Wednesday, December 3, 2008

Redux

Bill Gross wrote an honest investment outlook for the future that provides plenty of good data and some worries about the future. See http://www.pimco.com/TopNav/Home/Default.htm and click on his investment outlook link.

The Good News

The chart on the long term trend [1952 to now] of market values compared to replacement cost of corporate assets is quite interesting. It shows that equity values are very low and that a normal "reversion to the mean" could bring a 100% increase in stock values. A chart of P/E ratios from 1871 [!!] to now shows similar "cheap" valuation. In the past those were "screaming buy" situations and huge bull markets followed.

The Worries

Corporate taxes are very low based on his chart of the ratio of tax payments to profits before taxes. And Mr. Gross worries about "a world where the government fist is being substituted for the invisible hand". Demographics are a worry, too, except in the emerging markets (other than Russia and China). In other places I've seems charts of corporate profit margins being quite high historically, too.

Counter-Worries

His worry about the loss of entrepreneurial risk taking seems misplaced, though, as he cites the exit of clowns like Chuck Prince as examples of that loss. He also cites the loss of golden parachutes, options, executive compensation, etc. But to me, those are "counter-worries" aka positives.

For almost 15 years, the CEO, CFO and the executive suite has looted untold billions from the foolish stockholders who approved compensation plans and directors in the club who rubber-stamped idiotic levels of compensation. That loos of shareholder value might be gone for our lifetime - let's hope.

My memory tells me that CEO compensation alone was amounting to 10% of corporate profits. Toss in the rest of the executive suite and all those stock options and I suspect they looted about 20% of stockholders' profits "EBH" - i. e., profits before hogs.

I read in FT that the median CFO got around $2.9 million in total compensation last year. And many did not even know enough to fund long term assets with long term debt, not commercial paper. Elsewhere, I see they were rather more pre-occupied with corporate tax shelters than productive investments or stable financing. So they deserve a huge pay cut for sheer stupidity as a class.

Conclusions

Mr. Gross concludes that corporate bonds are an excellent opportunity, which I agree is true provided one looks to absolute levels of yield and ignores the false signal of credit spreads when US Treasuries are at foolish levels due to hedging mortgage prepayments.

But the counter-worries seems to balance the worries, leaving the data showing that corporate stocks are a "screaming buy" for long term investors. Remember to use time diversification if you act on this.

Word of the Day

"Fusty" - adjective [$10]
Fusty means 1. stale, smelling, mustly, moldy; 2. stuffy, close; 3. antiquated, old-fashioned.
Sentence: Will Obama and the Democratic Congress provide new ideas and energy, or just a fusty, recycled mash of new left, statist policies from the 1970s ?

31 comments:

Bud said...

they may be screaming buys........but the definition of 'returns' is gonna change

the days of beefers borrowing money cheap and loading up on stocks are over..........so the era of stocks doubling and tripling in a few months is gone


the number of bison has dramatically shrunk

Bud said...

what time is Rutgers kickoff ????

Bunkerman said...

what is that game you guys are so excited about ... the NJ state HS championship ?

Spin-em said...

...so the era of stocks doubling and tripling in a few months is gone

oh pish posh.....so human greed will be taken away NosPacktradamus???

mfl59 said...

Bunkerman what does this mornings news in FCX change your opinion?

Cincinnati is the best team in Ohio sir....Ohio St...pfffttt

Frosty said...

Bill Gross...gesh, wtf...when you have Mrs B and the Bumker boys...think I need to find a new place to hang out...Mrs B, you are welcome to join our email group, anytime....fusty indeed sir.

Frosty said...

Acknowledge That This Is a Different Market
8:02 AM EST

thanks jim, we failed to notice the suttle change in market behavior.

mfl59 said...

Vince Farrell really is a pathetic individual who deserves a slap and a half...

Bunkerman said...

re FCX, no. I'll buy some more when it stops going down to trade around it a bit.

I flipped the chunk that I bought on its last trip to 17 around 25 a few days ago, so have room to add that back.

ok, so I don't keep every share I buy LT - I do some trading around to survive this mess.

mern said...

Uh, I'm really happy to be back in Calgary. I love Canada.

"And I just want to comment on how it's become like a common thing in the NHL for guys to fall in love with my sloppy seconds. I don't know what that's about.

"Enjoy the game tonight."



that was a gud one! y he is suspended seems dumb. whatever happened to freedom of speech? oops i forgot, BUSH!

funny even fox news is having a tuff time bashing the spear chucker.

bush biggest regret: not being ready for war. thats his biggest regret? is he serious?

i remember when the facist revy trashed bman and bman bounced, that was pathetic on revys part.

i remember when i decided to bounce after revy went after me for suggesting bush wasnt sober.

looking at his regrets, its very clear he has been in a blackout for the better part of this decade.

hildog for sec of state is sheer genius. maybe, this time, she will actually get to dodge a few bullets.

Hildog to willy "honey, im going to the middle east for 2 weeks, that ok?"

Willy " the middle east for 2 weeks.................... i dont know hon, that part of the world is really messed up. imo, u shud spend a month. and if u cud put that trip off until spring break, that wud be just great! mkay, that a bunch!"

Bunkerman said...

well, I thought Gross had integrity to at least give some facts for his conclusions, unlike almost very other pundit I hear about.

He likes corporate bonds - that's his bailiwick.

I like them too, but can't buy them retail as they mostly trade in $ million.

Btw, Mrs. B was thinking of buying a MCD bond her broker was offering, but in a taxable account, made no sense. We have a lot of municipal bonds already.

Bunkerman said...

re-bought that FCX chunk.

room for more.

monthly chart shows lots of support in this range - at that time in past copper was under $1/lb.

Frosty said...

QCOR taking a lil sugar Bunky...I was going to hold it all for years...seeing you trade around baby beefer style inspired me.

Bunkerman said...

jeez I knew I'd get flack for that little trad-a-roo.

mfl59 said...

QCOR sheesh Bob I guess you weren't joking around...curtain call sir...

be patient Bud....kickoff 32 hours away....

mfl59 said...

Bud there are a few extra tickets for tomorrow night son....catch the next flight up....nothing like a Big East game on a Thursday night to get the blood pumping...

Bunkerman said...

going to the range for MG practice.

Spin-em said...

he's prolly busy eating his crow sammy....looool

Bud said...

i'd love to go that game.......the scarlett knghts have been bery bery good to me


mike teel didn't get a heisman invite ??? pfffffffffffffft

Bud said...

ya...i was busy


the tank is roaring today.......winners galore

'thanks jim'

mfl59 said...

every time that credit card gets swiped....instant winner....tv's for every room....

Bud said...

lmaooooooooooooooooooo


'raw land'

mfl59 said...

wow this market trading like the 2008 Beijing gold medal final in ping pong....

beef!!!!!!

Frosty said...

Pual 34 having a fine day...FSLR must be his fav...alwyas liked that kid.

Bud said...

beijing ping-pong


lmaooooooooooooooooooooooooo



PS.....good thing Bman is at the range.....else he'd be whinin and cryin......oh wait......he only bithces when the ping-pong players take the market down......never mind

maverick said...

Final conference rankings

1 ACC

2 Big 12

3 SEC

Bud said...

are those rankings for women's volleyball ??

mfl59 said...

donde esta El Big East?

maverick said...

#5

maverick said...

my apologies mr scarlet knight....#4

Bunkerman said...

Isn't there something oxymoronic about "Big East" ?

It's sort of like, "tall pygmy"

;)