Sexy is scary I

Butterwood argues in the Economist that the U.S. stock market is overvalued.  At 32.8, the Cyclically adjusted price earnings ratio (CAPE) is certainly pricey.  Perhaps that is one reason investors have backed off some of their love affair with FAANG stocks.

Buttonwood cites research by Research Affiliates, a fund-management group.
You can hear the authors of the research ("Cape Fear: Why CAPE Naysayers Are Wrong"), Rob Arnott Vitali Kalesnik Jim Masturzo, explain their thesis in in this video.

What is The Millennials' Biggest Investment Mistake?

Liz Ann Sonders of Charles Schwab speaks to Barrons about "The Biggest Mistake Millennial Investors Make." Gunshy from two grand bear markets, they fail to see that a market crash is not their only risk. Here's how to protect against other risks as well:

News from the FT & WSJ Today

Bonfire of Wall St analysts burns some big names

Snap's $19.7bn IPO explained

The February Jobs Report in 11 Charts

Analysis: Strong February Jobs Report 3/10/2017 9:44AM WSJ's Paul Vigna and Nick Timiraos analyze the February employment report, representing the first full month of the Trump administration. They discuss whether the upbeat payrolls and hourly wages figures are likely to give the Federal Reserve the green light to carry out several interest rate increases this year. Photo: iStock

Fast Growing Companies at Value Prices

12/30/2016 5:06PM Heidi Heikenfeld, manager of the Oppenheimer Emerging Markets Innovators fund, is finding health care and tech stocks selling cheaply relative to their growth rates.

Time For Value?

The bottom 20% of the S&P500 ranked by P/E ratio is selling at 10.2 times earnings versus 52.2 times earnings for the top quintile. Is now the time to go for value? 

Here are the views of three value managers interviewed by Barrons: 


4 Deep Value Stocks to Buy Now 9/21/2016 7:00AM Fund manager Bill Smead says Bank of America shares are ready to soar along with three other underpriced companies.  
4 Undervalued Stocks from Scott Black 10/23/2016 8:19AM The Boston-based value investor makes the case for Shire, Carnival, Celestica, and Lionbridge.

Financial Stocks: Undervalued, Earnings Growing 12/9/2015 2:56PM With a Fed rate hike (possibly) around the corner, portfolio manager Chris Davis lists 3 favorite stocks and many reasons he thinks they can beat the market in coming years.

India's Stock Market Outlook

During its October 10th, 2015 Asia Form, Barron's Isabella Zhong interviews Invesco's Paul Chan on what's ahead for India stocks, interest rates and the spending power of India's growing number of consumers.

Must One Be Bearish About China's Stocks and the Yuan?

Yuan Devaluation? Think Again. 10/10/2015 12:05AM Isabella Zhong asks Gavekal's Louis Gave talks about China's correction, what's ahead for the yuan, and why he likes Chinese airport stocks in this October 10th, 2015 video:

Dividends: To Pay or Not To Pay, That Is the Question.

Dividends do not matter

Oct 9, 2013 : Low bond yields have led investors to place more importance on stock dividends. John Authers argues that these are special circumstances, and that there is still some truth in the Miller & Modigliani theorem – which implies dividends do not matter.  He is referring to the M&M Dividend Irrelevance, as opposed to the M&M capital structure irrelevance:

Is the Dow Fatally Flawed? Maybr Not.

Defending the anachronistic Dow

Sep 23, 2013 : The Dow Jones Industrial Average is the world’s longest running stock index. Long View columnist John Authers argues it is on its last legs and David Blitzer, chairman of the index committee at S&P Dow Jones, tells him why it might still be useful:

When Will They Ever Learn? II

“The Big Picture” blogger and Fusion IQ CEO Barry Ritholtz looks back at the events of 2008 and makes the case for the true legacy of the financial collapse and ask, "Did Anyone Learn From the Financial Crisis?"

How Bad Is It to Get Kicked Out of the Dow?

The Dow Jones Industrial Average is just that: an average.  It is not a stock price index.  Yet it is the oldest stock market indicator in use today and as the flagship indicator of Dow Jones (Wall Street Journal, Barron's, Market Watch, etc.) it gets far more notoriety than any of the stock price indices.  When the Dow changes, it is big news.

The powers that be are kicking Alcoa ($14-15), Hewlett-Packert (c.$22), and Bank of America (c. $8) out and adding Goldman Sachs ($165), Nike ($66) and Visa ($184).  The stock prices in parentheses tell the story.  The Dow is implicitly weighted by stock price.  Companies with low stock prices have little effect on the Average, while companies with higher prices have a bigger impact.  It has nothing to do with their market capitalization, sales, or assets.


Look at the evictees and the newcomers' betas: Alcoa (1.89), Hewlett-Packert (1.64), and Bank of America (2.07) Goldman Sachs (1.85), Nike (.61) and Visa (.45). The changes appear to reduce the Dow's systematic risk.

MoneyBeat's Paul Vigna interviews David Blitzer, managing director and chairman of the Index Committee S&P Dow Jones Indices, to get the scoop:

Cheap Or Dear?

Cheap or dear? That is the question: Whether it is nobler for the pocketbook to buy stocks or sell them! Aye, there's the rub.  

The FT's John Authers squares Robert Shiller off against Jeremy Siegel in a debate over whether stocks are over priced or under priced.

I met Robert Shiller when he was first attacking the Efficient Market Hypothesis, a dogma that commanded stronger belief among finance professors than the Real Presence did from Catholics at the time.  He showed statistically that if stocks represent the present value of future earnings and/or dividends, stock prices are much too volatile to be correctly valued.  Later he took the profession on using the Cyclically Adjusted Price Earnings Ratio as his lance.  You can link to his data online.

Market strategists and the like have tried to use it to guage when the market as a whole is too dear or too cheap.  Shiller's measure is signalling stock prices are too rich in Great Britain and the U.S.  

Jeremy Siegel, like Shiller a student of long data trends, argues against this conclusion and, specifically, that "The ratio’s pessimistic predictions are based on biased data."  The problem with any P/E ratio is measuring the denominator.  Earnings reflect accounting and even adjusted for inflation, as Shiller does, may not be the proper measure.  Earnings are affected by companies' use of leverage and the growth in earnings is affected by firms dividend payout practices.  Faster earnings growth should be associated with higher valuations.

One factor neither seems to address is my observation that the business cycle is now a ten year cycle in the image of the nineteenth century British trade cycle.  This is a departure from the immediate postwar cycle which was a five year inventory cycle.

As an investor, you still have to choose whether to buy and hold or make timly entries into and out of the market:  "The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings."

Danger: Low Returns Ahead

In this video James Mackintosh talks about his article, "Be prepared for future low returns," which appeared in the Financial Times on February 10th.  Low interest rates now mean lousy returns for both stocks and bonds.  This is based on work by three academics from the London School of Economics:  "Looking across 20 countries since 1900, Elroy Dimson, Paul Marsh and Mike Staunton of London Business School found a clear link between real interest rates and future returns."  Their research can be found in the Credit Suisse Global Investment Returns Yearbook 2013. It is free.

Six High-Dividend Stocks With Upside Potential

On MarketWatch, Laura Mandaro discusses six stocks in the S&P 500 that currently pay a dividend yield in excess of four percentage points and sport market capitalizations greater than $10 billion and therefore are among hedge funds' favorites.

The Yen's Down; the Nikkei's Up

The Nikkei 225 jumped nearly 4 per cent on Wednesday, Since the financial crisis, thaat is its tenth best day since the financial crisis. 

In this four minute, nine second video, the FT's investment editor, James Mackintosh, attributes this primarily to the weakening of the yen. 

Careful: the return recently in $s is not the same as that in ¥s.

 

Blankfein Is Bullish on the U.S. Economy & Stocks

Davos, Switzerland is where the world's fanciest people get together, network, and opine about the world.  

In this video, CNBC's Andrew Ross Sorkin and Lloyd Blankfein, Goldman Sachs chairman & CEO, discuss the global economic outlook. 

From the World Economic Forum:

Stuttering Santander

In this FT video (2m 41sec), Stuart Kirk and Oliver Ralph discuss Spain's premier bank, Santander.  Globalizing itself with major invasion into Latin America primarily, it has gone all out for growth over the past decade.  This diversification out of its home market has proven wise.  Spain is doing badly with 20% unemployment.  The path to earnings growth has not been a Yellow BRIC Walk. Its emerging market hope, Brazil, is falling short of expectations. 

 

 

The Great Rotation Part II

In this second video (4m 19sec), those hoping for a "great rotation" from bonds to stocks might start by looking for smaller rotations within the equity market. James Mackintosh, investment editor, says the signs are mixed.

Fed's Forecast to 2014

MarketWatch.com columnist columnist Chuck Jaffe visits Mean Street to discuss how the Federal Reserve, by keeping interest rates low for several years, is pushing savers to risky territory (1/30/2012):

Is it 2008 all Over Again?

In an FT video, Michael McKenzie tells us that investors are returning to a 2008 mindset. 
"Equity investors are battening down the hatches and fearing the worst as a resolution of the eurozone crisis appears forlorn and the Fed's fiscal stimulus misfires." (2m 28sec)