Markets and Trading

The PIIGS Who Fell to Earth

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In her office in Berlin, Angela Merkel waited by her phone. A small group of advisors waited with her, unusually quiet. Their eyes moved back and forth between the clock and the telephones. Finally, a ring shatters the silence. The defense minister picks it up. He listens, nods, barks an acknowledgement into the phone, and hangs it up. He turns to the chancellor.
 
Der Rubikon ist gekreuzt worden.

This is from a great post by Jim Bennett.

In the form of a thriller, he shows one way the current Euro currency crisis could play out.

Schadenfreude is a German word, but we in the Anglosphere occasionally feel a twinge of it … .

The Markets and the Economy

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Some Monday morning reading for your pleasure, or displeasure, as the case may be:

1)When economists and financial analysts start quoting Yeats:

Turning and turning in the widening gyre
The falcon cannot hear the falconer
Things fall apart; the center cannot hold

…it may not be an encouraging sign. John Mauldin offers some less-than-cheerful thoughts.

2)On the other hand, the very astute MaxedOutMama sees some positive signs for the U.S. economy, at least in the fairly near term.

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Deepwater Horizon Disaster Random Observations

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The jury still seems to be out as to what the ultimate fate of the Southeast USA will be as far as the big oil spill in the gulf goes. No oil seems to have creeped ashore yet, and I am sure all the coastline residents are praying that it moves somewhere else.

I have noticed a bunch of interesting things about the story of the Deepwater Horizon. Feel free to chime in or make your own observations on the story.

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Random Thoughts on the Latest Government/Media Charade

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The clueless Bloomberg reporterette interviewing Goldman Sachs chairman Lloyd Blankfein was like one of those MSM reporters who do man-on-the-street interviews in totalitarian countries: “So, Mr. Garcia, what do you think of President Castro’s new program?” Of course Blankfein gave vague answers and was careful to cite approvingly the great knowledge and wisdom of his Congressional masters. What did anyone expect him to say?

Meanwhile, Senator Levin thinks that a firm such as Goldman that is engaged in the business of making markets is doing something immoral because it is “betting against its customers”. This makes Senator Levin a fool or a demagogue or both. Maybe he will now try to ban all trade, since the fact that each party to a voluntary transaction thinks it is getting the better part of the deal must mean someone is getting ripped off.

As someone else said around here, the country is in the very best of hands.

Market Timing

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In the past I, like many general investors, shied away from the concept of market timing. It was viewed as too difficult, and many investors left the markets when stocks went down and then missed the rally on the way up, essentially “buying high and selling low”. Instead, investors were advised to “stay the course” and keep investing, assuming that, over time, the rising markets would reward continuous faith with high returns.

An article in Sunday’s Chicago Tribune showed in a crystal clear fashion that, in fact, market timing is the ONLY issue for stocks, at least nowadays. This article shows stock performance for the top 50 stocks by market capitalization based in the Chicago region.

EVERY SINGLE STOCK is showing positive performance over the last 12 months! What are the odds of that, assuming that the stock market has its ebbs and flows? Very remote. The ONLY issue in the market over the last few years has been timing; everyone lost in late 2008 when the market cratered, and everyone who bought in at the trough made a lot of money. Likely to see this same article in late 2008 virtually 100% of the top 50 firms would be in negative territory over the prior year.

While I can’t say for certain what is driving stock performance UP (now) or DOWN (2008), I can say that virtually the entire market is extremely correlated with this phenomenon, as indicated by the top 50 stocks all being in positive territory.

Recent articles I have seen point to returns as being closely tied to the P/E level; when you buy into a “cheap” P/E market, you do well; when you buy into an “expensive” P/E market, you do poorly. While no one can say for certain what cheap or expensive really means, that broad theory is one that might be crucial to stock investing post 2000. In modern history (the last 30 years) there hasn’t been a long period where stocks traded in such a narrow range (around the Dow 10,000 level); but we need to decide how to weight the last few decades against the entire history of the stock market.

While I am not a professional stock adviser, the fact that 50 out of 50 of the top Chicago stocks (by market capitalization) are all up has to be a signal of some sort.

Cross posted at LITGM and Trust Funds for Kids