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  • docjoe999 docjoe999 Oct 22, 2011 3:06 PM Flag

    European banks, how many of you get it?

    I was reading this post on Zero Hedge, and it really hit home with me what is going on in the market.

    http://www.zerohedge.com/news/us-equity-markets-remain-odd-bull-out

    "The ongoing squeeze in US equities continues to keep domestic wealth effects ticking along nicely while US credit and European equity and credit markets do not seem to have got the same memo. While this rally, seemingly predicated on the fact that Europe 'get's it'(and admittedly some talking head chatter about the number of earnings beats - which we argue is useless given previous discussions of the wholesale downgrading of expectations heading into earnings) finally, the US equity market is the only market to have made new highs this week, is outperforming its credit peers in the US and most wonderfully - is hugely outperforming the European financials, European sovereigns, European IG and HY credit, and European equities."

    It is no fair answering these questions if you have been reading my posts, but I have a few questions to poll the group.

    1. Without checking, do you think world markets are doing better than, the same as, or worse than the American market? What do you think that other people around you would say?

    2. Do you think Europe can come up with a plan and save its banks like we saved ours? How is the European situation differ than ours?

    3. Everybody buying gold mentions how the U.S. has turned on the printing press, and the dollar has fallen against all the major currencies in the world. Do you think other nations have printed more, the same, or less percentage wise than the U.S.?

    4. As for stocks being cheap on a PE ratio in comparison to safer bonds, do you understand what the Zero Hedge author is talking about with regards to future expectations? What is the case against buying stocks deemed to be cheap on a PE basis?

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    • You are welcome.

      So true, making money is the key. Learning from our mistakes.

      I guess we just wait for the Germans. Hopefully things get resolved.

    • Thanks for the kind words, J. Learning about the markets is second-best only to making money in them.

      I think Wednesday-Friday will be pivotal. If it looks like there is some hope for even a short-term solution to the issues in Europe, AND Mr. Market likes the GDP numbers, we could see a really big pop going into November. My cash is waiting for that.

      Sarkozy backing down and letting Merkel do what she needs to do to get the Germans on-board is crucial. It feels like things are moving in the right direction and, obviously, the market wants to go up for now.

    • Thanks Musk. I will have to use those next time around. It does make sense in this market, especially when stock picking in those sectors is tough. I'm all in at this point so I can't doing any more buying. I've learned a lot from you guys about timing and cycles.

      I like your cash management style. Still holding 50% cash but getting outsized returns on those etf's. Nice.

    • USD is a great way to play the cyclicality of semis through a leveraged, diversified tech portfolio. I have been using it for 3-4 years.

      UYM is a good choice for 2x industrial materials -- I use it as a proxy for commodities... bit of oil, bit of gold, copper, chemicals, etc

      Djusbm Swap N/A 142.99
      Djusbm Swaps N/A 116.68
      E.I. du Pont de Nemours and Com DD 5.19
      Freeport-McMoRan Copper & Gold, FCX 5.19
      Dow Chemical Company (The) Comm DOW 4.40
      Praxair, Inc. Common Stock PX 3.43
      Newmont Mining Corporation (Hol NEM 2.72
      Dow Chemical Company (The) Comm DOW 2.52
      Air Products and Chemicals, Inc APD 1.98
      Alcoa Inc. Common Stock AA 1.76

    • Good moves Musk! I can't argue with that. As time goes on, I have begun to grasp the concept of risk. I'm likely to cut my losses fast these days. AIXG was the last example. A fractional loss...could have been a BIG loss.

      You have good timing with the semis. I thought I just bought too early. Fall rallies are the time for tech, not in May lol.....my bad!

      That leveraged semi etf also makes sense especially when guys like you and I can't figure out which semis' to buy lol. Hell, at least the etf does the hard work for you. Good choice.

    • This is not a good message board to do a poll (too many rational people without money in their wallets). Anyways:

      1.The same. Other people around me think world markets are doing better than the American market.
      2.Europeans can come up with a kick the can down the road plan.
      3.Other nations have printed pretty much the same.

      We may have a couple of years without the E in PE till we resume a sustainable level of E. I don’t think stocks are cheap, I do think there’s a lot of money on the sidelines. So we have to play with that.

    • 1. The average investor thinks BRIC and more specifically China is where the growth has been, I vote USA. Then again I'm sitting in the front row in the church of Doc Joe lol. People are still goo goo ga ga over emerging markets because the make stuff ( junk), we don't make anything( ok?),they will grow and those (crazy Chinese) will pay any price for oil and we won't. Oh and this whole thing about how their government is "smart" and are two steps ahead of everybody. "The Chineseeeeeee are buying X" as if they are the smart money or something.

      2. Europe can not. Europe has another layer of problems. In America you can have Alabamans, Alaskans, Arizonians, Arkansians under one flag bailing out NY banks. In Europe you are asking different countries to bail out different countries banks. How does that work politically? Telling the prudent countries citizens to bail out rich imprudent foreigners for what? That doesn't go over well. That's the kind of stuff that leads to wars.

      3. Other nations have also printed heavily, and the Fed has lent money to foreign countries, Bannana Ben did the work for them. None of the Republican buy gold the government is bad, hyper inflation is on the way types realize this.

      4. Didn't read ZH yet but I know the earnings estimate on the Dow is 100 bucks and we are at 1200 now.

      Doc your thought process is what amazes me. Anybody can guess and be right but your ability to sift through the numbers and form and test hypothesis is great. The thing that gets me as an investor is that an investment always looks it's best at the top. Record profits, record earnings, steadily growing numbers and then BAM! Fundamentals change and stuff goes south - but how do you know? On the other side the night is always darkest before dawn. How do you know if this rotten company with crappy financials will ever turn around?

    • Nobody thinks GARP is a bad idea. My point is simply that you ignore timing and cyclicality at your peril. Docs point is similar: If the macro environment is poor, stocks dont do well. Be careful.

      If you think the market is in a corrective phase, say, after a cyclical earnings peak, why buy stocks if they are gonna be 20% cheaper a few months down the line? If E is declining, maybe a low P/E is justified.

      If China has a hard landing and Euro banks start to fail (again), no amount of GARP is going to prop up even AAPL, ISRG, COH, etc...

      As for waiting for your small caps to get bought, that is called gambling. Maybe you are a better stock picker than I am, but I have at least one blow-up-on-a-missed-quarter for every company that ultimately got acquired. Bad quarters can happen 4x/p.a.; an acquisition only happens once.

      • 2 Replies to musketeernumberone
      • Wow Musk, take a look at HS today. Gap up 33% what perfect timely to show as an example of what we were just talking about. HS had made the cut on my favorite screen, I've watched it for weeks but I never did take a position. Here, once again, an example of what I was just talking about. Wish I had taken a position...too late lol. I remember when it was Health South.

      • Yes I understand Musk. I don't buy with the hopes of my stock getting bought, I buy on fundamentals and occasionally some other private equity firm or company buys your stock. I'm just saying that if you buy cheap enough, then you can afford to sit around. It is more likely you gap up on an earnings surprise since the bar is set so low for a low p/e stock. Any slight beat on a low expectation stock is usually well rewarded. Maybe I'm just lucky but I've had a few stocks get bought out(PHLY AMPH OXPS)3 good companies with great fundamentals that were selling at a discount when I bought them. Of course buyouts are reliant on low interest rates.....this environment will be around for a few years as Bernanke has pointed out.

    • Doc, Why would Joel Greenblatt say what he is saying now? Is he crazy? He must be an idiot. I suppose that is why he can only teach adjunctly at Columbia's graduate school of business school.

      Do you find it odd that one of the worlds best investors is saying that stocks are a far better buy than bonds now?

      Do you really want to fight with someone that has compounded at 40% per annum for 20 years? This was his historic track record while running a concentrated fund. He still says that now is a good time to buy stocks. Special situations, large caps,....across the board.

      He is not and never will be a market timer.

      If you are buying a business, wouldn't you want to buy it while it is cheap? Buffett has said this about buying a farm, the farm price isn't quoted everyday on an exchange lol. What is the difference with stocks? In the shorter term the noise can get very loud but if you are buying on the cheap side you can afford to wait it out whether it takes 1 year or 3. These message boards are filled with short term thinkers.

      If Zero Hedge has anyone on board that has compounded at above average rates for at least 20 years then please give me his or her name because I would like to learn from them.

      It could be entirely possible that Greenblatt, Klarman, Buffett, Leon Cooperman, etc,etc,etc are fools.

      http://www.marketfolly.com/2011/10/joel-greenblatt-big-secret-for-value.html

      • 2 Replies to jaquecroissant
      • <Do you really want to fight with someone that has compounded at 40% per annum for 20 years?>

        I can't find any independent verification of that number, and he got those magic returns during the greatest bull market in the history of the world. What I can find about his recent stock picks I don't like. See the links: http://seekingalpha.com/article/117571-theres-magic-in-joel-greenblatts-magic-formula

        and http://www.gurufocus.com/StockBuy.php?GuruName=Joel+Greenblatt

        Jacque, do you know what my percentage return is since 2001? Since 2004? If you did, you would say Greenblatt should be listening to me.

        <Doc, Why would Joel Greenblatt say what he is saying now? Is he crazy? He must be an idiot. I suppose that is why he can only teach adjunctly at Columbia's graduate school of business school.>

        Let me deal with the last part first. The most idiotic investment hypothesis in the world came out of the University of Chicago, the efficient market hypothesis, EMH. So one's academic credentials mean little to me.

        As for why Greenblatt is saying what he is saying, there is self-interest. He is selling membership in his "magic formula" database that picks stock winners, so I doubt that he isn't going to be pumping stocks most if not ALL the time.

        But the real reason not to invest in stocks is the whole market is a ponzi scheme. I have covered this before so I won't again, but the Securities Exchange Act of 1934 was the greatest stock market law ever written. In 1995, Congress, in its infinite stupidity, passed the PSLRA watering down said law. In 2007, the Supreme Court finished the castration job of the American shareholder with its ruling in Tellabs v. Makor. I would bet you 99% of investors can't explain what this law and court decision mean.

        Jacque, I don't know if you have seen the movie or show the Producers. Basically, the con men in the Producers sold an unlimited number of shares to the public making those shares effectively worthless. Outside of dividends and the individual ethics of management and a board, how is owning stock today any different than owning the kind of shares being sold by the Producers?

        Bondholders have legal protection from corporate America (for now), and shareholders don't.

        So the flaws in Greenblatt's numbers based strategy are the nonexistent legal rights of shareholders and the inability to measure the individual ethics of a company's board and management.

    • I will give this a quick shot:

      1. Other stock markets are doing worse that the US market.

      2. Europe WILL come up with a plan to increase liquidity, add equity capital to banks and backstop sovereign debt. The plan will be inadequate and will need to be amended/increased next year. The European situation is significantly different and more complex than ours. Notably: More decision makers, more nations, less common interest, sovereigns as the source of the crisis rather than mortgage derivatives held by investment banks and banks... etc.

      3. Printing by various nations: I do not know the answer to this. My impression is that the US has led in adding liquidity through the bailouts and QEs. I understand that China has also added hugely through bank lending and public works -- not sure of the relative dimensions. Europe has also added liquidity, my impression is much less than USA, so far.

      4. PEs reflect lowered earnings expectation in the coming years. Easy to conclude that we are at a cyclical earnings peak and that earnings will be pressured going forward. That said, I think there are still under-valued companies including over-sold cyclicals (coal), and companies with secular growth stories whose earnings power is not reflected in current prices ( e.g., AAPL)

 
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