Everything that is slightly “less bad than expected” is being taken as a positive at the moment.
We live in different times – at least for the time being. Since when is something less bad a good thing? The direction is still negative – in whatever it is.
Take for example ‘less bad’ GDP numbers. This, of course, means that the economy is still retracting, not expanding, but the pace of the retraction is less than it was in the prior period – hence ‘less bad’.
I’ll agree that many – and no thanks to the media – only a few short months ago felt that the end of the world was upon us, that economic Armageddon was at our doorstep. So, ya, when compared to this doom and gloom, ‘less bad’ is significantly more ‘positive’.
But at some point we must return to something greater than less bad. We need growth. Increase. Expansion. If we don’t, (sticking with the economic example) then we run the severe risk of a long-term trend towards a decreasing and shrinking standard of living. Less income, less goods, less consumption. Less of a future for our children.
A ‘’less bad’ economy in today’s terms is like you running your household in the red – spending more than your family income brings in. At some point something will have to give. Some sacrifice has to be made.
Saverio Manzo
Wednesday, August 12, 2009
Tuesday, August 11, 2009
Children worth more than money?
Kids Cost Parents $200,000
According to a recent study by IBISWorld, a typical family spends $12,658 a year raising a child. Those who live in the west spend about 8 percent more than the average and those residing in eastern regions, shell out about 4 percent more.
Parents will spend, on average, more than $200,000 raising a child by the time their teen graduates from high school. Those couples earning more than $75,000 a year will shell out over $300,000.
http://moneywatch.bnet.com/saving-money/blog/family-finance/kids-cost-parents-200000/846/?tag=video-318415;related-link-1
Saverio Manzo
According to a recent study by IBISWorld, a typical family spends $12,658 a year raising a child. Those who live in the west spend about 8 percent more than the average and those residing in eastern regions, shell out about 4 percent more.
Parents will spend, on average, more than $200,000 raising a child by the time their teen graduates from high school. Those couples earning more than $75,000 a year will shell out over $300,000.
http://moneywatch.bnet.com/saving-money/blog/family-finance/kids-cost-parents-200000/846/?tag=video-318415;related-link-1
Saverio Manzo
Monday, August 10, 2009
Farrell's 10 Rules
Bob Farrell’s 10 Rules For Investing
Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.
Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage.
1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.
2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.
3. There are no new eras - excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years, only to get cut in half.
As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it - human nature - is never different.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.
5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.
6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.
8. Bear markets have three stages - sharp down, reflexive rebound and a drawn-out fundamental downtrend
I would suggest that as of August 2008, we are on our third reflexive rebound - the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July.
We have yet to see the long-drawn-out fundamental portion of the bear market.
9. When all the experts and forecasts agree - something else is going to happen
As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”
Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.
10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.
Source: MarketWatch, June 11, 2008.
Saverio Manzo
Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.
Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage.
1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.
2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.
3. There are no new eras - excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years, only to get cut in half.
As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it - human nature - is never different.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.
5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.
6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.
8. Bear markets have three stages - sharp down, reflexive rebound and a drawn-out fundamental downtrend
I would suggest that as of August 2008, we are on our third reflexive rebound - the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July.
We have yet to see the long-drawn-out fundamental portion of the bear market.
9. When all the experts and forecasts agree - something else is going to happen
As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”
Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.
10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.
Source: MarketWatch, June 11, 2008.
Saverio Manzo
Thursday, August 6, 2009
Is it really good for you?
There are lots of great articles recently about the confidence (or lack thereof) that people have in their financial advisor. Turns out many have been great “salespeople”, but lack the ability to give wise and prudent investment and financial guidance. But the growing question is not whether to seek out a new advisor for your financial well-being (many agree that they should – and need too), but ‘how to break up’ with a ‘friend’.
In Search of Competent (and Honest) Advisors
“It may be someone you like and trust, but is it someone competent to manage your money?”
YOUR RESPONSIBILITY But the burden of finding a competent adviser rests solidly on you. Even if you decide that the broker trying to sell you the latest offering does not have your best interests at heart, how do you pick someone better?
“Does the person you’re talking to understand?” said C. Steven Crosby, head of PwC’s wealth management practice. “It’s not going down a checklist and saying how many wives, how many kids, how many homes? It’s what wealth means to you.”
http://www.nytimes.com/2009/08/01/your-money/financial-planners/01wealth.html?emc=eta1
Thinking of Switching Financial Planners?
It can be a difficult, even emotional decision.
But when his IRA started to "dive bomb" a couple of years ago and his adviser wanted to stay the course, Keating and his wife started soliciting a little advice on the side. "My adviser was a friend, a good guy, and those are awfully hard phone calls to make,"
"But we just had to stop the bleeding. It's almost like you're breaking up: 'You take the dog, I'll take the silverware.' "
"If you fire Fred and hire George, who's to say that George isn't even worse than Fred?" "They might just be trying to win your business, so there's a natural bias there. And if you ask for a sample portfolio, they're never going to show you a bad one. So you'll never really know what they've produced for an average client."
http://www.businessweek.com/magazine/content/09_27/b4138058215500.htm
Saverio Manzo
In Search of Competent (and Honest) Advisors
“It may be someone you like and trust, but is it someone competent to manage your money?”
YOUR RESPONSIBILITY But the burden of finding a competent adviser rests solidly on you. Even if you decide that the broker trying to sell you the latest offering does not have your best interests at heart, how do you pick someone better?
“Does the person you’re talking to understand?” said C. Steven Crosby, head of PwC’s wealth management practice. “It’s not going down a checklist and saying how many wives, how many kids, how many homes? It’s what wealth means to you.”
http://www.nytimes.com/2009/08/01/your-money/financial-planners/01wealth.html?emc=eta1
Thinking of Switching Financial Planners?
It can be a difficult, even emotional decision.
But when his IRA started to "dive bomb" a couple of years ago and his adviser wanted to stay the course, Keating and his wife started soliciting a little advice on the side. "My adviser was a friend, a good guy, and those are awfully hard phone calls to make,"
"But we just had to stop the bleeding. It's almost like you're breaking up: 'You take the dog, I'll take the silverware.' "
"If you fire Fred and hire George, who's to say that George isn't even worse than Fred?" "They might just be trying to win your business, so there's a natural bias there. And if you ask for a sample portfolio, they're never going to show you a bad one. So you'll never really know what they've produced for an average client."
http://www.businessweek.com/magazine/content/09_27/b4138058215500.htm
Saverio Manzo
Wednesday, August 5, 2009
“Inside” folks Selling Like 2007
Yet again a 'page 17' article I came across today that highlights the simple fact that those in the know, the captains of the ships, yes the ones making the big strategic decisions that set the fate of their respective companies – are selling their holdings in their companies.
Insiders are selling: Corporate insiders more bearish than at any time in nearly two years
“Corporate insiders are a company's officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.
One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.
I don't need to remind you that the 2002-2007 bull market topped out that month
Does that mean you should immediately start lightening your equity exposure?”
By Mark Hulbert, MarketWatch
http://www.marketwatch.com/story/insiders-have-quickened-the-pace-of-their-selling-2009-07-28
Saverio Manzo
Insiders are selling: Corporate insiders more bearish than at any time in nearly two years
“Corporate insiders are a company's officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.
One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.
I don't need to remind you that the 2002-2007 bull market topped out that month
Does that mean you should immediately start lightening your equity exposure?”
By Mark Hulbert, MarketWatch
http://www.marketwatch.com/story/insiders-have-quickened-the-pace-of-their-selling-2009-07-28
Saverio Manzo
Tuesday, August 4, 2009
And so Swings the Pendulum
I am really glad that we, as human beings, seem ready and willing most of the time to take the optimistic point of view on things. That ‘half-full glass’. But sometimes it comes at the expense of a greater outcome.
It is true that we are ALL tired of hearing the relentless negative news on so many economic and market fronts, that a little good news is having a magnified effect. So much so that in the past two weeks our current positive economic and market outlook is swinging the pendulum too far the other way.
The street estimates for the 3rd quarter real GDP in the United States is now 'upped' to a +2.5 to 3.0% range. This from -5.4% in Q1 2009? But the bigger question is: has this been a one-time, manufactured GDP “push” at the expense of future performance as opposed to there being any real permanent change in the trend?
Car Sales Splurge: The U.S. "Cash for Clunkers" $1 billion program that ran out of money in barely more than a week and it looks like we will see another $2 billion added to this ‘spendthrift program’ – this is now being debated in the Senate.
Inventory withdrawal and replacement and Business spending no longer contracts.
Housing, for the first time in three years, does not contract and shows some healthy blips.
Companies low-balling earnings expectations. Of the S&P 500 index, 337 or 74% of the companies have reported and most have exceeded analyst expectations compared with 17% who have missed. If the quarter ends up this way, that 74% will be a record.
What about valuations? The S&P 500 is trading at 16.5x calendar year 2009 earnings estimates, not ‘cheap’ by historical standards.
Saverio Manzo
It is true that we are ALL tired of hearing the relentless negative news on so many economic and market fronts, that a little good news is having a magnified effect. So much so that in the past two weeks our current positive economic and market outlook is swinging the pendulum too far the other way.
The street estimates for the 3rd quarter real GDP in the United States is now 'upped' to a +2.5 to 3.0% range. This from -5.4% in Q1 2009? But the bigger question is: has this been a one-time, manufactured GDP “push” at the expense of future performance as opposed to there being any real permanent change in the trend?
Car Sales Splurge: The U.S. "Cash for Clunkers" $1 billion program that ran out of money in barely more than a week and it looks like we will see another $2 billion added to this ‘spendthrift program’ – this is now being debated in the Senate.
Inventory withdrawal and replacement and Business spending no longer contracts.
Housing, for the first time in three years, does not contract and shows some healthy blips.
Companies low-balling earnings expectations. Of the S&P 500 index, 337 or 74% of the companies have reported and most have exceeded analyst expectations compared with 17% who have missed. If the quarter ends up this way, that 74% will be a record.
What about valuations? The S&P 500 is trading at 16.5x calendar year 2009 earnings estimates, not ‘cheap’ by historical standards.
Saverio Manzo
Monday, August 3, 2009
Old habits hard to break
There is some evidence to suggest that, after recession has reached a certain size or duration, recovery is then harder and more sluggish. Keynes’ animal spirits become depressed. But it takes an awful lot to depress them for more than a couple of years. Capitalism seems to be a pretty resilient beast.
Global recessions are now approaching one-year in duration.
Animal spirits rarely stay down for long
“In the US, the consensus among forecasters is that growth at or near trend will not resume until the second half of 2010 and that the 2008 second-quarter peak level will not be regained until the first half of 2011.
Since the late 19th century, there have been 255 recessions in western economies. Of these, 164 have lasted just one year and only 32 have lasted for more than two years. In other words, two-thirds of recessions last a single year, and only one in eight lasts more than two years.
An analysis of recessions shows that those lasting one year or less typically end more abruptly. The average growth rate in the year after such a recession was 3.5 per cent, and in the subsequent year 3.8 per cent. This is compatible with the view that short recessions are essentially inventory cycles. Once inventories are reduced to satisfactory levels, normal production levels resume, and fixed capital investment expenditures postponed during the recession are carried out.
The caveat to all this is that the current circumstances, the current recession, are unusual. But so was the Great Depression.”
Source: FT, Finanical Times, July 31, 2009
http://www.ft.com/cms/s/0/5768b08a-7ad7-11de-8c34-00144feabdc0.html?nclick_check=1
Saverio Manzo
Global recessions are now approaching one-year in duration.
Animal spirits rarely stay down for long
“In the US, the consensus among forecasters is that growth at or near trend will not resume until the second half of 2010 and that the 2008 second-quarter peak level will not be regained until the first half of 2011.
Since the late 19th century, there have been 255 recessions in western economies. Of these, 164 have lasted just one year and only 32 have lasted for more than two years. In other words, two-thirds of recessions last a single year, and only one in eight lasts more than two years.
An analysis of recessions shows that those lasting one year or less typically end more abruptly. The average growth rate in the year after such a recession was 3.5 per cent, and in the subsequent year 3.8 per cent. This is compatible with the view that short recessions are essentially inventory cycles. Once inventories are reduced to satisfactory levels, normal production levels resume, and fixed capital investment expenditures postponed during the recession are carried out.
The caveat to all this is that the current circumstances, the current recession, are unusual. But so was the Great Depression.”
Source: FT, Finanical Times, July 31, 2009
http://www.ft.com/cms/s/0/5768b08a-7ad7-11de-8c34-00144feabdc0.html?nclick_check=1
Saverio Manzo
Subscribe to:
Posts (Atom)