Posts filed under “Really, really bad calls”
Here’s another brutal look at where P/E rations might end up going before this is all over, via Bob Bronson:
I am very skeptical of earnings forecasts, because they have been so terrible for most of my adult life. The conspiracy of optimists always seems to overestimate future earnings.
Trailing earnings are real data, not opinion of guesswork. They provide a factual basis for valuation, and not a wishful or theoretical version. Those who were claiming that there is no recession have now taken to saying we are at the worst levels of the recession. Often, we see forward earnings estimates at the heart of this faulty analysis.
Forward earnings guesswork are why the analyst community missed the credit crisis, why they could expected a 20% Q3, and 50% Q4 earnings rebound. Hence, the forward earnings consensus led to calls for 1350 and even 1550 on the S&P . . . Its now about half of that.
Rather than rely on Wall Street Analysts who are chock full of the conflicts, and seem structurally incapable of catching major economic turns, let’s revisit a long term look at P/E ratios, via historical cycles.
chart via Bob Bronson Capital Management
UPDATE February 16, 2009 11:58am
The key point of the chart is that earnings and P/Es are cyclical. Spare us the your slacker analysis, merely stating that “you can make any chart look however you want.” (At least this sarcasm is amusing).
Rather than merely dismiss this, I suggest you instead come up with something demonstrating stocks are cheap or even fairly priced. Or alternatively, due some work and prove the chart is wrong. But no more lazy junk science.
Ignore this chart if you want — but I think it suggest the market is still not “Very Cheap” based upon prior cycles.
Bear Market Bottoms & P/E Ratios (January 15, 2009)
As we begin to address regulatory reform in the financial services industry there is a clear consensus view that the credit rating agencies played a role in fomenting the crisis environment. In February 2007, Joe Mason and I presented a paper warning of the risks that CDO market problems would present in the capital markets…Read More
We add another chapter in the ongoing debate between Barron’s, the weekly paper that is sister to the WSJ, and James Cramer, the former hedge fund manager now turned pundit/CNBC star/game show host. The back and forth between CNBC and Barron’s amounts to an absurd debate over what Cramer’s stock picking record on the show…Read More
Barron’s observes: “By most measures, Jim Cramer did worse than the market, but CNBC and the TV journalist have taken few steps to clarify his exact performance for his show’s growing audience.” Here are the charts Barron’s uses to make their argument:
I love this excerpt from GMO’s quarterly update, by Jeremy Grantham: > 1. The Story So Far: Greed + Incompetence + A Belief in Market Efﬁciency = Disaster “Greed and reckless overconﬁdence on the part of almost everyone caused us to ignore risk to a degree that is probably unparalleled in breadth and depth in…Read More
I am speaking at an AEI panel today, with Tim Bitsberger, Joshua Rosner of Graham Fisher & Co., Walker Todd, of the American Institute for Economic Research, and R. Christopher Whalen of Institutional Risk Analytics. Summary: The credit crunch and financial panic of 2008 triggered a remarkable series of government interventions and bailouts, including huge…Read More
On Sunday night, Mike Shedlock lobbed a hand grenade Peter Schiff’s way (here, and mirrored here). Around late 2008, some PR flacks were circulating a Schiff’s greatest hits — short excerpts of his appearances on major media. It was apparent to me that these heavily edited clips were not coming from random readers, but rather,…Read More
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
There are numerous YouTube videos, articles, and references to Peter Schiff being “right” rapidly circulating the globe. While Schiff was indeed correct about the US imploding, most of the praise heaped on Schiff is simply unwarranted, and I can prove it.
First, let’s start with a look at the claim being made. Peter Schiff concludes many of his articles, books, etc. with the following statement.
Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly.
Highlight in red is mine.
I would like to see some proof of that statement. Specifically I would like to see the average returns posted by EuroPacific clients for 2008.
I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff’s investment thesis was flat out wrong.
I have an actual portfolio statement from one of Schiff’s clients at the end to discuss, for now let’s discuss the main points of Schiff’s thesis.
Schiff’s Overall Thesis
- US Equity Markets Will Crash.
- US Dollar Will Go To Zero (Hyperinflation).
- Decoupling (The rest of the world would be immune to a US slowdown.
- Buy foreign equities and commodities and hold them with no exit strategy.
Schiff was correct about point number 1 above. The US equity markets crashed. That was a very good call. Unfortunately, his investment thesis centered on shorting the dollar in a hyperinflation bet, and buying foreign equities rather than shorting US equities.
Furthermore, Schiff made no allowances for being wrong and had no exit strategy whatsoever.
What happened in 2008 was that foreign equities sold off much harder than US equities, and a strengthening US dollar compounded the situation.
In other words, Schiff failed where it matters most: Peter Schiff did not protect his client’s assets. Let’s take a look how, and more importantly why, starting with charts of various foreign indices.
click on any chart in this post for a sharper image
$SSEC Shanghai Stock Exchange Weekly
$TSX – Canada TSX Weekly Chart
$AORD Australia ASX Weekly Chart
$SPX S&P 500 Weekly
2008 was a global equities bloodbath. Clearly there was no decoupling. The Shanghai index (China), Nikkei (Japan), TSX (Canada), AORD (Australia), and virtually every world equity index collapsed along with the S&P 500, the DOW, and Nasdaq in the US.
Many, if indeed not most, foreign equity markets did worse than the US indices. The Shanghai index fell from 6124 to 1665, a whopping 72.8% decline top to bottom.
Let’s investigate why this happened, starting with the decoupling thesis itself.
Princeton professor Alan Blinder identifies the 6 key policy errors that were the key elements in the financial crisis. He especially notes that this was not a neccessary outcome of capitalism, but rather, was the result of six avoidable errors. And while the professor calls them “human errors” he himself errs — these were not…Read More