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Author Topic: US Economics, the stock market , and other investment/savings strategies  (Read 54933 times)
Crafty_Dog
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« Reply #900 on: July 29, 2014, 08:57:07 PM »

Scott G. was kind enough to share his thoughts with me on the Hussman analysis:

First, let me say that Hussman's credentials as a connoisseur of valuations is somewhat suspect. His Strategic Growth Fund (HSGFX) has managed the unenviable record of delivering a -21% total return since early March 2009, while the S&P 500 has enjoyed a total return of 224%. If he has provided a service to mankind, it is in demonstrating just how badly a market timing investment strategy can perform.

But eventually, of course, he will be right and the market will suffer a correction, and perhaps a serious one. It's all a matter of timing, something he unfortunately appears to lack in addition to not being able to recognize valuations over multi-year periods.

Be that as it may, I don't agree with the valuations he cites today.

The standard PE ratio of the S&P 500 is 18, as compared to its long-term average of 16. That is not particularly stretched, in my view, especially in light of the fact that corporate profits are close to record levels relative to GDP and long-term interest rates are exceptionally low.

If I use after-tax corporate profits from the NIPA tables as the "E" and the S&P 500 index as the "P" then I find that PE ratios are almost exactly equal to their average since 1960.

I don't give much credence to Shiller's CAPE ratio, since I think that the level of profits 10 years ago has almost zero bearing on the valuation of equities today. Corporate profits relative to GDP are much higher today not because they are unsustainably high, but because of globalization, which has allowed successful firms here to address markets that are exponentially larger than they could have addressed just a few decades ago.

While he worries that the market is hugely over-leveraged, I note that various measures of leverage in the household sector are as low as they have been for many decades. And the fact that banks have accumulated over $2.6 trillion in excess reserves while only moderately expanding their lending activities suggests to me that banks, as well as households, have been very risk averse and continue to be.

He insists on believing that the Fed's QE policies have directly distorted valuations and interest rates. In contrast, I think most of what the Fed has done has been to accommodate the market's extraordinary demand for safe assets. I believe that if the Fed had really been pumping money into the economy and distorting all manner of things, that we would have seen quite a bit more inflation than we have to date.

Nevertheless, I do wish they would accelerate their timetable for higher short-term rates and for the unwinding of their balance sheet.
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DougMacG
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« Reply #901 on: July 30, 2014, 09:43:11 AM »

That is a strong response by Scott Grannis.  These guys working in the same field are kind of tough on each other.  Hussman missed the entire run-up.  Most on Grannis' side of it missed the entire crash, also a pretty big event of the last decade.  Taking the middle ground, I say you don't get to compare performance only from rock bottom unless you called both the crash and rock bottom.

As interesting as the images in the rear view mirror are, the point between the optimists and pessimists today is who is right today.

Scott does a nice job of both hedging and backing up his view.  This is a post worth re-reading after the market makes its next move in either direction.  If it is up 224% every 5 years and you believe current polls then the DOW hits 38,000 at the end of Hillary's first term.  Back up the truck, as we used to say.

But then Scott would also be right if, as he says, "eventually, of course, [Hussman] will be right and the market will suffer a correction, and perhaps a serious one."

We are all lousy market timers.  I know a number of people who do large money management.  I would take the compensation but wouldn't want the responsibility of getting all of the market returns for their clients now while fully protecting them against the next, inevitable, serious correction.

To me, the stock market offers you cloudy title to a company.  You share ownership with people who have very different time frames, objectives and systems for getting in and out of ownership than you do.  Psychology, emotions and subtle tipping points that trigger other events matter, and most of that we can't see.

Scott G:  "The standard PE ratio of the S&P 500 is 18, as compared to its long-term average of 16. That is not particularly stretched, in my view, especially in light of the fact that corporate profits are close to record levels relative to GDP and long-term interest rates are exceptionally low."

From here record profits could continue to go up forever (lol), or go down in a very possible recession, or stay flat for years.  The DOW still at 17000 in 5 years not at all out of the realm of possibilities, nor a worst case scenario.  Artificially low interest rates will most certainly go up the instant moment we quit holding them artificially down.  And reserves parked safely is still money created (out of thin air).

Good luck to everyone who is in.  I lost all my stock market money last time I was dead wrong.

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Crafty_Dog
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« Reply #902 on: July 30, 2014, 06:03:40 PM »

The First Estimate for Q2 Real GDP Growth 4.0% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/30/2014

The first estimate for Q2 real GDP growth is 4.0% at an annual rate, easily beating the 3.0% rate expected by the consensus. Real GDP is up 2.4% from a year ago.
The largest positive contributions to real GDP growth in Q2 were from consumer spending and inventories. The largest drag was net exports.
Personal consumption, business investment, and home building were all positive in Q2, growing at a combined rate of 3.1% annualized. Combined, they are up 2.8% in the past year.

The GDP price index increased at a 2.0% annual rate in Q2. Nominal GDP (real GDP plus inflation) rose at a 6.0% rate in Q2, is up 4.1% from a year ago and up at a 3.7% annual rate from two years ago.

Implications: What a difference one report makes. Real GDP came in higher than the consensus expected for Q2, growing at a 4% annual rate. The rebound more than offset the weather-related hit in Q1, when real GDP fell at a (revised) 2.1% annual rate. Todayís report includes revisions to the GDP data going back several years and shows an economy that was a little weaker in 2010-12, but stronger than originally reported in 2013. New figures show real GDP grew 3.1% in 2013 versus a prior estimate of 2.6%. The one drawback in todayís data was that much of the growth in Q2 came from faster inventory accumulation, which will be tough to duplicate for the rest of the year. We still expect growth between 2% and 3%, but wouldnít be surprised if it continued to come in at the lower end of that range. Nominal GDP grew at a 6% annual rate in Q2, is up 4.1% versus a year ago and is up at a 3.7% annual rate in the past two years. Nominal GDP is a good proxy for the level of interest rates over time and suggests that the Fed is falling behind the curve. Even though we think they should move faster, the Fed will stick to ending QE by Halloween and then start lifting rates in the first half of 2015. The BEA also released its first estimate of GDO - Gross Domestic Output for Q1 last Friday. GDO attempts to measure ďallĒ economic activity. In other words it includes more business-to-business sales along the value-added chain of production. GDO shows that rather than steeply declining in Q1, the economy was roughly flat. This is not surprising given brutal winter weather and it suggests that the drop in Q1 real GDP was not as sinister as many wanted to believe. In other news today, the ADP index says private payrolls increased 218,000 in July. Plugging this into our models suggests the official Labor report (released Friday) will show a nonfarm gain of 220,000. On the housing front, the Case-Shiller index, which measures home prices in 20 key metro areas, dipped 0.3% in May, the first decline in 28 months, although prices are still up 9.3% from a year ago. The dip in May was led by Atlanta, Chicago, and Detroit. Look for price gains in the year ahead, but not as fast as in the past couple of years. Pending home sales, which are contracts on existing homes, declined 1.1% in June after rising 6% in May. Combined, these figures suggest a 2.4% gain in existing home sales in July. After all that, itís still the Plow Horse.
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ccp
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« Reply #903 on: July 30, 2014, 06:51:05 PM »

Happy days are here again oh happy days are here again oh happy days are here again oh yeaaaaaaaahahhhh!!!!!!!!!

 wink

You wanna buy land in south central Florida?   grin
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G M
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« Reply #904 on: July 30, 2014, 08:10:29 PM »

http://davidstockmanscontracorner.com/qe-and-zirp-have-failed-to-lift-main-street-but-withdrawal-of-the-monetary-heroin-will-be-brutal/

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ccp
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« Reply #905 on: July 30, 2014, 11:16:08 PM »

Stockman is right.  And what does 40% of the voting public want to do about the wealth gap?

Tax the "rich" which also includes much of the middle class, to pay for all their debts. Continue the war on savings as Crafty apply puts it, "welcome" 5 million more poor illegals on top of the 12 million already here, and then all their relatives turning the rest of the country into Kalifornia (NJ too), punish the energy sector as Doug pointed out is the most thriving sector of all, embolden our enemies, piss off our friends, divide the nation even more and blame the other side, call them "haters" as the first Black and stooge in office does, all the while it is their policies worsening this mess.

But yes gotta support that brockster and the rest of the "for the po crowd".
The democrats in lock step eternally pushing *forward*  destroying America.

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Crafty_Dog
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« Reply #906 on: August 05, 2014, 10:06:08 AM »

Events vs. Data To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/4/2014

If youíre an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by ArgentinaÖproblems with some Portuguese bankÖEbolaÖtapering.

Itís not a short list, and equities are down roughly 3% since their peak on July 24th.

Maybe, just maybe, a long-awaited stock-market correction has begun. We canít confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts have called in just the past 24 months.

What we do know is that the fundamentals do not suggest anything terribly serious is wrong with the US stock market. Donít take this the wrong way. These events are all important. They matter. But in the long sweep of history, they donít yet rise to the level of world changing events. Most of us have experienced much worse in our lifetimes.

Compared to the Yom Kippur War, the recent conflict between Israel and Gaza is small. And an interesting by-product of this current conflict is that more Arab countries are now supporting Israel.

Meanwhile, Putinís Russia is playing an increasingly weak hand trying to foment a border crisis with Ukraine. The recent downing of Malaysian Airlines flight 17 has pushed Europe into sanctions that hurt Putinís inner circle in its most vital organ. That would be their wallets.

Yes, Argentina isnít going to pay all its debts. But, given its history, why is this news? Since its independence in 1816, Argentina has been in default or rescheduling about 1/3rd of the time. Weíd be more surprised if Argentina always paid its debts on time.

Ebola is certainly a scary headline, but projecting some turning point for the market due to Bird Flu, Swine Flu or even AIDS back in the 1980s was an overreaction.

Fear makes any one of these seem a potentially cataclysmic event, but the same could be said about hundreds of things that have happened in the past 200 years. The one thing weíre sure of is that the economic fundamentals havenít changed much and that the market remains undervalued.

Real GDP in the second quarter rose 4% at an annual rate after a weather-related drop in Q1 of 2.1%. Moreover, revisions to 2013 show that real GDP grew 3.1% in the four quarters of 2013. By the way, some analysts used year-over-year data for 2013 to show a 2.2% gain in real GDP, but this is like using your average net worth for the year to reflect your financial health, not what you had at year-end.

The job market is showing steady gains, with another 209,000 added to payrolls in July. Thatís the sixth straight month above 200,000, the first time thatís happened since 1997. And it looks like more of the same in August: initial unemployment claims are at a four-week average of 297,000, the lowest since April 2006.

In addition, the manufacturing sector looks like itís firing on all cylinders. The ISM Manufacturing Index beat on the upside, hitting 57.1 in July, the highest since 2011.
Construction plunged in June, but thatís a very volatile indicator from month to month and the trend is still up, with a gain of 26% since the bottom in early 2011.

Technical analysis is not our area of expertise, which is why we have to be agnostic about whether weíre in a correction. But if it is a correction, we think a rebound would be soon to follow.

We still believe the bull market will remain intact until a recession is on the way, the equity market gets overpriced, or monetary policy gets tight. None of these are here yet and we donít expect them anytime soon.
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G M
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« Reply #907 on: August 05, 2014, 02:50:00 PM »

Events vs. Data To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/4/2014

If youíre an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by ArgentinaÖproblems with some Portuguese bankÖEbolaÖtapering.

Itís not a short list, and equities are down roughly 3% since their peak on July 24th.

Maybe, just maybe, a long-awaited stock-market correction has begun. We canít confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts have called in just the past 24 months.

What we do know is that the fundamentals do not suggest anything terribly serious is wrong with the US stock market. Donít take this the wrong way. These events are all important. They matter. But in the long sweep of history, they donít yet rise to the level of world changing events. Most of us have experienced much worse in our lifetimes.

Compared to the Yom Kippur War, the recent conflict between Israel and Gaza is small. And an interesting by-product of this current conflict is that more Arab countries are now supporting Israel.

Meanwhile, Putinís Russia is playing an increasingly weak hand trying to foment a border crisis with Ukraine. The recent downing of Malaysian Airlines flight 17 has pushed Europe into sanctions that hurt Putinís inner circle in its most vital organ. That would be their wallets.

Yes, Argentina isnít going to pay all its debts. But, given its history, why is this news? Since its independence in 1816, Argentina has been in default or rescheduling about 1/3rd of the time. Weíd be more surprised if Argentina always paid its debts on time.

Ebola is certainly a scary headline, but projecting some turning point for the market due to Bird Flu, Swine Flu or even AIDS back in the 1980s was an overreaction.

Fear makes any one of these seem a potentially cataclysmic event, but the same could be said about hundreds of things that have happened in the past 200 years. The one thing weíre sure of is that the economic fundamentals havenít changed much and that the market remains undervalued.

Real GDP in the second quarter rose 4% at an annual rate after a weather-related drop in Q1 of 2.1%. Moreover, revisions to 2013 show that real GDP grew 3.1% in the four quarters of 2013. By the way, some analysts used year-over-year data for 2013 to show a 2.2% gain in real GDP, but this is like using your average net worth for the year to reflect your financial health, not what you had at year-end.

The job market is showing steady gains, with another 209,000 added to payrolls in July. Thatís the sixth straight month above 200,000, the first time thatís happened since 1997. And it looks like more of the same in August: initial unemployment claims are at a four-week average of 297,000, the lowest since April 2006.

In addition, the manufacturing sector looks like itís firing on all cylinders. The ISM Manufacturing Index beat on the upside, hitting 57.1 in July, the highest since 2011.
Construction plunged in June, but thatís a very volatile indicator from month to month and the trend is still up, with a gain of 26% since the bottom in early 2011.

Technical analysis is not our area of expertise, which is why we have to be agnostic about whether weíre in a correction. But if it is a correction, we think a rebound would be soon to follow.

We still believe the bull market will remain intact until a recession is on the way, the equity market gets overpriced, or monetary policy gets tight. None of these are here yet and we donít expect them anytime soon.



http://humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
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Crafty_Dog
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« Reply #908 on: August 08, 2014, 11:51:42 AM »



Nonfarm Productivity Increased at a 2.5% Annual Rate in the Second Quarter To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/8/2014

Nonfarm productivity (output per hour) increased at a 2.5% annual rate in the second quarter versus a consensus expected gain of 1.6%. Nonfarm productivity is up 1.2% versus last year.

Real (inflation-adjusted) compensation per hour in the nonfarm sector was up at a 0.1% annual rate in Q2 and is up 1.0% versus last year. Unit labor costs increased at a 0.6% rate in Q2 and are up 1.9% versus a year ago.

In the manufacturing sector, productivity was up at a 3.6% annual rate in Q2, much better than among nonfarm businesses as a whole. The faster gain in manufacturing productivity was due to faster growth in output. Real compensation per hour declined at a 0.8% annual rate in the manufacturing sector, while unit labor costs fell at a 1.3% rate.

Implications: After a large drop in productivity in Q1, nonfarm productivity grew at a 2.5% annual rate in Q2. Hours continued to increase at a healthy clip and output climbed even faster so output per hour increased. Productivity is only up 1.2% from a year ago, but we think government statistics underestimate actual productivity growth. There are many examples, in every area of the economy, but the service sector is particularly hard to measure. Drivers used to buy road atlases, and then GPS devices to help them navigate; now they download free apps that are more accurate and provide optimal routes through real-time traffic patterns. Travelers used to guess, hit-or-miss, where to go for a meal. Now they can use free services to tell them what restaurants are close and provide reviews. The figures from the government miss the value of these improvements, which means our standard of living is improving faster than the official reports show. Sectors of the economy that are easier to measure show more rapid productivity growth. In manufacturing, productivity surged at a 3.6% annual rate in Q2 and is up 2.1% from a year ago. The surge in Q2 was due to output growing much faster than hours. In spite of the overall problems with measurement, we anticipate faster productivity growth over the next few years as new technology increases output growth in all areas of the economy. In other news, yesterday new claims for unemployment insurance declined 14,000 to 289,000. The four week moving average at 293,500 is now the lowest since February 2006. Continuing claims for jobless benefits declined 24,000 to 2.52 million.
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G M
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« Reply #909 on: August 13, 2014, 08:50:19 PM »

http://goldsilver.com/news/james-rickards-cold-war-2-0-is-a-financial-war/?utm_medium=email&utm_campaign=8+13+14+GS+Weekly&utm_content=8+13+14+GS+Weekly+CID_38c81df2ad88f08af610e8f4dbeaee17&utm_source=GoldSilver%20Email%20Marketing&utm_term=read%20more
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Crafty_Dog
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« Reply #910 on: August 14, 2014, 07:53:11 PM »

Silver Wheaton, Pan American Silver each -5%, hurt by low silver prices ē 2:16 PM

       Silver Wheaton (SLW -5.3%) and Pan American Silver (PAAS -5.3%) are both
sharply lower as low silver prices combined with still-high costs combine to
weigh on Q2 results.SLW said its silver equiv. realized price fell from
$23.05/oz. a year ago to $19.83 in this year's Q2; gold sales accounted for
~30% of sales, and SLW’s realized gold price of $1,295/oz. was included
in a 14% drop in the silver equiv. price.In Q2 results for PAAS, the average
realized price for silver was $19.58/oz., down from $22.68 in the year-ago
quarter; gold, which accounts for ~25% of sales, also suffered, fetching
$1,289/oz.vs. $1,423 a year ago.
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G M
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« Reply #911 on: August 14, 2014, 08:00:20 PM »

Silver Wheaton, Pan American Silver each -5%, hurt by low silver prices ē 2:16 PM

       Silver Wheaton (SLW -5.3%) and Pan American Silver (PAAS -5.3%) are both
sharply lower as low silver prices combined with still-high costs combine to
weigh on Q2 results.SLW said its silver equiv. realized price fell from
$23.05/oz. a year ago to $19.83 in this year's Q2; gold sales accounted for
~30% of sales, and SLW’s realized gold price of $1,295/oz. was included
in a 14% drop in the silver equiv. price.In Q2 results for PAAS, the average
realized price for silver was $19.58/oz., down from $22.68 in the year-ago
quarter; gold, which accounts for ~25% of sales, also suffered, fetching
$1,289/oz.vs. $1,423 a year ago.


Buy on the dips.
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Crafty_Dog
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« Reply #912 on: August 14, 2014, 08:45:59 PM »

I bought PAAS at 9 and rode it to 40.  Got out in the low 30s and mid 20s IIRC.

As I have cautioned here a number of times, as soon as interest rates go up, the experience of the late 70s teaches that gold and silver will bet fuct.  As it is gold is donw over 35% from its peak.

The piece in GM,s post 909 epitomizes the notion of profity from prophesy.  It can be done, but then again the market can be wrong longer than you can stary solvent.
« Last Edit: August 14, 2014, 08:47:43 PM by Crafty_Dog » Logged
G M
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« Reply #913 on: August 14, 2014, 08:50:25 PM »

I bought PAAS at 9 and rode it to 40.  Got out in the low 30s and mid 20s IIRC.

As I have cautioned here a number of times, as soon as interest rates go up, the experience of the late 70s teaches that gold and silver will bet fuct.  As it is gold is donw over 35% from its peak.

The piece in GM,s post 909 epitomizes the notion of profity from prophesy.  It can be done, but then again the market can be wrong longer than you can stary solvent.

I'm not buying to flip silver and gold for profit. I'm buying to have something of value after we go Weimar.
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