Posts filed under “Financial Press”
Quite a while ago, I had an interesting conversation with a smart fundie manager. We had opposing views about many things. In particular, we disagreed upon was the value of (non-price) sentiment indicators.
His argument was that when stocks get cheap enough — as reflected in their Prices, P/Es and cash flow measures — other indicators don’t matter. One can detect extreme sentiment by how under- (or over-) valued stocks are. By definition, value investors are not believers in the Efficient Market Hypothesis. Long time readers know that neither am I.
My sentiment counter arguments: At the time of our discussion in early 2007, the Home Builders and Banks had looked very cheap on P/E basis alone, while Google and Apple looked pricey on the same basis. That was a direct assault on P/E as a valuable indicator, at least as a stand alone metric. (Good thing he didn’t like the banks for other reasons).
But it was the sentiment issue that was the most interesting part of our friendly debate. I was challenged to identify a magazine cover or Page 1 newspaper story that was a contrary indicator in real time. A few weeks after that friendly wager was made, the WSJ had a page one article titled, Why Market Optimists Say This Bull Has Legs.
That was May 23, 2007, exactly one year ago today.
On that very same day, I posted this: Uh-Oh: Front Page WSJ “Why Market Optimists Say This Bull Has Legs”. Specifically, I wrote:
Today’s WSJ has a very bullish, front page article on the current Bull market lasting another decade or so. In the past, that has operated as a bit of a warning sign that an intermediate top was nearing.
That turned out to be a fairly timely warning. At the time of the WSJ article, the major indices stood as follows:
Standard & Poor’s 500-stock index 1524.12
Dow industrials 13539.95
Nasdaq Composite Index 2588.02
Markets sold off a few months later, making a low in August, rallied to new all time highs in october, and have since made new lows in January and March, prior to rallying about 10% off of those lows.
Now, one full year later, we can review each of these indices It turns out they are substantially lower: The Dow at 12625.62 is nearly 1,000 points lower; Nasdaq at 2464.58 is about 125 points lower; the S&P 500 at 1394.35 is ~130 points below.
That’s a 5-10% drop, versus a risk free 4.87% yield on the 10 year. That’s before substantial gains from bonds, which rallied in the face of aggressive Fed cuts.
While this does not conclusively prove the utility of the Cover indicator, I believe it certainly is a bit of weight in is favor.
Why Market Optimists Say This Bull Has Legs
They See Decade of Gain Fed by Global Growth; Skeptics Cite Big Doubts
WSJ, May 23, 2007; Page A1
Every now and again, CNBC puts on a superlative show. Friday morning’s Squawk Box was one of those times when they hit the ball out of the park.
As I was heading out the door to work, I heard David Einhorn of Greenlight Capital begin chatting about shorting stock, soft SEC enforcement, and Allied Capital (ALD). CNBC also announced that William Ackman of Pershing Square Capital was coming on in a while.
Einhorn discussed his presentation at Jim Grant’s conference Private Profits, Socialized Risk as well as his book, Fooling Some of the People All of the Time: A Long Short Story.
So before leaving the house, I TiVo’d Squawk, and then headed off to work. I watched the show Friday evening, and it was fantastic. Watch the videos below and see if you agree.
• The Short & Short of It
Short selling can be good for the markets, with Owen Lamont, DKR
Fusion, David Einhorn, Greenlight Capital and CNBC’s Steve Liesman
click for video
• Whistle-Blowing pt. 1
Activist investors face challenges convinsing regulators to face the facts, with William Ackman, Pershing Square Capital Management and David Einhorn, Greenlight Capital Management
click for video
• Whistle-Blowing, 2
click for video
• Hedging Your Bets
Discussing fraud on Wall St., with David Einhorn, Greenlight Capital Management president
click for video
Fooling Some People site
Jim Grant’s conference presentation Private Profits, Socialized Risk
Yesterday, I wrote: “David Leonhardt’s NYT columns are oftentimes insightful and illuminating. Unfortunately, today’s column is not one of those times . . .” I promised readers (and David) an explanation. Consider this it. First off, I interpreted Leonhardt’s column as really two distinct issues — one psychological, one statistical. He got the first one…Read More