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Investment Research Since 1978

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Home Prices Slide in December

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The S&P/Case-Shiller Home Price Indices for December were released this morning. Home prices continued their decline in December, falling .4%. In the fourth quarter, home prices fell 1.9% and for the 12-month period ending in December, home prices declined 2.4%. After two home buyer tax credits, multiple foreclosure modification programs, and trillions in support from the Fed, it appears that we have only managed to delay the ultimate bottom in home prices. Home prices are now much closer to a bottom than to the top, but that doesn’t offer much comfort to the homeowners in Las Vegas, … [Read more...]

The Only Variable That Matters

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This was a busy week for economic data releases. In the manufacturing sector, January industrial production and capacity utilization were released, as were the regional manufacturing surveys from New York and Philadelphia. In the housing sector, data on housing starts, building permits, and homebuilder sentiment were released. January retail sales and inflation data also came out this week. I could run through each of the economic releases and give you the investment implications, but I would be wasting your time. You see, this market is uninterested in economic data. It doesn’t matter that … [Read more...]

An Uber-Bull

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Call this the uber-bull case for stocks. Laszlo Birinyi is forecasting S&P 2,800 by September of 2013. Laszlo relies on historical patterns to make his predictions and obviously pays little attention to fundamentals. For those of us who still pay attention to fundamentals, Mr. Birinyi’s price target implies a P/E ratio on 2012 operating earnings estimates of more than 23X. The last time the S&P 500 traded at a forward operating earnings estimate of 23X was 1999. We all know how that turned out. … [Read more...]

Criminals Consistently Outflank Regulators

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The slimier characters in the hedge fund industry will always find a way around the rules. Excessive regulation is not always effective regulation. SEC investigates ETF use in insider trading by Kara Scannell, Financial Times “The Securities and Exchange Commission is investigating whether Wall Street traders are using exchange-traded funds as a means of disguising insider trading…ETFs have emerged as a possible mechanism for maximising gains in one stock while potentially masking trading patterns, people familiar with the matter say…In one scenario, a trader could learn information … [Read more...]

HC Risk

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As any seasoned investor will tell you, there are many risks in investing—volatility risk, business risk, default risk, longevity risk, and inflation risk, to name a few. This week I was reminded of another kind of risk. I call it HC risk. While reading the newswires on the Bloomberg service, I noticed the following headline: “Crystallex Plunges on Cancelled Venezuela Gold Accord.” What is HC risk? The headline probably tipped you off, but if it didn’t, HC risk is Hugo Chavez risk. Yes, Hugo deserves his own type of risk. Apparently, Hugo decided to cancel a contract with Crystallex to … [Read more...]

106% Profits—in Bonds

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With stocks rising virtually uninterrupted since the end of August and doubling from their March 2009 lows, you may be kicking yourself for not shifting more of your bond investments into stocks. Don’t. Some bonds have actually beaten stocks. Measuring from their respective cycle lows, the Merrill Lynch High-Yield Master II index is up 106% and the S&P is up about 100%. Not bad for boring old bonds. … [Read more...]

A Bernanke Takedown

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This is a clip of the Q&A from yesterday’s Financial Services Committee hearing. In this clip, Rep. Scott Garrett of New Jersey makes a masterful takedown of Bernanke. It should be blatantly obvious from this clip, even though Bernanke still attempts to deny it, that the Fed was a primary contributor to the real estate bubble. Enjoy. … [Read more...]

Bernanke’s ‘70s Show

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This is a must-read editorial by Allan Meltzer. Meltzer wrote the book, both books actually, on the history of the Federal Reserve. Ben Bernanke’s ‘70s Show By Allan Meltzer - WSJ First some history of Fed policy errors "In the 1970s, despite rising inflation, members of the Federal Reserve's policy committee repeatedly chose to lower interest rates to reduce unemployment. Their Phillips Curve models, which charted an inverse relationship between unemployment and inflation, told them that inflation could wait and be addressed at a more opportune time. They were flummoxed when inflation … [Read more...]

Sage Advice

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I recently came across an article by Arthur Zeikel in the March/April 1995 edition of the Financial Analysts Journal (FAJ). Zeikel was the head of Merrill Lynch Asset Management at the time. The article was written in the format of a letter to his daughter. The title is “Managing Your Own Portfolio.”  I’ve included a few excerpts from the letter below. In the current environment with risk-free interest rates near zero and the stock market performing like it’s a riskless bet, the pressure to make emotionally charged investment decisions is immense. You start thinking you don’t want to miss … [Read more...]