We thought we had it all figured out before this week started.We were wrong.
The top minds in the investment business offered some novel analysis, broke conventional wisdom, and even opened our eyes to some misperceptions.
This particular week we learned that the Obama recovery is stronger than Reagan’s, Reagan’s recovery is stronger than Obama’s, the real reason why Wall Street loves leverage, and that many respected investors are staying away from the Facebook IPO.
What follows are excerpts from such stories this week. All of the important stuff you might have missed this week, right here.
'The connection is not between stocks and yields, but between PE ratios and yields, and although the stock market has been gaining, that's apparently not been due to significantly higher PEs. The good news for equity investors is that, at least as Kitano sees it, long-term rates are likely to rise thus pushing up PE ratios.'
'If you really want an apples-to-apples comparison, it's hard to fathom why Reagan doesn't have to answer for a recession happening so soon on his watch, and why he only gets measured on those two years. What's more, as you can see in the chart above, the 1984-1988 period was pretty average, so we're really just talking about two years of really impressive morning-in-America growth.'
'In the first 10 quarters of the OR, GDP is up a total of 6 per cent. During the first 10 quarters of the RR, GDP rose 15 per cent. Point for Reagan. In the first 10 quarters of the OR, the economy created 790,00 jobs. During the first 10 quarters of the RR, the economy created 7.5 million jobs Point for Reagan.'
'The data doesn't hit the database until the public filing after closing. But the closing may be months after the agreement between buyer and seller (and the banks that provide financing). Ultimately, the lag can be a long time (maybe six months) between when a price is agreed upon, the mortgage is secured, the closing occurs, and the sale is recorded and available for public use.'
'This chart is so opposite to what people think. The average person on the street well-connected insider has accepted the basic outline that the government has grown like crazy under Obama, and that the private sector has been cowering in fear of government deficits and regulations, and that there's all this money waiting to be unleashed if only the government would get out of the way. It's pure fiction, and the inability of The White House to tell this story is a big problem.'
'For the past 8 weeks it has spent most of the time above 70. Indeed, it has spent more time at these levels than all the other occasions combined ... My concern is that we are getting to a point where human nature means we are due a turn. The economists will revise up, chasing their tails, just at the time that things start to tip over.'
'The spread between high and low beta equities has also been very wide. When measured using deciles, we find a spread of around 15% in the US, and a remarkable 20% gap in Europe. Over the last 22 years we have only recorded such a wide spread in Europe on two other occasions -- in October 2002 and in March/April 2009.'
'We conclude that both the weaker real exchange rate associated with monetary union and the flexibility of the German export sector in meeting rising emerging market demand have played an important role in the sustained expansion of Germany's trade balances. Our estimates suggest that in the absence of these two effects, Germany's real trade balance would have remained in small surplus, as was the case in the years before the introduction of the euro.'
'Perhaps most worrisome to investors were negative comps recorded at the company's Canadian, European and Japanese flagships, which are generally seen as the main driver of growth. Abercrombie has been able to charge considerably higher prices at flagships overseas, as the U.S. moved to a highly promotional environment. However, early signs showed that the company's ability to maintain premium pricing overseas was hampered.'
'Jim Rogers, CEO and Chairman of Rogers Holdings: I'm not buying because it's a very expensive stock. That's not the way I invest. I know it's going to come out maybe 25 times -- 15 times next year's sales. Sales! Usually when you buy stocks that are very expensive, you don't make money. At least I don't.'
'Basically, the yields on CDs undulate in perfect rhythm with the proclivity of people to put money in savings deposits. As more people want to put money in savings deposits (red line declining) yields fall, which is exactly what you'd expect. As fewer people are inclined to deposit money in banks (red line rising) yields rise.'
'Andreopoulos writes: Normative considerations aside, what will actually happen? Central bank balance sheets are likely to remain bloated for a long period of time -- indeed, the balance sheet expansions might even end up being quasi-permanent. First, even if all goes smoothly and the recovery proceeds slowly but surely, it will probably take central banks many years to exit, even if you discount the fiscal dominance argument.'
'The REAL reason bankers should want Americans to stop getting rid of their debt and keep living off credit boils down to cold hard cash according to Morgan Stanley (via zerohedge). Look what happens to banker pay when the Debt/GDP ratio rises -- cha-ching! And you'll note that both banker pay and Debt//GDP were really high around the 2008 and around the 1929 Stock Market crash.'
'In the most recent release of the data - productivity slowed in the fourth quarter even as hours worked rose. Nonfarm business productivity eased to an annualized 0.7 per cent in the fourth quarter as hours worked increased an annualized 2.9 per cent after a 0.9 per cent gain the third quarter. This in turn is also a bad sign for corporate profit margins as unit labour costs rose sharply at an annualized 1.2 per cent, following a 2.1 per cent decrease in the third quarter. Can you say 'margin compression?' '
'We have revised our already bearish EURUSD forecast lower, now expecting a decline to 1.15 in 2012 (previous forecast 1.20). While we expect central banks globally to continue to provide liquidity, it is the ECB's position that has changed the most dramatically. The relative expansion of the ECB's balance sheet is EUR bearish in our view. We also highlight the relative effectiveness of monetary policy, and suggest that relative EMU-US monetary velocity also points towards a lower EURUSD.'
'All four finished 2011 at post recession highs. While certainly revisions to data are frequent, it will take some serious revising to cause enough of this data to turn negative to claim that a recession did begin by the end of last year. While subsequently ECRI backtracked and has revised the call to say a recession will begin by the end of June, their initial call must be regarded as busted.'