Analysts, Gurus & Pundits
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» Normxxx - Marc Faber Says. . .
FLIGHT TO GARBAGE
A commentator characterized the year 2003 as an investors' "flight to garbage." Indeed, some assets perceived to be of lower quality, such as Ecuadorian and Brazilian debts, Argentinean and Venezuelan stocks, as well as money-losing high-tech companies, enjoyed huge price gains in 2003.
In fact, 2003 will enter the financial history books as the year in which all asset classes - including equities in developed as well as emerging markets, government as well as any kind of corporate bonds, industrial commodities, precious metals, real estate, and art - increased in value.
That is, of course, with the exception of the U.S. dollar, which slumped not only against gold (mentioned here as a currency, whose supply cannot be increased ad infinitum by some intellectually dishonest central bankers), the euro, and the currencies of the resource-based developed economies of Australia, New Zealand, and Canada, but also against the currencies of more "controversial" economies such as Brazil and South Africa.
As a result of the slumping U.S. dollar, the performance of U.S. equities in 2003 was nowhere near as "fantastic" as the media have suggested. It is true that, in U.S. dollar terms, the Dow Jones Industrial and the S&P 500 rose in 2003 by 25% and 26%, respectively; but in Euro terms, these gains were just 4% and 5%. Admittedly, the Nasdaq, and especially the Philadelphia Semiconductor Index (SOX), did better, rising by 50% and 76%, respectively, in terms of the U.S. dollar and by 25% and 46%, respectively, in Euro terms, but this was hardly a match for the emerging market gains (in U.S. dollars) of 138% in Thailand, 131% in Brazil, 119% in Venezuela, and 104% in Argentina.
Moreover, if we look at the performance of the Nasdaq since the Euro bottomed out in October 2000 at 82.27, the recent rise appears to be more muted in a longer-term context than the bullish camp is trying to convey to the "dollar weakness unconscious" investment community.
When asked about the performance of President Bush over 2003, the elderly but jovial Jewish taxi driver who took me to John F. Kennedy Airport in New York following the yearly Barron's roundtable exclaimed enthusiastically that Bush was the "greatest American president ever."
Taken somewhat aback by this firm and unshakable support for the present U.S. government, and at the same time concerned that I might be offloaded somewhere in an alley on my way to the airport if I said anything wrong, I hesitantly, and as diplomatically as possible, asked my driver, who proved to be smart and honest, why he felt so positive about Mr. Bush's administration. (He was evidently smart, since, while listening to Simon and Garfunkel tapes, he was smoothly and skillfully negotiating the fastest way to the airport: he took the Queensborough Bridge coming from the West side heading into Third Avenue, then went north on Third Avenue and turned left into 57th Street before turning right on to the bridge - thus avoiding the usual traffic jam on the Queensborough Bridge entrance at 58th Street. And he proved to be honest, since the total fare was just $29 - $35 with tip, which is the lowest fare I have ever been charged to go from New York City to JFK.)
"Bush doesn't take any BS from anyone in the world," he replied. "And look at the stock market...it's up!"
Fearing a confrontation, and concerned about missing my flight, I remarked in a conciliatory way that the dollar had declined in value, concurrently with the stock market's rise, thereby largely neutralizing - currency adjusted - any stock market gain. But this stock market gain/dollar weakness issue didn't seem to strike a chord with my driver, whose only concern seemed to be to enjoy additional price gains on his home and his stock portfolio in U.S. dollar terms.
After checking in at the airport, I reflected further on my driver's views, which I initially considered to be rather naïve. But then it struck me that the entire global investment community has been seduced by strong economic indicators (published by governments, we must remember, which have a political agenda) and easy monetary policies into believing that all asset classes will continue to appreciate in 2004.
The commodity bulls believe that we are at the beginning of a long-term secular bull market for raw materials and precious metals, while the stock bulls believe that the rise since October 2002 is the first leg in a multi-year stock bull market. Home buyers believe that the housing industry will continue to thrive and expand and never again be a cyclical industry in the way it has always been, and at the same time the "deflationists" remain convinced that deflation will lead to a resumption of the bond bull market. So, wherever you go and to whomever you speak, everybody around the world is very optimistic about some asset class or some kind of "very special situation."
In addition, every investor you speak with is convinced that he is savvier and smarter than the public, and that he will know, just minutes before it turns down, when to get out of his favorite market, stock or commodity! In other words, every investor seems to be suffering from the massive delusion that he is an above-average investor who will be able to "beat the crowd."
Yet it should be clear to any rational thinker that commodities, and especially the precious metals, cannot forever rise in price while at the same time interest rates decline and bonds continue to appreciate. At some point, continuously rising commodity prices must lead to higher inflation rates and depress bond - and probably also equity - prices. Conversely, bond prices can only continue to rise if global economic growth disappoints and deflationary forces reassert themselves.
The year 2003 was unusual in as far as all asset classes rose in price - that is, with the exception of the U.S. dollar. In 2004, we expect asset markets again to show diverging performances.
In my opinion, the surprise of 2004 could be renewed economic weakness, which would be temporarily negative for commodity prices and likely also for extended stock markets (developed and, especially, emerging markets) and sectors, which in 2003 performed superbly, such as home builders and semiconductors.
In the meantime, the U.S. dollar has become very oversold and sentiment is as negative about the U.S. dollar as it is positive about the U.S. stock market. Time for a contrarian to take the other side of the trade - that is, long U.S. dollars and short the U.S. stock market???
Regards,
Marc Faber
-- posted by Normxxx
» Normxxx - Value Line Says. . .
Damning with faint praise
By Mark Hulbert, CBS.MarketWatch.com | 12:01 AM ET Jan. 28, 2004
ANNANDALE, Va. (CBS.MW) -- Believe it or not, the following projections are made by an advisory service whose 2004 target for the Dow Jones Industrials Average is 9,400 -- some 1,200 points below where it closed on Tuesday.
Corporate earnings will be 11 percent higher this year than in 2003, and dividends will rise by 4 percent. Interest rates will be only slightly higher, by just 30 basis points, and inflation will "remain muted."
Sounds pretty good, doesn't it? Makes you want to go out and buy more stocks.
Especially since these projections aren't being made by just anyone. They come from Value Line, Inc. publishers of the Value Line Investment Survey. That service is one of the top ranked advisory newsletters for performance over the past two decades, as measured by the Hulbert Financial Digest.
Why, then, is Value Line so cautious?
The simple answer: "lofty P/E ratios." Value Line believes that "most of the earnings gains that we estimate for 2004 may already be priced into the market."
Value Line's argument will come as a surprise to those of you whose market commentary comes mainly from Wall Street's sell-side analysts. As they never tire of telling us, the market's P/E ratio is high only when we focus on trailing earnings.
But, they point out, the market's P/E drops significantly when we focus on what firms are projected to earn during 2004. For example, the Dow's current P/E, using Value Line's projections of 2004 earnings for the 30 Industrials, is "just" 18.2. That, so the argument goes, is only slightly higher than the long-term historical average.
So why worry?
To show why this argument is specious, I turn to the quarterly letter recently sent to clients of AQR Capital Management. According to Clifford Asness, one of that firm's managing principals, this argument relies on the sleight of hand of comparing a forward-looking P/E with an historical average based on trailing P/Es.
But that's comparing apples to oranges.
Or, as Asness puts it, the argument is "crapola."
After all, forward-looking P/E ratios are almost always lower than trailing P/E ratios. Rarely do analysts project that corporate earnings will fall.
So if Wall Street's Pollyannas were sincere in wanting to make a sound historical argument based on forward-looking P/Es, they would compare the market's current forward-looking P/E with an average based on forward-looking P/Es that have been recorded in prior years.
But they don't do that, and Asness suspects he knows why: If they did, they would have to concede that the market is just as overvalued as it appears to be when focusing on trailing P/Es:
According to Asness' calculations, the historical median P/E based on projections of year-ahead earnings is 12.1, far lower than the 16.0 median that has existed historically when P/Es are calculated using trailing 12-month earnings.
Consider what Asness found when he sorted all forward-looking P/Es that have been recorded since 1976 -- which is the earliest date for which analyst projection data is recorded.
The market's current forward-looking P/E comes in at the 81st percentile, which means that only 19 percent of the quarters since 1976 have seen higher valuations than where we are right now.
Contrast that with what Asness found when he sorted the market's historical P/Es based on trailing earnings. The market's current trailing P/E comes in at the 84th percentile, almost the same level as emerged from focusing on forward-looking P/Es.
Asness concludes: "In an honest comparison, not playing fast and loose with the numbers, P/Es of any stripe are very high versus history."
-- posted by Normxxx
» Normxxx - The Madness of Sir Alan, A Short Bio
BEST OF RICHARD RUSSELL: The Madness of Sir Alan
February 17, 2004
"Alan Greenspan's most successful ruse has to been to make his speeches so dull that they mask the monumental gamble he is taking with the U.S. economy." Peter Eavis, Probing Alan Greenspan's Easy Money Madness
This has been his modus operandi for quite some time, and as for the gamble, that is obvious to anyone who is following economic events with an eye to the data behind the headlines. But I am not sure about what Peter Eavis then goes on to say.
"But the Fed chairman's testimony before Congress on Wednesday clearly indicates that he believes he has won that gamble."
It has nothing to do with belief, and everything to do with appearance.
He is trying to create the appearance of having won the battle, of creating the illusion of victory, that the field has been won by Sir Alan, so that if the war is lost, he can place the blame on someone else, and on some other organization.
He clearly pointed at the administration and the budget deficits as a potential scapegoat in this and several recent speeches. They will serve to carry the blame in Sir Alan's History of the Debt Creating Peoples, if some more convenient scapegoat such as al-Qaeda does not appear on the scene before the final curtain comes down on his Potemkin village economy.
The key to understanding Greenspan is to think of him not as an economist, as which he was always mediocre at best, but as a bureaucrat in a large bureaucracy, and in this he excels, and has the kind of power that comes with time-in-place. In this he is more like J. Edgar Hoover than Paul Volker.
Here is an anecdote from Pierre Rinfret, an economist and seasoned Republican who has known Sir Alan first as a colleague at Columbia, then as a fellow economic consultant on the Street, and as an associate in several presidential administrations.
"One of the absolute lies about him is that he retired from his consulting business a wealthy man. Absolutely and totally untrue. (His emphasis, not mine. Jesse).
When he [Alan Greenspan] closed down his economic consulting business to go on the Board of the Federal Reserve he did so because he had no clients left and the business was going under. We even went so far as to try and hire some of his former employees only to find out he had none for the 6 months prior to his closing. When he closed down he did not have a single client left on a retainer basis. His only source of income was his speech making. As a speaker he had to be the ultimate bore exceeded only by Paul McCracken about who Richard Nixon told me on many an occasion "When he talks MEDGO" meaning "my eyes doth glaze over".
"He had a horrible record on forecasting the American economy. He missed calling, in advance, every single recession in the entire postwar period with only one exception. He neither called recessions nor expansions for the very simple reason that he has never been one to stick his neck out. In American industry they don't pay consultants for Pablum or for saying what everybody else does! And that is what he has always served up; Pablum.
The driving force that may push Greenspan more than anyone or himself realizes is that he graduated from the "Bronx High School of Science" and that his peers included one Henry Kissinger and other famous (infamous?) politicians of about his age. A classmate of his once said to me that Alan had to prove to them that he was as smart as they were!"
www.dowtheoryletters.com
Richard Russell’s Dow Theory Letters
-- posted by Normxxx
» SteveT - Grubman Finds Work
http://www.thestreet.com/_yahoo/tech/sco...
Jack Grubman Finds Work in New Jersey
By Scott Moritz
TheStreet.com Senior Writer
2/27/2004 1:07 PM EST
He's back.
Those who said Jack Grubman would never find work again in this town were partially right. The disgraced telecom analyst who was barred from Wall Street for life, has landed a new job over the river in Fort Lee, N.J.
Distinctive Devices, a network-equipment supplier that sells digital TV technology and telecom gear in Germany, India and Russia, said Friday that it hired Grubman as a strategic adviser.
Earl Anderson, a director of the company, says Grubman will be an outside consultant, not a full-time employee. "He'll be doing marketing and strategy, hopefully hooking us up with some of his contacts," says Anderson.
Grubman's representative did not return a call for comment.
Grubman rose to fame in the '90s as an outspoken advocate for upstart phone companies that he argued would be nimble and innovative enough to unseat giants like AT&T (T:NYSE - commentary - research). His enthusiasm for speculative underdogs, combined with a wave of deregulation and a flood of investment money, helped drive some of the highest-soaring stocks of the telecom bubble era.
Though some of his theories proved to be accurate, the overheated investment climate he fostered created an oversupply of network capacity and competitors that well overshot demand for data and phone service.
During the industry's dramatic collapsed, Grubman kept positive ratings on stocks like WorldCom, Focal Communications and Winstar, even as he derided the companies in emails to colleagues and certain clients.
Aside from the millions he made and then lost for investors, it was Grubman's dual roles as analyst and investment banker that drew the most attention from securities regulators.
In that role, Grubman helped dole out lucrative IPO shares to telecom executives like former WorldCom chief Bernie Ebbers and former Qwest CEO Joe Nacchio in the hopes of landing more investment banking business for Citigroup. The Securities and Exchange Commission has since pushed for a series of reforms aimed at separating the roles of research and investment banking.
Grubman's rainmaker status made him one of the highest-paid analysts on the Street. In one year, he took in $20 million from Citigroup. He left the bank in August 2002 with a $30 million severance package after becoming the poster boy for Wall Street conflicts of interest.
In April, as part of the $1.4 billion global settlement with state and federal regulators, Grubman was fined $15 million and banned from the securities business for life.
Grubman's tarnished reputation isn't an insurmountable challenge for the folks at Distinctive Devices.
"I think on balance it's neutralized by the business we hope he can develop for us," says Distinctive Devices director Anderson.
In a TV interview Friday on CNBC, Distinctive Devices CEO Sanjay Mody denied the Grubman hire was a publicity stunt. He also said Grubman's pay would be based on performance.
Observers point out that many of his most influential contacts have been fired and are facing prosecutors, so it's not clear whether Grubman can expect the same level of financial reward in his second career.
-- posted by SteveT
» 2win - Re: Follow the Famous Pickers
In response to message posted by Kirk:The Quicken site offers a similar feature. Four stock picking methods are featured, and their current "stocks of strong interest" are displayed as the result of an automatic screening process. These, in turn, can be sorted according to various criteria, such as ROE, debit/equity, net profit margin, intrinsic value, etc. See results of Robert Hagstrom's The Warren Buffet Way here:
http://www.quicken.com/investments/strat...
BTW, this one is free.
Dave J.
-- posted by 2win
» Normxxx - Time To Pay The Piper?
BEST OF RICHARD RUSSELL
Richard Russell’s Dow Theory Letters | February 25, 2004
www.dowtheoryletters.com, (858) 454-0481
As usual I did a bit of thinking over the weekend. Have you ever heard of "Occam's Razor"? This is a famous theorem put forth by William of Occam (1285-1389). William's theorem can be expressed as follows -- "What can be done with fewer assumptions is done in vain with more."
In other words, the simpler and more basic a thesis, the better. Example -- if you want to connect two dots, don't do it with a spiral line or a wavy line or a semi-circle, do it with a simple straight line.
OK, where is this leading? Many years ago I talked in my reports about South Africa and apartheid. At the time I said that from the standpoint of the white authorities, "the numbers are no good." What did I mean? At that time there were 4 million whites living in South Africa and 18 million blacks. I felt that based simply on the lop-sided numbers, the whites were fated to lose power and the blacks were fated to gain power. Which is ultimately the way it worked. Occam's Razor -- 18 is a lot bigger number than 4.
Over the weekend I read the cover story from the latest issue of Business Week. The cover runs, "SOFTWARE -- will outsourcing hurt America's supremacy?"
The article notes that India is now graduating more software engineers than the US. Deepa Paranjpe, a young lady of 24 years, is just finishing her master's at the prestigious Indian Institute of Technology in Bombay. Deepa is already an ITT star in search technology. She routinely works till 3AM in the department's new 20-pod computer lab doing research on search engines. She's the best. Her salary -- $10,800 a year. Her ambition -- "I'd like to be an entrepreneur."
This, dear subscribers is brutal competition. So what's happening now is that U.S. students are opting to avoid tech schooling. In the past two years average pay in the US for application developers has dropped 17.5%, for database engineers it's dropped 14.7%, for systems administrators it's dropped 5.4%.
Microsoft's CEO, Steven Ballmer states that the shortfall of US tech students worries him more than any other issue. Says Ballmer, "The US is number 3 now in the world and falling quickly behind number 1 (India) and number 2 (China) in terms of computer-science graduates."
So this is what I'm thinking -- the US is losing its manufacturing base to China and other Asian nations. But Alan Greenspan says that we don't need manufacturing, we have other profit centers. Really? Like services, which are now in the process of being outsourced? Now we're beginning to lose our scientific lead to India, China and Eastern Europe. The future for science graduates in the US is turning negative.
The fact is that workers overseas can get the jobs done at around one-fifth the cost that those same jobs can be done in the US.
Occam's Razor again -- THE NUMBERS ARE NO GOOD. AT LEAST THEY ARE NOT GOOD FOR THE US.
What do I think will be the outcome? As I see it, the outcome must be a lower standard of living in the US and a rising standard of living in China, India, and much of Asia.
The standard of living in the US is far too high in relation to the competitive position of the US. Then the question comes up, "How have we kept up our standard of living over recent years?"
1 -- Through the rest of the world accepting Fed-created paper dollars in massive quantities.
2 -- Through huge borrowing, better known as running up debts, to sustain the US standard of living.
3 -- Through a powerful military which has given the US "superpower status" -- but this same military is now costing us far more than we can afford.
I believe the return of the bear market will be about the decline of the US as the science, the tech, the growth and the military leader of the world. The fundamentals of the coming US decline boil down to the numbers -- US wages are too high, and US debts and deficits are too high. And the US standard of living is too high -- too high compared with the half of the world represented by China and India, Asia and Eastern Europe -- all nations where you can get the same work done for one-half to one-fifth the price. Occam's Razor.
Ultimately, the Gross Domestic Product of the US will decline, and when it declines it will run headlong into the greatest mountain of debt ever created by any nation in all history.
Right now, I believe we are in that strange, fuzzy area -- the area between the best of living standards in the US, and the beginning of the US decline. Just how the slide to downside of the mountain will develop, I obviously can't know. But I will make three predictions --
One -- It will be a painful decline.
Two -- It will see equities return to bargain value-levels.
Three -- There will be increasing disillusionment with the whole central bank system and their issuance of fiat irredeemable paper money.
[Normxxx Here: One problem; for the last 10 years or so, roughly 90% of the net growth in the world has been supplied by the U.S. What happens to the rest of the world as America goes down the tubes? Who will take up the slack? Japan (well, maybe, if (1) they ever solve their own problems, or (2) decide to at least balance their imports and exports)? China (well, maybe, if they can grow their economy to world class and find someone other than the U.S. to export to)? Europe (well, maybe, if they can ever get their economies to grow at some decent rate, but they have most of our problems plus the cost of their welfare states)? Africa? East Europe? The Asian Tigers (who net net sell only to the U.S.)? India (who probably has the world's most currupt beaurocracy among the big powers)? ]
-- posted by Normxxx
» Normxxx - The Age of Social Transformation
<img src="http://www.theatlantic.com/images/headbar.gif" BORDER=0 alt="The Atlantic Monthly">
<img src="http://www.theatlantic.com/issues/95dec/..." height=289 width=468>
<img src="http://www.theatlantic.com/images/n-smal..." align=left height=44 alt="N">
<img SRC="http://www.theatlantic.com/issues/95dec/..." ALT="(The Age of Social Transformation)" align=right>
O century in recorded history has experienced so many social transformations and such radical ones as the twentieth century. They, I submit, may turn out to be the most significant events of this, our century, and its lasting legacy. In the developed free-market countries--which contain less than a fifth of the earth's population but are a model for the rest--work and work force, society and polity, are all, in the last decade of this century, qualitatively and quantitatively different not only from what they were in the first years of this century but also from what has existed at any other time in history: in their configurations, in their processes, in their problems, and in their structures.
Far smaller and far slower social changes in earlier periods triggered civil wars, rebellions, and violent intellectual and spiritual crises. The extreme social transformations of this century have caused hardly any stir. They have proceeded with a minimum of friction, with a minimum of upheavals, and, indeed, with a minimum of attention from scholars, politicians, the press, and the public. To be sure, this century of ours may well have been the cruelest and most violent in history, with its world and civil wars, its mass tortures, ethnic cleansings, genocides, and holocausts. But all these killings, all these horrors inflicted on the human race by this century's murderous "charismatics," hindsight clearly shows, were just that: senseless killings, senseless horrors, "sound and fury, signifying nothing." Hitler, Stalin, and Mao, the three evil geniuses of this century, destroyed. They created nothing.
Indeed, if the 20th century proves one thing, it is the futility of politics. Even the most dogmatic believer in historical determinism would have a hard time explaining the social transformations of this century as caused by the headline-making political events, or the headline-making political events as caused by the social transformations. But it is the social transformations, like ocean currents deep below the hurricane-tormented surface of the sea, that have had the lasting, indeed the permanent, effect. They, rather than all the violence of the political surface, have transformed not only the society but also the economy, the community, and the polity we live in. The age of social transformation will not come to an end with the year 2000--it will not even have peaked by then.
November, 1994
-- posted by Normxxx
» Normxxx - Richard Russell's DOW THEORY LETTERS
How do I see the picture in the USA today?
Richard Russell,
Editor-in-chief - DOW THEORY LETTERS
www.dowtheoryletters.com/dtlol.nsf
March 8, 2004
The President, George Bush Jr., took over the presidency still seething over his father's "failures." Dad's first failure was allowing Saddam to escape Scot-free during the Gulf War. The second and even worse failure (for shame) was dad's failure to win a second term as president. The second failure was a result of the Fed clamping down on the money supply and squeezing the economy. Result -- a little recession. That wasn't going to happen this time, even if George Jr. has to personally wring Alan Greenspan's scrawny little neck.
So George Jr. vowed to "repair" his dad's first failure. From the beginning it was war with Iraq and capture Saddam. Now we're in the second phase -- re-election. George Bush Jr. must, at all costs, be re-elected to a second term. Failure is not an option. He must not fail. He absolutely MUST be re-elected.
The other man I refer to is Fed Chairman Alan "Easy Al" Greenspan. Greenspan is desperate to repair or I should say gloss over his enormous failure to recognize the stock market bubble of the late-90s. Now Greenspan must address his legacy. So we hear the Greenspan nonsense which runs -- we can't recognize a bubble until after it bursts; therefore we can't do anything to halt a bubble. Our true job is to confront the damage a bubble can do -- AFTER it bursts.
Thus we have the unprecedented spectacle of the Fed driving rates down to a 45-year low while flooding the economy with liquidity -- all in a desperate effort to thwart or at least hold back the natural and normal forces of the bear. But the jobs, the jobs, where are the blasted jobs? Alan can hear it in his tortured sleep, "It's the jobs, stupid."
Result -- Over a trillion dollars in liquidity, federal deficits of $1.7 billion a day, and a host of new Fed-created bubbles -- bubbles in stocks, real estate, bonds, inflation and -- debt.
That's the world today as Richard Russell sees it. That's the reality of USA 2004.
Next, let's take it through the weekend with two P&F charts. The first, below, is the Dow. What we see is a consolidation (or is it a distribution?) pattern A bullish upside breakout would entail the Dow climbing to the 10800 box. A bearish downside breakout would entail the Dow sinking to the 10400 and more decisively to the 10350 box.
Meanwhile, stock volatility has collapsed. The seven-year low level in the VIX hints that we may not see a breakout either way -- for a while.
The second P&F chart depicts HUI, the widely-followed Gold Bugs Index. Like the Dow, HUI has been holding bullishly above its blue rising trendline. HUI, like the Dow, is currently in a consolidation pattern. A breakdown would entail HUI sinking first to 216, then to 208 and more decisively to 204.
A bullish breakout to the upside would require HUI to rise first to the 244 box, and then to a new high at the 260 box.
-- posted by Normxxx
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