[mike_malone]

 When the comment is made "It's the economy, stupid!" it tells you that politics is the last thing people care about. It seems fairly obvious to me we are in a depression because "confidence" is shot. People in general aren't confident about the future and the current backdrop of the economy, the financial system, and the markets . This doesn't mean it's the end of the world ; it just means people need to recognize reality and adapt.

[John Kirk]

When the comment is made "It's the economy, stupid!" it tells you that politics is the last thing people care about. It seems fairly obvious to me we are in a depression because "confidence" is shot. People in general aren't confident about the future and the current backdrop of the economy, the financial system, and the markets . This doesn't mean it's the end of the world ; it just means people need to recognize reality and adapt.

Mike, It's very interesting to discuss this with you.  This is the second time I remember where you use confidence and investor sentiment to judge market health and well-being.  I'm much more likely to look at profits, political and corporate power, and the movement of goods and services, while pretty much ignoring sentiment altogether, which I probably shouldn't do.

[David_Elvins]

Mike,

Please get me a bag of whatever you're smoking...

I am not an expert on economics but I wouldn't be discounting anything Mike Malone writes on the topic. 

[John Kirk]

I played golf this summer at Kingsley Club with the president of my local bank, who I didn't know would be in our foursome.  When we met, I asked him if he could loan me a bunch of money so I could hire some guys to sit around the office asking me for something to do.

Sorry I missed you at Stone Eagle.  That place seems to be in good hands / deep pockets now.  One of the investors told me he anticipated they would lose a million in operating revenues this year, but they expected that when they bought and it wouldn't phase them!  They all love the golf course and don't plan to change a thing, other than signing up a few more members. 

Stone Eagle is lovely.  The future looks so much brighter now that we have our group of investors in charge.  I'm very grateful.  Perhaps the course will develop a cachet of exclusivity and prestige as the years go by.  It could happen.  Just a beautiful place to hang out, perched above the fray.  Sounds like you had a good time.

[JESII]

Credit: John Kirk

I don't buy for a minute the logic that says "reduce the taxes on small business so they can grow and hire more people."  You've got to be pretty gullible to believe that shit. I think a small business owner will only grow and add personnel if demand for his/her products grows.  Lower taxes puts more spending cash in people's pockets, and they will likely spend most of that on goods and services, which increases demand, but if I saved $50k a year in taxes on my business, I'd take a vacation or join a golf club, but I wouldn't add somebody.  The last thing I'd do is add a body around the office.
 




John,



I played golf this summer at Kingsley Club with the president of my local bank, who I didn't know would be in our foursome.  When we met, I asked him if he could loan me a bunch of money so I could hire some guys to sit around the office asking me for something to do.

Tom and John,

Would that $50K in tax savings benefit your neighbors more if it were in your hands or the governments hands?  In my view, when business is hot you can hire that extra person...if it's not, just going on a vacation lets someone else benefit with you...

[John Kirk]

Tom and John,

Would that $50K in tax savings benefit your neighbors more if it were in your hands or the governments hands?  In my view, when business is hot you can hire that extra person...if it's not, just going on a vacation lets someone else benefit with you...

Hi Jim.

I guess it depends how important it is to keep the national debt under control.  Once you get to $10 trillion in debt, you're at about $30k per person.  Does anybody really think the debt will ever be repaid?

On the other hand, as the debt continues to grow, the ability of the government to repay becomes compromised, so the investment grade could be knocked down a notch or two.  But since we are the world's reserve currency, we can just print more and there's not much anybody can do about it.  I see quantitative easing as a form of financial warfare; who's going to stop us?

So sure, it benefits the people to keep the money in their hands, if you don't give a damn about the debt.  I'm not convinced either party (Democrats or Republicans) cares.  Being a Democrat, I wish my party had raised a bigger stink from 2001-2008, when the debts started spiralling out of control.

I think a very fair statement these days is "The country lacks the political will to do what's necessary to be financially responsible."

[scott_wood]

I think a very fair statement these days is "The country lacks the political will to do what's necessary to be financially responsible."

AMEN !!!!!!!

[JESII]

Agreed...in addition, I think it's been proven that if we let the government have that hypothetical 50K it's not going to the debt so you ougth to keep it...

[Bill_McBride]

If you owe your banker $100,000 and can't pay, you're in trouble.

If you owe your banker $100 million and can't pay, he's in trouble.

That's our national situation today with regard to our debt.  How are our creditors going to stop working with and supporting us?  They'd be in trouble!

[John Kirk]

http://www.politico.com/news/stories/1110/44798.html

If we're serious about fixing the debt, we have to raise taxes and cut spending.  Both.  Even Pat Mucci agrees with me.

[mike_malone]

 John,

      I find it interesting that commentators today speak of the better than expected earnings and the low level of government bond yields as a reason to buy stocks. Any simple historical look at the best times to buy stocks for the long term shows that buying when earnings are lousy and interest rates are high is the lowest risk time to do so. Why? Because sentiment is very negative and valuations are sensational.

    The great bull market from 1982 until 2000 was mostly a case of a substantial decline in rates and an equally substantial rise in P/E ratios . P/E ratios are a psychological indicator. When they are low people hate stocks; when they are high euphoria reigns. So, more of the great advance was a function of a psychological shift than earnings.

   I'm convinced by long term studies that valuation matters , as well, and moves from low to high over a generation.  These studies show that going back to 1870 every time that long term p/e's ( based on ten year normalized earnings) peak above 20 EVERY time the p/e's eventually end up below 10 and often as low as 5. Currently we are at 22 times .

  Now, my own personal view is that 2000 represented the greatest buyin to stocks in history. P/E's were 50% more than 1929; all other ratios like price/sales, price/flow, price/book were off the charts. The average investor not only loved stocks they needed stocks to perform well in the future so that their retirement goals could be met.

   If the pendulum effect is true we may end at the lowest ratios in history, but I can assure you I will be fully invested well before the low. I expect the average person to hate stocks with a passion and they will be able to prove that they haven't worked for decades.

     This is a minority opinion because the majority needs to justify their current position.

  

[John Kirk]

There's a lot to be said for the contrarian view.  Also, the investment professional does a better job of divorcing themselves from emotional decision making.

Regarding your commentary on P/E ratios, I doubt they would fall much below 10 for reasons stated earlier:

1.  Lots of money injected into the financial system.
2.  More knowledgable investors more fully invested in various assets.

Just an opinion.  Also, I see a high probablility of a form of inflation, where our dollars are worth less, but our assets stay highly valued.  We'll see.

[JESII]

Mike,

You're the pro so please explain where I missed...aren't P/E ratios a result of investor sentiment as opposed to a dictator of sentiment?

[Sean_A]

Mike,

Please get me a bag of whatever you're smoking...

I am not an expert on economics but I wouldn't be discounting anything Mike Malone writes on the topic. 

Indeed, the entire concept of QE is about improving investor confidence.  All the other indicators are a result of this...hopefully.  The thing is, for QE to be effective the government must be effective.  To me that means "boosting" the economy by making proper moves to attack the debt. 

Ciao

[David_Elvins]

 “Everybody has been looking for the next Michael Jordan, and they were looking on the basketball court,” Nike’s chairman, Phil Knight, said “And he was walking down the fairway all the time.”

The timing of the next boom is not the only thing the smart investor needs to predict. 

[David_Tepper]

"Jobless claims fall sharply to 4-month low"

http://finance.yahoo.com/news/Jobless-claims-fall-sharply-apf-1451349266.html?x=0&sec=topStories&pos=main&asset=&ccode=

[JohnV]

"Jobless claims fall sharply to 4-month low"

http://finance.yahoo.com/news/Jobless-claims-fall-sharply-apf-1451349266.html?x=0&sec=topStories&pos=main&asset=&ccode=

And you credit this to ..... what exactly?

If they had risen, what would you have blamed that on?

Both are probably equally wrong.

Short term trends are random walks in general.  A longer term trend is what will matter.

[Scott Szabo]

http://www.politico.com/news/stories/1110/44798.html

If we're serious about fixing the debt, we have to raise taxes and cut spending.  Both.  Even Pat Mucci agrees with me.

Agreed.  As long as the additional taxes and savings in spending goes toward reducing the debt.  Do you think for a minute those in the White House would do such a thing?

[mike_malone]

 Jim,

    I find it more useful to observe that things happen at the same time rather than to search for a cause. So, p/e levels and sentiment levels are usually the same; high together and vice versa.

  John,

    In my opinion historical analysis reveals that p/e's move in long term cycles. I find it more valuable to create a strategy to profit from the lessons of the past than to come up with reasons why "it is different this time". What is similar in these cycles is human behavior. That hasn't changed.  The power of emotion is difficult to overcome at tops and bottoms. Valuation is not on people's minds at extremes; it is either greed or fear. Valuation is useful as a gauge of risk so when it's high you should look for the exits and when it is low you should load up. The problem is that when prices are expensive no one wants to miss out and when they are low no one wants in. This is the most fascinating thing about observing sentiment.

   I reject the contrarian label; I see it as just observing these cycles of behavior.

[Don_Mahaffey]

I don't buy for a minute the logic that says "reduce the taxes on small business so they can grow and hire more people."  You've got to be pretty gullible to believe that shit. I think a small business owner will only grow and add personnel if demand for his/her products grows.  Lower taxes puts more spending cash in people's pockets, and they will likely spend most of that on goods and services, which increases demand, but if I saved $50k a year in taxes on my business, I'd take a vacation or join a golf club, but I wouldn't add somebody.  The last thing I'd do is add a body around the office.

If money gets tight, and stocks drop to where I need to hunker down for a few years, those nice golf club memberships will be the first thing to go.  They are my only real luxury anyway.

Now I am just a Golf Superintendent and so much of this thread is way over my head because smart guys like John are sharing their wisdom here and I appreciate that but I have a question.
So, you’re not going to use the 50K to hire someone, fair enough. But, you would hire someone if demand increased for your business? But, no increase in demand right now so instead you'd spend the money on golf or a vacation. Is it possible that spending could lead to job creation? If it increses demand in other areas like travel, recreation, luxury items, does it help the economy or is the money better spent by government?
And, on a following thread, Tom Doak agrees with you. But, you said you might join another club with that money.  Doesn’t that benefit golf, and in a roundabout way benefit Tom’s business?

I’m just trying to understand how more money in circulation is bad, but government stimulus spending is good.

[Don_Mahaffey]

delete

[Jud_T]

Mike,

22x?  Looks like 15 trailing p/e for s&p and 14 times over estimates.  this implies a yield of over 7% in an environment of 2.75% 10 year note yields.  So either you think bond yields are going up dramatically as the fed's buying them, or stocks or going to get dramatically cheaper on a relative basis for some unforseen reason.  Anything's possible I suppose, but 7% with growth potential sounds like a better option than a zero real yield on bonds or the mattress....

[George Pazin]

I’m just trying to understand how more money in circulation is bad, but government stimulus spending is good.

For most people, the most important thing is WHO is doing the spending. I'll leave it to you to determine why or whether or not this is the case.

[archie_struthers]

 

The one thing we know if politics continues to dominate the airwaves is that advertising/ media services will continue to prosper, they must have spent 20m on a bunch of small campaigns here in bucolic South Jersey !

[David_Tepper]

"Never Argue With A Fool"

http://www.writing.com/main/view_item/item_id/1488327-NEVER-ARGUE-WITH-A-FOOL

It is best not to argue,
But if you do at all,
Never do so with a fool.
A fool can defeat all.

He does not care for the facts.
He does not know debate.
He’s a stranger to reason.
Logic he can negate.

In the end the fool will win,
His logic is so strong!
Decides what he does not like
And then it must be wrong!

It’s better to keep quiet
When challenged by a fool.
Else, to prove his own wisdom,
He will make you a tool.

It is hence my policy
To not respond to those
Who ask questions not to learn
But to be bellicose.

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