Photo: Faith Goble via Flickr
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 week, we heard from Warren Buffett, Jeff Gundlach, Jeremy Siegel, Doug Kass, and many more.
'By far I think the most persuasive bullish factor is valuation of earnings. Not only are now at a 12 or 13 or 14 -- depending how you look at it -- P/E ratio, which is below the long-run average, but I think even more importantly in an extraordinarily low interest rate environment and it does matter what your alternatives are when you invest. And yes, I've seen stocks cheaper than this, but I've never seen stocks cheaper than this relative to bonds and I think that's a real positive factor for the market.'
'Dr. Siegel comes off as a very nice person, but he is an academic who has been bullish at some very wrong times. Importantly, his theories regarding equities for the long term have been wildly off, as bonds have outperformed stocks for one, five, 10, 30 and 40 years, which, according to his investment thesis, is impossible.'
'Anyway, it's still too early to tell if Bianco will hit his 12-month target, but he's getting close.
Also, there was one extraordinarily brilliant insight from his note that he totally nailed:
Discipline & courage earn gains--S&P 500 typically rallied 15%+ Sep-Jan when priced for a recession that didn't come.
Since his note was published, a recession didn't come and the S&P 500 has risen 16 per cent.'
'Here's the thing: earnings growth expectations have come down sharply. According to FactSet data, year-over-year earnings growth expectations for Q1 2012 have plummeted from 8.0 per cent on September 30, all the way down to 0.0 per cent this week.
Meanwhile, stocks roared ahead during that same period (See the chart below). This has the bears going nuts.'
'Over the long haul, Buffett explains, the asset class that most investors consider the 'riskiest'--stocks--is actually the safest.
The asset class that most investors consider the 'safest,' meanwhile--cash--is actually extremely risky.'
'The topic was unemployment or, more specifically, where do those people go who have stopped looking for work. Their absence is credited with distorting the unemployment rate and making it lower than most expect or believe.
The reports I allude to, contended that many went on disability. In fact, they projected that nearly 25% of those not actively seeking a job had applied for, and been accepted, by disability - mostly Social Security.'
'One of the problems with the gold standard is that when the real value of gold changes (as it does all the time) and the dollar price of an ounce of gold is fixed (as it must be by definition under a gold standard), that means dollar prices have to adjust in response to anything that happens to the gold market.'
'Shares in Madison Square Garden Co., which owns the New York Knicks, have gone up 6.2 per cent since Jeremy Lin was inserted into the starting lineup and the Knicks embarked on a five game winning streak, according to Bloomberg.'
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'What most investors fail to note leading up to 1987 was that the market had been on an incredible tear. In the 22 months leading up to the crash the S&P 500 had rallied 60%. In the 10 months leading up to the crash the S&p 500 had rallied almost 40%. All the crash did was take us back to break-even.'
'Although this was the closest the two crosses have ever occurred, there was a similar period in October 2010, when the crosses occurred within 14 days (similarly with the VIX Death Cross pre-dating the S&P's Golden Cross). That was followed by stellar markets returns, with the S&P 500 up 8.5% three months later and more than 13% six months later.'
'Not surprisingly, Gundlach drew parallels between the U.S. and Ancient Rome. Like the U.S., he noted that Rome had an insufficient tax system and a huge military budget.
Like Rome, the U.S. faces 'persistence of a destitute underclass,' as reflected by the excruciatingly slow job recovery.'
'The amount of gold bought in China rose 20 per cent in 2011 over the year before to 770 metric tons, the World Gold Council said in its annual report. That put China behind only first-place India, where 933 metric tons were bought.'
'The index, based on a survey of employers' hiring plans, has been tightly correlated with the NFP numbers. And on Thursday the Philly employment index tanked from 11.6 to 1.1 ... This suggests February jobs gain of just 50,000, a huge drop from January's 243,000.'
'Yardeni overlaid the performance of initial unemployment claims during the last four business cycles. It turns out that the shape of the current jobless claims curve is remarkably similar to those of the previous for recessions.'