10 Feb 2016

Predictions are Really, Really Hard

Nearly as soon as we sent out yesterday’s Daily Insights where I said that the banking system is far less leveraged today than it was in 2008 (click here for the article), I saw this article in the New York Times: ‘As Worries Mount, European Banks Face Sell-Off More Savage Than 2008’ (click here for the article, though a subscription may be required). The article says that European banks are… Read More

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9 Feb 2016

Why This Isn’t Another 2008

In December of 2008, I went to a new client meeting and made a call: ‘I don’t think we are in a second Great Depression.’ With the benefit of hindsight, that doesn’t seem like much of a prediction, because we know after the fact that gross domestic product (GDP) only fell -4.3 percent during the 2008 global financial crisis, which is small compared to the estimated -15.0 percent decline in… Read More

5 Feb 2016

Interest Rates in Perspective

So far, 2016 has been full of surprises, but most of the attention has gone to wildly volatile oil and stock prices.  Less noticed, but equally important, has been the boost on bond prices, as seen by the dramatic fall in bond yields. The 10-year US Treasury note, the bellwether benchmark, started out the year yielding 2.27 percent, 10 basis points (a basis point is one hundredth of one percent)… Read More

28 Jan 2016

As Expected, Fed Stands Pat

As expected, the Fed maintained their policy stance yesterday in their first meeting of the year and left interest rates unchanged.  The statement noted that the Fed expected ‘only gradual increases’, given their current economic outlook. The statement revealed their softer view on economic activity by removing its reference to economic activity ‘expanding at a moderate pace’ and noted the slowdown in growth late last year. The also took out the… Read More

27 Jan 2016

Drawdowns Part Deux

Yesterday’s insight on drawdowns was quite popular and enough people asked for the same thing, so I thought I would do an immediate update.  (Click here for the original post.) The first request was for the full history of the S&P 500 since yesterday’s chart only went back 25 years.  I picked 25 years somewhat randomly, but mostly because the other chart that went with it was difficult to read going… Read More

26 Jan 2016

Drawdowns Help Visualize Losses

Until I read the book ‘Hedge Hogging’ by Barton Biggs before the 2008 financial crisis, I had never heard the term ‘drawdown,’ which refers to the peak-to-trough decline of an investment or market. A drawdown measures the depth and length of a decline and illustrates how long it takes to earn back money lost from the last peak. It’s a commonly used term in the hedge fund community, partly because… Read More

22 Jan 2016

Stock Losses Take a Breather

Yesterday at lunch, when stocks were down more than three percent, I was reading market analysis and one analyst said that investors were disappointed by the ‘lack of policy response.’ That really struck me because markets were off sharply and it hadn’t occurred to me that the Federal Reserve hadn’t said anything material this year that might shore up stocks. Although we are steeped in losses very early in the… Read More

21 Jan 2016

Stocks Post Amazing Late Day Rally

It’s going to be a short Daily Insights today because I went to an event last night featuring nationally known financial analyst James Grant of Grant’s Interest Rate Observer and Chris Varvares of St. Louis based Macro Economic Advisors. Mostly, I just have a snapshot of the intraday trading for the Dow Jones Industrial Average (DJIA).  Although the S&P 500 is still my favorite measure for how stocks fared, I… Read More

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20 Jan 2016

Stock Prices are Lower. Are They Cheap?

Yesterday, Mike Lissner came over to my desk and asked what the Price Earnings-ratio (PE-ratio) was for the S&P 500.  I leaned over to my handy-dandy Bloomberg terminal, and looked it up and told him that it was 16.8. He then asked what the average was and moving to a different screen, I showed him that the average PE-ratio for the S&P 500 since 1954 was 16.4 and the median… Read More

19 Jan 2016

Does the Stock Market Selloff Make Sense?

Years ago, I read a book by highly regarded hedge fund manager Joel Greenblatt, where he explains why he thinks that markets aren’t efficient. As I recall it, he asks his students to pick out a handful of their favorite stocks and then tells them to look up the 52-week high and low for the stocks and record those prices.  Then, in class, they report those numbers to each other. For… Read More