Economic Analysis

Et Tu, Dell?

Thoughts from the Frontline

July 19, 2002

For the past two weeks, I have presented a host of evidence that Price to Earnings (P/E) ratios would have trouble improving, even as actual profits and earnings grow in a modestly recovering economy. Changes in accounting standards, corporate governance and public perception will so change the rules as to how we measure profits, that public corporations will be fighting a strong head wind to show improved P/E ratios. Since this is a primary measure of the value of a stock, this "new profits...

Analyze This: Analysts Are Useless

Thoughts from the Frontline

July 12, 2002

The end of this week's e-letter will be Part Two of "Why P/E Ratios Will Not Rise As They Normally Do After a Recession." The whole piece will be a chapter in my new book, Absolute Returns. Of course, I will have to think of a snappier chapter title. But snappy or not, it is important you understand the dynamics that are working to hold down P/E ratios today, and why this means the long term secular bear market now in session will remain so for several years to come.

Irrational Assumptions

Thoughts from the Frontline

July 5, 2002

This morning I saw economist Larry Kudlow on CNBC once again telling us the markets would turn back up at some point because the economy is getting better. Kudlow is a smart man, and I pay attention to his thoughtful style.

But in this matter he is dead wrong. Over the past few weeks, I think I have made the point that the connection between a growing economy and the stock market is tenuous at best, and sometimes non-existent. A growing economy and a rising stock market co-exist in a secular...

As the Walrus Said

Thoughts from the Frontline

June 28, 2002

"The time has come," the Walrus said, "to talk of many things." This week we talk about whether we are in a housing bubble, look at stock and bond market directions, the problems with the dollar and much more. It is that semi-annual time when I make predictions (which is the term for educated guess), and then watch to see what actually occurs.

This week I begin with a look at the housing market. I probably get more questions on housing and real estate than on any topic, other than stocks....

Blind Dogs and Janus Managers

Thoughts from the Frontline

June 21, 2002

In the 17 years from the end of 1964 to the end of 1981, the Dow gained exactly one-tenth of one percent. In the bull market which followed from 1982 to the peak in March of 2000, the Dow rose from 875 to 11,723, a spectacular rise of 1,239% or over 13 times from the starting point.

We all remember what a difficult time that first period was. You had three recessions, oil shocks, Viet Nam, stagflation, the collapse of the Nifty Fifty, Watergate, short term interest rates rising to 18%, gold...

Re-Setting the Investment Scales

Thoughts from the Frontline

June 14, 2002

The news all seems so bleak sometimes. But is it? If my view that we are in a Muddle Through Economy is to prevail, then we surely must be seeing some good news somewhere. In this issue, I find some good news, some bad news and highlight a recent study which shows that the run in small cap stocks may be coming to an end. And much more, of course. Let's jump right in.

The Dollar Teddy Bear Market

Thoughts from the Frontline

June 7, 2002

Every week, as I sit down to write, I think about the scores of research reports and articles I have read in the past few weeks. Is there a new theme? What trend is developing? What is the picture coming into view from the pieces of the puzzle at which I get to look? What have I seen that I should bring to your attention?

Usually one or two things jump out, and this week is no exception. A number of articles, all about the dollar, and when taken in concert, are beginning to concern me. The...

Investing’s Double Standard

Thoughts from the Frontline

May 31, 2002

I get a lot of reader questions and comments along the following lines:

"John, how can you believe we are in a Muddle Through Economy when (pick a statistic) is so strong? Look at this indicator. Don't you think we are finally in a strong recovery and a new bull market?"

Then, I get even more like this: "John, how can you believe we are in a Muddle Through Market when (pick a statistic) is so disastrous? Look at this number. Don't you think we are headed for a stock market crash?"

Gravity and the Dollar

Thoughts from the Frontline

May 24, 2002

As I predicted several months ago, the dollar is beginning to show signs of real weakness against the euro and a host of other currencies. It has the potential to happen even faster than the gradual process I originally thought it would. But what does it mean for you and your investments? Today, we are going to look at some of the implications of a weaker dollar, whether or not it means inflation or, even worse, stagflation is in our future and what the implications of a weaker dollar will mean...

The End of Disinflation

Thoughts from the Frontline

May 17, 2002

I must confess I like to work jigsaw puzzles. If you have ever worked on one, you know there are times when the pieces come together, and you can begin to see a major part of the puzzle. There is a certain sense of satisfaction when that happens.