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From today’s WSJ, comes this (amusing) article about the past decade:  Its the worst equity performance in nearly 2 centuries.

Why do I say amusing?

Because despite what many fools and asshats were claiming in the 1990s, stocks can only gain so much relative to earnings. Sure, other factors like population growth, economic expansion, productivity gains, all matter on the margins, but the bottom line is Earnings. But over the long haul, there is only so far you can run ahead of historical median rates of return.

The current horrific decade lost half a percent each year on average versus average annual returns of about 10-12% over the past century. Why? This under-performance is payback for the massive gains in the salad days of the late 1990s. As the table at right shows, the gains were far above median.

There is only so far you can deviate from the historical mathematical norm before mean reversion rears its ugly head.

Here’s the WSJ:

“Even with the rebound this year, the U.S. stock market is on the verge of posting its worst performance for any calendar decade in nearly 200 years of American stock-market history.

Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.

In the process, the market has provided a lesson for ordinary Americans who used stocks as the primary way of saving for retirement.

Many investors were lured to stocks by the big bull market that began in the early 1980s and gained force through the 1990s. But coming out of the 1990s, the best calendar decade in history with a 17.6% average annual gain, stocks simply had gotten too expensive. Companies also pared dividends, cutting into investor returns. And in a time of absolute financial panic like 2008, stocks usually were the worst place to be.

With just two weeks to go in 2009, the declines since the end of 1999 make the last 10 years the worst calendar decade for stocks going all the way back to the 1820s, when reliable stock-market records began, according to data compiled by Yale University finance professor William Goetzmann.

It edges out the 0.2% decline stocks suffered during the Depression years of the 1930s, which up until now held the title of worst decade. And it is worse than other decades with financial panics, such as in 1907 and 1893.”

Repeat after me: There is no free lunch. A decade of out-performance will be p[aid back one way or another.

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Source:
Stocks’ ‘Nightmare’ Decade
U.S. Market’s Performance Since End of 1999 is Worst in Almost 200 Years
TOM LAURICELLA
WSJ, DECEMBER 20, 2009, 4:33 P.M. ET

http://online.wsj.com/article/SB10001424052748704786204574607993448916718.html

Fun and tiring day. We dug out early in the morning, then took the beasts for a romp in the snow. The puppy — now almost 1 — never saw a foot of snow before. (loved it!)

We left the house about 11:30 for Dim Sum brunch. The roads were all plowed, but mostly empty.

For years, I’ve given retailers grief about their annual complaints that it “gets cold and snows in the North during winter” — as if it was a surprise. But it is the Sunday before Christmas, and I have to admit that nearly every store we went into was empty. Amongst others, Loews, Century 21, Pet Supplies were rather free of shoppers. The parking lot at Nordstrom’s was pretty sparse. Guess the weather actually did scare many gift hunters away.

No worries, we can still help you get your shopping done. So far, I have tried to steer you away from Gift Cards and towards some price war items. I also suggested some sale items and other gift ideas.

Well, with just 5 Days til Xmas, here are some more gift ideas, from the comfort of your closest internet connection:

• When I first saw this, the title alone made me laugh: The Book of Genesis Illustrated by R. Crumb

But don’t laugh — this is a serious work: “Far removed from the satirical reimagining some might expect from the father of underground comix, Crumb’s long-awaited take on the first book of the Bible presents the artist’s own sensitive, visually intense reflections. Where most visual adaptations edit down their prose sources, Crumb has, strikingly, included every word of the Book of Genesis within his first major book-length work.”

Sounds fascinating.

• Scott Moore, a Laguna Beach artist, wanted to depict the stock market debacle and Bailouts via his painting. He documents the economic crisis here in the United States by using vintage toys — banks, cars, houses, piggy banks — to represent various areas of the bankrupted/bailed out economy.  Scott now has prints available of the work.

• BMW Performance Driving School: I’ve done course at Limerock and Sebring, but always wanted to try this particular one. These aren’t race classes, but rather, aim to “extract the highest level of performance from an automobile by its driver under any circumstances.”  My high performance driving school was one of the most memorable gifts I ever received. The BMW prices range from “Not Bad” to “Holy shit” )

• Pure Genius: The Complete Atlantic Recordings of Ray Charles (1952-1959) [BOX SET] All of Ray’s work at Atlantic collected in one place. Rhino/Atlantic does a nice jonb assembling the Ray’s music. The accolades this set received when it was first issued look to be worth it. (I added this to my wish list)

Note that you can only get this used, as it appears to no longer be issued.

• I love the collection of whimsical, charming sculptures by Frogman. The prices range from modest into the $1,000s.

• The Visual Miscellaneum: A Colorful Guide to the World’s Most Consequential Trivia: Know someone who is as fascinated as I am by the many ways we can convey data visually (as opposed to verbally)?

Than this gorgeous book might be for them. The visuals are compelling, beautifully presenting complex data in a single page.

For those who enjoy seeing the many way to present countless statistics and random facts.

• If you have a cigar smoker on your gift list, I suggest this: The Padron Anniversary Series 1926 Exclusivo has been one of my favorite smokes for years. Before the factory burned down, they were $3-4 per stick. Since then the prices have gone up 5 fold. Rated 97 by Cigar Aficionado & Named The No.1 Cigar of the Year for 2007. And I have the Lotus 21 Twin Flame Torch Lighter — it totally kicks ass!

• Jeweller Marc Woods has created a series of fetishistic objects for an exhibition at the Wapping Project in London. I don’t know why, but I want to hold this in my hands and touch this object.

Well worth watching!

click for video

(Transcript after the jump)

Read the rest of this entry »

Today’s must read article comes from Eliot Spitzer (former NY Governor and AG), Frank Partnoy (University of San Diego law professor), and William Black (University of Missouri-Kansas City economics and law professor).

Their request: Make public all of AIG’s emails, documents, and correspondence public. Put it all online where is can be read, analyzed and dissected by the public. That’s the only way to figure out, they argue, what actually happened:

“A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years. When A.I.G.’s financial products division collapsed — ultimately requiring a federal bailout of $180 billion — those who had been prospering from A.I.G.’s schemes scurried for taxpayer cover. Yet, more than a year after the rescue began, crucial questions remain unanswered. Who knew what, and when? Who benefited, and by exactly how much? Would A.I.G.’s counterparties have failed without taxpayer support?

The three of us, as experienced investigators and prosecutors of financial fraud, cannot answer these questions now. But we know where the answers are. They are in the trove of e-mail messages still backed up on A.I.G. servers, as well as in the key internal accounting documents and financial models generated by A.I.G. during the past decade. Before releasing its regulatory clutches, the government should insist that the company immediately make these materials public. By putting the evidence online, the government could establish a new form of “open source” investigation.

Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story. In past cases of financial fraud — from the complex swaps that Bankers Trust sold to Procter & Gamble in the early 1990s to the I.P.O. kickback schemes of the late 1990s to the fall of Enron — e-mail messages and internal documents became the central exhibits in our collective understanding of what happened, and why.”

I think its a brillinat idea . . . too bad it has a snowball’s chance in hell of ever happening . . .

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Source:
Show Us the E-Mail
ELIOT SPITZER, FRANK PARTNOY and WILLIAM BLACK
NYT, December 19, 2009

http://www.nytimes.com/2009/12/20/opinion/20partnoy.html

Okay kiddies, so far, the blizzard has been a bust — Saw some flakes a few hours ago, but the total accumulation is precisely zero. Sears and Home Depot are sold out of snow blowers; no surprise with expectations for a total nighttime snow accumulation of 10 to 16 inches.

Did a little car shopping today — big sales on 2009 models! — but didn’t commit to anything.  Other than that, I have been thinking about next year’s markets, upcoming vacation, and prepping my quarterly taxes.

What are y’all thinking about? What are you reading, watching, listening to? What do you expect to see next year? What are you hoping to get for the holidays ?

Yes, its that time — open thread!

What say ye?

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UPDATE: December 19, 2009 6:43am

Starting really blowing last night around 7 — looks like we got about 10-12 inches over night here on the North Shore, while Eastern Long Island got 24 inches.

Getting stuck inside on a Saturday night was no worries — a Dr. Who special, and then this season’s premiere was an enjoyable way to while away the snowbound evening. And the 50 mph wind kept the snow off the satellite dish!

Yet another example as to how easily your brain can be fooled . . . And important lesson for investors.

Hat tip boingboing

Charlie Peabody of Portales Partners “deconstructed” an internal memo of Vikram Pandit, Citi’s CEO, on the bank’s repayment of the TARP loan:

Citigroup: “Today we announce a series of transactions to repay the $20 billion of TARP outstanding and terminate the asset guarantee we received from the U.S. Government.”

Translation: I am sick of working for $1 per year.

Citigroup: “Today we are strongly capitalized…”

Translation: We have diluted the shareholders by a factor of six.

Citigroup: “… efficient…”

Translation: We have cut the company in half.

Citigroup: “…and created a strong foundation for the future.”

Translation: We are working on a strategy.

Citigroup: “There are still economic challenges ahead…”

Translation: Forget about any kind of bonus.

Citigroup: “Over the past few months, I have visited many of you in the U.S and around the world…”

Translation: I am trying to avoid the home office.

Fun stuff!

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Source:
More Than an Uptick?
ALAN ABELSON
Barron’s, December 21, 2009

http://online.barrons.com/article/SB126118067457297863.html

December 18, 2009
By John Mauldin

It’s All About Deleveraging

Commercial Woes

The Lights Of Myanmar

A Lively 2010 and Buying Stocks

This is the season when pundits feel compelled to make annual forecasts. I will make mine, as I traditionally do, in the first letter of January. But already we have seen a wide range of forecasted outcomes. Are we going to grow at 5-6% or at 1-2% or dip back into recession? Why such disparity? I think part of the reason is a basic disagreement on the nature of the just-lapsed recession. Today we explore that issue. Then I point you to a way to help those who are desperately in need and only wish they had our problems. For those interested, I enclose a picture of my new granddaughter.

And finally, I start the process of getting ready, after ten years, to actually buy some stocks. Yes, it is true. Am I throwing in the towel and becoming a bull, or do I just see an opportunity? Stay tuned.

It’s All About Deleveraging

I did a very interesting one-hour show this week with Tom Ashbrook on his National Public Radio syndicated radio show called On Point. About 20 minutes into the show, Professor Jeremy Siegel of Wharton came on, and we had a pleasant debate and lively Q and A with listeners. Jeremy of course was the bull, expecting that next year the US will grow by 5-6%. I was the “bear,” expecting growth in the 1-2% range. You can listen in at http://www.onpointradio.org/2009/12/an-economic-warning. It’s also available as a podcast on iTunes (“On Point with Tom Ashbrook”) for a few more days.

I have liked Jeremy the times we have been on the same platform, and we have traded emails over the past few years. He is a consummate gentleman. He is also the author of Stocks for the Long Run. His thesis is buy and hold. Long-time readers know that I find such thinking to be wrong, if not dangerous. I believe that stocks go in long cycles (an average of 17 years) based on valuations, and that we are still in a long-term secular bear phase. I want to see valuations come way down before I suggest that the index-investing waters are once again safe. That day will come. Just not for a while.

In the meantime, Jeremy has given us the reason for his very bullish call. Paraphrasing, he said, “Look at past recoveries from recessions. They were always strong in the first year. Suggesting 5-6% is not all that aggressive.”

And I would agree with him – if the past recession was a typical recession. But we have just gone through a recession that was unlike any other we have experienced since the Great Depression. Typical recessions are inventory-adjustment recessions, caused by businesses getting too optimistic about sales and then having to adjust. You get temporarily higher levels of unemployment as inventories drop, and then you get the rebound. It is not quite as simple as that, but close enough for this letter’s purpose.

This recession was caused not by too much inventory but by too much credit and leverage in the system. And now we are in the process of deleveraging. It is a process that is nowhere near complete. While the crisis stage is over (at least for now), there is still a lot of debt to be retired on the consumer side of the equation, and a lot of debt to be written off on the financial-system side. And this is true in Europe as well, and maybe more so; but today we will look at some data in the US.

Total consumer debt is shrinking for the first time on 60 years. And the decline shows no sign of abating.

Credit card companies have reduced available credit by $1.6 trillion dollars. And for good reason. My friend and London partner Niels Jensen sent me the following charts from UrbanDigs.com.

Read the rest of this entry »

Via Floyd Norris, we get this updated version of the Misery Index, applied internationally. Its the work of Pierre Cailleteau, an economist/sovereign risk analyst at Moody’s.

“The index adds together a country’s budget deficit, as a percentage of gross domestic product, and its unemployment rate. It captures the current conundrum for many countries: their economies need stimulus, but their budgets may not be able to afford it.

The unfortunate leader in that misery index among the countries cited by Moody’s is Spain, with an index of 30, thanks to an unemployment rate of 20 percent and a deficit of 10 percent of G.D.P. The figures are Moody’s estimates for 2010.”

The original Misery Index was much simpler: Developed by Arthur Okun, an economist and adviser to President Lyndon Johnson in the 1960′s. Okun merely added the unemployment rate to the inflation rate. The theory was that any combination of rising inflation and increasing unemployment reflected a nation’s worsening economic performance.

Not coincidentally, the reporting of both Employment and Inflation have slowly been altered since the Misery Index was created. The gradual erosion of data accuracy, the softening of various metrics, and — WTF let’s just say it — the systematic under-reporting of both Employment and Inflation is the net result.

Hence, if you cannot make the economy less miserable, you can at least make the components appear less miserable.

Anyway, here’s a look at the new global version:
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click for larger graphic

chart courtesy of NYT
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Source:
These Days, Countries in Misery Have Lots of Company
FLOYD NORRIS
NYT, December 18, 2009

http://www.nytimes.com/2009/12/19/business/economy/19charts.html

From PBS:

Hat tip Economix