The Unknown Ideal

The S&P 500 closed today above 1261, its highest level since the early tides of the bubble bloodbath. The updated valuation worksheet shows a much firmer foundation for today's stock price levels than existed during the bubble days, with even cut-to-the-bone core earnings showing a multiple of 20, far more reasonable than the 30-plus levels reached late in the last century and earlier in this one.

Investors who bought in to hold on while the world was screaming bloody murder, in the wake of ensuing Enron and Worldcom accounting scandals, have enjoyed significant price appreciation. And many investors who have rebalanced periodically in accord with a strategic asset allocation have realized significant profits.

Asset prices will continue to fluctuate, creating realized losses for the many while creating opportunities for the steady. As General Boy once told us, "Few are the shepherds and many the sheep!"

Posted by The Unknown at 7:01 PM | Permalink

It was jarring to see the usually reliable Chet Currier disparage indexing in his Friday column for Bloomberg. Some of Currier's problems: his time frame (bubble's pop through now), his mish-mash of asset classes in his comparison "peer groups," his failure to account for survivorship bias (how many "internet" and growth funds that were around in 2000 are now gone, gone, like a turkey in the corn?), and his complete disregard for fund expenses.

Fortunately, Friday also brought a column from Morningstar's Christine Benz, who is clueful on the issue: passive investors have won out over active managers over the past ten years and even more extended time frames, with Vanguard's Index 500 fund, as one example among many, landing in the top quartile of its peer group, handily beating "active management" as a category and proving the Currier-dissed "academics" as right.

Factor in expenses, and the indexers did even better, keeping more of their returns through lower costs.

Posted by The Unknown at 7:45 AM | Permalink

Looking at S&P sector valuations today is not too terribly different from looking at them last month.

From the table below, one can spot a few changes: Tech and Financial stocks have gotten a bit pricier, while energy stocks have followed the price of oil down.

InfoTech maintains a premium to the market that is ridiculous, even in light of Tech's alleged growth prospects. Energy, meanwhile, finds itself trading at a substantial discount to the overall market.

Dividend yields have fluctuated a bit, with payouts and prices varying, but Telecom remains a generous dividend-paying sector these days, even beating out dividend stalwart Utilities.

As I mentioned last month, I'm not one to wager on sectors for the short run, but a look at that Energy valuation bolsters the case made by the likes of Siegel and Yardeni for overweighting Energy for the longer term. If I were to do such a thing, I would probably employ a low-cost sector ETF, such as Vanguard's Energy Viper, VDE or S&P's Energy Spyder, XLE.

Posted by The Unknown at 10:36 AM | Permalink

Natural gas, food, and housing prices kept top-line consumer inflation at 0.2%, even as gasoline prices fell precipitously. "Core" inflation, which excludes food and energy popped up to 0.2% from 0.1% in September, possibly reflecting some pass-through costs of higher energy costs into other consumer goods and services.

Posted by The Unknown at 5:41 AM | Permalink

The Washington Post reports that Big Oil execs met with Dick Cheney's "Energy Task Force" in 2001. Son of a gun. Last week some of these same Big Oil execs were telling the US Senate that the meetings didn't happen.

The document, obtained this week by The Washington Post, shows that officials from Exxon Mobil Corp., Conoco (before its merger with Phillips), Shell Oil Co. and BP America Inc. met in the White House complex with the Cheney aides who were developing a national energy policy, parts of which became law and parts of which are still being debated.

Chevron was not named in the White House document, but the Government Accountability Office has found that Chevron was one of several companies that "gave detailed energy policy recommendations" to the task force. In addition, Cheney had a separate meeting with John Browne, BP's chief executive, according to a person familiar with the task force's work; that meeting is not noted in the document.

As the Post points out, Big Oil wasn't under oath, but fines and prison sentences up to five years are available for those who willingly make false statements to the US Congress.

Posted by The Unknown at 8:56 PM | Permalink

A Pennsylvania union pension fund is suing HCA, explicitly outlining insider malfeasance and manipulation. Pensions & Investments reports:

Attorneys representing the pension fund claim that HCA Chairman and CEO Jack O. Bovender Jr., President and COO Richard M. Bracken and CFO Robert Milton Johnson issued false statements about the company’s performance from Jan. 12 through July 12 that caused “HCA’s shares to trade at artificially inflated levels,” the complaint said. The filing also noted the defendants had access to “adverse undisclosed information about HCA’s business, financial condition and prospects” at the time they made “materially false and misleading” representations.

So nice timing, Senator Frist. Just a coincidence I'm sure. Just a coincidence as much as that old "blind trust" was really blind?

It will be interesting to see what is revealed in the course of the pension suit. Recall the serendipitous timing of the senator's HCA sale:

Posted by The Unknown at 7:33 PM | Permalink

Forbes reports that Warren Buffett has pulled in his bad, if rational, bets against the US Dollar. The Sydney Morning Herald estimates Buffett's losses in the neighborhood of $1.2 Billion.

One wonders if Bill Gates has already followed suit. The ol' dollar: she didn't go down after all.

Posted by The Unknown at 10:33 AM | Permalink

Once again Alan Greenspan warns on the unprecedented US budget deficits he helped create by championing the Bush tax cuts.

"There are no easy choices. Easy choices are long gone," said Greenspan, whose 18-plus year run at the Fed comes to an end on Jan. 31.

Easy choices are long gone? The Droning Chairman helped get rid of easy choices when he helped Bush get rid of the US budget surplus.

Posted by The Unknown at 2:37 PM | Permalink

"Accommodation" is a cool word, because it contains almost the entirety of the cooler word "commode," a very genteel word indeed, one often used in the phrase "commode-huggin' drunk" by my friend Cliff.

The FOMC voted again today to continue removing accommodation at a measured pace, which is to say they raised their Fed Funds rate target and discount rate yet again, by the quarter point everyone is now so accustomed to. Most futures market money is now betting that the FOMC will do the same thing at its final two meetings with Greenspan as its droning chair.

Reuters took a picture for us. US Stock and bond markets seemed quite blase about everything, though longer interest rates did edge up just a bit. Banks began to move the Prime Rate to 7%, so pay those darned credit cards off.

As I mentioned so early this morning that it now seems like hours ago, the Institute for Supply Management's manufacturing index remained much stronger than had been expected during October. It was later reported that US construction spending hit another new record today. You can read about it all right here.

Meanwhile outside the Senate chambers, Lying Bill Frist became Crying Bill Frist, throwing a very public hissy fit that still has them howling in Peoria, not to mention Dubuque.

Posted by The Unknown at 2:28 PM | Permalink

Some older issues of I Bonds will pay as much as 9.4%. More about this later.

Happy Fed Watch, by the way. Today's ISM manufacturing report practically ensures further rate increases beyond today's hike to 4%.

Posted by The Unknown at 7:50 AM | Permalink | Comments (1)