I find out very reliable data about how our so proud Wall Street Analysts have done for their job:
The incomparable James Montier--once of SocGen, soon of GMO--blasts the Efficient Market Hypothesis (EMH) in a recent speech (via John Mauldin). Let's leave the EMH aside for a moment and just focus on one simple point.
Most investment economic analysis is devoted to forecasting the future. Unfortunately, the evidence is in...and it's clear that people can't forecast the future.
In my opinion [trying to forecast the future] is one of the biggest wastes of time, yet one that is nearly universal in our industry. Pretty much 80-90% of the investment processes that I come across revolve around forecasting. Yet there isn't a scrap of evidence to suggest that we can actually see the future at all.
For example, the last chart shows how good economists are at forecasting GDP.
Note that, year in, year out, the forecasts stay very close to the average GDP growth rate. Of course, everyone knows that the economy is cyclical, so forecasting this way is absurd. But economists simply have no ability to forecast the turns:
And how about stock analysts? How are analysts at predicting how stocks will do over the next year?
Terrible. See the middle chart above!!
Analysts just pick targets that are close to the average annual return for the average stock in recent years--then cross their fingers and pray. Of course, stocks are cyclical, too. And once again, analysts have no ability to call the turns.
My comments: Now, you see those called analysts are working for their own company best interest. They are not doing the prudent job to advise or give good idea to us. Period. Also, look at the very first chart I post above. Now, we are at reflective wave. What do you think?
One of every 10 American workers will be without a job by early 2010, economists project, shaking the confidence of those still on payrolls and discouraging spending. It may take as long as 15 years for consumers to fully repair finances battered by the decline in home values, stocks and employment, said Edmund Phelps, winner of the Nobel prize in economics in 2006.
Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year’s first quarter, according to figures from the Fed.
“Households are going to have to do an awful lot of rebuilding of their wealth,” Phelps, a professor at Columbia University in New York, said this week in an interview on Bloomberg Television. “Even if that rebuilding goes on at a pretty good clip, it will take 12 or 15 years for households to get to the wealth level that they had several years ago. Consumer demand is going to take a long time to rebuild to normal levels.”
My comments: It is just opinion by Nobel Prize economist. However, it does make very sense. Just ask yourself, do you spend less compare the time you were one or two years ago?! And, are you going to increase your spending on coming months?! I guess you all know the answer.
8/6/09 Recent polls by Bloomberg and a Shadow MPC report calling for an end to QE from the Bank of England are way off the mark with the Bank of England announcing this morning that not only will they extend the QE programme, but also double the expected GBP25B addition to GBP50B. This takes the total programme to GBP175B. The MPC has said that the world economy remains in recession, despite increasing signs that the output in the UK’s export market is stabilizing, and that financial markets are still fragile even with noticeable improvements. This has weighed tremendously on Sterling across the board, and could very well set the tone for the day. Rates were left unchanged at 0.50% as expected.
My comments: Wow. Bank of England is increasing the failed move again to put addition money into qualitative easing. That act is telling everyone that they are still in very very bad shape. Also, their view of the world economy is still remains in recession. Will next week our US Fed would catch on the same conclusion? Should we reduce the QE or follow England?? I would say Fed has to keep what they are doing(Even though I think it is not working well), there no interest rate adjust until next year(Actually, I would say they never have a chance to consider to raise interest rate again). They will keep purchase government bonds period!!
Recently, I have been putting lots of effort into creating video chinese blog site. Therefore, I wrote less technical stuffs here. The following is catching my attention: ..
Putting aside price charts of the Chinese equity market for now and turning to monetary measures, we can see something rather alarming happening. China’s M2 has enjoyed a constant rate of acceleration as shown in the chart below (in semi log scale). But in late 2008 the rate of acceleration suddenly increased dramatically:
This was a consequence of the massive stimulus plan put into motion by the Chinese government. They pumped unprecedented amounts of liquidity into their economy to offset the world-wide economic slowdown. There would be nothing singularly alarming about that since all central banks around the world, as well as governments in charge of fiscal policy, have orchestrated a collective burst of activity.
What is alarming is that the Chinese economy, stock market and especially real estate market are just now displaying bubble-like characteristics. The government controlled banking sector is a mystery wrapped in an enigma. No one can begin to fathom the amount of non-performing loans on the books. Unlike the US which went through a gut wrenching cleansing - thanks to the largess of the lobby-less taxpayer, the financial sector is once again back in fighting shape (privatized profits, public losses). China has yet to address their toxic assets
As we briefly touched on before, since last year’s low the Shanghai market has now appreciated more than 100%. Once again the stock market has enthralled the average person in China with thoughts of wealth and the possibility of making more in a month than what they earn in a year at their regular job. Speculation in the market is seen as not only a legitimate way to make money but a very lucrative one with low barriers to entry.
A sure sign of a bubble is extreme turnover. Recently, the total Chinese stock market turnover (in one day) reached $63 billion. That’s more than the combined total turnover of $58 billion in London, New York and Tokyo for the same day!
I know we’ve been having an especially humdrum summer (in volume) but also consider that within the $58 billion turnover are billions of dollars worth of Chinese shares and ETFs (traded on North American exchanges).
Morgan Stanley Asian economist, Andy Xie says in a recent research report: “The stock market is in a final frenzy again. The most ignorant retail investors are being sucked in by the rising momentum.”
Turning to the real estate market, there is more bad news. The two rock solid methods of real estate valuation: personal income to price ratio and rental yield to price ratios are beyond extreme.
Although the US per capita income is approximately seven times that of China’s urban per capita income, the price per square feet is almost equal. Rental yields on properties is negligible with most below inflation levels - meaning that the primary rationale for buyers is continued future price appreciation not future rents earned.
Like other bubbles, this will end very badly. That is for certain. What isn’t certain is when exactly the music will stop.
One clue may be the date that many in China are eyeing as the expiration date of a Chinese government underwritten put option: October 1st, 2009 - the 60th anniversary of the National Day of the People’s Republic of China. The general belief is that the government will do everything in its power to not ‘lose face’ before that date so as to not mar the celebration. Of course, whether this is true or not is irrelevant. All that matters is that enough believe it to be so.
The reason I spend so much time thinking and writing about the Chinese economy and financial markets is that they are now a significant part of the global landscape. The precarious nature of this fragile recovery is even more clear when we realize just how pivotal a role China plays. Unless the rest of the world can recover fast enough to back on its feet before China’s bubble bursts, this could get ugly.
You can play this with obvious Chinese ADR shares like Baidu (BIDU) which does a very good job of tracking the Shanghai Stock Exchange composite with an added beta boost. And you can also use Chinese ETFs and closed end funds like the iShares FTSE/Xinhua China 25 (FXI).
My comments: Oooopps!! It is warning sign now. Yes, if you see something rate of speed going up like crazy..like chinese stock market. You know there is something burning. Let's watch out, folks!!
The following news is no surprise to everyone in America:
(AP) The post office says it lost $2.4 billion from April to June.
That brings the year's losses so far to $4.7 billion. And the Postal Service expects to be $7 billion in the red when the fiscal year ends on Sept. 30. The stark figures come from a decline in mail volume as people rely more on e-mail, plus a dip in advertising mail because of the recession.
In an effort to reduce costs, the agency has proposed closing several hundred local post offices, has asked Congress for permission to reduce mail delivery to five days a week, and has reduced hours at many offices.
My comments: Well, I guess we will expect huge layoffs from Postal Office. Anyone like to guess how many postman will be out of job before 2010? 10,000, 20,000 or even 30,000 ? I do not see any recovery at my sight for our economy. Even no job growth in Federal government and they are coming about to layoff big time. Mr President: Where can we find the jobs you keep saying or stop eliminating?? Where,...I still do not see it. Do you see any, folks?!
Without FDIC’s debt guarantee program, even impregnable Goldman would have collapsed.
And this excludes the emergency, opaque lending facilities from the Federal Reserve that also helped rescue the big banks. Without all these bailouts, the financial system would have been forced to recapitalize itself.
Banks that couldn’t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder’s equity. With $7 billion at stake, Buffett is one of the biggest of these shareholders.
He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.
All of what Winkler says is undoubtedly true, though we think Winkler is probably overstating the case a bit. At some point, we'll have to get over the idea that anyone who was rescued during a bank run is stained for the rest of their existence. If these banks all repay the TARP and roll over their government-backed debt into non-government backed debt, does it make sense to keep complaining that during a crisis they had to be rescued.
What's more, Buffett himself did not need a rescue. Sure, he benefitted from the government's intervention, and it's also true that Berkshire Hathaway (BRK) by being too big to fail had implicit backing from the government, if it ever came to that, but it didn't, and we still maintain that the fact that since nobody's found a timebomb lurking in side Berkshire somewhere -- when nearly every other financial company had one -- is a testament to the fact that he's practiced, more or less, what he's preached.
My comment: Hey, no wonder he does asking people buying stocks when Dow is trading at 9,000. When would be my turn to get bail out by goverment?!
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