It has been a sad weekend in Paris and around the world. We bring you our morning train reads:
• Terror and markets: Sell-offs tend to be short-lived (USAT)
• The Upward Drift in Valuations (Irrelevant Investor)
• Cause their forecasting record is so good: Don’t Fight the Fed: Analysts say, It’s Lower for Longer for Bond Yields (WSJ)
• iPad generated the same revenue last quarter as all of Google’s non-advertising business did for the entire fiscal year (Daring Fireball)
• Why the Paris attacks could mark the beginning of the end for ISIS (Washington Post) but see Smashing Islamic State After Paris Attacks a Huge Challenge (Bloomberg)
Be sure to check out our Masters in Business interview this weekend with David Rosenberg, chief economist at Gluskin Sheff.
Re: Upward drift of valuations
All the commentaries that I see focus on the Shiller CAPE valuation, including detailed discussions of its relationship to GAAP accounting etc, and try to show how it is inappropriate and out-of-date, similar to 1999-2000. However, Doug Short tracks multiple valuation models that show very similar over-valuation percentages to CAPE. These are generally completely un-related to each other, tracking very different elements, such as Tobin’s Q looking at replacement value, GDP looking at overall economic activity, margin debt looking at speculation, and a century plus regression analysis of stock market share prices. Generally, these show 2000 as a true bubble outlier with peak valuations unlike any other stock market time frame in the US, except in margin debt. The current valuation is generally at the same level or higher than other major bull market peaks, such as 2007, 1966, 1929 etc. We are far, far above typical bear market valuation lows that can go on for years in patterns similar to how our highs have gone on for years.
Are there valid reasons why we should be in a plateau of perpetually high stock prices today? Or is it simply a confluence of many forces that are coinciding with a period when central bankers have focused on high asset prices as a primary goal of public policy? This is not the case in the rest of the world where EM and European stocks are at substantially lower valuations. In any case, I will be surprised if we do not see a 50%+ plunge in the US stock market sometime in the next few years, although it is always possible that it is different this time. I fully appreciate that this is very difficult, if not impossible to time so I am not trying. Instead, I have a portfolio that I am comfortable with, especially if I can keep saving money in my 401k during a downturn as I expect that will be a major opportunity for buying under-priced stocks..
http://www.advisorperspectives.com/dshort/updates/Market-Valuation-Overview.php
http://www.advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php
http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
NASA is now able to extract more from some of heir satellite data and it indicates the Gulf Stream may be slowing down. Melting Greenland ice sheets increase sea level rise which impacts US coastal cities. However, the biggest climate disaster for Europe would be if the Gulf Stream slows dramatically or shuts down in the North Atlantic. Since most of Europe’s population is quite north compared to North America, it relies on the Gulf Stream warm water to moderate its climate. Northern Europe would be much less livable if the Gulf Stream didn’t execute that well.
http://www.jpl.nasa.gov/news/news.php?feature=4761
Paint your town with the colors of the Lebanon flag
The day before the Paris attacks. A global outpouring of grief belatedly followed assaults that killed 43 civilians in Beirut, Lebanon, in a double suicide bombing on Thursday attributed to Islamic State militants.
No such solidarity was expressed at the time of the attack.
http://www.nytimes.com/2015/11/16/nytnow/paris-attacks-syria-new-england-patriots.html
Anybody shine Russia’s colors on their town after the plan was shot down?
Did Putin suffer anything from his Ukrainian proxies shooting down the Malaysian plane?
Mark Thoma: Where Fed’s Critics Got It Wrong in GOP Debate
After being wrong for eight straight years, critics of expansionary macro policies in a high-slack low-inflation economy–those who say that fiscal stimulus is sugar, and monetary expansion is opium–have not only not rethought their positions, but have taken over economic policy, in rhetoric at least, everywhere in the Republican Party. Can somebody please tell me what is going on?
NB: It ain’t just the GOP. Watched Scott Pelley on 60 Minutes last night toss softball after softball question to Paul Ryan including the bullshit-slathered, “most Americans don’t realize entitlements are more than 70% of the federal budget,” as a feed lead-in for Ryan’s usual screed on debt and SS/Medicare. Scottie, now listen son, Ryan is a flim-flam artist and the so-called unified budget does not exist as a matter of law and federal accounting (the trust accounts are not part of the federal budget) so it would be helpful if you could report the news and, you know, ask substantive questions backed by fact-checking rather than promoting ignorance while loping a right-wing congressman’s mule.
http://www.bloomberg.com/news/articles/2015-11-15/debt-market-distortions-go-global-as-nothing-makes-sense-anymore
Is this the makings of the next financial crisis?
America’s poorest white town: abandoned by coal, swallowed by drugs
http://www.theguardian.com/us-news/2015/nov/12/beattyville-kentucky-and-americas-poorest-towns
Another Guardian article on America. Do they want us to keep using coal? Keep drugs illegal, unhealthy, untaxed, unregulated operated by violent gangs?
Packers fan yells ‘Muslims suck’ during moment of silence
http://www.businessinsider.com/packers-fan-yells-muslims-suck-during-moment-of-silence-2015-11
Lemme guess how this guy plans on voting.
deductibles.
the noose in health care
http://www.nytimes.com/2015/11/15/us/politics/many-say-high-deductibles-make-their-health-law-insurance-all-but-useless.html
seems that the politicians (both stripes) were all in favor of having the ‘consumer’ (aka patient) have some skin in the game so they were all in on high deductibles. problem is that has had the impact of folks not going to the doctors at all, as they cant afford to pay the deductibles. and its not unusual to see them as high as 5000 per person or over 10000 for a family (in fact thats no unusual, even employees in ‘good’ plans are seeing those).
which has lead to people just not going to see any one for any reason.
i suppose it does solve the social security problem, as fewer will make it to retirement at all
Social Security has far fewer solvency issues than Medicare. For starters, it has pretty well-defined benefits whereas Medicare is subject to how much money the healthcare industry can figure out how to extract from it. So the high deductibles in Obamacare seem most targeted to reducing the number of future Medicare participants.
BTW – oddly enough, the developed countries that have lower overall healthcare spending with similar or better life expectancies generally have much lower deductibles. It is possible that they are focusing on getting their population to see GPs more frequently to address issues before they become expensive. However, that would probably be Socialist and Un-American.
That was a good article.
It is almost criminal to call Obamacare the “Affordable Care Act” when the combination of premium + deductible + out-of-pocket costs for the lower income cohort can total 25 to 40% of their annual income! That is hardly affordable.
Jack Welch’s hero candidate calls for only Chrisitan Syrians to emigrate.
http://www.businessinsider.com/obama-gop-refugee-shameful-christian-test-2015-11
Jack Welch stands for unconditional religious right violations? Nice of him.
French emergency room doctors have little experience with gunshot wounds. “It is unlike America. Maybe one gunshot wound per year” http://www.npr.org/2015/11/16/456253966/emergency-doctor-paris-hospital-saw-unanticipated-number-of-gunshot-victims
Donald Trump insists this is unacceptable. So he wants to increase the opportunity for French doctors to get experience with gunshot wounds by having less strict gun laws and increasing the number of guns in the hand of the French population.
http://www.cnn.com/videos/world/2015/11/14/donald-trump-paris-attacks-guns-victims-sot.cnn/video/playlists/paris-shootings/?sr=fbCNN111415donald-trump-paris-attacks-guns-victims-sot.cnn0735PMVideoVideo&linkId=18758302
“Smashing IS” or ISIS or ISIL or daish would have the same effect as smashing the VC in Quang Tri province had on defeating the “movement” in Vietnam.
Useless waste of billions or trillions, the numbers don’t change.
The proper target is Arabian Sunnis [royals] and their oil.
Obama “rules of engagement” are less issue than smoothing the wrong enemy is US cash.
Alternative energy cars would effectively return the Middle East to being a poor sand dune that nobody cares about. Ultimately, that is the solution to the Middle East policy challenges. Its hard to fund terrorism abroad if there is no money.
In the USA we’ve lost more than twice as many people than France to mass shootings this year and we lose more people than that every two days to gun violence generally (www.gunviolencearchive.org) but, like punctuation in an agonizingly long run-on sentence, the extraordinary incidents still give pause …before we read on.
GunFAIL CLXV
Halloween often brings out a little extra gun crazy. In the week ending on October 31st, 27 people accidentally shot themselves. Seventeen kids were accidentally shot, five people accidentally fired their weapons into the homes or property of others, four people accidentally fired guns they were cleaning, three people were accidentally shot at the firing range, and returning to another continuing tradition, two people were accidentally shot at a gun show (the second such accident in three years at the same Idaho venue). There were also five hunting accidents, and six police-involved GunFAILs (resulting in four law enforcement officers shot, along with two bystanders). In other words, a pretty typical week.
But let me tell you about the week’s top crazy. ….