Comments on FiveThirtyEight: Politics Done Right: What the Stock Market Really Thinks About the Econ...

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2009-10-10T04:18:44.642-04:00

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2009-03-19T04:00:00.000-04:00

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月兒宛如笑臉掛在夜空它散發射出溫暖的亮光

2009-03-13T04:03:00.000-04:00

月兒宛如笑臉掛在夜空它散發射出溫暖的亮光

Nate is a very smart guy, but I think he is out of...

2009-03-09T22:18:00.000-04:00

Nate is a very smart guy, but I think he is out of area of expertise here. He clearly does not have sufficient historical data to conclude that anything about these idexes is predictive.

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2009-03-09T08:38:00.000-04:00

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2009-03-07T08:54:00.000-05:00

Oh, plus on the banking side we know something is ...

2009-03-06T14:16:00.000-05:00

Oh, plus on the banking side we know something is coming but it's not there yet and we don't know what it is yet. So on top of the implications of regulation that you mention there is flat out uncertainty of which banks are in better position relative to the others and overall.

Because banks are going to make money again. The ones in the best positions are going to do just fine. While likely removing the wild, high risk based profits of relatively recent times, they'll do quite fine with those boring profits. :)

So anything financial based is getting beat up over uncertainty and that won't stop till the new regulations are spelled out and put in place (not something you can just overnight...and of course related to the appointment problems mentioned in a new post on this blog).

>> Be careful of the lowest P/Es in that list, a ...

2009-03-06T13:43:00.000-05:00

>> Be careful of the lowest P/Es in that list, a very low P/E usually indicates some risk that might not be immediately apparent, like pending litigation or critical contracts or a recent change in leadership or some other battle.

It can also mean pending pressure on sales and therefore profits. A case in point, I've been looking at YZC (Yanzhou Coal) that a good friend (and very successful and longtime value investor) holds. The P/E was crazy, a 2 I think, when he bought in. But there is/was both the risk you talk about (it's in China which has domestic political risks associated with that) and unlike most coal miners they do NOT hold a lot of long term contracts. They sell most of their coal on the spot market. Meaning the earnings side of the P/E was way out of whack to what it was about to become due to falling energy demand, especially with the still pending at the time tanking of the China manufacturing.

That's the unknown right now, where the bottom of the economy is. Already we are seeing that 8.1% unemployment number that Obama targeted for summer. Until investors see some proof that the economy is going to level out, that the first wave of the stimulus bill will actually do what it is intended to do, it's much more a faith call about what future earnings are going to be, where the bottom of those earnings are. Uncertainty. So it is rational emotion because you've got this big hole in the hard data to fill.

We won't see the bottom of the stock market till there is a critical mass of people that are convinced we have a firmer number on the bottom of the economy with which to assess a firmer number for future earnings.

Though I follow 538 religiously, I rarely have the...

2009-03-06T13:39:00.000-05:00

Though I follow 538 religiously, I rarely have the time (or access - due to my work almost any public forum or non-controlled communication is limited) to post on here, but reading this thread, I wanted to ask for some guidance from the regulars:

PeteKent -- troll, or did Rushbo switch from Oxycontin to Adderall?

fred,just because you were stupid enough to buy in...

2009-03-06T11:28:00.000-05:00

fred,
just because you were stupid enough to buy into Reagan's ponzi scheme with the Stock Market, doesn't mean that the rest of us should have to suffer to keep your retirement, which probably isn't even close to how big it should be, even if the stock market had kept up at 8% a year... $1 million, per person to retire on. that's what's called for.

and, yes, fred, we know. GM is a bank. So are the other auto companies, Cerberus included.

So, if I understand this correctly, Nate is saying...

2009-03-06T10:23:00.000-05:00

So, if I understand this correctly, Nate is saying that a bloodbath in the stock market does not represent a loss in confidence, as long as discretionaries don't take more of a beating than staples?

Nate's argument makes a certain amount of sense, but you'd have to be living under a rock to not notice that the mood of 2009 is apocalyptic compared to 2008 or 2007.

Looking at the composition of the "spiders," I question whether they measure what they're supposed to measure. Here they are:

http://www.sectorspdr.com/spdr/composition/?symbol=XLY
http://www.sectorspdr.com/spdr/composition/?symbol=XLP

Walmart is a staple (in reality they sell a bunch of plastic crap that you can do without), but Target is discretionary, even though it's just a slightly upscale version of Walmart. Cigarettes are staples. Restaurants are discretionary (in particular, McDonald's amounts to over 11% of the weight of the discretionary side), but Sysco, which sells food to restaurants, is a staple. Soft drinks are staples. TV (comcast, DirectTV and Time Warner, amounting to 13%) are discretionary, as if they aren't the cheapest entertainment which will be the last thing to go.

Do we really expect people to stop going to McDonald's during a recession (once again, McD's amounts to 11% of the weight of the discretionary spider)? With their dollar menu, and their free kids' playground? But they're going to keep buying Pepsi (which nobody needs and has cheaper generic knockoffs) - but at Walmart, not Target, or at restaurants that are supplied by Sysco?

Have these spiders been validated in any way? And has the CEI been validated against other measures of investor confidence in the economy?

@Harold:Yes, but stocks DO represent ownership sha...

2009-03-06T08:53:00.000-05:00

@Harold:

Yes, but stocks DO represent ownership share in a company, and they must EVENTUALLY come to reflect that value, sooner or later.

Only in a literal sense, but the vast majority of investors don't see it that way. The book value of Microsoft or Apple is 25% and 30% of shares, respectively, and you can't really count on even that.

What people are buying is growth, which is to say, earnings per share. The Dow reflects how much people are willing to pay for a dollar of earnings; and currently, it is running at about $12. (P/E of 12). In 1982 the Dow dropped to a post WW II low with a P/E of 7. If we hit that level, it will drop to 3850.

I don't think things are that uncertain; actually. I don't think we will break a P/E of 10, about 5400. It would take a combination of uncertainty and inflation to drive us another 30% down to 7; but I suppose we will see.

In the meantime, screen for companies with low P/E and actual earnings, and verify they won't be going out of business in the next five years, and wait for it. The best thing investors can do now is assume Obama will not wimp out. That means screen for companies selling real products and services at a real profit. By "real products" I mean something you can understand and believe has a market in a recessionary future. Buy the companies you like in the bottom half of the P/E range. Be careful of the lowest P/Es in that list, a very low P/E usually indicates some risk that might not be immediately apparent, like pending litigation or critical contracts or a recent change in leadership or some other battle. Do your due diligence. Assume the days of easy money and Ponzi schemes are over.

Most professional investors are making that assumption, and that is why the market is tanking. It is rational, not emotional.

@G:Yeah, Cramer is an idiot. I don't understand wh...

2009-03-06T08:18:00.000-05:00

@G:

Yeah, Cramer is an idiot. I don't understand why he is still on shows; he was advocating buying Bear Stearns weeks before it collapsed, and Lehman, and so many other jaw-dropping losers it is unbelievable if it weren't on tape.

However, the reactions to Obama's plans (which I wish were larger) is not just psychological, it is rational.

Obama's plans will (rightly) re-regulate the market, perhaps reinstate Glass-Steagal or something similarly tough, demand new limits on leverage, and in general make it impossible for banks and investment firms to engage in the 30:1 leverage they had (Bear Stearns) or the 75:1 leverage that bankrupted Lehman.

As it should.

This change in the rules will force banks back onto the sidelines, watching others make money while they plod along, scrimp and save with net incomes at 6% to 10% of deposits, depending on whether they fund credit cards.

It is questionable whether they can do that; but it was only ten years ago they could, so hopefully there remains some institutional memory of how to make that work.

It isn't psychological. Market dependencies are complex, but a rational assessment of the future market makes a lot of businesses stop making sense as they are.

The market must revert to the pre-bubble baseline, and I would not be surprised to see it hit 5400.

The size of his budget is no big deal; the interest on a trillion dollars works out to 1/2 of 1% of our national income, and even that small amount is going to be shifted primarily to the wealthy as a 3% tax increase on the top 2.5%. It may be slightly inflationary, but if he pays it down, it won't be even that.

The storm and thunder and collapse of the stock market are all about the coming regulations and the reversion of the banking system.

Juris-Pretty clearly I want a market turn.The CEI ...

2009-03-06T07:48:00.000-05:00

Juris-

Pretty clearly I want a market turn.

The CEI to me simply means the indicies are falling at the same rate, and that seems unlikely to me to be meaningful - maybe it will be if the market turns but we are in a death sprial now.

As for my points - Obama is adding huge uncertainty to markets that like certainty, I just wish he could do a few small things and wait for the market turn and use his power now to actually get folks appointed to his economic team.

Harold said:"Yes, but stocks DO represent ownershi...

2009-03-06T01:31:00.000-05:00

Harold said:

"Yes, but stocks DO represent ownership share in a company, and they must EVENTUALLY come to reflect that value, sooner or later"

That can be untrue or a tautology, depending on how you look at it. With many businesses the value of the stock directly affects the value of the company in all sorts of ways, and you can get a form of deflationary spiral.

The stock goes down. The company reacts. The reaction worsens the company's position which further weakens the stock.

Some ways the stock price can feed back:

The value of options

The reduced ability to use stock instead of cash for acquisitions.

management fear of being a takeover target causing defensive measures like loading up on debt or spinning off divisions.

raiders seeking to "maxmize corporate value" by breaking up the company or milking it.

Fear affecting the company's credit rating.

reduction in value of company stock used as collateral

I'm sure you could think of more once you started looking at it.

The problem is that the stock market is attempting to predict the unpredictable. It's an unstable control system with delays and feedback. It tries to track future value but has to settle for proxies of dubious merit. You can't compensate for bad data by cranking up the gain. You make the system more sensitive, but not more accurate.

If you're trying to make chicken salad from chicken droppings, the solution isn't to buy a new blender.

It is always interesting to see the attacks upon a...

2009-03-06T00:05:00.000-05:00

It is always interesting to see the attacks upon a idea. The first is the ad hominem attack as demonstrated by PeteKent, who follows up with silly insults.

This post really sums up the pity party whining I have been having a difficult time understanding, coming from the CNBC commentators, and really drawn to a pimple head by Cramer tonight with an incredible demonstration of childish behavior (on the other hand market commentators flip flop like weather vanes in a tornado).

Thus far almost no capital (monies to or from) has really been transferred or taken from the Obama stimulus or the Obama tax reform or the Obama green promotion or the Obama health reform. Any reaction of the stock market is clearly and strictly psychological.

Like the response today to the wavering Chinese stimulus.

Sure wish the stock market would respond to earnings and not ideology.

I'm not sure how we got onto patent law, but I can...

2009-03-05T22:50:00.000-05:00

I'm not sure how we got onto patent law, but I can't resist throwing out a statement of support for patent reform: reducing the duration of some patents, preventing patent squatting on common-sense ideas, etc. We also need copyright reform, with a reduction in the duration of copyright and clear definition of fair use.

@fred: If you've had any money in a market index ...

2009-03-05T22:32:00.000-05:00

@fred: If you've had any money in a market index fund for the last few years you know that the big collapse of the market bubble began in late 2007. It's been pretty much down hill since then.

If you have any awareness of when the bailouts occurred, and how weirdly McCain behaved before endorsing them wholeheartedly as Congress as a whole voted for them, and how strangly Paulson acted once he had the TARP money, you would also realize when and how all this mess started and how inadequate was the initial government response to the housing collapse and the whole house of financial cards collapsing.

And that's without going into the specifics of how the bubble grew in the first place, with virtually unregulated frontier capitalism for several years.

OK, so Obama hasn't been able to reverse the slide. Most of us are hoping he will (are you?), but it's stupid to think it could be reversed in a month. This slide is an avalanche and has a lot of momentum.

As for Nate's analysis, he's not saying anything but that things are in very bad shape, but his CEI may be a better way to capture the timing and depth of the situation than just looking at the Dow. And that's potentially useful.

Stick around, and we'll get some feedback from economists who play with this kind of index. In the meantime 90% of the comment on this thread haven't evaluated the article at all -- I mean haven't even tried to do so.

@Fred WRONG! R and D can be done anywhere and pate...

2009-03-05T22:28:00.000-05:00

@Fred WRONG! R and D can be done anywhere and patented here,
Exactly my point. US patents are easy to get and we're a big market, so why not develop IP overseas and patent it here?
go read the PCT treaty.
Check.
You manufacture here because your patent and trade secrets cannot be protected in China
Um, no, you manufacture in China because your competitor's patents and trade secrets are invalid or uninforcable in China. At least that's been a factor for most of the Chinese factories I've visited.

Apparently, you angrily agree with me. Fine. We agree that strong US patent laws facilitate the flight of R&D overseas.

Hmmm, how about 3 month movement of the market an...

2009-03-05T21:52:00.000-05:00

Hmmm, how about 3 month movement of the market and Nate acting like a complete idiot by acting like two indices falling scarily fast, but at the same rate, makes it all good.

This is not normal, this is historically bad, and very close to a first for a collapse. But hey, party on, keep acting like it is all good! Your generation can screw the democratic party just like Carter did. Party on, but only if your IQ is below 80.

I know I'm late to the party, but I couldn't resis...

2009-03-05T21:14:00.000-05:00

I know I'm late to the party, but I couldn't resist this:
Hopelessly simplistic data sets for a highly-complex organism.

The message from the stock market couldn't be clearer. People are scared to death and everything this administration does and says makes them scarederer.
So Nate is "hopelessly simplistic" by examining two indices in depth, yet somehow Rudy is just on the money using one number to "explain" that the "market couldn't be clearer".

Anyone who reads anything into a one-day (or even two-week) movement of the market deserves to lose all the money he's gonna be losing.

PeteRant used to post the Republican talking point...

2009-03-05T21:11:00.000-05:00

PeteRant used to post the Republican talking points with great accuracy. But he is now down to embarassing himself as he misrepresents posts he can barely understand.

He is becoming the new MuleRider. Time for moderation here to extirpate the trolls and the fools. A full time job with PeteRant and Jack-be-Simple around.

Aw, no post about this?http://tpmdc.talkingpointsm...

2009-03-05T20:57:00.000-05:00

Aw, no post about this?

http://tpmdc.talkingpointsmemo.com/2009/03/poll-vitter-below-50-for-2010----in-both-primary-and-general-elections.php

I know Nate said that Vitter wasn't in trouble, but how beautiful would it be to see him primaried for real and not just by Stormy Daniels?

I don't know about his head, but he has a small br...

2009-03-05T20:48:00.000-05:00

I don't know about his head, but he has a small brain pretty clearly. How could you screw up so bad, so fast?

Is it just me or does Michael Steele have a tiny h...

2009-03-05T20:47:00.000-05:00

Is it just me or does Michael Steele have a tiny head?

Comments on FiveThirtyEight: Politics Done Right: What the Stock Market Really Thinks About the Econ...

酒店經紀人, 菲梵酒店經紀, 酒店經紀, 禮服酒店上班, 酒店小姐兼職, 便服酒店經紀, ...

帶著簡單的行囊,來花蓮旅遊走走,順便體驗一下各種花蓮民宿帶給你的不同感受,品嚐道地花蓮美食的特別花蓮...

月 兒 宛 如 笑 臉 掛 在 夜 空 它 散 發 射 出 溫 暖 的 亮 光

Nate is a very smart guy, but I think he is out of...

情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣,情趣用品,情趣用品,情趣用品,情趣用品,...

看房子,買房子,建商自售,自售,台北新成屋,台北豪宅,新成屋,豪宅,美髮儀器,美髮,儀器,髮型,EM...

Oh, plus on the banking side we know something is ...

>> Be careful of the lowest P/Es in that list, a ...

Though I follow 538 religiously, I rarely have the...

fred,just because you were stupid enough to buy in...

So, if I understand this correctly, Nate is saying...

@Harold:Yes, but stocks DO represent ownership sha...

@G:Yeah, Cramer is an idiot. I don't understand wh...

Juris-Pretty clearly I want a market turn.The CEI ...

Harold said:"Yes, but stocks DO represent ownershi...

It is always interesting to see the attacks upon a...

I'm not sure how we got onto patent law, but I can...

@fred: If you've had any money in a market index ...

@Fred WRONG! R and D can be done anywhere and pate...

Hmmm, how about 3 month movement of the market an...

I know I'm late to the party, but I couldn't resis...

PeteRant used to post the Republican talking point...

Aw, no post about this?http://tpmdc.talkingpointsm...

I don't know about his head, but he has a small br...

Is it just me or does Michael Steele have a tiny h...

月兒宛如笑臉掛在夜空它散發射出溫暖的亮光