Posted February 7, 2012 at 2:47 am
via NPR
For more than five years before the recession began in December of 2007, I was one of the leading economic pessimists, warning of the housing bubble and the damage that its collapse would do to the economy. I based this pessimism on my analysis of the housing market, not a genetic disposition to pessimism.
Given the economy’s current situation, I find the warnings of the pessimists – the double-dip gang – to be wrongheaded and seriously counterproductive.
First to the economy’s near-term prospects: the economy is growing and will in all probability continue to grow. Economies do generally grow. We see new investment, leading to more employment and higher productivity, which leads to higher profits and higher wages.
In the past when the economy has fallen into a recession it has been the result of plunges in house sales and car sales. Neither possibility seems plausible at the moment, primarily because both remain at extraordinarily low levels that leave little room for them to fall further. Even if they did fall, it would have only a limited impact since current demand is already so depressed.
It’s difficult to see what else could cause another recession at this point. Cutbacks in government spending have been a drag on the economy the last two years. But state and local governments have largely adjusted to the plunge in tax revenues caused by the recession. There will be further cuts in many places, but they will likely be much smaller than the ones we have seen thus far.
Similarly, the federal budget deficit will [continue]….
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Posted February 7, 2012 at 1:56 am
by Jeff Macke
Unless you owned defensive stocks, 2012 has been an equal opportunity rally. Tech stocks, financials, cyclical names… just about any asset class that isn’t defensive has seen a sharp move higher this year. Both supporting and belying this observation is the price action in gold, typically a safe-haven asset that’s risen 10% so far in 2012.
“We did have a bubble in gold, the bubble popped and we’re now trying to reflate,” says Richard Suttmeir of valuengine.com”
He says that the recent upward trend isn’t as much a return to gold’s past glories but rather a bounce to be sold. For Suttmeier the end of gold’s rally is neigh. He puts the monthly resistance level at $1,836, a relatively minor 6% above current levels, and says a return to levels over $1,900 are a thing of the past.
Naturally gold bugs would disagree, pointing to seemingly endless dollar printing by our government and troubles in Europe as reasons gold will never go out of style as a safe haven. In addition, despite gold’s extended pause, the barbaric metal long-term uptrend support held beautifully towards the end of last year.
None of which is enough to convince Suttmeier to rethink his position. As he sees it, the dollar is going to continue to move higher, almost despite the best efforts of the Fed as there’s simply no where else for global investors to go.
It’s the “best house in a lousy neighborhood” theory of currency investing. If Suttmeier is right, a strong dollar will buy [continue]…
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Posted February 6, 2012 at 10:35 pm
by Nikolaj Gammeltoft, Inyoung Hwang and Whitney Kisling
The Standard & Poor’s 500 Index’s best start in 25 years is doing little to restore Americans’ confidence in the stock market.
The benchmark gauge for U.S. shares has climbed 6.9 percent in 2012, the most since it rose 14 percent to begin 1987, data compiled by Bloomberg show. It traded at an average of 14.1 times earnings since the start of 2011, the lowest annual valuation since 1989.
More than $469 billion has been pulled from U.S. equity mutual funds over five years and New York Stock Exchange volume slipped to the lowest since 1999.
Pessimism is taking a toll on the securities industry, where more than 200,000 jobs were lost last year, even as U.S. unemployment declines as the economy accelerates. Sentiment is the worst since the early 1980s, when 17 years of equity market stagnation gave way to the biggest rally in history.
“Investors are scared to death,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a telephone interview on Feb. 3. “The fears are justified, but from a valuation standpoint the market has overshot, as it typically does. We’ve been pounding the table to put money into equities.”
The Standard & Poor’s 500 Index rose 2.2 percent last week to 1,344.90 after U.S. unemployment fell to the lowest level since February 2009 and manufacturing grew at the fastest rate in seven months. The S&P 500 retreated 0.2 percent to 1,342.13 at 11:46 a.m. in New York today.
Companies whose shares dropped at least 20 percent last year helped [continue]…
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Posted February 3, 2012 at 1:55 am
by Rick Aristotle Munarriz
Now that Facebook has filed its paperwork to go public, we’re getting our first real glimpse at the inner workings of the world’s largest social networking website.
It’s pretty impressive.
Let’s set aside the potential for Facebook’s valuation to get out hand. We’re still several weeks away from actual deal pricing and retail investor reactions. What we have now are the company’s fundamentals.
Let’s dive into a few of the numbers that may surprise you.
845 million: Facebook has 845 million monthly active users. Yes, that’s impressive. Some skeptics who thought Facebook was celebrating milestones of cumulative registrations probably didn’t realize the dot-com darling only counts current users.
483 million: There are 483 million daily active users. In other words, more than half of Facebook’s users are on the website in any given day. The key point here is that while active monthly users have climbed by 39% over the past year, daily active users have increased by 48%. In other words, Facebook continues to get stickier with consumers.
100 billion: There are 100 billion — yes, billion — friendship [continue]…
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Posted February 2, 2012 at 3:48 am
via The Guru Investor
Contrarian guru David Dreman says he’s finding stocks as cheap as they’ve been at any time since 1982.
Dreman tells Forbes’ Steve Forbes that he’s bullish because valuations are low and companies have good cash flows and financial positions that are as strong as they’ve been in years.
(A tip of the cap to Zack Miller of Tradestreaming.com for drawing our attention to the interview.) He says investors have been running from stocks because they fear volatility and they fear the economy will be in a depression-like malaise forever.
He doesn’t see that happening, and thinks all the fear has created numerous opportunities.
Dreman also talks a bit about portfolio management, saying he keeps a diversified portfolio of 50 to 60 stocks, with all the stocks weighted similarly.
He adds that he [continue to article, with video interview]…
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Posted January 31, 2012 at 11:41 pm
by Lara Hoffmans
Did you know the US is about to raise the debt ceiling? For the 105th time?
Seems odd another increase is quietly pending since the penultimate increase (that’s right, there was one after that) in August last was preceded by a solid two months of political histrionics, name-calling and hyperbole.
Then S&P downgraded the US! Not because of our ability to pay, mind, which no one debated. But because, according to S&P’s own stated reasoning, of said histrionics, hyperbole, etc. (And after that, US federal interest rates largely fell. Evidently, the market didn’t think much of S&P’s opinion on this matter.)
Though a firestorm could always kick up, the lack of one thus far suggests that neither party finds it politically expedient at this particular point in time (providing further evidence the debt ceiling is an arbitrary, politically motivated marker).
What’s more, it seems politicians’ here-today, gone-tomorrow righteous indignation over debt ceiling raises is tied to some basic misunderstanding about [continue]…
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Posted January 31, 2012 at 3:47 am
by Mark P. Mills and Julio M. Ottino
In January 1912, the United States emerged from a two-year recession. Nineteen more followed—along with a century of phenomenal economic growth. Americans in real terms are 700% wealthier today.
In hindsight it seems obvious that emerging technologies circa 1912—electrification, telephony, the dawn of the automobile age, the invention of stainless steel and the radio amplifier—would foster such growth. Yet even knowledgeable contemporary observers failed to grasp their transformational power.
In January 2012, we sit again on the cusp of three grand technological transformations with the potential to rival that of the past century. All find their epicenters in America: big data, smart manufacturing and the wireless revolution.
Information technology has entered a big-data era. Processing power and data storage are virtually free. A hand-held device, the iPhone, has computing power that shames the 1970s-era IBM mainframe.
The Internet is evolving into the “cloud”—a network of thousands of data centers any one of which makes a 1990 supercomputer look antediluvian.
From social media to medical revolutions anchored in metadata analyses, wherein astronomical feats of data crunching enable heretofore unimaginable services and businesses, we are on the cusp of unimaginable new markets.
The second transformation? [continue]…
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Posted January 31, 2012 at 12:22 am
by Pascal-Emmanuel Gobry
We’re all awaiting with bated breath for the Facebook S-1 to drop this week. According to various leaks, Facebook’s operating profit was around $1.5 billion in 2011 and its revenues were something like $4 billion.
We’ll know soon enough whether that’s true, but if so, it makes Facebook’s reported $85-100 billion valuation sound insane.
Is it?
Well, anyone can argue that it’s high. But we don’t think it’s insane.
First of all, the value of an asset is the net present value of its future cashflows. This means that a company’s value doesn’t depend on how much revenue it generates today, but on the profits it’s going to generate in the future.
The value of the current financials is in helping someone figure out what are going to be the future financials. That’s more of an art than a science, obviously. But we have to remember that assessing whether a valuation is insane is about assessing the future of an asset.
So, what’s Facebook’s future like?
It’s very bright.
The basic reasoning behind Facebook’s valuation goes something like this: every new technology cycle is dominated by one company, and that company usually ends up being worth around $200 billion.
Microsoft dominated the PC era, and Google dominated the search era. Facebook is going to dominate the social era, and therefore it’s going to be worth $200 billion some day. Discount that to today and $100 billion looks like a steal.
But how likely is it? [continue]…
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Posted January 30, 2012 at 12:40 am
by Fisher Investments Editorial Staff
In Friday’s report, US real GDP accelerated in Q4 2011 for the third consecutive quarter—logging +2.8% growth. Based on this advance estimate, 2011’s four quarters now read as follows: +0.4%, +1.3%, +1.8% and +2.8%.
Full year growth came in at +1.7%, a deceleration from 2010’s +3.0% rate, but growth nonetheless.
To be sure, that’s not the quickest rate we’ve ever seen in America, and Q4’s report missed consensus analyst estimates of +3.0% growth.
Predictably, this led some to label growth “anemic.” Others continue to claim, “At this rate, we’ll never reduce unemployment.” But do the facts support such assertions? Much of the answer hinges on how you define the economy.
In general, inherent calculation quirks make headline GDP growth a less-than-perfect reflection of economic health. And Friday’s report was no exception [continue]…
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Posted January 29, 2012 at 11:58 pm
by Joshua Brown
In April 1941, Germany turned its firepower on Southern Europe after its Axis ally Italy was repulsed by the Greek army. There was a blitzkrieg (called Operation Barbarossa) and a three year occupation along with some major league violence between the Germans and Greeks. This was no quiet submission.
The aftermath of Nazi occupation was complicated — a civil war in which Greek communists lost to Greeks who were German sympathizers and collaborators during the war.
What was very uncomplicated was the fact that over 300,000 citizens of Athens died of starvation under the German regime. This while tens of thousands of other Greeks died in the course of reprisals and uprisings around the country.
It’s an ugly chapter from an ugly century and when wounds so severe have been inflicted, they can easily be reopened – even after the passage of decades.
And so against this backdrop I ask you to consider the latest “idea” coming from German parliament to impose their will on Greece and its citizenry [continue]…
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