Ackman went on CNBC to defend himself, and Icahn joined in as well.
*** [7/16/14]
NEW YORK, July 16 (Reuters) - Carl Icahn and William Ackman are friends again.
The billionaire investors, who have been at odds over nutrition and diet company Herbalife, made up in public on Wednesday, ending a decade long feud that exploded on cable television 18 months ago.
Icahn, 78, who made his reputation in the 1980s, and Ackman, 48, seen by some as a young version of the older corporate raider, sparred over opposing bets on Herbalife on CNBC in January 2013. Icahn has taken a long position on the stock and Ackman is short.
On Wednesday at the CNBC Institutional Investor Delivering Alpha Conference, the men hugged and then praised each other over their investor activism.
When asked about who would win the Herbalife bet, Ackman said "it is not about winning. I would love to get Carl out of Herbalife."
He added that Icahn could walk away with a handsome profit.
The war of words that began when Icahn called Ackman a cry baby in a school yard and Ackman shot back that Icahn was not an honest man captivated Wall Street for roughly half an hour on CNBC and was played repeatedly by the network.
The network provided the stage for the reconciliation at its CNBC Institutional Investor Delivering Alpha conference after suggesting the move to Ackman three weeks ago.
The detente has been months in the making, with both sides saying relations improved in late April and hinting they might even team up. Each man took pains to say nice things about the other in recent weeks, often while appearing on CNBC.
On Wednesday, Ackman appeared as a "mystery guest" at the conference, causing the audience to applaud when he walked onto the stage and gave Icahn a hug.
The men agreed good corporate chiefs need to run companies and that boards should let executives do their jobs, as long as they do them well.
Icahn said there was room for their kind of activism.
"At the risk of sounding immodest, there is no one better at finance than us," Icahn said to Ackman.
Dow 6000 (says Harry Dent)
on CNBC today with Ron Insana on the other side
I see this video (transcript) from 11/15/12 that he's predicting 5600 to 6000 on the Dow by 2015 and 3300 to 3800 on the Dow by 2020 to 2022 (0:55 into the video).
Here (3/31/11) he says Dow 3300.
Here (9/12/11) he says Dow 3000 (also 7/24/12)
So he's doubled his price target.
On the other hand, Seth Masters forecasts Dow 20,000. (No, I never heard of him either.)
Wait, here's one from 2004, Dow 40,000 by 2009.
From Barron's, 9/17/11:
Prophets of doom and gloom are often criticized for being stopped clocks: bound to be right, but just twice a day. Financial-newsletter writer and best-selling author Harry S. Dent Jr., by contrast, can lay claim to being a prophet of boom or gloom, depending on the circumstances.
Dent is as comfortable calling for Dow 35,000, as he did 13 years ago, as he is forecasting Dow 3800 now. His 1998 book, The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History, was a New York Times best seller. Its bleaker companion, The Great Crash Ahead: Strategies for a World Turned Upside Down, co-written with Rodney Johnson, will be published this week.
Based on these and similar titles (see below), Dent swings for the fences. But not always with grand-slam results.
Why is CNBC helping this guy sell books?
From wikipedia:
In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DOW would reach 10k. Both of these predictions were met with much skepticism, and yet both eventually came to pass.
In 2000, based on his forecast that economic growth would continue throughout the 2000s, Dent predicted that the DOW would reach 40k, a prediction which was repeated in his 2004 book. In his book, he also predicted the NASDAQ would reach 13-20k. In late 2006 he revised his forecasts to much lower levels, estimating the Dow would reach 16-18k and the NASDAQ 3-4k. In January 2006, he predicted that the DOW would reach 14-15k by the end of the year. It ended 2006 at 12,463, 11% below the lower end of his prediction. It ended 2007 at 13,264, again significantly lower than Dent's revised prediction of 15,000 by early 2008. Since then, the Dow crossed 14,000 in late 2007 before retreating.
His 2011 book goes on to suggest consumer spending will begin to plummet in 2012 with the Dow bottoming out somewhere between 3,000 and 5,600 in 2014. After hitting bottom, stocks will experience a mini-rally in 2015-2017 before falling into a final bottom during the 2019-2023 period, when the 45-50 age group troughs because the U.S. birth rate reached its own low in 1973.
OK, he's been right before (and also wrong).
P.S. Not to be confused with Harvey Dent.
I see this video (transcript) from 11/15/12 that he's predicting 5600 to 6000 on the Dow by 2015 and 3300 to 3800 on the Dow by 2020 to 2022 (0:55 into the video).
Here (3/31/11) he says Dow 3300.
Here (9/12/11) he says Dow 3000 (also 7/24/12)
So he's doubled his price target.
On the other hand, Seth Masters forecasts Dow 20,000. (No, I never heard of him either.)
Wait, here's one from 2004, Dow 40,000 by 2009.
From Barron's, 9/17/11:
Prophets of doom and gloom are often criticized for being stopped clocks: bound to be right, but just twice a day. Financial-newsletter writer and best-selling author Harry S. Dent Jr., by contrast, can lay claim to being a prophet of boom or gloom, depending on the circumstances.
Dent is as comfortable calling for Dow 35,000, as he did 13 years ago, as he is forecasting Dow 3800 now. His 1998 book, The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History, was a New York Times best seller. Its bleaker companion, The Great Crash Ahead: Strategies for a World Turned Upside Down, co-written with Rodney Johnson, will be published this week.
Based on these and similar titles (see below), Dent swings for the fences. But not always with grand-slam results.
Why is CNBC helping this guy sell books?
From wikipedia:
In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DOW would reach 10k. Both of these predictions were met with much skepticism, and yet both eventually came to pass.
In 2000, based on his forecast that economic growth would continue throughout the 2000s, Dent predicted that the DOW would reach 40k, a prediction which was repeated in his 2004 book. In his book, he also predicted the NASDAQ would reach 13-20k. In late 2006 he revised his forecasts to much lower levels, estimating the Dow would reach 16-18k and the NASDAQ 3-4k. In January 2006, he predicted that the DOW would reach 14-15k by the end of the year. It ended 2006 at 12,463, 11% below the lower end of his prediction. It ended 2007 at 13,264, again significantly lower than Dent's revised prediction of 15,000 by early 2008. Since then, the Dow crossed 14,000 in late 2007 before retreating.
His 2011 book goes on to suggest consumer spending will begin to plummet in 2012 with the Dow bottoming out somewhere between 3,000 and 5,600 in 2014. After hitting bottom, stocks will experience a mini-rally in 2015-2017 before falling into a final bottom during the 2019-2023 period, when the 45-50 age group troughs because the U.S. birth rate reached its own low in 1973.
OK, he's been right before (and also wrong).
P.S. Not to be confused with Harvey Dent.
Monday, January 21, 2013
the sell decision
The decision to sell liquid investments such as stocks and bonds is much
harder than the buy decision. The reason for this is simple: human
emotion. When an investor is considering purchasing a new position they
aren’t psychologically wedded to the idea. Therefore, they can be open
regarding the relative strengths and weaknesses of the investment.
However, when an active investor expresses a position in a security, they undoubtedly have a reason. Upon purchase, the investor is now committed to the idea. If the investment increases in value, either the investor was correct in their thesis or the investor was just lucky. Either way, the investor feels good that the investment increased and is hopeful for additional gains.
Having a specific selling strategy is paramount for success. Some value investors have price targets based on analysis, some sell only when they find better ex-ante values in other securities. The below quotes are curated to represent the selling methodologies of exceptional investors.
However, when an active investor expresses a position in a security, they undoubtedly have a reason. Upon purchase, the investor is now committed to the idea. If the investment increases in value, either the investor was correct in their thesis or the investor was just lucky. Either way, the investor feels good that the investment increased and is hopeful for additional gains.
Having a specific selling strategy is paramount for success. Some value investors have price targets based on analysis, some sell only when they find better ex-ante values in other securities. The below quotes are curated to represent the selling methodologies of exceptional investors.
Thursday, January 17, 2013
David Gardner interview
Earlier this week, I invited Fool co-founder David Gardner into our
brand-new Motley Fool studio space here in Alexandria, Va. We spent
nearly an hour talking about the state of the retail investor here in
2013, his investing philosophy, and his current thinking on a half-dozen
specific stocks in his Supernova universe.
What follows is the video in full (run time: 40:24)
***
co-author of Rule Breakers, Rule Makers
see also The Greatest Secret to Investment Riches
***
David Gardner likes "overvalued" stocks
*** [1/26/14]
Another interview with David Gardner (run time 51:42)
What follows is the video in full (run time: 40:24)
***
co-author of Rule Breakers, Rule Makers
see also The Greatest Secret to Investment Riches
***
David Gardner likes "overvalued" stocks
*** [1/26/14]
Another interview with David Gardner (run time 51:42)
Friday, January 11, 2013
Morningstar performance
In this Morningstar study, five and four star stocks outperformed three and two stars stocks. But, interestingly enough, one star stocks also outperformed three and two star stocks.
Looking further, wide moat stocks actually underperformed no moat stocks.
Five star wide moat stocks did the best, but only barely better five star stocks with no moat. And doing almost as well were one star stocks with no moat!
Looking further, wide moat stocks actually underperformed no moat stocks.
Five star wide moat stocks did the best, but only barely better five star stocks with no moat. And doing almost as well were one star stocks with no moat!
Wednesday, January 09, 2013
richer than Romney
Al Gore is.
A lot has changed for former Vice President Al Gore, who left the White House with a reported $1.9 million net worth.
With an estimated $100 million gross profit from the sale of his Current TV to pan-Arab broadcaster Al-Jazeera, Gore is now worth more than $300 million, according to an estimate from Forbes.com.
That puts his net worth well ahead of that of former presidential candidate Mitt Romney, who has an estimated fortune of $230 million and was often mocked for being out of touch with ordinary Americans during the election.
Gore's wealth accumulation began soon after he left the White House in 2001. Apple (AAPL) tapped him in 2003 to serve on its board, and the former vice president held more than 100,000 shares and options in the tech company as of Dec. 17, according to a regulatory filing. That makes Gore's stake worth more than $56 million, based on Apple's recent trading price.
The truth is, serving in the White House often proves beneficial to a person's financial health.
A lot has changed for former Vice President Al Gore, who left the White House with a reported $1.9 million net worth.
With an estimated $100 million gross profit from the sale of his Current TV to pan-Arab broadcaster Al-Jazeera, Gore is now worth more than $300 million, according to an estimate from Forbes.com.
That puts his net worth well ahead of that of former presidential candidate Mitt Romney, who has an estimated fortune of $230 million and was often mocked for being out of touch with ordinary Americans during the election.
Gore's wealth accumulation began soon after he left the White House in 2001. Apple (AAPL) tapped him in 2003 to serve on its board, and the former vice president held more than 100,000 shares and options in the tech company as of Dec. 17, according to a regulatory filing. That makes Gore's stake worth more than $56 million, based on Apple's recent trading price.
The truth is, serving in the White House often proves beneficial to a person's financial health.
Sunday, January 06, 2013
Charlie Tian
Did you know that the founder of gurufocus does not have a degree in finance?
"As the founder of GuruFocus.com, many people naturally assume that I have a degree in finance, or some other closely related field. However, I actually possess a Ph.D. in physics.
I worked as a research scientist at a giant telecommunications company, publishing many scientific papers and hold 35 U.S. and international patents.
But I Had One Problem: I had absolutely no knowledge whatsoever when it came to investing. At the peak of the internet bubble, I was buying shares in fiber optic companies which I thought had the brightest future. My fiber optics stocks quickly doubled or tripled. Making money with stocks was easy, I thought. Then the bubble burst...
It was then that I learned about Warren Buffett, Ben Graham, and Peter Lynch."
***
I wonder how successful Charlie is as an investor now? However I assume that gurufocus has turned into a successful business. [Hopefully for him, enough of these $249 memberships will add up. A bargain, still the same price since 2007.] So I suppose one must assume he's now a successful businessman.
He invests his own money in the Buffett-Munger model portfolio (don't know what percentage though) which apparently has been successful.
Don't notice many stocks that Buffett actually owns though. The only one of note is WMT. I also note that they have a 50% turnover rate, again quite un-Buffett-like.
"As the founder of GuruFocus.com, many people naturally assume that I have a degree in finance, or some other closely related field. However, I actually possess a Ph.D. in physics.
I worked as a research scientist at a giant telecommunications company, publishing many scientific papers and hold 35 U.S. and international patents.
But I Had One Problem: I had absolutely no knowledge whatsoever when it came to investing. At the peak of the internet bubble, I was buying shares in fiber optic companies which I thought had the brightest future. My fiber optics stocks quickly doubled or tripled. Making money with stocks was easy, I thought. Then the bubble burst...
It was then that I learned about Warren Buffett, Ben Graham, and Peter Lynch."
***
I wonder how successful Charlie is as an investor now? However I assume that gurufocus has turned into a successful business. [Hopefully for him, enough of these $249 memberships will add up. A bargain, still the same price since 2007.] So I suppose one must assume he's now a successful businessman.
He invests his own money in the Buffett-Munger model portfolio (don't know what percentage though) which apparently has been successful.
Don't notice many stocks that Buffett actually owns though. The only one of note is WMT. I also note that they have a 50% turnover rate, again quite un-Buffett-like.
Friday, January 04, 2013
10 Stocks to Last The Decade
Barry Ritholtz looks back at Fortune's 10 Stocks To Last The Decade from 2000:
1. NokiaRitholtz writes:
2. Nortel Networks
3. Enron
4. Oracle
5. Broadcom
6. Viacom
7. Univision
8. Charles Schwab
9. Morgan Stanley Dean Witter
10. Genentech
The portfolio managed to lose 74.31%, with 3 bankruptcies, one bailout, and not a single winner in the bunch. Even the Roche Holdings takeover of Genentech was for 37% below the suggested purchase price. The lesson is that valuation matters.
2012 Predictions
Rather than insult you with another list of predictions for the year
ahead, I find it more valuable to look back at how some of last year's
prediction lists fared. A year ago, analysts were making a variety of
predictions, but there was one common theme: Most of them were wrong.
Dead wrong.
***
From John Paulson’s call for a collapse in Europe to Morgan Stanley (MS)’s warning that U.S. stocks would decline, Wall Street got little right in its prognosis for the year just ended.
Paulson, who manages $19 billion in hedge funds, said the euro would fall apart and bet against the region’s debt. Morgan Stanley predicted the Standard & Poor’s 500 Index would lose 7 percent and Credit Suisse Group AG (CSGN) foresaw wider swings in equity prices. All of them proved wrong last year and investors would have done better listening to Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein, who said the real risk was being too pessimistic.
***
From John Paulson’s call for a collapse in Europe to Morgan Stanley (MS)’s warning that U.S. stocks would decline, Wall Street got little right in its prognosis for the year just ended.
Paulson, who manages $19 billion in hedge funds, said the euro would fall apart and bet against the region’s debt. Morgan Stanley predicted the Standard & Poor’s 500 Index would lose 7 percent and Credit Suisse Group AG (CSGN) foresaw wider swings in equity prices. All of them proved wrong last year and investors would have done better listening to Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein, who said the real risk was being too pessimistic.
Wednesday, January 02, 2013
tax rates on dividends still attractive
The bad news is that taxes on dividends were raised in the negotiations over the fiscal cliff that ended on Tuesday.
Now the good news in the dividend rates is this: The talk before this weekend was that going over the fiscal cliff meant dividends would be taxed as ordinary income -- as they were under the Reagan administration's 1986 tax law.
In other words, investors were looking at a 39.6% rate or higher on dividends.
No wonder companies like Wynn Resorts (WYNN +4.96%), Las Vegas Sands (LVS +5.61%) and others declared special dividends to return cash to shareholders (often the CEO) before higher tax rates kicked in.
Didn't happen. And dividend-paying stocks will still attract investors looking for income.
The bill that Congress passed and President Obama says he will sign
raises the top rate on dividends to 20%. But that rate applies only if
you are single earning $400,000 or more a year or if you're married and
filing jointly and earning $450,000 a year or more.
For everyone else, the rate on dividends is still 15%. The bill also capped taxes on capital gains at 15% and 20% for the most affluent.
Now the good news in the dividend rates is this: The talk before this weekend was that going over the fiscal cliff meant dividends would be taxed as ordinary income -- as they were under the Reagan administration's 1986 tax law.
In other words, investors were looking at a 39.6% rate or higher on dividends.
No wonder companies like Wynn Resorts (WYNN +4.96%), Las Vegas Sands (LVS +5.61%) and others declared special dividends to return cash to shareholders (often the CEO) before higher tax rates kicked in.
Didn't happen. And dividend-paying stocks will still attract investors looking for income.
For everyone else, the rate on dividends is still 15%. The bill also capped taxes on capital gains at 15% and 20% for the most affluent.
Result: Dividend-paying stocks like AT&T (T +3.83%), Merck (MRK), Washington Real Estate Investment Trust (WRT -0.46%), Edison International (EIX +1.81%) and Pfizer (PFE +3.31%) enjoyed solid gains. AT&T jumped $1.29 to $35. Coca-Cola (KO +3.72%) climbed $1.35 to $37.60.
Monday, December 31, 2012
the fiscal cliff
[2/19/13] Holding their noses, senators of both parties came together to pass overwhelmingly (89–8) a tax bill that preserves the Bush-era income tax rates for 99% of Americans. After some rumbles, the House of Representatives cleared the measure the next day by a solid bipartisan majority.
I’m not happy with everything in the new law. (It does nothing to alter the 3.8% Obamacare surcharge on high earners’ investment income, for example.) However, I’m pleased that the basic 15% tax rate on dividends and long-term capital gains has been made permanent for most taxpayers. Even the “rich” will pay a lower rate on dividends under Obama than they did under Ronald Reagan!
Far from being an economic disaster, the new tax regime should promote growth, at least marginally, by reducing uncertainty and preserving significant incentives to save and invest.
[Profitable Investing February 2013]
[1/1/13] WASHINGTON (Reuters) - The U.S. Congress approved a rare tax increase on Tuesday that will hit the nation's wealthiest households in a bipartisan budget deal that stops the world's largest economy from falling into a deep fiscal crisis and recession.
By a vote of 257 to 167, the Republican-controlled House of Representatives approved a bill that fulfills President Barack Obama's re-election promise to raise taxes on top earners.
The Senate passed the measure earlier in a rare New Year's Day session and Obama is expected to sign it into law shortly.
The United States will no longer go over a "fiscal cliff" of tax hikes and spending cuts that had been due to come into force on Tuesday but other bruising budget battles lie ahead in the next two months.
It was a reversal for House Republicans, who were in disarray despite winning deep spending cuts in earlier budget fights. But they saw their leverage slip away this time when they were unable to unite behind any alternative to Obama's proposal.
House Speaker John Boehner and other Republican House leaders stayed silent during the debate on the House floor, an unusual move for a major vote.
The deal shatters two decades of Republican anti-tax orthodoxy by raising rates on the wealthiest even as it makes cuts for everybody else permanent.
[12/31/12] WASHINGTON » Squarely in the spotlight, House Republicans were deciding their next move today after the Senate overwhelmingly approved compromise legislation negating a fiscal cliff of across-the-board tax increases and sweeping spending cuts to the Pentagon and other government agencies.
House Speaker John Boehner met with rank-and-file GOP lawmakers to gauge support for the accord, and an aide said GOP leaders would not decide their course until a second meeting later in the day. That suggested that House voting might not occur early.
*** [11/17/12] What happens if we fall off the cliff? According to Dan Newman (relaying the CBO):
The deficit would shrink to 0.4% of GDP by 2018 compared to 4.2% (in the alternative scenario where all tax cuts except the payroll tax cut are extended, the alternative minimum tax is indexed for inflation, Medicare payment rates are not cut, and the automatic spending cuts don't happen.)
Debt would go down to 60% of GDP compared to 90%.
Unemployment would rise to 9% compared to 8%, but would go down to about 5% in 2022 in either scenario.
GDP growth would go down to 0.5% compared to about 1.7%. However by 2022, GDP growth would be about 2.3% compared to about 2.0%.
[So, according to this, falling off the cliff would actually be better in the longer run.]
I’m not happy with everything in the new law. (It does nothing to alter the 3.8% Obamacare surcharge on high earners’ investment income, for example.) However, I’m pleased that the basic 15% tax rate on dividends and long-term capital gains has been made permanent for most taxpayers. Even the “rich” will pay a lower rate on dividends under Obama than they did under Ronald Reagan!
Far from being an economic disaster, the new tax regime should promote growth, at least marginally, by reducing uncertainty and preserving significant incentives to save and invest.
[Profitable Investing February 2013]
[1/1/13] WASHINGTON (Reuters) - The U.S. Congress approved a rare tax increase on Tuesday that will hit the nation's wealthiest households in a bipartisan budget deal that stops the world's largest economy from falling into a deep fiscal crisis and recession.
By a vote of 257 to 167, the Republican-controlled House of Representatives approved a bill that fulfills President Barack Obama's re-election promise to raise taxes on top earners.
The Senate passed the measure earlier in a rare New Year's Day session and Obama is expected to sign it into law shortly.
The United States will no longer go over a "fiscal cliff" of tax hikes and spending cuts that had been due to come into force on Tuesday but other bruising budget battles lie ahead in the next two months.
It was a reversal for House Republicans, who were in disarray despite winning deep spending cuts in earlier budget fights. But they saw their leverage slip away this time when they were unable to unite behind any alternative to Obama's proposal.
House Speaker John Boehner and other Republican House leaders stayed silent during the debate on the House floor, an unusual move for a major vote.
The deal shatters two decades of Republican anti-tax orthodoxy by raising rates on the wealthiest even as it makes cuts for everybody else permanent.
[12/31/12] WASHINGTON » Squarely in the spotlight, House Republicans were deciding their next move today after the Senate overwhelmingly approved compromise legislation negating a fiscal cliff of across-the-board tax increases and sweeping spending cuts to the Pentagon and other government agencies.
In a New Year's drama that climaxed in the middle of the night, the Senate endorsed the legislation by 89-8 early Tuesday.
It would prevent middle-class
taxes from going up but would raise rates on higher incomes. It would
also block spending cuts for two months, extend unemployment benefits
for the long-term jobless, prevent a 27 percent cut in fees for doctors
who treat Medicare patients and prevent a spike in milk prices.
The measure ensures that
lawmakers will have to revisit difficult budget questions in just a few
weeks, as relief from painful spending cuts expires and the government
requires an increase in its borrowing cap.
House Speaker John Boehner met with rank-and-file GOP lawmakers to gauge support for the accord, and an aide said GOP leaders would not decide their course until a second meeting later in the day. That suggested that House voting might not occur early.
*** [11/17/12] What happens if we fall off the cliff? According to Dan Newman (relaying the CBO):
The deficit would shrink to 0.4% of GDP by 2018 compared to 4.2% (in the alternative scenario where all tax cuts except the payroll tax cut are extended, the alternative minimum tax is indexed for inflation, Medicare payment rates are not cut, and the automatic spending cuts don't happen.)
Debt would go down to 60% of GDP compared to 90%.
Unemployment would rise to 9% compared to 8%, but would go down to about 5% in 2022 in either scenario.
GDP growth would go down to 0.5% compared to about 1.7%. However by 2022, GDP growth would be about 2.3% compared to about 2.0%.
[So, according to this, falling off the cliff would actually be better in the longer run.]
Friday, December 28, 2012
outflows continue (for actively managed funds)
[6/3/13] The ongoing rally in the U.S. equity markets (with the S&P 500 TR
Index up 16.7% since the start of the year) has done nothing to persuade
investors to put more capital into actively managed U.S. equity funds,
according to the most recent fund flow data provided by Morningstar
Direct. Much as we've seen the past five years, the majority of the
capital that has been going into equities is being directed at passively
managed products--index funds and exchange-traded funds--which have
become the default option for investors looking to gain exposure to
equities.
Even as the U.S. equity markets gained more ground in the second quarter (with the S&P 500 TR Index up more than 5% since the end of March), investors have reverted to shunning actively managed U.S. equity funds, with January just a blip in what has been a six-year trend of outflows from the category. Flows have been positive for actively managed U.S. equity funds in just 13 out of 72 months, with more than half of those positive flow periods occurring during the first two months of the calendar year. This means that absent the portfolio rebalancing and retirement funding that typically takes place in the first quarter of any given year, the flow picture would be even more dire for managers of actively managed U.S. stock funds.
[2/4/13] At close to $130 billion, 2012 went down as another record year of outflows from actively managed U.S. stock funds, surpassing the $108 billion that flowed out of these funds during 2008 (according to data provided by Morningstar Direct). The results were less dire when excluding the impact of American Funds, which accounted for one third of the total outflows. That said, outflows are now coming from a much wider array of managers overall, with American Funds accounting for more than 40% of total outflows during both 2010 and 2011.
It also should be noted that December was the 22nd straight month of outflows from actively managed U.S. stock funds, with the segment seeing positive flows on only 12 occasions during the past five years: February 2008, April 2008, May 2008, August 2008, January 2009, April 2009, May 2009, June 2009, January 2010, April 2010, January 2011, and February 2011.
While actively managed U.S. stock funds stayed in net redemption mode last year, index funds and ETFs posted their best annual flows since the financial crisis. The biggest winner on the index side of the business continues to be Vanguard Total Stock Market Index, which until the end of last year tracked the MSCI U.S. Broad Market Index and accounted for more than half of the $24 billion that flowed into U.S. stock index funds during 2012.
Even after excluding the impact of net redemptions at American Funds, flows for actively managed international stock funds remained in negative territory during the latter half of 2012. Adjusted flows for the full year looked much better, though, with the more than $12 billion that flowed into the category during April accounting for the lion's share of the $13 billion in inflows that were recorded last year.
Much as we had anticipated, flows into taxable bond funds tapered off enough during November and December to keep 2012 from beating the record level of inflows that was recorded for the category during 2009. Flows into actively managed taxable bond funds of around $239 billion were about $17 billion shy of 2009 levels, while index fund inflows were about $9 billion lower than they were four years ago. Flows into taxable bond ETFs, though, were much stronger last year, with the more than $48 billion that flowed into the category not only $10 billion higher than 2009 levels but $5 billion higher than the record inflows of $43 billion in 2011.
Although 2012 was not a record year for taxable bond inflows, the fact that more than $314 billion flowed into the category last year continues to astound us, given that taxable bond yields remain at extremely low levels and the stock market (as exemplified by the S&P 500 TR Index) was up 16% during 2012. Add flows into tax-exempt fixed-income funds, and total inflows for bond funds overall were $368 billion last year (below the record level of $406 billion that flowed in during 2009), which compares with just over $45 billion in inflows for equities--U.S., sector, and international stock funds combined--during 2012, which is on par with 2009 results.
At this point of the cycle, it looks to us as if investors continue to be lured more by the notion of capital preservation than the potential for capital appreciation.
[12/28/12] While the passing of the elections last month eliminated one of the biggest uncertainties hanging over the markets, it was quickly replaced with concerns about the impending fiscal cliff and the impact that any negotiated deal (or lack of a deal) would have on not only the markets, but also tax rates. Even with all of the uncertainty we've seen in the markets this year, the S&P 500 TR Index was up nearly 15% through the end of November.
But such strong market returns have not translated into positive flows for actively managed U.S. stock funds, which remain in net redemption mode (versus what looks to be a near record year for passive equity flows). The nearly $115 billion that has flowed out of these funds since the start of the year has already surpassed the record $108 billion that flowed out of them during all of 2008.
With just one month left in the year, outflows from actively managed U.S. stock funds had already surpassed the record level of outflows during 2008. At close to $115 billion, outflows during the first 11 months of 2012 are already $6 billion higher than they were during 2008 and more than $14 billion higher than they were last year, which was the second-highest year of outflows on record (according to data provided by Morningstar Direct).
While actively managed U.S. stock funds remain in net redemption mode, index funds and ETFs dedicated to the category are on pace not only to surpass the level of inflows that were seen during 2011, but also post their best year since 2008. The big winner on the index side of the business continues to be Vanguard Total Stock Market Index, which currently tracks the MSCI U.S. Broad Market Index and has accounted for more than 40% of the $29 billion that has flowed into U.S. stock index funds this year.
*** [9/24/12]
Despite gains in the U.S. equity markets, as represented by the S&P 500 Index, during June (up 4.3%), July (up 1.0%), and August (up 2.3%), investors continued to pull money out of actively managed U.S. stock funds last month. This marks the 18th straight month of outflows from the category, leaving 2012 on pace to match the level of investor outflows that were recorded last year, which at $97 billion were second only to the nearly $115 billion that flowed out during 2008.
[see also]
Even as the U.S. equity markets gained more ground in the second quarter (with the S&P 500 TR Index up more than 5% since the end of March), investors have reverted to shunning actively managed U.S. equity funds, with January just a blip in what has been a six-year trend of outflows from the category. Flows have been positive for actively managed U.S. equity funds in just 13 out of 72 months, with more than half of those positive flow periods occurring during the first two months of the calendar year. This means that absent the portfolio rebalancing and retirement funding that typically takes place in the first quarter of any given year, the flow picture would be even more dire for managers of actively managed U.S. stock funds.
[2/4/13] At close to $130 billion, 2012 went down as another record year of outflows from actively managed U.S. stock funds, surpassing the $108 billion that flowed out of these funds during 2008 (according to data provided by Morningstar Direct). The results were less dire when excluding the impact of American Funds, which accounted for one third of the total outflows. That said, outflows are now coming from a much wider array of managers overall, with American Funds accounting for more than 40% of total outflows during both 2010 and 2011.
It also should be noted that December was the 22nd straight month of outflows from actively managed U.S. stock funds, with the segment seeing positive flows on only 12 occasions during the past five years: February 2008, April 2008, May 2008, August 2008, January 2009, April 2009, May 2009, June 2009, January 2010, April 2010, January 2011, and February 2011.
While actively managed U.S. stock funds stayed in net redemption mode last year, index funds and ETFs posted their best annual flows since the financial crisis. The biggest winner on the index side of the business continues to be Vanguard Total Stock Market Index, which until the end of last year tracked the MSCI U.S. Broad Market Index and accounted for more than half of the $24 billion that flowed into U.S. stock index funds during 2012.
Even after excluding the impact of net redemptions at American Funds, flows for actively managed international stock funds remained in negative territory during the latter half of 2012. Adjusted flows for the full year looked much better, though, with the more than $12 billion that flowed into the category during April accounting for the lion's share of the $13 billion in inflows that were recorded last year.
Much as we had anticipated, flows into taxable bond funds tapered off enough during November and December to keep 2012 from beating the record level of inflows that was recorded for the category during 2009. Flows into actively managed taxable bond funds of around $239 billion were about $17 billion shy of 2009 levels, while index fund inflows were about $9 billion lower than they were four years ago. Flows into taxable bond ETFs, though, were much stronger last year, with the more than $48 billion that flowed into the category not only $10 billion higher than 2009 levels but $5 billion higher than the record inflows of $43 billion in 2011.
Although 2012 was not a record year for taxable bond inflows, the fact that more than $314 billion flowed into the category last year continues to astound us, given that taxable bond yields remain at extremely low levels and the stock market (as exemplified by the S&P 500 TR Index) was up 16% during 2012. Add flows into tax-exempt fixed-income funds, and total inflows for bond funds overall were $368 billion last year (below the record level of $406 billion that flowed in during 2009), which compares with just over $45 billion in inflows for equities--U.S., sector, and international stock funds combined--during 2012, which is on par with 2009 results.
At this point of the cycle, it looks to us as if investors continue to be lured more by the notion of capital preservation than the potential for capital appreciation.
[12/28/12] While the passing of the elections last month eliminated one of the biggest uncertainties hanging over the markets, it was quickly replaced with concerns about the impending fiscal cliff and the impact that any negotiated deal (or lack of a deal) would have on not only the markets, but also tax rates. Even with all of the uncertainty we've seen in the markets this year, the S&P 500 TR Index was up nearly 15% through the end of November.
But such strong market returns have not translated into positive flows for actively managed U.S. stock funds, which remain in net redemption mode (versus what looks to be a near record year for passive equity flows). The nearly $115 billion that has flowed out of these funds since the start of the year has already surpassed the record $108 billion that flowed out of them during all of 2008.
With just one month left in the year, outflows from actively managed U.S. stock funds had already surpassed the record level of outflows during 2008. At close to $115 billion, outflows during the first 11 months of 2012 are already $6 billion higher than they were during 2008 and more than $14 billion higher than they were last year, which was the second-highest year of outflows on record (according to data provided by Morningstar Direct).
While actively managed U.S. stock funds remain in net redemption mode, index funds and ETFs dedicated to the category are on pace not only to surpass the level of inflows that were seen during 2011, but also post their best year since 2008. The big winner on the index side of the business continues to be Vanguard Total Stock Market Index, which currently tracks the MSCI U.S. Broad Market Index and has accounted for more than 40% of the $29 billion that has flowed into U.S. stock index funds this year.
*** [9/24/12]
Despite gains in the U.S. equity markets, as represented by the S&P 500 Index, during June (up 4.3%), July (up 1.0%), and August (up 2.3%), investors continued to pull money out of actively managed U.S. stock funds last month. This marks the 18th straight month of outflows from the category, leaving 2012 on pace to match the level of investor outflows that were recorded last year, which at $97 billion were second only to the nearly $115 billion that flowed out during 2008.
[see also]
Tuesday, December 25, 2012
Five surprising winners
We have just a few days to go in 2012, and the S&P 500 is up a
refreshingly robust 14% year to date. It may come as a surprise to see
the numbers lining up to make this year a slightly better than average
year for the markets.
Didn't we have a contentious presidential election? Isn't Europe still a mess? What about this fiscal cliff we keep hearing about?
Well, the market isn't the only surprising climber this year. Let's take a closer look at five well-known companies that are trading nicely higher in 2012.
Apple up 30%
Netflix up 36%
Amazon.com up 49%
Sears Holdings up 39%
Microsoft up 9%
Didn't we have a contentious presidential election? Isn't Europe still a mess? What about this fiscal cliff we keep hearing about?
Well, the market isn't the only surprising climber this year. Let's take a closer look at five well-known companies that are trading nicely higher in 2012.
Apple up 30%
Netflix up 36%
Amazon.com up 49%
Sears Holdings up 39%
Microsoft up 9%
Friday, December 07, 2012
the optimal tax rate
For most of the past six decades, the
U.S. government has taken a lenient approach toward taxingfinancial wealth. Dividends from stocks and gains on long-term
investments are currently taxed at 15 percent, compared with
rates on ordinary income as high as 35 percent. The differential
treatment has resulted in such attention-grabbing distortions as
Warren Buffett paying a smaller share of his income in taxes
than his secretary, and Mitt Romney paying an effective federal
rate of only 14.1 percent on $13.7 million in income last year.
In a certain kind of world, such a system makes sense. In the 1970s and 1980s, researchers built models of the economy showing that, if everyone started out with nothing, made money by working and didn’t pass anything on to their children, the optimal rate on investment income would be zero. The logic was that if you tax people once on their labor income, it’s not right to tax them again on the part that they set aside for the future. Doing so would inhibit saving, starving the economy of the investment it needs to grow. Fewer jobs would be created. Everyone would be worse off.
Now consider a different world. Here, some people are born well-off, with inheritances so large that they can live comfortably without working. Most, however, are born relatively poor, with little or no capital at all. In this world, taxing labor income alone would amplify the inequality by putting an outsized burden on people who work. Taxing capital, by contrast, would take some of the pressure off labor, increasing the incentive to work and providing a net benefit to the majority of the population.
The second world closely resembles the present-day U.S. As of 2010, the wealthiest 10 percent of families commanded about 75 percent of all households’ total net worth, while the poorest 50 percent held only 1 percent, according to Federal Reserve data. The distribution of inheritances is similar.
To get a sense of what tax rates should be in such a world, two researchers -- Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley -- built a model of the economy that took into account the vastly divergent financial endowments.
They found that the distribution of wealth makes a big difference: The more it’s concentrated in the hands of a few, the more the benefit of shifting the tax burden off labor income outweighs any potential negative impact on saving. They estimate that in the extremely concentrated case of the U.S., if the aim is to make humanity as a whole better off, the optimal tax rate on capital -- including bequests, corporate profits and investment income -- would be as much as 60 percent.
What does all this mean for the current U.S. tax system? It suggests that if you think the government needs more revenue to reduce its budget deficit, raising taxes on investment income is a good solution.
In a certain kind of world, such a system makes sense. In the 1970s and 1980s, researchers built models of the economy showing that, if everyone started out with nothing, made money by working and didn’t pass anything on to their children, the optimal rate on investment income would be zero. The logic was that if you tax people once on their labor income, it’s not right to tax them again on the part that they set aside for the future. Doing so would inhibit saving, starving the economy of the investment it needs to grow. Fewer jobs would be created. Everyone would be worse off.
Now consider a different world. Here, some people are born well-off, with inheritances so large that they can live comfortably without working. Most, however, are born relatively poor, with little or no capital at all. In this world, taxing labor income alone would amplify the inequality by putting an outsized burden on people who work. Taxing capital, by contrast, would take some of the pressure off labor, increasing the incentive to work and providing a net benefit to the majority of the population.
The second world closely resembles the present-day U.S. As of 2010, the wealthiest 10 percent of families commanded about 75 percent of all households’ total net worth, while the poorest 50 percent held only 1 percent, according to Federal Reserve data. The distribution of inheritances is similar.
To get a sense of what tax rates should be in such a world, two researchers -- Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley -- built a model of the economy that took into account the vastly divergent financial endowments.
They found that the distribution of wealth makes a big difference: The more it’s concentrated in the hands of a few, the more the benefit of shifting the tax burden off labor income outweighs any potential negative impact on saving. They estimate that in the extremely concentrated case of the U.S., if the aim is to make humanity as a whole better off, the optimal tax rate on capital -- including bequests, corporate profits and investment income -- would be as much as 60 percent.
What does all this mean for the current U.S. tax system? It suggests that if you think the government needs more revenue to reduce its budget deficit, raising taxes on investment income is a good solution.