This quote gets Mish exercised:
And maybe Mish has hit upon it unwittingly... the PE ratios... oddly, there is apparently no place on the internet that has a single page list of stocks and their PE ratios, although any give company PE ration is eacy to find. Yahoo has an industry group average, which somewhat illustrates the situation:
http://biz.yahoo.com/p/sum_conameu.html
You'll see oil, synthetics and office supply businesses are very low PE. Biotech, cement, building materials and specialty eateries are all above 100, which means it will take over 100 years to get your money back from your investment. I wonder if this suggests these will get hammered in deflation. Amazon has a PE of over 500, meaning 500 years to get your money back... clearly that is pensions hoping to earn their way out of trouble... if your pension is underfunded at 50 cents on the dollar with lots of Amazon stock, that 50% will look good compared to 2 cents on the dollar after the coming inevitable crash.
For my part I believe the news reporters are amiable dunces, useful idiots and the FED brass are simply malicious tools. They got away with self-dealing at the warning tremor of 2008, so they doubled down. The left and right wing depend on the bankers to be the nexus of oppression in the USA, and people clamor for the job of being oppressor vs oppressed.
Feel free to forward this by email to three of your friends.
The slowdown has been broad-based, with durable goods such as autos, nondurables like clothing and services including health care all playing a role. Fed policy makers are on guard to keep such disinflation from morphing into outright deflation, a persistent drop in prices that prompts households to delay purchases in anticipation of even lower costs and leads companies to postpone investment and hiring.Mish then performs a tour de force to debunk that nonsense, with this summary -
The Fed's attempt to spur inflation in a deflationary world causes the very thing the Fed fears most (an economic slowdown caused by a collapse in asset prices). In turn, a collapse in the valuation of assets causes bank losses and reduces desirability and even ability of banks to lend.He cites PE ratios, which got me thinking... I've been trying to think of a way to predict those false economy businesses, the ones doing well in this current bubble blown by the FED, which will get hammered when the bubble next bursts, and deflation wrecks the polity of the powers that be, while benefitting the comity of those who actually work at something productive for a living.
And maybe Mish has hit upon it unwittingly... the PE ratios... oddly, there is apparently no place on the internet that has a single page list of stocks and their PE ratios, although any give company PE ration is eacy to find. Yahoo has an industry group average, which somewhat illustrates the situation:
http://biz.yahoo.com/p/sum_conameu.html
You'll see oil, synthetics and office supply businesses are very low PE. Biotech, cement, building materials and specialty eateries are all above 100, which means it will take over 100 years to get your money back from your investment. I wonder if this suggests these will get hammered in deflation. Amazon has a PE of over 500, meaning 500 years to get your money back... clearly that is pensions hoping to earn their way out of trouble... if your pension is underfunded at 50 cents on the dollar with lots of Amazon stock, that 50% will look good compared to 2 cents on the dollar after the coming inevitable crash.
For my part I believe the news reporters are amiable dunces, useful idiots and the FED brass are simply malicious tools. They got away with self-dealing at the warning tremor of 2008, so they doubled down. The left and right wing depend on the bankers to be the nexus of oppression in the USA, and people clamor for the job of being oppressor vs oppressed.
Feel free to forward this by email to three of your friends.
7 comments:
John have you looked the work of Benjamin Graham on undervalued stocks? His book Security Analysis details how to find undervalued stocks and industry segments based on P/E ratios and book value. He also details how to detect possible fraud in the P/E value as the earnings may be massaged to give more favorable P/E ratios.
Hey Nathan,
Thanks for the post. I wonder to what extent our economy is false, a P/E above 15 is speculating, but then the market is speculating. And then one is speculating against the house. Now I denied the upside on my Rydex double short funds when Cox outlawed shorting financials, so I am biased on the question as to whether there is a "house."
One clear problem on the landscape is the imbalance between small and large business. The best bulwark against fascism (too late!) is self-employment, necessarily counter-regime. It seems to me, given the facts, the best course is to invest your funds in the means of production, even if those means are merely a reputation and a rolodex.
I wonder to what extent regression to the mean will
@John: From your book, it is taught that we are essentially outsourcing pretty much everything for our business (the best designers, suppliers/manufacturers, etc., for our particular product). For example, we don't actually build our own factory, but work with a foreign supplier, in Malaysia or wherever, to make our product to import into the U.S. Our "means of production" or business would actually be us (our "brains"). We really don't invest in our own factory or our supplier's factory? Using your model, our means of production could be considered our education?
Well, yes, I probably err in spending too much time at university lectures "improving my mind" which is necessarily time not spent earning.
Recall one thing: you get paid for design. So your "means of production" is what it takes to collect market feedback, create design based on that, then test it out, etc... Starbucks as an awesome coffee lab... better example, think of the size of Nike in sales, and since they have farmed everything out, what does their corp office look like? basketball courts, track & field, cameras, micrometers, material labs... etc... the means to produce new shoes based on customer feedback...
John,
Yes I think the average P/E for indexes over the last 100 years is ~18. Again that assumes the methods of accounting are the same over that period. The S&P has recently been a little lower than 18. If we are judging things by historical averages and using P/E ratio as our sole metric that would imply we are not in a stock market bubble.
However perhaps the current P/E ratios may be deceptive since credit is cheap for large companies. Perhaps if/when interest rates increase the earnings and profit margin will go down? Actually when we look closer
net income = net sales - cost of goods - interest - tax - other
Perhaps the artificially low interest rates put in place by the Fed's QE in some ways invalidate P/E as good economic predictor for companies using credit. At some point an increase in the interest rate, tax increase, or cost of goods (inflation) seem unavoidable.
I agree with you on having your own business or one you share with a small group is the best bet. If a working business fails, it's painful but you start over again. Already happened to me. If you lose everything in the stock market at age 58 and your job, there's not much you can do.
http://www.cbsnews.com/news/food-prices-soar-as-incomes-stand-still/
Nope. It looks like were getting inflation now.
Yes, all agree, inflation in many asset categories right now... that is the point of the discussion... the powers that be celebrate inflation, which is bad, and caution over deflation, which is good. Right now, with such as food and housing and stocks going up, is very bad.
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