Entertaining article on Germany and European problems by Michael Lewis

Here's a link to a long, but entertaining article from September by Michael Lewis.  For those who haven't heard of him, he has written some very entertaining books (Liar's Poker, The Big Short).  He also has written several nice articles at vanityfair.com about Iceland, the subprime crisis, etc.

http://www.vanityfair.com/business/features/2011/09/europe-201109

Predicting S&P 500 Returns for Next 5 Years

The graph below shows an interesting trend.  Here's how I built it.  Take every month from January 1950 to October 2006 (5 years ago).  For each month, compute the 10-year CAPE (Robert Shiller's 10-year PE ratio).  The inverse of this number can be used as an earnings yield.  Then subtract what I call the "moving average inflation" which is simply the average of the last 12 year-over-year monthly inflation readings using the CPI.  This gives a sense of the premium above inflation that the CAPE is giving you for investing in the S&P 500.  I plotted this against the forward 5-year real returns (with dividends re-invested) for the S&P 500.  I smoothed the graph by taking a sliding average of 20 points (sorted on the x-axis value).

The trend is that as the CAPE goes down (real earnings yield goes up) relative to inflation, the forward 5 year real returns are higher.  It has some zigs and zags in it, but the trend is fairly strong.

Today I believe the CAPE would be between 17 (5.9%) and 20 (5%).  The moving average inflation is at 2.4%.  So the earnings yield is between 2.6% and 3.5%.  The graph implies an expected real return in the 5-6% range.  Looking directly at the data points (without the 20-point moving average), the spread of the returns is from -11% to +28% in this 2.6%-3.5% range, with an average of 7% and median of 6%.

All in all, another argument that stocks are cheap when compared to the real returns you can expect from any other investment.

China’s economy

China's economy

http://www.economist.com/node/21533412

Does the price of a stock matter?

This article on CNBC talks about the low-price companies in the S&P 500 (link).  When I look at S&P 500 companies that have positive earnings and take the 20 lowest priced ones, I see a PE of 11.5 vs 13.2 for all S&P 500 companies with positive earnings.  Also, the low priced ones have a yield of 1.6% vs 2% for all, and an ROE of 8% vs 15.5% for all.  I'd say the price is not necessarily implying cheap stocks, unless you expect the fundamentals to turn around for them.  Overall using price as an algorithm for buying shouldn't work very well, and it looks like the numbers may bear that out.

When Will The Bond Bears Be Right?

Overall I view this as bullish for stocks but as the author says, people have been saying that fire a long time...

When Will The Bond Bears Be Right?

http://www.ritholtz.com/blog/2011/10/when-will-the-bond-bears-be-right/

US Stock Market: Bulls vs. Bears; Historians vs. Risk Takers?

An article that presents analysis that I largely agree with except for all the parts about resistance etc...

US Stock Market: Bulls vs. Bears; Historians vs. Risk Takers?

http://www.ritholtz.com/blog/2011/10/us-stock-market-bulls-vs-bears-historians-vs-risk-takers/

Sent from Read It Later.

US Debt Accumulation by President

US Debt Accumulation by President

http://www.ritholtz.com/blog/2011/10/us-debt-accumulation-by-president/

Sent from Read It Later.

Chinese banks

Scary article about Chinese banks and how government purchase of shares is propping up prices... This can't end well!

Chinese banks

http://www.economist.com/node/21532302

Sent from Read It Later.

A Deeper Dish Network

Interesting article on how Dish Network is changing what it does and possibly competing with Netflix...

A Deeper Dish Network

http://www.businessweek.com/magazine/a-deeper-dish-network-10132011.html?campaign_id=rss_topStories

Great Interview with Bill Ackman of Pershing Square

A great interview with a lot of detailed descriptions of investments, businesses, and the market in general.

http://www.valuewalk.com/videos-with-text-summary/lengthy-interview-bill-ackman/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+valuewalk%2FtNbc+%28Value+Walk%29

Jim Chanos: Situation in China is Deteriorating Rapidly

Jim Chanos: Situation in China is Deteriorating Rapidly

http://feedproxy.google.com/~r/valuewalk/tNbc/~3/Pej9t7siwrE/

Bill Nygren: Oakmark Fund Q3 Letter to Shareholders; Bought Corning Inc.

Bill Nygren: Oakmark Fund Q3 Letter to Shareholders; Bought Corning Inc.

http://www.gurufocus.com/news/147751/bill-nygren-oakmark-fund-q3-letter-to-shareholders

Buffett Interview with CNN Money

Another Buffett interview - he discusses a lot of stuff, but some of the unique highlights is a comment on US banks being good buys...

http://money.cnn.com/video/news/2011/10/04/n_co_buffett_obama.cnnmoney/

Great interview with Warren Buffett

Great interview that mentions his overall bullishness on Berkshire and the US economy...

http://management.fortune.cnn.com/2011/10/04/warren-buffett-transcript/

Sent from Read It Later.

Dividends at 3-Year Low Raise Payout Pressure- Bloomberg

Dividends at 3-Year Low Raisei Payout Pressure- Bloomberg

http://us.rd.yahoo.com/finance/external/bloomberg/rss/SIG=13ggemrc6/*http%3A//www.bloomberg.com/news/2011-10-05/dividends-at-three-year-low-mean-pressure-builds-as-cash-rises.html?cmpid=yhoo

Whitney Tilson on Current Market Valuations

Interesting comparison between now and three years ago for various metrics...

Whitney Tilson on Current Market Valuations

http://www.gurufocus.com/news/147174/whitney-tilson-on-current-market-valuations

The Great Debt Scare

Interesting analysis of consumer confidence... the index is apparently as low as it was in the early 1980s, just before a huge run up in stocks...

The Great Debt Scare

http://www.project-syndicate.org/commentary/shiller79/English

Sent from Read It Later.

CNBC interview with Warren Buffett

Interesting interview where he emphasizes how cheap various stocks seem to be...

http://m.cnbc.com/us_news/44730157

Sent from Read It Later.

S&P500 losses in September dominated by 2 sectors

In past posts, I have talked about the distribution of the 9 sector SPDRs and their weight relative to each other.  In September, SPY (the S&P500 ETF) lost 4% in just one month, but it's interesting to note that of the 9 sector SPDRs, only 2 were down far more than the 4% - XLE and XLB (energy and basic material sectors respectively).

Along with other signs (such as gold dropping at the same time as fear of Greek bankruptcy, the Canadian dollar dropping to levels not seen in many years, etc) may be strong indications that the commodity cycle is finally reversing.

US stocks outside these sectors continue to look like outperformers going forward to me.