{"id":9445,"date":"2011-09-27T09:01:47","date_gmt":"2011-09-27T13:01:47","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=9445"},"modified":"2011-09-27T09:43:33","modified_gmt":"2011-09-27T13:43:33","slug":"stocks-arent-cheap-but-they-are-likely-to-get-cheaper","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=9445","title":{"rendered":"Stocks aren’t cheap. But they are likely to get cheaper."},"content":{"rendered":"

In the history of the world, virtually every country has defaulted on its bonds. Countries don’t disappear, like Lehmann Brothers,\u00a0 PanAm or Enron. They devalue, cut back, boost their exports and live for another day — usually a better one.<\/p>\n

Greece can’t pay its bills. Either someone else does (i.e. bailout) or it will have to default. Without a bailout, it will leave the Euro, go back to the drachma. The banks and others holding Greek bonds will have huge losses. The banks will have to raise money, get bailed out or go broke. None of this is good for the world economy, and will lead to much slower growth in corporate earnings. That will hurt stock prices.<\/p>\n

Whichever scenario you paint, it doesn’t look good. What’s adding to the misery is that a bunch of analysts have come out with seriously depressing reports.<\/p>\n

UBS’s recent report concluded “Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change<\/strong>.”<\/p>\n

Now UBS has issued a\u00a0 sequel:\u00a0 “We believe the Eurozone sovereign crisis has entered a more dangerous phase.<\/strong> Financial and banking stresses are plainly evident as concerns about sovereign default grow. Notwithstanding signs from Washington this past weekend that European and world leaders are willing to consider more decisive policies, concrete steps remain elusive. Yet rising uncertainty threatens an already weakened world economy.<\/strong>“<\/p>\n

The Swiss Bank’s conclusions? “First, Europe\u2019s politicians and policy makers must do more to shore up the Eurozone and investor confidence more generally. Among others, that probably includes stronger capital buffers in the banking sector, an expanded EFSF\/ESM to finance bank recapitalization and support Eurozone bond markets, and further fiscal austerity in \u2018at-risk\u2019 Eurozone countries. But these are big asks of Europe\u2019s \u2018political economy\u2019. Hence, the second conclusion: The likelihood is that the crisis will intensify before policy can deliver what is required.”<\/strong><\/p>\n

Gloom and Doom is not good for the market, as we’ve seen since early August. We are definitely now in a bear market — though one punctuated by occasional bounces like yesterday (and probably today).<\/p>\n

I am effectively out of “normal” stocks, except for Apple and Costco. I still have my high-yield mortgage REITs and I’ve still got my positions in SGOL and GLD. I am down a little on the mortgage REITs (though the dividends more than make up for the capital losses). Gold is another matter. I am down a little. I believe it will bounce back. I wrote about it yesterday. But I’m watching it very carefully.<\/p>\n

My friend Patrick Birmingham emailed me his thoughts:<\/p>\n

The American writer Henry James wrote in 1884 that,\u201d\u2026 there is a traditional difference between that which people know and that which they agree to admit that they know, that which they see and that which they speak of, that which they feel to be part of life and that which they allow to enter into literature (or these days TV and the internet) . There is a great difference, in short, between what they talk of in conversation and what they talk of in print.\u201d Henry James was a literary genius, and it seems to me that his views on what we \u201cagree to know\u201d are equally applicable to our current financial plight. But the \u201cwe\u201d in this case being our governments and financial systems, not \u201cus\u201d. The governments and banks know better than we what is really going on, but we the public are going to be the last ones to find out. We won\u2019t find out, whatever it is we need to know, until it is too late to do anything about it.<\/p>\n

It seems to me that our media and governments will not admit to knowing how bad Greece will be, so as not yet to panic the populace. Instead, our governments and banks are busy clearing the decks to protect their own selfish interests for the financial crisis to come. Greece will go broke just like Argentina did not so many years ago. I don\u2019t think Argentina paid any of its debts when it went belly-up, and nor will Greece. My understanding is that for many years it has been a point of honour in Greece not to pay tax, so they certainly won\u2019t be too worried about any foreign debt.<\/p>\n

Further historical parallels to these debt problems and their lack of solution can be found even with the Nazis. Germany under Hitler reneged on its WW I debts to the US. Hitler simply refused to pay. This action endeared Hitler to the German people, as most Germans felt that they shouldn\u2019t have to pay anyway. Similar sentiments are now very strong in Greece. This non-payment by Germany didn\u2019t seem to stop anyone from appearing at the 1936 Berlin Olympics, and indeed these unpaid debts were not even rescheduled again until the early 1950\u2019s. Even then the catch was that repayments were only legally triggered by German \u201creunification\u201d. The final debt payment was made by a wealthy Germany last year (2010).<\/p>\n

Hard as this may be to believe, President Roosevelt, on appointing the new US Ambassador William Dodd to Berlin in the 1930\u2019s, made clear that the number one priority in dealing with Hitler was to get him to start repaying the US banks (I\u2019ve just finished reading, \u201cIn The Garden of Beasts\u201d). Hitler never did.<\/p>\n

My old commodities fund is now down 9.06%<\/strong> in 2011. Commodity prices are dropping as the world’s economies slow down.<\/p>\n

I don’t want to suggest an recession. But it looks increasingly likely.\u00a0\u00a0 Want something really ugly? Read this from BusinessInsider:<\/strong><\/a><\/p>\n

MORGAN STANLEY: The TERRIFYING 2012 Bear Case Scenario<\/strong><\/p>\n

Investors are worried that corporate profits could fall if the U.S. goes into another recession.<\/p>\n

Currently, analysts are expecting around $112 per share in S&P 500 earnings, which reflects more than 10% year-over-year growth.<\/p>\n

However, Morgan Stanley’s Adam Parker warns that if earnings decline, they could dive.<\/p>\n

Parker points to recent history:<\/p>\n

“We have heard investors suggest $80 in EPS was a fair bear case for 2012. We decided to look at history as a guide in assessing the bear case EPS. The 2001 recession saw a 13% revenue decline and a 57% EPS drawdown. The 2008 recession saw a 14% revenue decline and a 51% EPS hit, peak-to-trough. For 2012, bottom-up estimates (excluding financials) embed a 5% revenue INCREASE and just over 10% year-over-year EPS growth. If prior recessions prove relevant to next year\u2019s economy, $54 to $68 in EPS in 2012 would be a more likely range than the $112 that the bottom-up consensus estimates currently embed.”<\/p>\n

If you attached a 15 PE multiple to the low end of that range, which some would argue is a generous valuation, you’d get 810 in the S&P 500. That’s a 28% plunge from the index’s recent price.<\/p>\n

Assumptions. Assumptions.<\/strong><\/span> <\/strong>Four tennis players bought The Old Chatham Tennis club out of bankruptcy about 20 years ago. It came with a beautiful white fence.<\/p>\n

\"\"<\/a><\/p>\n

Over the years, our players hurrying to their games, would crash\u00a0 into our pricey fence. It cost us a small fortune to fix the fence from crashes and winter weather. Also, we had to paint\u00a0 it every year or two.<\/p>\n

Then this year, our talented manager, Jill Gerrain, had a better idea. “Let’s remove the fence.” Not one of my super-smart partners (including me) thought of that simple solution.<\/p>\n

\"\"<\/a><\/p>\n

Bingo, the place is cheaper to maintain, more attractive and less of a hazard to our customers.<\/p>\n

When I played “consultant,” my job was less<\/strong> to suggest solutions<\/strong> and more to suggest alternatives<\/strong>. That’s the key.<\/p>\n

Free, fast text messaging.<\/strong><\/span> I was the last holdout. But, heck, sending short messages to cell phones is very useful. For one, the recipient’s phone bings and grabs their attention. They can read and reply to the message while they’re in a meeting, or in the bathroom.<\/p>\n

Most carriers charge for messaging — but there are private web sites that do SMS messaging for free. And it’s often a lot easier to text from a computer than from a phone. My favorite free text messager is txtDrop.com.<\/strong><\/a><\/p>\n

The pleasure of great headlines.<\/strong><\/span> I”ve written millions. But this one is the best. And shucks, I didn’t write it. On the cover of the latest issue of Wired:<\/p>\n

\"\"<\/a><\/p>\n

And a close-up of the headline:<\/p>\n

\"\"<\/a><\/p>\n

The new marketing:<\/strong><\/span> The lady holding the balloon is from Turkey. She’s been here 8 years. She’s just graduated with a degree in HR (human resources). She’s now looking for a real job. Meantime, she’s holding the balloon to announce the opening\u00a0 in our neighborhood of Century 21, a disocunt clothing chain.<\/p>\n

\"\"<\/a><\/p>\n

She’s earning $18 an hour — which is, as they say in Australia, better than a slap in the belly with a cold fish.<\/p>\n

Latest great New Yorker cartoons.<\/strong><\/span><\/p>\n

\"\"<\/a><\/p>\n

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\n<\/strong><\/div>\n

Harry Newton who asks “Why does it bother me to see our President using Air Force One to carry him to money-raising events for his 2012 election bid. This irresponsible behavior reminds me of what third-world dictators do — simply write checks on the state treasury for their own personal benefit.<\/p>\n","protected":false},"excerpt":{"rendered":"

In the history of the world, virtually every country has defaulted on its bonds. Countries don’t disappear, like Lehmann Brothers,\u00a0 PanAm or Enron. They devalue, cut back, boost their exports and live for another day — usually a better one. Greece can’t pay its bills. Either someone else does (i.e. bailout) or it will have […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-9445","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/9445","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9445"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/9445\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9445"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9445"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9445"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}