Sunday, August 2, 2009

Saturday & Sunday Meanderings 8/1-2/2009

1. David Rosenberg & Alan Abelson: I have always suspected that Alan and David were twin brothers, and my suspicions were confirmed, once again, by Abelson's column in this weekend's Barrons. There is a difference between the two twins in their dour market forecasts. I wish to be fair to David on this score. Alan apparently believes the DJIA needs to retest the 1932 low of 32 in order to reach fair value, while David is far more optimistic, believing the S & P will fall back merely to 600 by this October. (item # 3 in both posts: S & P Closes Above 200 Day Moving Average Job Losses Worse Than Expected) While David's forecast would appear silly and even ridiculous to many market observers, with that average at 987 now, Alan views David as a great sage, defined to mean a person who expresses opinions similar to his own. Both share the same personality quirk, an endless quest to cherry pick data to justify an opinion that a market rise off the March lows is just madness, while a steep market fall would show that everyone has finally come to their senses. Up is bad, down is good.

Besides cherry picking only the data supporting their view, discarding inconsistent facts or downplaying their significance, David and Alan will focus on earnings during an awful recession year, and ask why isn't the market forecasting those earnings as the norm for the next decade or the next century. So once we have bad news, the only reasonable projection is a continuation of the awfulness into the indefinite future. That is just one of their favorite tactics. So, you can see how it works. You know that earnings are being severely impacted by a recession, and it goes without saying that you would never, ever, accept the notion that the recession will actually end at some point. You come up with some ridiculous trailing P/E number like 760, and voila, irrefutable proof that investors have lost their marbles again. I view Alan as the flip side of those individuals who believed the dot-bombs were undervalued investment gems in 1999-2000. Maybe those individuals need to do a mind meld with Alan and David and possibly something sensible will come out of it.

But after reading Alan touting David's predictions- again, thinking that I might not have to endure another reference to Rosenberg's views, at least until next week, I see him pop up again, like a mole in that whack a mole game, dispensing more advice in "The Trader" column.

Sure, I have been selling some common stock recently. It seems to me prudent to raise some cash after the tremendous market move off the March lows, up almost 50% since early March. I am not one, however, who perpetually sees the glass as being empty. Instead, looking back at the S & P earnings since 1960,S&P Earnings History, I see a pronounced and obvious uptrend in earnings, and would forecast that as the norm rather than a continuation of poor earnings for years to come. Also, you do not need to be much of a student of history to realize that recessions will come and go. Perhaps, for both the bulls and the bears, both the coming and the going of bad times need to be factored into their valuation decisions, as opposed to just one or the other.

2. The Magic Coin and EBAY: A few days ago I allowed the magic coin to decide the fate of my Ebay shares. EBAY and Eric Savitz Eric had written a column arguing that Ebay was a value trap at $12 per share. Savitz on Ebay/ So, LB who can be quite contrary at times, decided to bet against Eric, but then quickly ran into a quandary. If EBAY was a value trap at $12, it had to be more so when it rose soon after Eric's column to over $20. LB decided that it would be best to allow the magic coin to resolve the debate, and the coin said hold onto the shares after it was flipped in strict accordance with all of the rules governing this particular method of decision making. (last sentence: Bought 50 OPXT as Lottery Ticket/ Digirad) Now after a double in price, Barrons has the hots for the stock with an effusive cover story in this week's edition. Maybe I will flip the coin again next week sometime.

3. Money Market Yields: I looked at my dividend paid by a tax-free money market fund today for the month of July. I just kept staring at the number. It had to be a mistake. Seriously, I could not go to McDonald's and buy a happy meal for one person with the dividend paid on my entire cash balance. I then checked the yield at Barrons and saw that it was .01%. Over the past couple of weeks I have added to that cash balance with several stock sales. Now, having seen that number, I feel that I am being forced back into taking more risks.

4. Revival Meeting Of True Believers in Nashville: The Nashville Tennessean reported today on a large gathering of some 600 TBs here in Nashville. While you would expect the fire and brimstone, and preaching about the dangers of socialism, meaning any proposal made by the Democratic Party on any subject, some other gems include a speech about the "Obama- Pelosi-Reed axis of evil" threatening the American way of life.

RB was observing the large number of people at a local restaurant this morning, serving an "all you can eat" breakfast, who would be paying more for their generous helping of more under the Fat Tax. The More You Weigh-The More You Pay/ More on the FAT TAX-Combine with a Soda Tax & More Cancer Stick Taxes A Modest Proposal to the Democratic Party: Forget About the Surtax and Try a Tax on Fat/Charlie Rangel-A Pillar of Tax Morality? RB said something like Tennessee will have no problem funding its fair share of the new Fat Tax. A companion wanted to know why RB called the BMI Chart part of a "commie liberal" plot to undermine American Capitalism. Healthy Weight: Assessing Your Weight: Body Mass Index (BMI) | DNPAO | CDC RB said it was obvious, asking a rhetorical question that answered such a silly question. How much of American capitalism is geared to putting the weight on, then treating the consequences of the "excessive" body mass, and then geared to providing services and products to take it back off? Millions of jobs, and entire industries are dependent on the American public recognizing the true purpose of this commie liberal chart, to undermine the very fabric of our economy by convincing Americans to take responsibility for their own health and well being. Then, a member of the GOP Tribe (we are surrounded here) added that he agreed with RB's characterization of the Fat Tax as being consistent with the fundamental tenet of the Democratic Party, to tax whatever is more, as in the more you weigh, the more you pay. But, the Fat Tax ignored the corollary principal, that no one is really responsible for what happens to them, and anyone who would be subject to the Fat Tax due to self indulgence would be entitled to a tax credit offsetting the full amount of the Fat Tax. RB was speechless, confronted with such impeccable logic, and asked LB to work out the kinks in RB's ideas to fund the Obama health care insurance with a tax consistent with Democratic Party tenets and capable of rising faster than the rate of increase for medical costs.

Added Sunday 8/2/2009: LB Works Out a Solution:

LB thought that this was a tough nut to crack. It is clear that the member of the GOP tribe overstated his case. Some individuals are in fact deemed to be responsible for themselves and for others. It is clear that individuals are not responsible for their own excessive body mass under the core principles of the Democratic Party unless the taxpayer is “well off”. For those who are well off, they will be to required to pay both any Fat Tax (FT) owed by them for excessive body mass as defined by the BMI Index and to assume the responsibility for the FT owed by those defined by the Democratic Party as not well off. Those who are not well off, and are within the BMI guidelines for body mass, may sell Fat Tax Credits to the well off that the rich may use to offset their FT burden. LB borrowed this idea from the Democratic Party cap and trade plan, and views it therefore as consistent with their core principles. The well off may also earn deductions by paying gym memberships, personal trainers, and dieticians, not for themselves but for those subject to the FT who are not responsible for anything that they do even if they do it.
To facilitate the exchange of Fat Tax credits, a competitive marketplace will be established where the FT credits may be bought and sold. Unemployed investment bankers can be hired to develop new products, like CDO squared, to package the credits for marketing to different kinds of well off people.

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