99% Gagaisten bei Ariva! Lernt ihr nie was?
1) Aktien können auch FALLEN! Nur zur Erinnerung!
2) Auch wenn Aktien um 90 Prozent gefallen sind, können sie weitere 90 Prozent fallen! Offenbar genügt es manchen Anlegern am Neuen Markt nicht, wenn sie zwei Drittel ihres Geldes schon verloren haben! Sie wollen vom Rest nochmals 2/3 verlieren!
3) Die Blindpuscher schreiben und gackern Tag und Nacht! Lesen tun sie nie etwas. Dies wäre aber dringend nötig. Zuerst zum Negativen:
a) Wir hatten eine Jahrhunderthausse von 1982 bis 2000, immerhin 18 Jahre. Die Idee, dass die Baisse dann 18 Monate dauert und V-förmig verläuft und dann vorbei ist, ist natürlich reines Wunschdenken. Die Jahrhunderthausse von 1929 mit anschliessendem Absturz war erst 1953 wieder verdaut. Der damalige Topwert RCA (= Radio Corporation of America) hatte den gleichen Chart wie die Telekom heute und brauchte 25 Jahre, um die alten Höchststände wieder zu erreichen! Das wird bei der Telekom gleich sein! Oder Infineon! Wer bei 80 gekauft hat, und auf 80 wartet, der wird vorher von einer fliegenden Untertasse überfahren!
b) ALLE Analysten, Aktienstrategen, Inbvestmentbanker, Fondsmanager, Börsenbriefschreiber, NTV-Fernsehfritzen etc lügen. Sie leben von der Börse, sie leben von steigenden Kursen! Es sind sogar Verbrecher darunter! Kein Witz! Wenn jemand der Witwee Bolte das Sparbuch klaut, ist er ein Betrüger und Dieb. Wenn jemand der Witwe Bolte das Sparbuch abschwätzt und verspricht, es in 3 Jahren zu vervierfachen, es aber staattdessen halbiert, dann ist er Fondsvertreter.
In Wirklichkeit geben diese Betrüger IMMER das Geld anderer Leute aus, kassieren dafür noch Gebühren, haben eine miserable Performance und halten sich für Ehrenmänner und Experten. Man fährt meist gut, wenn man das Gegenteil dessen tut, was diese Bankmafia empfiehlt!
c) Der Aktienmarkt will NACH OBEN! Der Bond- und Rohstoffmarkt sagt aber das Gegenteil! Amazon-Anleihen beispielsweise werden mit Kursen gehandelt, die auf Pleite deuten. Und Amazon ist nicht allein! In der Vergangenheit gab es solche Unterschiede (Spreads) nie lange! Entweder hat der Aktienmarkt dem Anleihemarkt geglaubt oder umgekehrt! Meistens umgekehrt. Das heisst, wenn eine Anleihe zu 50 Prozent gehandelt wird, dann glaubt der Anleihemarkt, dass die Firma mit einer Chance von Eins zu Eins pleitegeht! Es gibt massenweise Anleihen, die auf die Pleite der entsprechenden Firmen hinweisen! Und die NASDAQ steigt. Natürlich gaga!
d) Greenspan senkt die Zinsen wieder und wieder! Das heisst aber nicht, dass Firmen billige Kredite kriegen. Im Gegenteil, die Banken haben Angst und vergeben fast keine Kredite! Die Pleitegefahr steigt!
e) Die amerikanischen Privatpersonen stecken so tief in den Schulden wie schon ewig nicht mehr. Die Aktien der Kreditkartenunternehmen sind schwach. Leute, die kein Geld haben, können immer weniger kaufen!
f) Die amerikanische Arbeitslosigkeit steigt demnächst über 5 Prozent, ein Traum für das anämische Deutschland, aber ein Alptraum für die USA. manche rechnen bereits mit 6 Prozent im nächsten Jahr! Eines ist sicher: Leute, die arbeitslos und überschuldet sind, sparen. Leute, die mit Arbeitslosigkeit rechnen, sparen auch. KAUFEN tun die wenig! (sog. Consumer Confidence, auch auf niedrigem Stand!)
g)In USA haben viele Aktien zur Altersvorsorge. Manche von denen schauen gar nicht nach und kriegen einmal im Jahr einen Konto-Auszug! Den kriegen sie demnächst. Und die werden geschockt sein, und ihren Kies aus den Aktienfonds abziehen, wenn sie feststellen, dass sie jahrelang umsonst einzahlen. Schon im Septembber gab es Rekord-Nettoabflüsse. Nun und dann kann der Fondsmanagerverbrecher auch nichts mehr machen, er muss verkaufen, egal zu welchem Kurs!
h) Warum steigen Aktien? Weil eine Firma mehr verdient und weil sie immer grösser wird und vielleicht sogar mal Dividende zahlt! Das ist die Theorie. Die Praxis ist, die Firmen verdienen nichts und zahlen keine Dividende oder ein Almosen. Zur Berechnung dient das sogenannte KGV. Kurs dividiert durch Gewinn. Langjährig liegt das bei ca 15 im S&P. Heute liegt es trotz eineinhalb Jahre Bärenmarkt bei 30. Das heisst, die Kurse werden sich noch halbieren oder die Firmen werden mehr verdienen!
i) Nun weiss jeder, dass die Firmen kräftig nach unten revidieren, teilweise nichts verdienen, ja, und meist LÜGEN, was die Gewinne angeht. Das geht so, dass man die Gewinne berechnet ohne Steuern, Ausgaben, Sonderausgaben, Optionskosten etc. Das ist so, wie wen ein Privatmann 2000 DM Gehalt hat und sagt, er hat 2000 DM Gewinn, vor Essen, Miete, Kleidung, Ehefrau. Kinder usw.! DIES IST KEIN WITZ! Sondern die SEC und andere Organisationen bemühen sich, diese Geisterbilanzen zu verbieten. Laut seriösenUntersuchungen haben US-Firmen in den vergangenen 20 Jahren ihre Gewinne um 10 Prozent pro Jahr beschissen, die letzten 10 Jahre um 20 Prozent pro Jahr! Und die wissen das genau. Jede Firma rechnet ANDERS! Eine grenzenlose Frechheit gegenüber Aktionären!
j) Japan hatte eine ähnlich gigantische Akztien und Immobilienblase und hängt seit 11 Jahren in der Scheisse! Europa ist der kranke mann der Welt! Süpdamerika ist pleite, die USA sind ebenfalls in der Rezession! Das heisst, wir sind in einer WELT-Rezession! Die ist absolut gefährlich und die hat es lange nicht gegeben! Und die kann noch lange andauern!
k) Ach ja und da gibt es nooch die Terroranschläge, auch nicht gerade Bullenfutter!
FAZIT: Jetzt habe ich noch einiges vergessen, was negativ ist, aber schon das Gesagte reicht haufenweise, um nochmals die Tiefststände zu testen. Meiner Meinung nach sinken wir sogar unter die Tiefsstände! Wann? Vielleicht Ende dieser Woche! Vielleicht nach Weihnachten! Vielleicht an Ostern! Aber die Idee von Nemax 9000 oder DAX 8000 könnt ihr mal euren Enkeln vorsetzen! Ihr seid vorher pleite oder habt die Lust an der Börse verloren!
Gruss M
10/26/2001 - Updated 12:25 PM ET
Layoffs surge 41% in September
NEW YORK (Reuters) — Mass layoffs by U.S. employers surged 41% in September from a year earlier, with manufacturing accounting for the largest share of job cuts, the government said Friday.
The U.S. Bureau of Labor Statistics (BLS) said there were 1,316 layoffs of 50 or more workers last month, up 41% from September 2000 — the most mass layoffs for any September since the series began in April 1995.
California reported the largest number of initial claims filed in mass layoff actions, 54,267, followed by Nevada with 10,762 layoffs mostly in the hotel industry.
Initial claims for unemployment insurance totaled 1,836,000 for the entire year of 2000, and workers have already filed 1,723,176 claims so far this year. The mass layoff data for September included three weeks of initial claims filings that took place after the Sept. 11 attacks, BLS said.
The monthly BLS figures confirmed a discouraging trend in the once-robust U.S. labor market, which was suffering considerably even before Sept. 11. The government reported on Thursday that initial claims increased by 8,000 to a seasonally adjusted 504,000 for the week ended Oct. 20.
The U.S. unemployment rate has been rising this year, reaching 4.9% in August and remaining at that level in September.
The manufacturing sector accounted for 37% of all mass layoffs, compared with 34% in the same period one year earlier. Workers in manufacturing also accounted for 37 % of initial claims filed, compared with 33% for the same period last year, the BLS said.
--------------------------------------------------
Copyright 2001 Reuters Limited. Click for Restrictions.
Slimy market bubble persists
'You provide pictures, we'll provide bull market'
By Thom Calandra, CBS MarketWatch
Last Update: 3:59 PM ET Oct. 25, 2001
SAN FRANCISCO (CBS.MW) - What we're learning this month looks like that battery-operated bunny: the bubble keeps bursting and bursting and bursting.
If you thought the second half of 2000 and almost all of this year was ugly, wait until October's inflated stock prices receive their well deserved pinprick.
Japan's Nikkei 225 Index took 12 years, starting in 1989, to decompress. It notched 39,000 or so, then doggedly descended to sub-10,000 through the 1990s. During that time, there were plenty of 30 percent and 40 percent and 50 percent Nikkei rallies. Call them retracements, dead-cat bounces, adjustments, corrections - who cares what you call them?
The Japan and Asia-oriented funds lived off those bounces for more than a decade. Investors made short-term scores, even as the Japanese economy deflated and the Japanese consumer went into hiding. No argument there.
This time around, in the good old USA, the mini-bubble is making an appearance, fed by government stimulus programs, the Federal Reserve's easy-money policies and a Wall Street penchant for hyping the beast. Oh, and deluded individuals who are boarding the October momentum train. Call it a 15 percent retracement in Nasdaq, a dead-cat bounce, a correction. I call it a trap, a ruse, a piece of toxic waste.
The air-pocket has names like QLogic (QLGC: news, chart, profile), Applied Micro Circuits (AMCC: news, chart, profile), Surebeam Corp (SURE: news, chart, profile) and Cepheid (CPHD: news, chart, profile). Other names include Krispy Kreme Doughnuts (KKD: news, chart, profile) and P.F. Chang's China Bistro (PFCB: news, chart, profile) - these last two food and restaurant companies that are becoming a favorite of hard-nosed short-sellers who hope to get their just desserts in the coming crash.
The squibs of air being pumped into these securities isn't the fresh mountain air that swept through stock markets in 1998 and 1999. It doesn't have the tingle that comes with fistfuls of corporate profit and a booming economy.
This time around, at their depressed levels, securities of all shades are getting a whiff of the foul air that comes with stale hype and the beating of war drums. Hence the doubling and tripling of shares that once sold for $2 or $4 or $6.
If and when this last-gasp bubble pops, it will be mean and slimy - like an air pocket that belches its way into an oil slick on the Dead Sea. The folks who will hurt most are the ones already in the stock-market poor house: individuals who don't have access to market-neutral and short-bias hedge funds.
The stock and mutual fund-buying Americans who now suffer 60 percent and greater losses in their self-managed retirement accounts face the greatest risk from the next equity slide. When those Americans get entirely wiped out, many will steer clear of the stock market for the rest of the decade, and some for the rest of their lives.
There are 28 or so reasons why this stock market is an oil slick waiting to happen, as quantitative analyst and fund manager Cliff Asness at $1.3 billion AQR Capital in New York City points out. The price-earnings ratio of the Standard & Poor's 500 Index stands at 28, its richest valuation but for two brief spans of time. "Though of course there are 92 versions of earnings these days," says Asness, a frequent contributor to financial journals and a stock market historian.
One of those expensive-stocks spans was in the November 1999-March 2000 insanity, fed in part by the Federal Reserve's rush of Millennium Bug liquidity. The other came just before the October 1929 crash that marked the start of the Great Depression.
Asness, a fund manager with a sense of humor, is as mystified as anyone why investors are willing to pay such high prices for the stocks of companies that can't possibly recover their pre-2000 growth rates, at least not in the next year.
"I imagine the head of CNBC saying 'You provide the pictures, I'll provide the bull market,' '' he says.
The 72nd anniversary of the '29 crash is Oct. 28-29. That's this Sunday and Monday. Thank goodness for the fact that American markets don't trade on Sundays.
For more on the lingering market trap, see this from Thom Calandra's StockWatch.
Thom Calandra is Editor-in-Chief of CBS MarketWatch. His StockWatch will be on holiday from Friday Oct. 26 through Friday Nov. 2.
More THOM CALANDRA'S STOCKWATCH
•Wall Street's 'free lunch' still being served 3:18pm ET 10/24/01
•Insiders begin to nibble at shares 3:03pm ET 10/23/01
•October rally glosses over bleak earnings growth 12:56pm ET 10/22/01
•Fund manager compares market to crash of '29 8:20pm ET 10/19/01
•Market timer, gauging volume, sees slide in stocks 3:33pm ET 10/18/01
Copyright 2001 CBS MarketWatch.com, Inc.
Argentina Signals Default on Foreign-Held Debt, Hires Merrill
By John Lyons and David Plumb
Buenos Aires, Oct. 29 (Bloomberg) -- Argentina signaled it would default on at least $38 billion of debt held by international investors when it hired Merrill Lynch & Co. to help renegotiate the terms of the securities. Bonds tumbled.
``It seems like maybe we're getting closer to the end,'' said David Bessey, who manages $1.5 billion of emerging market debt for Prudential Financial, Inc., including Argentine bonds.
Argentina's 3 3/8 percent floating rate bond due 2005 fell 4.8 to an offer price of 60.50, the lowest in five years, to yield 36.6 percent. The yield has more than doubled since June.
The government said it selected Jacob Frenkel, president of Merrill Lynch International, to advise on a swap of the country's foreign-held debt with new securities that would pay lower interest. Argentina, which has tried to cut spending and raise taxes to avert a debt default, will use International Monetary Fund loans to help guarantee the new bonds.
Argentina also is in talks with domestic banks and pension funds to swap at least $14 billion of federal and provincial bonds for new securities that pay 7 percent interest, compared with a current rates of about 25 percent.
An IMF team will be in Buenos Aires today. Economy Ministry officials plan to seek an early disbursement of $1.2 billion in IMF loans originally set for December, Clarin newspapers reported. Officials also plan to tap $3 billion earmarked by the IMF to help complete its bond swap.
International Holders
The country has a total $132 billion of public debt, including about $95 billion of bonds. The government estimates international investors hold about $38 billion of the bonds; Merrill says international bondholders own $45 billion worth, while other banks say the amount is as high as $55 billion.
``We are going forward with an operation to lower interest rates, which will be voluntary, without affecting investors or depositors,'' Economy Minister Domingo Cavallo said on national television last night. ``The plan is ready and has consensus, but before we can announce details, there are still deals to be worked out with the International Monetary Fund and banks.''
Moody's Investors Service this month lowered Argentina's credit rating to the lowest of any country, at ``Caa3.''
Bank of Japan warns of recession
Mr Koizumi is under pressure to accelerate reforms
The Bank of Japan has acknowledged the world's second largest economy will shrink this year by cutting a growth forecast for 2001 that many economists have long viewed as unrealistic.
The recession forecast coincided with the release of industrial production data showing a worse-than-expected slump of 2.9% in September.
And the Bank attracted fresh criticism for leaving monetary policy unchanged.
Meanwhile, finance minister Masajuro Shiokawa warned of the urgency of sticking to austerity targets for government borrowing.
'Risk to government'
If Japanese government bond (JGB) issues continue at the present pace they could spark chaos in international financial markets and bring down the government, he said.
"We should not depend on easy issuance of government bonds to finance this supplementary budget," he said, stressing that a planned 2 trillion yen of extra spending on job training and IT firms this year must not breach a ceiling on borrowing.
The Bank of Japan forecast the economy would contract by between 0.9% and 1.2% in the fiscal year to March 2001.
'Discipline is crucial'
This reverses a prediction of growth of up to 0.8% growth made in May.
"Greater uncertainty than usual exists," the Bank said in its twice-yearly report.
It highlighted economic pain "stemming from the terrorist attacks in the United States" - but also "the content and pacing" of Japan's economic reforms.
The poor economic news comes as Japan enacted a controversial bill to allow its military to go abroad to back up US-led strikes in Afghanistan, posing a further strain on the budget.
It called on reforming Prime Minister Junichiro Koizumi to step up the pace and tackle the huge government debt because "market confidence in fiscal discipline is crucial".
A further sign of Japan's economic problems came as the bank toughened its deflation forecast, saying consumer prices will fall by up to 1.1% in the year to March 2002, compared with a maximum of 0.8% expected previously.
Zero interest rates
But economists expressed suprise that the bank failed to tighten its relaxed interest rate policy, keeping a key lending rate at 0.1%, the level set at its 18 September meeting.
Coupled with other monetary measures, this is effectively a zero interest rate policy. The bank hopes that this will support the cash flow to commercial banks.
"They lowered their [growth] forecasts, but they're not doing anything about it," said Yashushi Okada of CS First Boston Securities.
The finance minister weighed in to the row, saying "There are companies that are borrowing from banks that haven't paid any dividends to shareholders for some years, who debts have been forgiven, but are still unable to recover. Banks should be able to foreclose on such firms", he said.
Mr Shiokawa complained that "this is not really my territory, it's not an area where I'm allowed to comment".
Here is (unfortunately) another negative for the economy: corporate debt problems are growing
NEWSWEEK
Nov. 5 issue — Jerry Jasinowski doesn’t need new problems. As president of the National Association of Manufacturers, he already has a surplus. Industrial production has dropped for 12 consecutive months, the longest stretch since late 1944 and 1945. Manufacturing employment is 1.1 million below its recent peak in July 2000. But now comes an added worry. Meeting recently with chief executives, Jasinowski heard that many companies are struggling to get credit. “This credit crunch is now the No. 1 impediment to recovery,” he says. Although that may overstate the case, it identifies an emerging and little-noted problem.
IT’S THE REVENGE of the “credit cycle.” In flush times, lenders relax credit standards. They’re eager to lend and exude confidence about repayment. Borrowers brim with optimism. They don’t doubt they can repay. Everyone’s upbeat. But when economic prospects darken, the process reverses—often with a vengeance. Loan losses obliterate optimism. Lenders tighten credit standards. Borrowers can’t get loans or, at any rate, can’t get them on terms that seem reasonable and affordable. And sometimes they don’t want more, because they’re borrowed up to their eyebrows.
The credit cycle applies to both consumer and business lending. But with the cycle now going into its down phase, business lending may suffer most. Consider:
Banks have toughened approval standards for commercial and industrial (C&I) loans to businesses. Early this year nearly 60 percent of banks surveyed by the Federal Reserve said they were tightening standards for loans to firms with sales exceeding $50 million. In August about two fifths of banks were still tightening. By contrast, banks consistently loosened credit standards from mid-1993 until late 1998.
Losses on many business loans are rising. At midyear, banks had $7.8 billion in losses on large syndicated loans (loans of at least $20 million made by a group of three or more lenders), according to a survey by the Fed, the Federal Deposit Insurance Corp. and the Comptroller of the Currency. Losses and loans rated as “doubtful” or “substandard” totaled $117 billion, or about 15 percent of all syndicated loans. Some of these may ultimately go into default. In 2000 the comparable figure was $63 billion, or 9 percent.
The same thing is happening in bond markets. (Bonds are long-term loans, usually with maturities exceeding 10 years, sold to investors.) So far this year, 185 companies have defaulted on $76 billion of bonds, says Moody’s Investors Service. This is 55 percent higher than the $49 billion for all of 2000—and that was a record in dollars, though not as a share of outstanding corporate bonds.
Companies are devoting a rising share of their cash flow to interest payments on all types of debts (bonds, bank loans, commercial paper—short-term securities of less than a year). In 1996 companies spent about 20 percent of their cash flow for interest payments, says Mark Zandi of Economy.com. By the first half of 2001, that had risen to 28 percent. (Cash flow consists primarily of after-tax profits and depreciation, a noncash expense reflecting the obsolescence of equipment and buildings.)
Some problem loans and defaulted bonds reflect optimistic—often reckless—lending in the late 1990s, when the credit cycle was in its euphoric phase.
Some problem loans and defaulted bonds reflect optimistic—often reckless—lending in the late 1990s, when the credit cycle was in its euphoric phase. From 1997 to 1999, companies raised $373 billion by issuing “speculative grade” (a.k.a. “junk”) bonds, says Diane Vazza of Standard & Poor’s. These bonds go to shakier firms, and the volume was almost three times higher than from 1994 to 1996. Even when issued, a quarter of the bonds were rated B-minus or lower—a sign of high risk. (Standard & Poor’s has 26 bond ratings; B-minus is 16th from the top.) But the bonds were snapped up by pension funds and other investors. “These were the go-go years,” says Vazza. “It was an elevator ride up, and [everyone] wanted to get on.”
The ride down has been bumpy. By Vazza’s estimate, three quarters of this year’s defaults involve bonds issued in 1997, 1998 or 1999. About a fifth of those are in telecommunications (companies like 360networks, Winstar and Teligent). Altogether, their defaulted bonds exceeded $30 billion. But other large defaults involved chemical companies, utilities, paper companies and retailers.
The harder question is how much the credit cycle will depress the economy. The irony is that, just as the Fed is cutting interest rates, both lenders and borrowers are becoming more skittish. This last occurred in the early 1990s, when repeated cuts in rates only belatedly revived business borrowing. From August 1990 until December 1993, banks’ C&I loans continually dropped; the full decline was 9 percent. By most accounts, lenders and borrowers were in much worse shape then than now. Banks faced huge losses on real-estate loans. “Leveraged buyouts” and stock buybacks had left many companies with massive debt loads. Early in 1990 companies were paying almost 40 percent of cash flow for interest, says Zandi.
Still, the same logic applies. As the economy and profits weaken, companies have a harder time paying debts. Lenders worry that good loans will turn bad. Tougher credit standards force companies to concentrate on repaying. This prompts cutbacks in jobs and investment, allowing cash to be diverted to debt service.
One of Jasinowski’s members is Behlen Mfg Co. of Columbus, Neb. It sells structural steel for construction (office buildings, shopping malls) and livestock pens. Late in 2000 new orders “fell off a cliff,” says chief executive Tony Raimondo. The company swung from profit to loss. Its bank instantly put it in a “special workout group.” Interest rates were raised, penalties imposed. Behlen restored profitability by laying off 350 of 1,600 workers and cutting new investment. But as yet, the bank hasn’t removed the company from its problem-loan list. The company’s psychology has changed, and almost everything becomes subordinated to improving the company’s credit standing. “You’re trying to focus on day-to-day business,” says Raimondo, “until the bank gives you the OK.”
© 2001 Newsweek, Inc.
Triple threat: Big-item sales off, homes down, and more lack jobs
Associated Press
WASHINGTON -- Home sales and orders to factories for big-ticket items plunged in September, and the number of Americans drawing unemployment benefits now stands at an 18-year-high -- the strongest evidence to date that the country has entered a recession.
The Commerce Department reported Thursday that orders to factories for big-ticket durable goods fell for a fourth consecutive month in September, a decline of 8.5 percent that was six times larger than economists expected. It pushed orders for durable goods down to $165.4 billion, the lowest level since August 1996.
Sales of existing homes fell by 11.7 percent, the National Association of Realtors reported.
The Labor Department said the number of newly laid-off workers filing for unemployment benefits rose to 504,000 last week, a level usually associated with recessions, while the total number of unemployed collecting benefits rose to an 18-year high of 3.65 million people.
The gross domestic product grew at a barely discernible annual rate of 0.3 percent in the April-June quarter.
Existing home sales slowed sharply to a 4.89 million unit annualized pace. This represents a 11.7% drop from the upwardly revised August number of 5.54 million units, an all-time record.
Every region experienced drops in existing home sales. The Northeast and West demonstrated the greatest weakness, sliding 14% and 12% respectively.
Concurrent to the slowdown in home sales, housing inventory levels rose in September to 5.4 months supply from 4.8 in August, the highest level since 1998.
House prices were also sluggish in September, as the median home price fell 3.6% from August’s level to 148,100. The Northeast in particular registered a 13% drop in median home prices from the previous month.
Behind the Numbers
Existing home sales, which were expected to slow due to falling consumer confidence and a weakening economy, fell well below expectations in September. The record August homes sales numbers, which would have been near impossible to beat in the best of circumstances, mitigates some of the decline.
The September home sales number partly reflects the reaction of housing markets to the September 11 terrorist attacks, and ensuing falloff in consumer confidence. However, since closing a home sale typically takes longer than a few weeks, a good portion of the weakness seen in September's weak home sales numbers must have been coming even before the September 11 attacks. If that is the case, the full effect of the attacks on housing markets will continue to unravel over the next few months, as increasing layoffs and rising uncertainty about the war against terrorism eats into consumer willingness to invest in homes. The steady decline in the Mortgage Bankers Associations' mortgage purchase index following the September 11th attacks points to sustained weakness in home sales going forward.
The weakness in home sales comes despite the continuing decline of mortgage interest rates. With the FOMC expected to cut rates at least once more before the end of the year, interest rates are expected to remain low, if not fall further. However, home sales will not be helped much more by low rates. The national economy will be in recession through the end of the year, and concerns regarding the job market will overide the benefits of favorable financing conditions. As such, a recovery in sales will likely have to wait until next year.
to keep standard of living
after retirement
• Send e-mail to DIANE STAFFORD
By DIANE STAFFORD - The Kansas City Star
Date: 10/24/01 22:15
Savings patterns indicate that most baby boomers will not have enough money to maintain their standard of living when they retire.
Two-thirds of companies that offer 401(k) retirement savings plans say their employee participants will not be prepared for retirement.
Three-fourths of employees who participate in 401(k) plans say they have no idea how much they should be contributing each month to retire comfortably.
Retirement education has a long row to hoe -- and this year's stock market slump, which caused 401(k) statements to be painful reads, made the task even more difficult.
Bill Beezley, retirement education manager at J.P. Morgan/American Century Retirement Plan Services, pounded that message home to members of the Kansas City Compensation and Benefits Association.
Speaking recently to professionals who administer retirement savings programs in their workplaces, Beezley said the industry generally is too caught up in jargon and is failing to reach workers in financial terms that can be understood by all.
Words such as "defined benefit plan," "deferral percentage," "actuarial reduction" and alphabet soup such as "QDRO" often fill the pages of retirement plan materials. Partly in jest, Beezley suggested a bumper sticker approach instead. How about:
My kid is NOT on the Honor Roll, so I have to save for retirement.
"Whether or not Social Security is there for future generations, individuals must be saving on their own," Beezley said. "But how are you going to get that message across? A one-size-fits-all message doesn't work for the different generations."
Beezley suggested a basic math exercise to help workers of any age calculate the nest eggs they will need to retire comfortably.
"Let's say you're used to $50,000 a year in spendable income. You want to retire at 65, and you expect to live until you're 85. What do you need to keep your standard of living?" he asked.
"The answer is $1 million. That's 20 retirement years times $50,000 a year, just at today's dollars."
Typically, said the Kansas City-based retirement educator, experts recommend withdrawing no more than 5 percent a year from a lump sum of retirement savings. If a retirement account has $100,000 in it, recommended monthly withdrawals would be about $400.
"What can you do with that?" Beezley said. "Provided you want the economic freedom to make retirement a choice and not have to work if you don't want to, that investment will not be enough."
The first thing many workers need to do is stop thinking about their homes as their biggest lifetime investment, Beezley said. That spot should be held by their retirement savings accounts.
"Studies show that you need at least 60 to 80 percent of your pre-retirement income to maintain the same standard of living at retirement," he said. "But only 16 percent of 401(k) plan participants are contributing the target amount for what they should expect to need at retirement."
A survey released last week by EBRI, a nonprofit public policy research organization, and the Investment Company Institute, a national association of American investment companies, said the average 401(k) plan participant contributed 6.8 percent of salary before taxes to a retirement account.
The number of workers participating in retirement savings programs is growing slowly, Beezley said. But with the volatile job market, in which workers change jobs frequently, there is an unfortunate counteracting trend: 68 percent of people cash out of their retirement plans when they leave a company.
Companies need to do a better job of educating workers about compound interest and the financial benefits of leaving their money in their retirement accounts, he said.
Another mistake many retirement plan administrators make is to focus financial reports on their funds' short-term stock market gains or losses. When the market slumps, as it did this year, some employee investors lose faith and pull out of the plans.
"If you want employees to invest for the long term, you need to focus on long-term benefits, not short-term equity performance," he said.
Beezley also questioned the wisdom of retirement plans that include loan withdrawal programs. He said that also gives the wrong message about the value of long-term retirement investments.
Retirement literacy will occur when workers know to ask how much they will need to retire comfortably, how much they need to take personal responsibility for saving, and whether they are prepared with or without Social Security, he said.
To reach Diane Stafford, call (816) 234-4359 or send e-mail to stafford@kcstar.com.
U.S. Corporate Earnings Decline for a Third Consecutive Quarter
By Ashley Gross
New York, Oct. 26 (Bloomberg) -- U.S. corporate earnings tumbled for a third straight quarter as a slump in computer- related sales deepened and consumers spent less.
The Sept. 11 terrorist attacks aggravated the slowdown and may lead to two more quarterly declines, which would produce the longest drop in profits in more than three decades.
``The whole recovery process has probably been pushed out by six months, and the decline has been made deeper,'' said Lynn Reaser, chief economist at Banc of America Capital Management, which manages $280 billion.
Third-quarter earnings fell 21.2 percent, based on the 376 companies in the Standard & Poor's 500 Index that had reported as of yesterday. Many analysts and investors predict earnings declines through the first quarter of 2002. The last time earnings fell five straight quarters was in 1969-70, according to Thomson Financial/First Call.
American Airlines parent AMR Corp. had a record $414 million loss after the hijackings made people afraid to fly. American International Group Inc.'s profit plunged 81 percent, partly because of insurance claims from the destruction of the World Trade Center.
Utilities and health-care companies reported gains. Duke Energy Corp. beat analysts' estimates as sales rose in its energy- trading and power-generation businesses. Johnson & Johnson's net income rose 16 percent, exceeding estimates on higher sales of its Procrit anemia drug.
Corporate profits are expected to drop 14.4 percent in the fourth quarter and 2.7 percent in the first quarter of 2002, according to a First Call survey of analysts. Not until the second quarter are profits expected to rise, with an 11.8 percent gain.
Too Optimistic
Analysts' forecasts for 16 percent earnings growth in 2002 are too optimistic, said Chuck Hill, First Call's Research director.
``These numbers will have to be slashed,'' he said. ``They're absurdly high right now.''
The U.S. economy probably shrank at a 0.7 percent annual rate in the third quarter, according to a Bloomberg News survey of 37 analysts. That is the largest drop since the 0.9 percent decline in the second quarter of 1991, when the U.S. economy was emerging from recession. Many analysts say the economy will contract in the fourth quarter, meeting the common definition of a recession.
U.S. stocks posted their biggest quarterly drop since the crash of 1987, with the S&P 500 declining 15 percent during the quarter, and the Nasdaq Composite Index falling 31 percent, the second-biggest quarterly drop in its 30-year history.
Anticipating Earnings
Many investors anticipate higher earnings next year and have driven up shares of many companies. Since the end of September, the S&P 500 has risen 5.7 percent and the Nasdaq has climbed 18 percent.
``We've pretty much seen the lows,'' said Philip Ferguson, senior investment officer at AIM Management Group Inc., which manages about $161 billion. ``There are a lot of forces at work that will help turn the market up.''
The Federal Reserve has lowered the benchmark overnight lending rate nine times this year to 2.5 percent, the lowest since May 1962. A $1.35 trillion tax cut became law in July, and President George W. Bush has asked for another $60 billion to $75 billion in tax cuts since the attacks.
Many executives said they don't expect a turnaround soon.
GE, Citigroup
``We're doing all of our plans for the next 12 months, counting on it being a very tough economy,'' General Electric Co. Chief Executive Jeffrey Immelt said in a Sept. 21 interview with Bloomberg Television.
The largest company by market value said net income rose 3.2 percent to $3.28 billion even as sales fell 8 percent to $29.5 billion. Insurance losses related to the attacks shaved $400 million from third-quarter profit.
Immelt told investors he still is counting on earnings rising at least 10 percent this year and next.
Profit at Citigroup Inc., the biggest financial-services company, fell 8.6 percent to $3.18 billion, missing forecasts. The company blamed insurance and investment losses stemming from the attacks.
U.S. airlines were already struggling with reduced business travel this year as the economy slowed. Since the hijackings, airlines have announced 92,000 job cuts, reduced flight schedules and lowered fares to induce people to fly. To avert bankruptcies, the federal government bailed out the industry with a $15 billion aid package.
Airline Losses
Analysts still expect losses from the five major airlines set to report results next week, including Delta Air Lines Inc., United Airlines parent UAL Corp. and Continental Airlines Inc. Southwest Airlines Co., Northwest Airlines Corp. and Alaska Air Group Inc. posted profits, though the later two would have reported losses without the government money.
Lower production and no-interest financing to lure car buyers wiped out profits at automakers. General Motors Corp. had a $368 million loss, while Ford Motor Co, reported a $692 million loss.
Computer and telecommunications companies' profits plummeted 89 percent, based on 61 out of 77 companies in the S&P 500 that had reported as of yesterday.
Lucent Technologies Inc., the biggest U.S. maker of phone gear, had a fiscal fourth-quarter loss of $8.8 billion, more than its losses in the past five quarters combined because of expenses from cutting jobs and product lines.
Motorola Inc., the second-biggest mobile-telephone maker, had a third-quarter loss of $1.41 billion compared with net income of $531 million a year earlier as sales fell 22 percent. The company forecast a fourth-quarter loss and boosted its planned job cuts this year to 39,000.
Profit at Microsoft Corp., the biggest software maker, fell to $1.28 billion from $2.21 billion and the company lowered profit forecasts for the current quarter and fiscal year.
Lower oil and natural gas prices hurt Exxon Mobil Corp., the largest publicly traded oil company, whose third-quarter profit fell 29 percent. ChevronTexaco Corp., created two weeks ago by Chevron Corp.'s $45.8 billion acquisition of Texaco Inc., said third-quarter earnings fell at both companies.
Utilities' profits rose 20 percent, based on the 22 out of 39 companies in the S&P 500 that have reported.
Dominion Resources Inc., owner of Virginia's largest utility, beat analyst estimates as warmer weather increased electricity demand. Dynegy Inc., a power producer and trader, said profit rose 62 percent and raised its 2001 earnings estimate.
Clifford S. Asness
Managing Principal, AQR Capital Management LLC
Comments welcome: cliff.asness@aqrcapital.com
October 24, 2001
There are currently a legion of investors, strategists, and general pundits saying the stock market is “undervalued.” While some have formal models for this (e.g., the so called “Fed Model” discussed briefly later), the most common observation is simply that stocks have dropped dramatically. Darn it, smart brave investors buy when things are lousy. We have fallen so far, it has to be time for the “bottom,” and when we hit the “bottom,” it’s straight back to NASDAQ 5000. Right? Well, not so fast. The fact that stocks could have fallen so much and still be so expensive, is a statement about how silly we all got in 1999-2000 and about the disingenuousness of those who didn’t sound the alarm back then. It is not a statement that stocks are cheap today. In fact, the opposite is true.
During public discourse on the markets, it is thankfully sometimes noted in passing, that stock valuations are, after their fall, still very high. However, bullish critics of this view note that among other things, there is a problem with the most common measure of market valuation, the P/E ratio, as current earnings (E) are clearly depressed. This inflates the P/E ratio and makes stocks look more expensive than they would appear if using a more reasonable forecast of steady state earnings. In fact, you can almost sense the bullish “valuations be damned” crowd breathing a sigh of relief at this turn of events, as with E less meaningful, they must feel less subject to the tyranny of rationality. After all, if there is no E, anything goes right?
Again, not so fast. Here I will examine various methods of calculating the market’s P/E ratio and compare each to history. First, let me tell you what I don’t do. I don’t use forecasted earnings for E. Forecasted earnings are highly subjective numbers that Wall Street is famous for overdoing, and that optimism conveniently lowers P/E ratios (historic real earnings growth for the whole S&P 500 is about 1.6% per annum for the last 50, 100, and 130 years – that would mean about a 4% nominal growth forecast at today’s inflation rate, but Wall Street forecasts are almost always in the double digits, go figure). Worse, it’s not an apples-to-apples comparison as the history of P/Es most of us are familiar with is based on trailing earnings, which are generally lower. Thus, using Wall Street’s higher forecasts for E makes stocks look misleadingly cheap. Going further, I recently heard one analyst say that based on his 2003 projections of E, the market looks cheap at a 17 P/E. Yes, and using today’s prices and an E you could only get from Marty McFly, the S&P 500’s P/E is a paltry 7.[3] A more mundane reason to avoid using earnings forecasts is that that we do not have a long history with which to compare. Thus, this short note concentrates on using only various versions of trailing earnings to examine the market today. The second thing I don’t do is get into the controversy of regular earnings vs. pro-forma vs. operating vs. everything else. I use regular earnings as reported by S&P and gathered by DataStream. However, as an aside, please note that “pro-forma” I’m 6’2” and have all my hair (those who know me will understand that under GAAP standards I’m somewhat less impressive).
First, let’s look at the standard P/E where the price (as is the case for all the analysis) is the price on 9/30/01, and the E is the trailing one-year E. The data goes back to the last part of the 19th century:
On this scale, we can, by simple visual examination, say that while P/Es are down from the embarrassing levels of March of 2000, P/Es are still very high by historical standards. In fact, looking back to 1950 today’s market P/E is in the 95th percentile (only 5% of the monthly observations are above the 9/30/01 value). Going all the way back to 1881 we are now in the 98th percentile. Also note that P/Es are above anytime in history prior to the 1999-2000 bubble, including the peak before 1929’s crash. Cheap? I think not.
Now, one thing you’ll notice in the above graph is that the P/E shot up near the end of our sample. This occurred even as the market fell. That is what the optimists criticize about using P/E to value the market today. Because earnings have plunged (the denominator of P/E), P/E went up. Optimists say, with some validity, that looking at one short-term bad year for E will overstate the “true” P/E. The “true” E should be based on a more normal level of earnings (curiously enough this is what the pessimists said, and the optimists laughed at, in 1999 when earnings were at a cyclical high).
Another way of calculating P/E borrows from Bob Shiller. Instead of using last year’s E, use an average of E over the last ten years (inflation adjusted). This will produce higher P/Es. That led some to wrongly accuse Shiller of trying to make stocks seem more expensive. Comparing to a ten-year average will of course usually show higher P/Es as earnings usually grow over time, so the ten-year past average E is lower than today’s E, and the P/E calculated this way is thus higher. However, this is irrelevant as we’re only using the ten-year average to get an idea of what are reasonably normal earnings (i.e., to smooth out peaks and troughs), and we only compare this number through history. In other words as long as we’re consistent it’s all apples-to-apples. The graph of this 10-year earnings‑based P/E comes next:
Well, on this scale we’re now a tad cheaper than before Black Monday in 1929, but I don’t think that’s the tag line Abby Cohen and Ed Kerschner want to use to tout stocks. Can you imagine yelling, “Buy, buy, we’re slightly cheaper than right before the crash of ‘29”? No you probably can’t. Excluding the 1999-2000 bubble, and the period right before October of 1929, we still have the most expensive stock market in recorded history. Including the bubbles, P/Es on this basis are in the 91st percentile over the modern era (post 1950), and are still in the 95th percentile going back to 1881. Stocks do look a little cheaper on the ten-year numbers (vs. history) than the one-year numbers we looked at earlier. Perhaps the bulls should apologize to Dr. Shiller and start using his methodology? Regardless, on this measure, which is not affected by any one-year plunge in earnings, stocks are incredibly expensive now.
Finally, let’s look at a new measure. I call this the “wild-eyed optimist’s P/E.” We’ll still use contemporaneous prices, but for E, we’ll scan the previous ten-years of inflation adjusted earnings to find the best three-year period (John Hussman has looked at a similar version of P/E using one-year earnings). We’ll then take 1/3 of that number as our version of normalized one-year earnings. Think of this as a “potential” P/E assuming we return to whatever earnings have been the best over the last decade. Even though it’s wildly optimistic (and thus P/Es are lower), it is still fair as we are doing the same exercise through history, and thus still comparing apples-to-apples:
This measure looks a lot like Shiller’s measure, just with lower P/Es (as the maximum earnings over the rolling prior ten years always exceeds the average). On this optimistic measure, prices today are approximately equal to those right before the crash of 1929, and are in the 88th percentile since 1950, and the 95th since 1881.
Basically, stocks are massively expensive vs. all of recorded history on any reasonable scale. They are down from their provably insane levels of March 2000 (and please quote me here, any strategists not saying boldly that they were stupidly expensive back in March of 2000 should have their math and/or motivations checked), but stocks are anything but cheap today.[4]
Now, let me return to the "Fed Model" arguments many advance. Many strategists calling stocks cheap today are using some version of this model. The idea here is that when inflation and interest rates are low, P/Es tend to be high. Therefore, the current environment of low inflation/interest rates can support today's high P/Es. One common, but flawed, explanation of why this should work is that stocks are the discounted present value of future cash flows, and when discount rates (interest rates) are lower, the present value of their future cash flows is higher. However, while true, this ignores another sobering reality. Over long periods nominal earnings growth moves reliably with the level of inflation. This means that when inflation is lower so is expected future earnings growth. The lower discount rates alone are indeed good for current valuations, but they come with lower expected future earnings growth, and that is not good. In fact, historically these effects are pretty much offsetting. Getting excited about low discount rates, while ignoring lower than normal growth, is Wall Street trying to have its cake and eat it too (actually, it's them trying to have your cake and eat it too). This mistake is often called "money illusion", comparing a nominal number like interest rates to a "real" number like P/E. However, even considering that it’s probably misguided, there is indeed a strong historical tendency to see high market P/Es when inflation/interest rates are low. The overwhelming evidence is that this is an error that reverses, and if you are a long-term investor (and who doesn't claim to be a long term investor) buying the market at a very high P/E is a bad idea viewed over the next decade regardless of starting interest rates or inflation. Essentially, what the strategists "forget" to tell you, or don't know, is that low inflation/interest rates might be the hook that historically gets you to buy stocks at high P/Es, but again, it’s a mistake over anything but the short-term. It doesn't help at all in forecasting the next decade (or longer) of real stock market returns.[5] Essentially, only regular old fashioned measures like P/E have any power to forecast long-term returns, and as we see above, pretty much all forms of this show stocks to be very expensive now. Finally, for the strategists who are bullish based on the Fed Model, I wouldn't dissuade them, just offer them the advice that they speak more clearly. Rather than just saying "stocks are currently 10-20% undervalued" as so many do (in the face of 95th to 100th percentile P/Es), perhaps they should say:
The best predictor of long-term stock returns is any solid form of valuation (e.g., P/E) unadjusted for interest rates. However, we know that even if the long-term looks ugly for stocks right now, markets can do some pretty wacky things over the short-term (oh, how we've proven that). Furthermore, one decent predictor of this wacky short-term movement has been the "Fed model" where the stock market yield (inverse of the P/E) is compared to interest rates. This seems to be something people look at, rightly or wrongly, so examining when it looks excessively high or low can be a pretty good short-term indicator. Thus, we're now making a short-term trading call that the market looks attractive. Of course, given the poor long-term outlook, this will make the rest of the next ten years, after we are right about the new frenzy, much worse.
Then, I’d have nothing to complain about.
In another attempt to justify today’s P/Es, some make the case that we all should accept a higher multiple on stocks now that the world is safer (or we now realize it always was safe). Taking this reasoning to its illogical extreme was the book Dow 36,000. This book, influential for a brief period at the bubble’s peak, argued that stocks never lost to bonds over any twenty-year period, therefore they aren’t riskier, therefore they don’t need to offer more return, therefore their P/Es are too low. This is so massively circular I’m dizzy just writing this sentence. Stocks have (please note the past tense) never lost to bonds over long periods precisely because they have always offered substantially higher returns. Without that, given their higher volatility, they will lose and lose big occasionally. Then the circle is complete, as any rational investor will demand a risk-premium. It is a difficult debate whether the learned authors of this book were incredibly incompetent in offering this argument, or knowingly misleading (or perhaps they meant their book as a parody to show us all the silliness of the bubble). But, either way, they offered this bold dramatic and obviously flawed argument not to other professionals, but to the man-on-the-street investing public at the height of a raging bubble. I have been wrong many times myself, for instance I spent most of 1999 being wrong, and investments are a field nobody is right about all the time (51% of the time is a noble target when predicting the short-term). But, the gross obviousness of this book’s error, combined with its timing and target audience, make it hard to forgive (as apparently I haven’t). To my knowledge no public apology and repudiation of the book’s nonsense has been given.
Stepping back from the obvious inanity of Dow 36,000, there might be truth to the concept that investors have historically priced stocks assuming they were somewhat riskier than reality. Thus, stocks might deserve a higher P/E than historical average. But, again, please notice, when the bullish analysts tell you this, they are actually giving you a reason why you might accept lower stock returns going forward as they come hand in glove with a high P/E. They are not telling you why you can still achieve high expected stock returns, while starting from a very high P/E, because you likely cannot. The optimists like to say “interest rates are low and the world is safe, so you should accept a high P/E,” and just leave it at that. But, the tacit conclusion they hope to leave you with is that stock returns will thus be “normal,” with normal being the wonderful 1926-2001 experience investors have grown to require as birthright. How many times have we heard a Solomon-like strategist tell us in somber tones not to expect the 20%+ returns of the go-go 1995-1999 years, but rather more “normal” 10-12% stock returns going forward. Well, that’s an attempt to seem reasonable and responsible, but in reality it is irresponsible and false. Let them say that “high P/Es are not that bad, but the high valuations that come with this benign environment lead us to forecast nominal stock returns of about 6-7% over the next decade,” and again, I’ll stop complaining. To be fair, to their credit, the one thing the authors of Dow 36,000 did get right was telling their readers that after 36,000, returns in the future would be equal to bonds. Today’s strategists often do not get this right.
Just to round out the discussion, let’s review just a few of the other common bullish arguments, often repeated over the last few years, and some prominent recently (the bull’s comments are in bold, my comments in italics):
- Buy now as the stock market usually recovers 6 months before an economic recovery, so we must look over the “valley” to the future. True, the stock market is forward looking, but in recessions P/Es usually fall to low double or even single digits, not to near record highs like today. Those spouting this platitude should know and honestly address this fact. Buying at record P/Es in the middle of a recession just doesn’t seem very smart. In fact, we can go further than this. Buying at super high P/Es is rarely a very good idea if you’re a long-term investor. It was a disaster of an idea in March of 2000, and not because the economy subsequently fell or because the Fed took away the punchbowl. Those events were just catalysts for rationality to return, and ex-post excuses for those who were talking up the ponzi-scheme at the time. At current P/Es, we’ve already discounted crossing the valley and entering La-La-Land.
- Buy, because the market has already “discounted” all the bad news. This is an offshoot of the “6 months before the recovery” point above, but deserves its own billing. Given the market is still at record or very near record prices, when bulls say the market has “discounted all the bad news”, or that the bad news is “in the price”, I think they are really saying “don’t bother us with the reality we’ve previously chosen to ignore.”
- Forget prices, the evidence from 1926-2001 clearly shows that stocks always win over the long-term. This is the most oversold argument in show business. Stocks have (again, please note the tense) always won (let’s call “winning” beating bonds) over any, say twenty-year period from 1926-2001. This occurred over a time when P/Es rose from around 10 to the high 20s, when you reinvested at an average dividend yield of over 4%, when bonds suffered from surprise extreme inflation shocks, and when the U.S. economically vanquished the world. Obviously, P/Es and dividend yields are not so low anymore, and presumably bonds are now priced to admit the possibility of future high inflation. To look at historical data and assume the past is perfect prologue is always dangerous, but particularly so with financial data that sometimes makes the opposite the case. For instance, if stocks were to rise 10,000% tomorrow (say, for instance, if Cisco were to forecast a stabilization in their business by 2005), historical estimates of stock returns would go through the roof, but rational future estimates must go down. The U.S. from 1926-2001 is a less extreme version of this example. Essentially, with stock prices much higher than in the past, their margin for error is gone, and the chance that stocks underperform bonds (or even inflation) over the next twenty years is real. This is not a forecast on my part, but an acknowledgement that the riskless days are over when buying at very high P/Es.
- Many respected strategists are bullish, and have gotten more so recently. Can someone explain to me why Wall Street employs strategists, but GM does not? Can you picture it, “We like cars now, we recommend some cars specifically, about 2/3 of them are GM cars, but definitely, cars look attractive now.” Like cars, Wall Street sells new and used stocks, and while again, there are numerous exceptions, many strategists are paid spokesmodels speaking slogans not science. I got a particular kick out of Ed Kerschner (UBS’s well respected strategist) who’s firm recently took out full page ads trumpeting his view that the S&P 500 will be up 50% from here by the end of 2002. If you do the math, based on his fair price at the end of 2002, he also thinks the S&P 500 was just about fairly priced in March of 2000 when it was selling for that 45 ten‑year P/E we discussed earlier. Come on Ed.
- Real economic growth is going to be much stronger in the future than it has been historically, justifying today’s P/Es. If it does occur, super strong earnings growth will indeed save the day, but this is nothing more than hope. Productivity gains, often pointed to as the reason for this optimism, have been shown to be overstated, and it doesn’t even matter much if they are or aren’t, because, as Jeremy Siegel points out (JPM 1999), most productivity gains accrue to workers or consumers, not to corporate EPS growth. Sometimes we hear that corporations are retaining much more cash than normal, rather than spending it through dividends (i.e., giving us back our money), and this is a huge positive for growth going forward. Unfortunately, as Rob Arnott and I show in a forthcoming paper, the opposite has been strongly true for 125+ years. That is, when corporations pay out less in dividends, they grow less going forward. One of our hypotheses for why is that all the cash burns a hole in their corporate pockets making them over-invest in marginally unattractive products. The recent telecom boom/bust springs to mind as what will forever be the best example of this dynamic. Finally, some fans of “efficient markets” make the case that earnings growth will be strong going forward partly because of the high cash retention discussed above, but also as a tautology because the market knows best and a high P/E means the market knows high growth is coming (these guys generally aren’t selling stocks so I won’t impugn their motives, only disagree with their conclusions). Unfortunately, in the same paper, Rob and I show that this also doesn’t work over the last 125+ years. You are certainly allowed to believe in wonderful very long-term real earnings growth as a market savior, but again, please know that hope is all you’ve got to go on.
- Don’t fight the Fed. This probably isn’t the worst short-term rule to have, but please, if you find any “strategist” saying this, who also was telling you in late 1999 / early 2000 that interest rate increases don’t matter to tech stocks, first laugh at them, then short something they recommend.
- Buy because the fall in earnings and the economy has started to slow (so called “2nd derivative” investing). The bitter-sweet part of this is that buying on weakness, looking for signs of a bottom and a turn in an undervalued situation are hallmarks of good contrarian investing. However, when perverted by the hands of perma-bulls into a recommendation to buy a market still at or near 125+ year highs, it’s mildly distressing. To hear bulls talking about 2nd derivatives, when they proved in 1999 that their math skills are so wanting they considered subtraction to be addition’s “tricky pal,” it is really quite comical.[6]
- These things are not going to zero. Too obvious so I’ll take a pass on making too much fun of this correct, but absolutely empty comment. It’s snappy cousin, “these companies are still going to be around in ten years” is another version of the same. I guess the logical conclusion is “these things are not going to zero, so pay any price for them today.” TIPs, T-bills, my collection of Happy Days memorabilia, etc., are all also not going to zero. However, that implies nothing about the right price for them today.
- Buy because stocks are showing the strength to “shrug off” disastrous news. Check again. That is not just strength you are observing, it is also a maniac desire to see a return of the bubble. For proof, please note that it is really only the speculative tech stocks that seem to have this uncanny mutant ability. The fact that “shrugging off” (a new financial term) is often reported by the media and pundit choir as a positive sign of strength, and not dementia, is itself quite scary.
- Buy because stocks are finally meeting or beating expectations. Sorry, meeting or slightly beating expectations that were radically reduced last Tuesday (and many times before that) is not a reason to buy. Not if the stocks in question are still incredibly expensive for good times, let alone times of “reduced expectations.” That these earnings “victories” are usually pro-forma ones (translation: lies) only makes it all the more silly and offensive.
- The market is only falling because of Anthrax scares, or an unresolved presidential election, or anything else we hope will go away soon. The perma-bull pundits love to blame any fall on factors that (hopefully) will go away soon. No, the market isn’t falling because of disastrous earnings news and disastrous economic news, all in the face of sky-high valuations; but rather is falling for some reason that will either go away, or we can all gather up our courage and ignore (anyone for a shrug?). These pundits might be right about the catalyst for any specific day’s movement, but the conscious, or simply misguided, effort to blame short-term nonsense and ignore reality is real.
- Buy because it can’t get much worse from here. On one recent day (with tons of disastrous economic and earnings news, but a rising NASDAQ) an article describing the day’s activity carried the following quote “Some technology stocks are up after having bad earnings reports… People feel that they're getting a handle on what the worst can be and hope that things can only improve.” I left out the person being quoted, as they shouldn’t be tarnished for accurately reporting what the mob was doing. By now you probably can guess what I’m going to say. “It can’t get much worse from here” might be a good reason to buy a horribly beaten down asset. It is a crazy joke of a reason to buy a super expensive one. Oh, and one more thing, yes it can.
As a near-final aside, if you doubt it’s still a bubble, you need only observe investors on-going love affair with technology stocks and high expected growth stocks in general. It is still the case, as a legion of anecdotal and quantitative evidence will corroborate, that every recovery in this market seems to be led by wild rushes back into speculative nonsense (April and now October of 2001 spring to mind). There are a legion of individual investors, and little better investment‑educated mutual fund managers, who think that their job is trying to pick the “bottom”, and that the good times (not normal times, but 1999-level good times) are about to return soon. You can’t have a Krispy Kreme selling at a P/E over 100, an eBay still selling for a P/E of 150 (and a $15B market cap), without realizing that investors have not “learned” much about investing, despite recent experience. Have investors “learned” that tech stocks are cyclical? Have they “learned” that the price at which you buy something matters (and I mean the actual price, not how much it’s fallen from some unconscionably high level)? These are rhetorical questions as the answers are obvious. For fun, go on any Krispy Kreme internet chat room. They are making precisely the same comments you heard on the Amazon chat room back in 1999. It is a time warp. When you mention this, they literally tell you “things are different this time” with a straight face. The Germans and French at least had the decency to wait a generation after Versailles before doing it all again. Sure, Krispy Kreme and eBay make actual money and run actual businesses, as opposed to the dot coms, but so does Cisco. Cisco was a joke at a P/E of 140 as it was priced in early 2000, and investors are still telling the same joke, only some of the punch lines have switched. And, rest assured, like Cisco at its peak (when it dominated the “recommended” lists), there are quite a few analysts out there with “buys” on both the 100+ P/E doughnut maker and garage sale. Amazing. Until stocks in aggregate sell for reasonable prices, and until every rally is not led by investors buying networking, internet, and software (and now doughnut!) companies they don’t understand, at still astronomical valuations[7], this market is just not healthy.
Excluding the 1999-2000 period of insanity, stocks are approximately tied with September of 1929 for the title of the most expensive U.S. stock market ever (looking over 125+ years of data). This is robust to any reasonable definition of valuation, and is occurring at the depths of a recession that shows no sign of abating. If the recession does turn, while the short-term bubble brains will probably party, stocks have in fact already discounted a bigger recovery than is rational, and absent another bubble offer little extra upside, and long-term offer real downside as valuations are very high even for good times. This is important. A tremendous number of investors (and worse, those who call themselves “traders”) are waiting for any sign the recession is turning, assuming that an economic turn presages a return to the halcyon days of 1999. Well, maybe, but that’s trying to forecast a mania. If the recession soon turns to wild expansion, stock prices are still astronomical vs. similar times in history. If the recession does not turn soon, it is hard to imagine avoiding a disastrous confrontation between hope/hype, and reality. The bullish pundit crowd today repeatedly refers to stocks as “beaten up,” or when buying occurs, calls it “bargain hunting.” To repeat from my introduction: The fact that stocks could have fallen so much and still be so expensive, is a statement about how silly we all got in 1999-2000, and about the disingenuousness of those who didn’t sound the alarm back then. It is not a statement that stocks are cheap today. In fact, the opposite is true. Stock market “pundits” should have their mouth washed out with soap if they currently call stocks “historically undervalued” as many of them do today.
Bottom line – there might be some very good reasons for accepting lower than historical stock returns going forward, and my points above do not imply that you should sell all your stocks. Perhaps a much lower than historical risk-premium is in order, and perhaps we are there with today’s very high P/Es. But if true, it’s also true that you’re not missing much being cautious. The ultimate possible upside, if all works out perfectly, is that we do not crash, but over the long-term stocks now offer a super-low risk-premium vs. history. This last possibility is very plausible, and shouldn’t be dismissed, but conversely, neither should the idea that people might not be rational, calmly understanding the implications of low P/Es, and might not be so ready to accept very low long-term stock returns. After all, do the events of 1999-2001 strike anyone as a group of rational investors embracing and accepting a permanently low risk premium? If so, I missed that on “Power Lunch.” If investors do decide they need more expected return from stocks, then look out below. In order to raise the risk-premium on stocks by 2% per annum going forward, today’s prices need to fall about 50% from here. If this happens, the strategists may call them cheap without me writing a nasty essay.
--------------------------------------------------
[1] Thanks to Dick Anderson, Ted Aronson, Brad Asness, Jonathan Beinner, Peter Bernstein, Jonathan Clements, Harold Evensky, Jack Gray, Jim Haskel, Bob Krail, John Liew, Robert Shiller, and Ben Shoval for very helpful comments and suggestions.
[2] This essay is loosely based on (and borrows from) the far longer paper written back in 1999-2000 called “Bubble Logic.” Those who want the full version, which unfortunately still applies to today, may consult the AQR Capital website at www.aqrcapital.com. Also, please note that AQR Capital or Cliff Asness may be short or long any security mentioned in this piece at any time, and this piece is solely the opinion of the author.
[3] For those who didn’t grow up in the early 80s, Marty McFly could time travel, so the reference is to P/Es calculated using today’s prices and perhaps year 2020 earnings. In my next editorial maybe I’ll tell you about John DeLorean.
[4] While there are of course many courageous and well meaning strategists on Wall Street speaking the truth as they see it (both bullish and bearish), for full disclosure I should share my view that a fair amount are simple shills for the bubble, who honestly should introduce themselves by saying “Hi, I’m not a strategist, but I play one on CNBC.”
[5] One caveat. The “Fed Model” type comparison does have some empirical power for the next decade’s relative return between stocks and bonds, as opposed to the real return on stocks alone that I discuss in the text above. Nothing changes the fact that a high P/E on stocks is a reliable forecaster of low long-term real stock returns, independent of bond yields. But, if the yield on bonds is also low, the “Fed Model” might help you choose between the lesser of two evils. Also, for forecasting 10-year relative returns between stocks and bonds, theory would say the Fed Model is still wrong and that you should compare the stock market’s yield to the real yield on bonds (the bond yield minus expected inflation), not the nominal bond yield itself as in the normal “Fed Model.” The difference can be large.
[6] I think I borrowed that from a David Lettermen top 10 list.
[7] Now that these tech stocks have conveniently gone to negative earnings, P/Es, to the bull’s relief, are not relevant. But, again, who says we need to use this year’s E. For fun, go plug in the 1999 peak earnings into many of these babies. Those earnings are probably a cyclical high, and pumped up by “investment gains” and accounting gimmickry of all sorts, but the P/Es using inflated peak earnings still show the tech world to be very expensive. Paying very high multiples in good times is usually a bad idea. Paying these multiples (on peak earnings) for these companies in a recession (and a deep one for tech), well, that’s just nuts.
"New Economy"-Märchenstunde
Von Claus Vogt
Die regelmäßigen Leser kennen unsere Vorliebe für Finanzmarktgeschichte. Sie wissen, welch hohen Stellenwert wir der Vergangenheit beimessen, um die Gegenwart verstehen und Prognosen abgeben zu können. Wir stellen immer wieder mit einem gewissen Erstaunen fest, wie wenig verbreitet dieser Ansatz ist. Kurzfristiges Denken ist offensichtlich an der Tagesordnung und bestimmt weiterhin maßgeblich die Voraussagen und Erklärungen zahlreicher Marktteilnehmer.
Es begegnen uns ständig Modelle oder Argumentationsketten, die lediglich die letzten 20 Jahre Finanzmarktgeschichte der USA oder Europas berücksichtigen. Nicht ganz zufällig, so vermuten wir, umfasst diese Zeitspanne ziemlich genau den letzten säkularen Aufwärtstrend, zufällig einer der größten Bullenmärkte aller Zeiten, der in der größten Spekulationsblase aller Zeiten kulminierte.
Sommer sagt nichts über den Winter aus
Es ist sicher für jedermann problemlos nachvollziehbar, dass sich aus diesem empirischen Material keine Lehren für einen säkularen Bärenmarkt ziehen lassen. Wenn ich in einem Land wie Deutschland ausschließlich die drei Sommermonate analysiere, wie soll ich daraus Prognosen für den Winter erstellen? Oder noch provokativer und die Leistung der durchschnittlichen Finanzmarkt-Cheerleader während der letzten Jahre besser beschreibend: Wie soll ich anhand dieser ungenügenden Datenbasis überhaupt auf die Existenz des Winters schließen? Stattdessen vermute ich nach jedem kühlen Tag die unmittelbar bevorstehende Rückkehr sommerlicher Temperaturen. Dieses absurde Spielchen können wir an den Finanzmärkten seit über 18 Monaten verfolgen.
Während der Hochphase der Spekulationsblase wollten die Cheerleader uns glauben machen, es handele sich um eine "New Era", der Wirtschaftszyklus sei überwunden. Als erste, nicht zu ignorierende Zeichen eines Abschwunges sichtbar wurden, hieß es, der Technologiesektor sei aber nicht betroffen und immun. In spätestens zwei Quartalen werde der dynamische High Tech-Bereich den Rest der Wirtschaft auf den Wachstumspfad zurückführen.
"In spätestens zwei Quartalen..."
Dann implodierte in atemberaubender Geschwindigkeit die Internet-Bubble. Jetzt hörten wir, der richtige Platz zum Aussitzen dieser kleinen Anomalie seien die großen etablierten Technologieunternehmen. Außerdem sei in spätestens zwei Quartalen der Boom zurück, nachdem kleinere Übertreibungen abgebaut sein würden.
Nachdem dann auch die "Ciscos dieser Welt" verheerende Rückschläge und Kursverluste zu verzeichnen hatten, fabulierten sie von einer Wachstumsdelle, die in spätestens zwei Quartalen einem neuen, alle glücklich machenden Aufschwung weichen werde.
Nachdem dann klar wurde, wie schwach das Wirtschaftswachstum im zweiten Quartal 2001 ausfallen würde, hieß es, eine Rezession sei nicht zu befürchten. In spätestens zwei Quartalen und so weiter. Nachdem jetzt offensichtlich wurde, dass sich die USA in einer Rezession befinden, versichert man uns, diese sei nur mild und kurz. In spätestens zwei Quartalen und so weiter und so fort. Früher begann die Märchenstunde mit "Es war einmal...". Die "New Economy"-Variante lautet offensichtlich "Es wird einmal in spätestens zwei Quartalen...".
Schmuggler
P.S. Und nu ist gut!
By JOHN CRUDELE
--------------------------------------------------
October 23, 2001 -- COMPANIES are regularly falsifying their corporate earnings reports, and it is misleading investors.
That's the shocking - but not surprising - conclusion drawn by the Jerome Levy Institute, an economics research firm, that contends companies have regularly been overstating their profits by more than 10 percent for two decades.
It's no wonder there has been a stock market boom during this time. The lying has accelerated recently, with profits now being overstated by 20 percent, the report said.
If that's true, it would also mean that the stock market - which is still frighteningly overpriced - would be that much more dangerous.
In a report that was recently made public, the Levy Institute accuses companies of abusing non-recurring charges, or writeoffs, to distort their profits. As a result, it says that companies' operating profits - which exclude these non-recurring charges - have been regularly higher they should be.
And companies have coaxed Wall Street into looking at those operating profits, while ignoring the net results that include all the bad, one-time occurrences.
"Exaggerating operating earnings has made it appear that many firms were doing better than they actually were," says the report.
The Levy Institute says profits are further inflated because companies don't account for the widespread distribution of stock options to employees as expenses, even when they are given in place of wages.
Include that, the Institute says, and profits could be overstated by even more.
I've discussed some of this before. Just watch - at the end of this year many companies will announce employee layoffs, plant shutdowns and other "unusual" charges. Why? Because it gives these companies some aerial cover for poor earnings performances that could ground their stocks.
Why would companies do this? Because by clouding the earnings picture they give Wall Street a reason to forgive their poor performance. It's wink-and-nod stuff - Wall Street says give us a reason to excuse your mistakes, and companies concoct a reason.
If workers get hurt in the process, too bad.
There is a euphemism for this and all the other shenanigans that companies use to inflate their profits, or at least to come up with results that are in line with what Wall Street expects. It's called "managing earnings."
Manipulation is a better word for it. Wall Street applauds those companies that "manage" their earnings, but a simple word change would get even the investment community a little nervous.
"Just how widespread and serious is the overstatement of aggregate corporate profits?" asked the Levy report.
"The answer is startling. The macroeconomics evidence indicates that corporate operating earnings for the Standard & Poor's 500 index have been significantly exaggerated for nearly two decades - by about 10 percent or more early in this period and by over 20 percent in recent years."
Yesterday I spoke with David Levy about the manipulation.
"In its innocent form, it could involve [a company deciding] when to take a gain. On the other hand, it could be the rationale for distortions that are unethical and, in some cases, illegal," he added. And this nonsense is hurting investors, although most would not want to see the market's reaction right now to a sudden turn toward honesty. The price-to-earnings ratio of the S&P 500, for instance, is currently about 28-to-1. After the current quarter's dismal earnings are reported, that ratio will undoubtedly rise to over 30-to-1.
* Please send e-mail to:
jcrudele@nypost.com
Greenspan hat z.B. schon vor Monaten die Banken angemahnt, nicht zu restriktiv bei der Kreditvergabe vorzugehen.
Auch die Geschichte mit der Überbewertung der Unternehmen ist völlig korrekt, wenn man davon ausgeht, dass der Börsenwert nach ihren Gewinnaussichten und inneren Wert errechnet wird.
Irgendwie hat man aber das Gefühl, dass da nur noch virtuelle Werte gehandelt werden.
Es ist eine Blase, die noch lange funktionieren kann, oder genausoschnell platzt.
Früher versuchte man Währungen durch das Anlegen eines Goldvorrats zu sichern, der dem Umlaufvermögen entsprach. Ohne einen entsprechenden Gegenwert in Gold würde die Währung inflationär entwertet. Davon ist man schon lange abgekommen.
Solange jeder daran glaubt, dass dieses System funktioniert, solange wird es wohl auch funktionieren - unabhängig von den Fundamentaldaten.
Gruß Dr. Broemme
Bist schon sehr negativ - die Welt wird auch in dieser Krise nicht unter gehen.
Gute Nacht
FMF2000
Natürlich gibt es zu jedem Thema auch Quark zu lesen! Ich habe hier aber nicht monatelang gesammelt. Die Zahlen sind alle neu! Und die Artikel auch! Und im Laufe dieser Woche kommen neue Zahlen, und da rat ich Dir, verkaufe vorher, und glaube lieber diesen Artikeln anstatt Deinen Märchenbüxchern und den dummen Vögeln, die hier posten! Die Wahrheit siegt, und nicht die Lüge!
Egal wie schlecht die Nachrichten sind - die Börse steigt jetzt erst mal nicht!
Grüße
Diplomat