Friday, August 28, 2009

Another "Oh My" moment!!

So DELL beats numbers.

So INTC raises revenue and margin guidance.

So PIMCO touts "Sugar High."

So stocks sell off into this morning news.

And we get another "OH MY" moment.

Oh my!!!!

This is just another trick of Mr. Market. After all didn't we get the Doug Kass call the other day? To sell? After all, didn't he call the bottom? If the bottom is 790, on February 17, then the answer is yes!!

Here was his "Fear and Loathing" piece, on February 17, at S&P 790, where he outlined his 7 reasons to get bullish. Here are just a couple parts of it:
The fear and loathing is palpable:

  • It is palpable every time investors read their monthly brokerage, hedge fund and 401(k) statements.
  • It is palpable in the loss of wealth in our educational institutions, corporate pension plans and endowments.
  • It is palpable in the lost liquidity and lost confidence in the gating of some hedge fund investments.
  • It is palpable in the obliteration of value in private equity.
Here is a partial check list of signs that I and others are looking for (and their status in italics) as indications for a more favorable stock market:
While sentiment and valuation are not the sine qua non in determining share prices, it should be underscored that the current bear market is the second-worst in history, both in terms of price decline and the erosion in P/E multiples. This means that embedded expectations are low. While sentiment, as measured by hedge fund and mutual fund redemptions, remains acutely negative, individual, sovereign and institutional liquidity remains abundant and is growing swiftly.

On multiple fronts, equities appear to have incorporated the bad news and are undervalued both absolutely and relative to fixed income:

  1. The risk premium, the market's earnings yield less the risk-free rate of return, is substantially above the long-term average reading.
  2. Using reasonably conservative assumptions (most importantly, a near 50% peak-to-trough earnings decline, which is over 3x the drop in an average recession), the market has discounted 2009 S&P 500 earnings of about $47.
  3. Valuations are low vis-Ã -vis a decelerating (and near zero) rate of inflation. Indeed, the current market multiple is consistent with a 6% rate of inflation.
  4. Stock prices as a percentage of replacement book value stand at 1x, well below the 1.4x long-term average.
  5. The market capitalization of U.S. stocks vs. stated GDP has dropped dramatically, to about 80%, now at the long-term average. Warren Buffett was recently interviewed in Fortune Magazine and observed that this ratio was evidence that stocks have become attractive.
  6. The 10-year rolling annualized return of the S&P is at its lowest level in nearly 75 years, having recently broken below the levels achieved in the late 1930s and mid 1970s.
  7. A record percentage of companies have dividend yields that are greater than the yield on the 10-year U.S. note. At 46% of the companies, that is over 4x higher than in 2002 and compares against only 5% on average over the last 30 years.
At least I put in an advertisement for Doug!!

In fact, Doug Kass highlighted this video today--showing he has a sense of humor, and is already feeling squeamish about his "top" call.

So what does Mr. Market do today on the good news? It sells the news. Why? So everyone can now think that the "good news" is priced into the market!

Oh my!!! It's priced in!

Yeh, right. It isn't priced in! The bears are just priced into a corner!

But the bulls have the balls, and the bears are eunuchs, so they can't even follow through with their threats.

How about AIG? We had the whole Wall Street world telling us that this number was worthless today. It rallied 7, sold off 10, and then rallied back 5.

That's all the bears have?

They're just like the folks at AIG. They're scoreboard is all F's, but they think they should get paid.

Newsflash--They're not AIG!!

So what do the bears have?


They don't even have "Oh My!!"


Anonymous said...

They should get bonuses or we might negatively impact their self-esteem!!

Palmoni said...


Anonymous said...

Weird market. Macro data world over is getting better ... but everyone wants to sell

Palmoni said...

It looks like just a time correction, and not a price correction.

Anonymous said...

You mean mkts consolidating?

Credit markets improved; PMIs at highs; August consumer spend better; Tech company datapoints for July/Aug better. Even Housing improving.

The last bear angle is jobs ... and there are signs of that improving

Palmoni said...

L/S you are right--we might not consolidate very long before the next move up!

Heck we already got a week in already!