On my desk, WSJ, The new Guggenheim museum Kandinsky book, The Last Magazine, Purple. Photo James Perkins

Despite their overall contributions to society, sometimes high-fashion runway shows only seem good for those invited. And just as fashion can go on being fabulous without you, the stock market, it seems, may be back to doing fabulous without you, as well. Despite writing about J. Crew’s above 63 Price to Earnings multiple last week, PE ratios in general, on a forward-looking basis, are actually looking quite reasonable regardless of the unreasonable-looking stock performance of late. This may piss you off, and at first I even asked, “How can it be?” But the answer is quite simple. In fact, once hemorrhaging luxury retailer Saks posted a surprise profit, and discount/ design retailer Target posted its first year-over-year increase in eight quarters. Simply, gains are coming from cost cutting. It is all possible because you or your friend lost their job. And so, on a valuation basis companies are performing quite well as their revenues normalize and cost cutting gets as much wear as a boyfriend blazer and stacked heels. Yes, the stock market is doing well, and it might continue to do well without you. Just like the Balmain FW09 collection will continue to be beautiful even if you can’t afford $1,000.00 tee-shirts.

There is high risk involved if you are investing in equities. But this risk can be minimized if you are investing in stock which has a good fundamental and good potential to grow. Below are the few tips which will help you out in knowing fundamentals of stocks.

There are several methods to find the stocks which has a good potential growth. Basically it depends on below factors
1. Last few year’s financial result of company
2. Study the balance sheet and find out the PE Ratio and EPS (Earning Per Share).
The lesser the PE Ratio the higher the chances of stock to go up or the higher the EPS the higher the chances of stock to go up.
The PE and EPS should be compared with the peer group of companies who are running the same category of business.
For eg : ICICI Bank trading on PE of 23 and EPS of 55 rs per share. We can get the information from balance sheet of ICICI Bank.

- Now we will compare ICICI with any private sector bank lets say AXIS Bank.Suppose Axis Bank is trading on PE of 15 and EPS is 60. So there are more chances of AXIS bank to go up further.

The other way to find out is compare PE and EPS with same sector of Index.Lets say BSE Banking Index.If the current stock is running low in PE and high in EPS than the stock then the stock is good to buy.
The above explaination is the basic factors of consideration.

First try to learn P&L and Balance sheet of company. Then only you will be able to gain good profits.

Advice: Purchase the share after knowing fundamentals.

Facebook CEO Mark Zuckerberg

Valuing high growth companies is similar to answering a particular, open-ended question posed to me during an old business school interview: “Wade, how many ping pong balls can you fit in an empty 747 airplane?” Obviously, the estimation process is not an exact science, but rather an artistic exercise in which various techniques and strategies may be implemented to increase the accuracy of people’s approximations. The same principles apply to the tricky challenge of estimating the value of high growth companies like Facebook and Twitter.

Cash is King

Where does one start? Conceptually, one method used to determine a company’s value is by taking the present value of all future cash flows. For growth companies, earnings and cash flows can vary dramatically and small changes in assumptions (i.e., revenue growth rates, profit margins, discount rates, taxes, etc.) can lead to drastically different valuations.  As I have mentioned in the past, cash flow analysis is a great way to value companies across a broad array of industries – excluding financial companies (see previous article on cash flow investing).

Mature companies operating in stable industries may be piling up cash because of limited revenue growth opportunities. Such companies may choose to pay out dividends, buyback stock, or possibly make acquisitions of target competitors. However, for hyper-growth companies earlier in their business life-cycles, (e.g., Facebook and Twitter), discretionary cash flow may be directly reinvested back into the company, allocated towards numerous growth projects. If these growth companies are not generating a lot of excess free cash flow (cash flow from operations minus capital expenditures), then how does one value such companies? Typically, under a traditional DCF (discounted cash flow model), limited early year cash flows are forecasted out many years into the future until more substantial cash flows in the future are discounted back to today. This process is philosophically pure, but very imprecise and subject to the manipulation and bias of various inputs.

To combat the multi-year wiggle room of a subjective DCF, I choose to calculate what I call “adjusted free cash flow” (cash flow from operations minus depreciation and amortization). The adjusted free cash flow approach gives you a perspective on how much cash a growth company theoretically can generate if it decides to not pursue incremental growth projects in excess of maintenance capital expenditures (I use depreciation and amortization as a proxy for maintenance CAPEX.). I believe these figures are much more reliable in valuing companies because such cash flow based metrics are less subject to manipulation compared to traditional measures like earnings per share (EPS) and net income on the income statement.

Rationalizing Ratios

Other valuation methods to consider for growth companies*:

• PE Ratio: The price-earnings ratio indicates how expensive a stock is by comparing its share price to the company’s earnings.
• PEG Ratio (PE-to-Growth): This metric compares the PE ratio to the earnings growth rate percentage. As a rule of thumb, PEG ratios less than one are considered attractive to some investors, regardless of the absolute PE level.
• Price to Sales: This ratio is less precise in my mind because companies can’t pay investors dividends, buy back stock, or make acquisitions with “sales” – discretionary capital comes from earnings and cash flows.
• Price to Book: Compares the market capitalization (price) of the company with the book value (or equity) component on the balance sheet.
• EV/EBITDA: Enterprise value (EV) is the total value of the market capitalization plus the value of the debt, divided by EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). Some investors use EBITDA as an income-based surrogate of cash flow.
• FCF Yield: One of my personal favorites – you can think of this percentage as an inverted PE ratio that substitutes free cash flow for earnings. Rather than a yield on a bond, this ratio effectively provides investors with a yield on a stock.

*All The ratios above should be reviewed both on an absolute basis and relative basis in conjunction with comparable companies in an industry. Faster growing industries, in general, should carry higher ratio metrics.

Taking Facebook and Twitter Public

Before we can even take a stab at some of these growth company valuations, we need to look at the historical financial statements (income statement, balance sheet, and cash flow statement). In the case of Facebook and Twitter, since these companies are private, there are no publically available financial statements to peruse. Private investors are generally left in the dark, limited to public news related to what other early investors have paid for ownership stakes. For example, in July, a Russian internet company paid $100 million for a stake in Facebook, implying a $6.5 billion valuation for the total company.  Twitter recently obtained a $100 million investment from T. Rowe Price and Insight Venture Partners thereby valuing the total company at $1 billion.

Valuing growth companies is quite different than assessing traditional value companies. Because of the earnings and cash flow volatility in growth companies, the short-term financial results can be distorted. I choose to find market leading franchises that can sustain above average growth for longer periods of time (“long runways”). Compared to the average investor, I tend to look out further in time until the apparent short-term “expensive” metrics eventually become “cheap.” Google (GOOG) is a perfect example – what many investors thought was ridiculously expensive, at the $85 per share Initial Public offering (IPO) price, ended up skyrocketing to over $700 per share and continues to trade near a very respectable level of $500 per share.

The IPO market is heating up and A123 Systems Inc (AONE) is a fresh example. Often these companies are volatile growth companies that require a deep dive into the financial statements. There is no silver bullet, so different valuation metrics and techniques need to be reviewed in order to come up with more reasonable valuation estimates. Valuation measuring is no cakewalk, but I’ll take this challenge over estimating the number of ping pong balls I can fit in an airplane, any day. Valuing growth companies just requires an understanding of how the essential earnings and cash flow metrics integrate with the fundamental dynamics surrounding a particular company and industry. Now that you have graduated with a degree in Growth Company Valuation 101, you are ready to open your boutique investment bank and advise Facebook and Twitter on their IPO price (the fees can be lucrative if you are not under TARP regulations).

DISCLOSURE: Sidoxia Capital Management and client accounts do not have direct long positions AONE, however some Sidoxia client accounts do hold GOOG securities at the time this article was published. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

Common stocks of good companies are not necessarily good investments. Investors must compare the intrinsic value of a stock to its market price before buying it. In relative valuation, the value of an asset can be estimated by looking at how the market prices similar or comparable assets. In other words, the value of an asset is the price that the market based on the asset’s characteristics.

Price to Earnings (P/E) ratio is a market value ratio that relates the firm’s stock price to its earnings and provides management with an indication of what investors think of the firm’s past performance and future prospects. Being the most widely used and well-documented ratio of relative valuation, P/E is often referred to as the ‘multiple’ because it indicates how much investors are willing to pay per dollar of a firm’s reported profits.

P/E is calculated by comparing current share price to earnings per share (EPS). For instance, if a share price is currently at $50 and earnings per share over the last 12 months are $1.85 per share, the P/E ratio for the stock is $50/$1.85=27.02.

P/E can be calculated using earnings per share from the last 12 months, which is commonly referred to as trailing P/E. However, it can also be calculated using forecasted earnings per share expected over the next 12 months, which is commonly referred to as forward P/E. A third approach is to use the earnings per share of the last 6 months and expected earnings per share of the next six months. In reality, there isn’t huge difference between these variations. The only thing that investors need to realize is that in trailing P/E they use actual historical data, while the other two calculations are based on estimates that may be wrong or imprecise.

Generally, a high P/E ratio indicates that a firm has a strong growth prospect. A firm with a P/E higher than the market or industry average indicates that investors expect higher earnings in the near future. However, P/E ratio alone is not enough to convey meaning about a firm’s financial strength. For instance, a $20 stock with a P/E 85 is more expensive than an $80 stock with a P/E 30. To determine whether a P/E is high or low, investors should take into consideration the firm’s growth and the industry. Information about how fast the firm has been growing and if its growth rates are expected to increase in the future is important for investors to understand if projected growth rates justify P/E. If they don’t, then a firm’s stock may be overvalued. In relation to industry, P/E is more useful when compared with the P/E ratios of similar companies within the industry. For instance, it doesn’t make investment sense to compare the P/E ratio of a utility firm that typically has a low P/E ratio to the P/E ratio of a technology firm that typically has a high P/E ratio. Each industry is driven by different dynamics and has different growth prospects.

Overall, investors should avoid basing their investment decisions on P/E ratio alone. Although it reflects the market’s optimism in regards a firm’s growth prospects, buy or sell decisions should not be based on the multiple alone as earnings per share are often subject to accounting manipulation.

There is an interesting divergence developing between bond yields, gold prices and the trend in equity markets.  Whilst equities continue to go up, bond yields are falling and gold prices are rising.  Indeed the usually strong relationship between the S&P 500 and US 10 year yields has collapsed to an insignificant correlation around -0.09 over the past month compared to a high correlation of 0.84 in the month to 8 August.  

Rising equities appear to signify an improvement in risk appetite whilst bonds (US 10-year yield around 3.4%) and gold (around $1000 per troy ounce) are giving the opposite message.  So which indicator is correct and why the breakdown in the usually solid relationship?  

Growing optimism about economic recovery and the run of better than forecast data releases suggest that equities are correct but there is growing risk that so much good news is now priced in that we should pay attention to what bond yields and gold prices are telling us.  

Some of the move lower in bond yields can probably be attributed to the wall of liquidity sloshing around due to central banks’ unconventional policy measures.  However, it is still remarkable that despite the plethora of better than expected data releases, bond yields have actually declined.  This may reflect the success of quantitative easing but could also be associated with sustained economic and market fears.    

The commitment by G20 officials last weekend not to reverse stimulus policies prematurely may also have given more confidence in the view that interest rates will not be raised quickly.  Reflecting this 2 year German bund yields dropped to a record low level at the beginning of the week although longer term bond yield have pushed higher in the 30 year area.  The G20 commitment could turn out to be a double edged sword, however.  If there is no commitment to reduce burgeoning deficits, bonds could ultimately take fright.  

If bonds and gold prices are really reflecting safe haven demand then it will pose a risk to the sustainability of any equity rally over coming months.  As equity valuations begin to look increasingly stretched – the P/E ratio on the S&P 500 has reached 18.76 (according to Bloomberg calculations) compared to a low of around 10.00 at the beginning of March 2009 – it will need more to keep the rally going and high amongst the factors needed is some clarity about the pace and shape of growth once stimulus is reversed. 

For currency markets I think it will be difficult to see a trend until there is more clarity about the economic outlook and in the meantime currency markets will continue to stock watch for direction even if the influence of risk appetite is declining.  Even so, the dollar appears to be reacting more to equities than bond movements and is coming under growing pressure as equities rise.  

Many currencies are poised to break out of recent ranges to the topside versus the dollar led by risk currencies such as the AUD, NZD and CAD.  If it turns out that the equity story rather than the bond message is the correct one then the real message is a bullish one for risk appetite and given the dollar’s usually negative reaction to improved risk appetite, it could face further pressure over coming weeks.

http://www.gazhoo.com/doc/200905030308109170/investment+PE+Ratio

The following excel file is a comprehensive stock index covering most major markets in Asia including Japan. The excel file has a Bloomberg feed enabling live/automatic Bloomberg updates for major companies and markets.

The file covers all major industries and companies by market and contains the following information:

- VWAP (Volume Weighted Average Price)
- 5-day, 1 month, 3 month, 6 month, 1 year, Month
to date, – quarter to date, and Year to date
changes in price
- P/E ratio
- P/B ratio
- EPS
- BVPS

Markets covered:

- China Shanghai
- India (NIFTY)
- Japan (TPX, JSDA, NKY, TSEMOTHR)
- Korea (KOSPI, KOSDAQ)
- Singapore
- Taiwan

Total length: 59 sheets.

http://www.gazhoo.com/doc/200904081545362775/Trading+Spreadsheet+with+Bloomberg+Feed++-+Asia+Pacific+(including+Japan)

March ’09, price-earnings (P/E) ratio for BSE SENSEX based scrips (30) was 12.68, and by July end it was 19.1. The higher the P/E ratio, the higher price per share than annual earnings per share. The statistics mentioned above clearly show that how the stock prices have shot up too fast. Considering failing monsoon and drought in India and current situation of global economy, Indian stock market looks overvalued.

I agree that top 6 out of 10 economies of the world have shown positive growth after 5 quarter consecutive negative growth. From January 1^st, The DOW is up 6% and NASDAQ has returned 26%. In Europe, Spain’s and Sweden’s indices are up 18% and 30% respectively since January. The Hang Seng in Hong Kong has gained 45% plus in the same time. Brazil’s Bopseva is also up 50% since January. It is being said that pumping money into emerging markets would help world to come out of the financial crisis. Because of which many believe that Brazil, China and India share market are booming.

Now it’’s time to analyze India’s market, from January it appreciated mind boggling 60%. If we look at the statistics from March to August ‘09, BSE touched 8000 in March, and it almost gained 100% by coming close to 16000 in August. This figure is far ahead of Brazil or China. Everybody knows that demand is drooping in India. India’s imports have been contracting. The ability of India to absorb goods and services from all over the world is coming down. It is hard to predict when demand will bounce back. In light of India facing rapidly increasing commodity prices, pandemic eruption, slow sales growth, biggest drought of the century and sluggish job market, I don’t find any motive for market to surge. Disinvestment could be counted behind this race, but this is a long process. If I remember correct, after budget only 1 PSU IPO has been floated. Rest is lined up and still market is booming.

Is this again a bubble or a collection of many bubbles? Famous analyst Abheek Barman may not be wrong in saying that if earnings don’t grow as fast as share prices, the price to earnings (PE) multiple will bloat, setting us up for another crash.

The following excel file is a comprehensive stock index covering most major markets in Asia including Japan. The excel file has a Bloomberg feed enabling live/automatic Bloomberg updates for major companies and markets.

The file covers all major industries and companies by market and contains the following information:

- VWAP (Volume Weighted Average Price)
- 5-day, 1 month, 3 month, 6 month, 1 year, Month
to date, – quarter to date, and Year to date
changes in price
- P/E ratio
- P/B ratio
- EPS
- BVPS

Markets covered:

- China Shanghai
- India (NIFTY)
- Japan (TPX, JSDA, NKY, TSEMOTHR)
- Korea (KOSPI, KOSDAQ)
- Singapore
- Taiwan

Total length: 59 sheets.

http://www.gazhoo.com/doc/200904081545362775/Trading+Spreadsheet+with+Bloomberg+Feed++-+Asia+Pacific+(including+Japan)

The following excel file is a comprehensive stock index covering most major markets in Asia including Japan. The excel file has a Bloomberg feed enabling live/automatic Bloomberg updates for major companies and markets.

The file covers all major industries and companies by market and contains the following information:

- VWAP (Volume Weighted Average Price)
- 5-day, 1 month, 3 month, 6 month, 1 year, Month
to date, – quarter to date, and Year to date
changes in price
- P/E ratio
- P/B ratio
- EPS
- BVPS

Markets covered:

- China Shanghai
- India (NIFTY)
- Japan (TPX, JSDA, NKY, TSEMOTHR)
- Korea (KOSPI, KOSDAQ)
- Singapore
- Taiwan

Total length: 59 sheets.

http://www.gazhoo.com/doc/200904081545362775/Trading+Spreadsheet+with+Bloomberg+Feed++-+Asia+Pacific+(including+Japan)

The following excel file is a comprehensive stock index covering most major markets in Asia including Japan. The excel file has a Bloomberg feed enabling live/automatic Bloomberg updates for major companies and markets.

The file covers all major industries and companies by market and contains the following information:

- VWAP (Volume Weighted Average Price)
- 5-day, 1 month, 3 month, 6 month, 1 year, Month
to date, – quarter to date, and Year to date
changes in price
- P/E ratio
- P/B ratio
- EPS
- BVPS

Markets covered:

- China Shanghai
- India (NIFTY)
- Japan (TPX, JSDA, NKY, TSEMOTHR)
- Korea (KOSPI, KOSDAQ)
- Singapore
- Taiwan

Total length: 59 sheets.

http://www.gazhoo.com/doc/200904081545362775/Trading+Spreadsheet+with+Bloomberg+Feed++-+Asia+Pacific+%28including+Japan%29

“Bad Bank of America” http://tinyurl.com/cbfslk

US Economy Needs Interest Rate of Minus 5%: Report http://cnbc.com/id/30430922

Samsung Unveils Its First Google Phone http://snipr.com/gtwrh

WSJ Talking about recovery in memory prices and that 1Q09 was bottom.
Backwards looking. http://bit.ly/n7UXe

Economics of a flu pandemic (Huff Post): http://tinyurl.com/c7cd7w

The Capital well is running dry: http://tinyurl.com/dj6pgs

Today’s economic comics: http://tinyurl.com/cmphyu

Eye on Yahoo turnaround – reorganizing sales today into more
centralized structure http://bit.ly/WdwBz

SPY important levels to watch for the next few days: http://tr.im/jN0Q

LTCM, Ten Years Later http://paul.kedrosky.com/archives/2009/04/eric_rosenfeld.html

Paul Krugman at NY Times…’Money for Nothing’ http://bit.ly/yvb67

Last 4 stock ideas examined http://bit.ly/Pd62q

Oil Falls on Speculation Slow Recovery Will Limit Energy Demand
http://tinyurl.com/cdf4al

Freddie Mac Portfolio Grows, Delinquencies Rise http://cnbc.com/id/30386269

China’s third stimulus tranche smaller than expected: http://bit.ly/dDBTu

Are PE ration being intentionally skewed to appear cheap?? http://bit.ly/6jxcb

Think That Central Banks Move the Markets? Think Again. http://bit.ly/53gYw

New York Times always reminding me how scary Timmmmmy Geithner is
http://bit.ly/4VzDV

FT’s Munchau: Eurobanks now have more bad assets on their books than
the US banks. http://bit.ly/kIJJu

Interesting: “Insider Selling Highest Level Since 2007″
http://www.bloomberg.com/apps/news?pid=20601213&sid=au8cyqeJFifg&refe…

Interesting story on food companies feeling the pinch. Campbell’s is
seeing coupon redemptions up 20% http://tinyurl.com/czdkvv

Chrysler wins union concessions http://tinyurl.com/dnm3pl

WSJ with a memoir on SARS http://online.wsj.com/article/SB124078887309757539.html

Hedge Funds : Goldman Sachs Boosts Risk-Taking At Fastest Pace On Wall
Street http://www.hedgeco.net/n/10450

The UK’s biggest building society abandons a promise to peg its
variable rate mortgages to the Bank of England .. http://tinyurl.com/cad96p

Earnings Watch: Updates, advisories and surprises http://tinyurl.com/ddvo4m

Three Companies That Could Benefit from Swine Flu http://seekingalpha.com/a/2ur3

Birinyi takes a look at the performance of leveraged ETF’s: http://bit.ly/quLcx

Head of UBS Investment Bank Unit Steps Down http://bit.ly/9Fduq

World Stocks Tumble as Flu Fears Spread http://bit.ly/u0YfN

Small businesses brace for tax battle http://tinyurl.com/dkvcgf

http://theplaysblog.wordpress.com

This Sunday morning I read the following article in the NYT. “Has the economy hit bottom yet?” In the article they argue – my personal opinion – three important things:

1. Have the housing prices reached bottom yet in the US. In some states they may have but not in all.

2. Where is the P/E ratio today (around 13) of the publicly traded companies in comparison to the 1980 (below 7) and the 1930 (below 6).

3. How is the average US savings rate doing in comparison to other difficult times? Well today it is at about 3% up sharply but after the second world war it was about 7% (postwar average).

So buying stocks should look attractive soon.

Also: If you read this article you will see that today

all consumer debt is at 130% of income. Go back to 2000, and it was at 100%; 10 years earlier it was at 80% or 90%.

So this will need time to adjust but it may go faster (less then 10 years) then expected. Click on below image to open another interesting article.

Consumer Debt vs GDP

Now you have to decide if you are a Momentum or a Value investor.

It’s only been 7 weeks since the man whose resume fits nicely on the back of a postage stamp became the most powerful human being in the universe.  As Presidents go, Barack Obama has proven at least one thing true:  change is like the flip of a coin.  Change can bring the best of times; change can bring the worst of times.  And anyone over the age of twelve ought to have known that.  Instead, 52% of the American electorate has run around like a bunch of howling ninnies for the past year chanting like a horde of Jim Jones’ followers, who can’t get enough of the poison kool-aid.

By Kyle-Anne Shiver
American Thinker

So much for progressive enlightenment.

Some of those folks now lining up to get food stamps and the like probably worked in the domestic tourist industries that have taken a whack from President Obama.  Every time the President slams a trip by so-and-so from such-and-such company, real people lose the jobs they would have had providing services to these executives….

Read the rest:
http://www.americanthinker.com/2009/03/voters_
obama_folly_coming_home.html

Related:
 No Leadership: It’ll Take More Than Money to Fix This Crisis

The president may not have what it takes

 Obama Doesn’t Understand What Many Americans Are Thinking

All The President’s Men: Where’s The Congressional Oversight?

Economic Situation Demads Nation, Politics With War Mindset

China Provoked Obama; Now Works To Smooth Situation: Why?

Losing Terror War? Al Qaeda, Afghanistan, Iran

Obama Policy On Gitmo, Taliban, Afghanistan, Intel: As Stupid as It Gets

Buffett: Obama not at war; has toxic message machine on economy

“First of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.”

Words from Barack Obama?  Hardly.  Those are words from Franklin Roosevelt’s first inaugural address.

See:
http://historymatters.gmu.e
du/d/5057/

I am disappointed in my president, our president.

He has changed some really great rhetoric like FDR’s “the only thing we have to fear is fear itself” into this:

“I don’t think that people should be fearful about our future.  I don’t think that people should suddenly mistrust all of our financial institutions.”

“I don’t think” indicates an Obama-centric view of the financial turmoil of Americans — not a “people centric” view.

And by guessing at what Americans really do fear, “financial institution,” Obama is saying it is these evil “financial institutions” that many of us do fear.

Well, maybe in Obama World and Obama’s White House, people fear financial institutions because they have no understanding of capitalism, business, the stock market and the American dream.

I am afraid that President Obama has no clue….That’s my fear.  And I resent Him telling me what I think.

I believe generally that “the only thing we have to fear is fear itself” and I also believe in JFK’s famous challenge: “Ask not, what your country can do for you.  Ask what you can do for your country.”

I also believe in Ronald Reagan’s exoration: “Government is not the solution.  Government is the problem.”

I am afraid now because President Obama, Nancy Pelosi, Harry Reid and a lot of other well meaning folks think the government is the solution.

America’s founders wrote down the Declaration of Independence, the Constitution and the other parts of our national fabric because they were living in fear of a far off all knowing and uncaring English Government.

And their spirit lives today in the saying, “I’m from the government and I’m here to help.”  Many of us fear such naive, ignorant hubris.

I am starting to fear Washington.  Obama’s Washington.  A far off, all knowing and uncaring government about five miles from my house, which is surrounded by other foreclosed houses.

I really do fear that Obama and many Democrat’s don’t get it.

Just last week, on Tuesday, President Obama, while speaking about the economy and the stock market, mentioned the “profit to earnings ratio.”

And I thought he went to Harvard.  There is no “profit earnings ratio.”  There is a “price to earnings ratio” or PE.  Investors care more about their return on the dollar, reflected in the price they paid and the earnings that resulted.

Tom Petruno wrote in the Los Angeles Times on March 7, “He didn’t get the lingo right, assuming he meant to say ‘price-to-earnings ratios,’ a measure of stock prices relative to earnings per share. That flub caused snickering among market pros.”

See:
Obama, Socialism, Fear, Lack of Confidence: Tanking Stocks, Skyrocketing Debt, Recovery Doomed This Year

I was even more disappointed when the president repeated this ignorant flub in a New York Times interview late in the week.  That meant to me that nobody in the White House was smart enough to straighten out the president by holding a little school call on him.  Or maybe they just don’t know; and don’t read.  They certainly don’t listen.

But they’re thinking about curing all my education and health care problems, undoutedly….

So Obama’s lack of stock market lingo doesn’t mean to me that he slept through high school: it means he has no idea what drives capitalism because he was reading socialist doctrine instead of paying attention to America, as he himself indicates in his books.  Maybe he never invested in anything but himself.

*****

What is wrong with America?  Everything, in Obama World:

“Look, I wish I had the luxury of just dealing with a modest recession or just dealing with health care or just dealing with energy or just dealing with Iraq or just dealing with Afghanistan,” Obama said. “I don’t have that luxury, and I don’t think the American people do, either.”

Related:
From CNN:
http://edition.cnn.com/2009/POLITIC
S/03/07/obama.interview/index.html

Related:
 NYT Interviews Obama; No Economic Recovery This Year
.
NYT: After March 6 Economic News, “2009 is Probably a Lost Cause”

Related:
Obama: Crisis is time of ‘great opportunity’

 President Pelosi?

 Obama, Socialism, Fear, Lack of Confidence: Tanking Stocks, Skyrocketing Debt, Recovery Doomed This Year
.
Can Democracy Fail With Obama’s Socialist Help?

*****

It seems to us that the attacks on Rush Limbaugh fromTeam Obama are an effort to tell Americans what to think and what not to think.  This kind of arrogance often manifests itself in unusal ways: Limbaugh’s radio show ratings doubled.

So I really do fear that President Obama and his guys don’t get it….

Democratic Attacks On Limbaugh Boost His Ratings — But He’s Not The Problem

********

I fear that the president doesn’t understand that many of us don’t want to pay more taxes, however they are hidden or veiled and whatever thay are for, many of us DO MIND paying for por, even though Chick Schumer thinks we don’t, and many of DO want to further understanding of the good news/bad news behind such huge spending on health care and other Obama projects.  And I certainly DO WANT to understand how all this government debt will degrade American growth and quality of life in the future.  I don’t like sending money for oil to Saudi Arabia and I don’t like sending debt/interst payments to China eaither….

****************

By TOM RAUM

WASHINGTON (AP) — President Barack Obama offered his domestic-policy proposals as a “break from a troubled past.” But the economic outlook now is more troubled than it was even in January, despite Obama’s bold rhetoric and commitment of more trillions of dollars.

And while his personal popularity remains high, some economists and lawmakers are beginning to question whether Obama’s agenda of increased government activism is helping, or hurting, by sowing uncertainty among businesses, investors and consumers that could prolong the recession.

Although the administration likes to say it “inherited” the recession and trillion-dollar deficits, the economic wreckage has worsened on Obama’s still-young watch.

Every day, the economy is becoming more and more an Obama economy.

More than 4 million jobs have been lost since the recession began in December 2007 — roughly half in the past three months.

Stocks have tumbled to levels not seen since 1997. They are down more than 50 percent from their 2007 highs and 20 percent since Obama’s inauguration.

The president’s suggestion that it was a good time for investors with “a long-term perspective” to buy stocks may have been intended to help lift battered markets. But a big sell-off followed.

Presidents usually don’t talk about the stock market. But the dynamics are different now.

A higher percentage of people have more direct exposure to stocks — including through 401(k) and other retirement plans — than ever.

So a tumbling stock market is adding to the national angst as households see the value of their investments and homes plunge as job losses keep rising.

Some once mighty companies such as General Motors and Citigroup are little more than penny stocks.

Many health care stocks are down because of fears of new government restrictions and mandates as part a health care overhaul. Private student loan providers were pounded because of the increased government lending role proposed by Obama. Industries that use oil and other carbon-based fuels are being shunned, apparently in part because of Obama’s proposal for fees on greenhouse-gas polluters.

Makers of heavy road-building and other construction equipment have taken a hit, partly because of expectations of fewer public works jobs here and globally than first anticipated.

“We’ve got a lot of scared investors and business people. I think the uncertainty is a real killer here,” said Chris Edwards, director of fiscal policy for the libertarian Cato Institute.

Some Democrats, worried over where Obama is headed, are suggesting he has yet to match his call for “bold action and big ideas” with deeds.

In particular, they point to bumpy efforts to fix the financial system under Treasury Secretary Timothy Geithner.

Obama may have contributed to the national anxiety by first warning of “catastrophe” if his stimulus plan was not passed and in setting high expectations for Geithner. Instead, Geithner’s public performance has been halting and he’s been challenged by lawmakers of both parties.

Republicans and even some top Democrats, including Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, have questioned the wisdom of Obama’s proposal to limit tax deductions for higher-income people on mortgage interest and charitable contributions.

Charities have strongly protested, saying times already are tough enough for them. The administration suggests it might back off that one.

Even White House claims that its policies will “create” or “save” 3.5 million jobs have been questioned by Democratic supporters.

“You created a situation where you cannot be wrong,” the chairman of the Senate Finance Committee, Montana Democrat Max Baucus, told Geithner last week.

“If the economy loses 2 million jobs over the next few years, you can say yes, but it would’ve lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs,” Baucus said. “You’ve given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct.”

Republicans assert that Obama’s proposals, including the “cap and trade” fees on polluters to combat global warming, would raise taxes during a recession that could touch everyone. “Herbert Hoover tried it, and we all know where that led,” says House Republican leader John Boehner of Ohio.

The administration argues its tax increases for the households earning over $250,000 a year and fees on carbon polluters contained in its budget won’t kick in until 2011-2012, when it forecasts the economy will have fully recovered.

But even those assumptions are challenged as too rosy by many private forecasters and some Democratic lawmakers.

Many deficit hawks also worry that the trillions of federal dollars being doled out by the administration, Congress and the Federal Reserve could sow the seeds of inflation down the road, whether the measures succeed in taming the recession or not. The money includes Obama’s $3.6 trillion budget and the $837 billion stimulus package he signed last month.

Polls show that Obama’s personal approval ratings, generally holding in the high 60s, remain greater than support for his specific policies.

“He still has a fair amount of political capital, so the public is willing to cut him some slack and go along with him for a while,” said pollster Andrew Kohut, director of the Pew Research Center. “But the public will have to get some sense that the kinds of things he’s proposing are going to work, or are showing some signs that they are working.”

Allan Sinai, chief global economist for Decision Economics, a Boston-area consulting firm, said the complexity and enormity of the crisis make it hard to solve.

“There’s no way to get it all right, regardless of which president is making policy,” Sinai said. “The problem is the sickness got too far. The actions taken, medicine applied, were mainly the wrong actions. So it’s just worse, and it gets harder to deal with. At this stage, there is no easy answer, no easy way out. It’s a question of how we fumble through.”

http://michellemalkin.com/2009/03/07/tea-part
y-on-taxpayer-revolts-in-green-bay-lafayette-olat
he-and-harrisburg/

Back in October, Warren Buffett invested over $3 billion in General Electric.  This cash infusion was a vote of confidence for the iconic company.  Of course, technically speaking, we are talking about preferred shares that have an annual yield of 10% (the same deal he cut with Goldman Sachs).  Regular joes like you and me can’t get as near of a sweet deal like that–fast-forward 6 months to $7–is GE cheap?

Henry Blodget at Clutterstock [article] feels that the stock is still rather expensive.  When GE hit 52-week lows last year and was trading near $25, many analysts said it was cheap.  Surely, at $7, GE is a  bargain.   Blodget notes that even at the current price, GE is trading 17x earnings.  Decently high for bull markets.  Tremendously high for our times.   Blodget feels that a large, established company like General Electric should be trading closer to 10x earnings.  At that price, shareholders would be wiped out.

Source:

1.) http://www.businessinsider.com/even-at-7-ges-not-cheap-2009-3

2.) http://www.msnbc.msn.com/id/26976416/

President  Obama, while sitting with British Prime Minister Gordon Brown today said, “What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it.” Obama made the comment while meeting with Prime Minister  Brown about overcoming the global recession.

Give him an A for effort, but this is a real example of his lack of knowledge of the investment world.

Mr. President, Price Earnings ratio is the term you were looking for and it is a valuation ratio of a company’s current share price divided by its per-share annual earnings.

And one last thing,  please don’t get your irritable Press Secretary Robert Gibbs on my case for pointing this out!

Well, finally our President said something positive about the financial markets.

He said, ” what you are now  is profit and earning ratios starting to get to the point where buying stocks is a potentially good deal if you’ve got a long term perspective on it.”

Certainly this is solid advice for investors under “normal” market conditions in a robust economy; advice that money managers and conservative money management firms would agree with.

Conservative investing strategy would buy quality stocks of companies that are well known when their P/E ratio got low…such as GE at about 3x, yesterday. What about stocks that are quality stocks but they have no “E” component in their ratio, such as GM?

Is it time to buy?

Well, our President seems to believe in the long term aspect of investing personally.

Based on his ANNUAL FINANCIAL DISCLOSURE FORMS for the last available year, 2007, all his major assets were basically listed as for (retirement), and consisted of mutual funds, and between $1 million and $5 million were in money market funds.

So, since he is taking the long term view, he has lost about half of is retirement funds, but the money markets funds seem not to have lost their value (he disclosed holdings in Vanguard FTSE Social Index; Vanguard Wellesley Income Fund; Goldman Sachs Large Cap Value A;   . And under his own formula for investing, he has a lot of years to potentially catch up on the loses in his mutual funds.

So he is investing according to his formula…long term for retirement, and has plenty of cash available from the money market access funds.

That is great ! Our President has a solid investment strategy that anyone could be proud of.

Now, how does that compare with the rest of the country?

If you have your retirement funds in these funds, your funds are also down.

If you are now starting to retire like the baby boomers are now doing, they have significantly less in their retirement portfolios and therefore they have no extra cash to invest in buying any new shares.

If there is a lack of buyers, stocks do not tend to go up.

The second part of his long term strategy forgets to consider that in the long term, the trillions and trillions of government debt has to be paid off. How can it be paid off ?

It is impossible to pay on the principal of this mountain of future debt.

So in the long term, how will this debt be good for the stock market?

How can the long term be considered by those who just lost a job, or their house?

Long term to them means a month or two, or three.

In checking that strategy of long term investing…I discovered that by itself that may not be such a sound investment either. Just because markets tend to move up over a long period of time, one may never pick the best time to get in and out during those cycles.

For instance from the time of the market crash in 1929, it took till 1954 for the market to recover. It took 14 years for the market to even move a little from 1968 till 1982-less than 6% over that time…not much of a return.

Now what if you got in 12 months ago and bought all the stocks the President owned….your retirement portfolio is SOL, if you are retiring now. Do you want to wait another 14 years for it to go up 6%?

The SAGE has spoken….remember advice is worth the price you pay for it, so they say.

BUY NOW he said….! BUY NOW…..the P/E is low….

What about when there is no “E”  in the stocks anymore?

We should all buy at ZERO or below….and it seems that pretty much that will be the case this year for most stocks a ratio of ZERO or below….

Maybe we should wait till later.

There are actually stocks, some 600 of them that actually have more cash in the bank on their balance sheets than their market value!

In effect you are buying cash at a discount to its face value…now that may be the best play yet.

We will keep an eye on the investing suggestions of our President, and see how it compares with the “Mattress Investing” (mentioned in a previous blog and significantly out-performing most investment advisers and stock market returns in the last year) strategy and how it compares over time to the market.