I have now been working in the investment industry for 55 years, and over that time I have lived through four stock market super cycles, including the present, and most dangerous one. I explained the four cycles in March 2011, writing: Stock Market Super cycles I assure you, I do not plan to get gored on the next angry charge. Here is exactly how to look at things. Read and re-read what I am going to tell you here, and remember this stuff for the rest of your life. Since I got into the investment business, there have been three completed big cycles swings in the stock market. Cycle number … [Read more...]
Is There Room for Growth in Presidential Election Year Markets?
Yesterday, I explained the past performance in equities markets during each year of the presidential election cycle. I also noted that the tradition of strong performance during the year before and of the election have broken down somewhat this century. With that in mind, I'd like you to look at the so-called Buffett Valuation Indicator, known as a tool Warren Buffett uses for getting a feel for market under- or over-valuation. The tool is simple, it's the market cap of American stock markets divided by the country's GDP. The higher the ratio, the more likely markets are overvalued, and … [Read more...]
What the Presidential Election Cycle Tells Us about Stocks
As you can see below, the years prior to a presidential election, and the election year itself, tend to be good for stocks as candidates make promises for a new tomorrow. Then, after the honeymoon is over, reality sets in and the bills come due. But twice this century, in 2000 and 2008, stock market performance during election years was not good at all, as hanging chads and “hope and change” polarized investors. And the years before the elections were not much to write home about either. America is currently in the year before a presidential election and, so far, markets are … [Read more...]
Arnott on FANG Stocks “You Would Have to Use Implausible Assumptions to Justify Today’s Price”
Research Affiliates' Rob Arnott tells Bloomberg that "You would have to use implausible assumptions to justify today's price," in reference to markets. He also specifically calls out Tesla and Netflix as "zombie companies." Then Arnott slams down on the valuations of the "FANMAG" companies, noting that their combined valuation is greater than that of entire national markets, saying “If you count up the whole roster of FANMAG companies, that’s the Fang stocks plus Apple, plus Microsoft, their aggregate market value exceeds every market in the world except Japan and the U.S. That’s strange. … [Read more...]
Man vs. Machines: Can Humans Win a New Stock Market War?
In a market that is increasingly dominated by robots, indexing, and algorithms, humans are beginning to play to their own strengths. The predictability of computers and passive funds has created a possible opening for some investors. Bloomberg's Justina Lee and Yakob Peterseil report: Some 60% of assets in U.S. equities are housed in passive products, while quant strategies comprise another 20%, according to JPMorgan Chase & Co. All told, index and exchange-traded funds, quants and options-related strategies dominate all but 10% of U.S. stock trading, the bank calculates. “What it … [Read more...]
Cash Kings
Some companies are very good at managing their working capital. Among the best are PepsiCo, HP, and Lennar. Each year from 2011 to 2018, those companies are part of an elite few that have improved their cash conversion cycle each year. The Wall Street Journal's Mark Mauerer explains further, writing: The top-performing companies paid suppliers almost three weeks slower in 2018 than typical companies and collected cash from customers almost three weeks quicker—while holding less than half the inventory, data showed. The amount of funds trapped in inventory fell for the first time since 2012 … [Read more...]
American Gun Owners Are Afraid of 2020: Gun Stocks are Rising
Nearly all the Democrats running have expressed their desire to impose draconian gun control measures on Americans. As the threats to Americans' gun rights in 2020 become clearer, many Americans are taking my advice to get their guns and their training now. The number of background checks rose in May compared to the year before, meaning more Americans were out attempting to buy firearms. Americans' firearms buying habits are an indicator of their perception of political risk that I use as a part of my monthly RAGE Gauge computation. Another group paying attention to firearms purchases … [Read more...]
Value Has Never Been Less Valued
Value stocks are trading at their steepest discounts to the market in history. Chris Matthews reports for MarketWatch: That’s according to an analysis by J.P. Morgan’s chief U.S. equity strategist, Dubravko Lakos-Bujas, who wrote in a Thursday note to clients that “value is currently trading at the biggest discount ever, and offers the largest premium over the last 30 years.” Value investing is a strategy whereby investors look for stocks that are underpriced relative to a fundamental analysis of the companies worth, and one that was made famous by Berkshire Hathaway chief executive Warren … [Read more...]
You Can Run but You Can’t Hide from Stock Based Compensation
In the Financial Times, Aswath Damodaran explains why investors should be skeptical of stock based compensation. The use of stock based compensation is growing among public companies, and is especially prolific in the tech industry. Damodaran writes: As an investor, the two words that you should dread the most in a financial statement are “adjusted earnings”, as companies take accounting earnings and tweak them for sundry items. In the process, they almost always turn big losses into smaller ones, and losses into profits. One adjustment that is consistently made to get to adjusted … [Read more...]
Hulu is Welcomed Into the House of Mouse
Disney has signed a deal with Comcast to take full control of Hulu. The company had shared control with Fox, AT&T (which acquired a small Hulu stake when it bought Time Warner) and Comcast (which gained its share after purchasing NBC). After it acquired Fox, Disney held the majority of the streaming service. Then AT&T also agreed to sell its smaller share in April. With Hulu under its control, and its Disney+ streaming service debuting in November, Disney can now escalate its competition with Netflix. Bloomberg's Gerry Smith and Lucas Shaw report: Hulu will be a key weapon in … [Read more...]
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