The Stingy News Weekly (06/03/2012)
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Low P/Es are possible when interest rates are low
"It is entirely possible for the market to trade at low ratios when rates are low. If anything the recent ratios have been high compared to past levels. If you just consider times when interest rates have dipped below 3 per cent, you'll find that Shiller's P/E has averaged 13.6. As a result, history provides even more meat for the bears because it bolsters their arguments that stocks are pricey."
A contrarian moment
"Ian Harnett of Absolute Strategy Research, a consultancy, says that European equities are trading on a cyclically adjusted price-earnings ratio - a measure that averages profits over seven years - of 11, towards the bottom of its range over the past 30 years. By contrast, the ratio for American shares is 18.1 (see chart). Wall Street generally trades at a premium to Europe but the premium today is more than three times the historical average."
Austerity and debt realism
"Aside from wringing their hands, what should governments be doing? One extreme is the simplistic Keynesian remedy that assumes that government deficits don't matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile."
Spain on the brink
"'Spain has engaged in a policy of delay and pray,' Echavarren said in an interview. 'The problem hasn't been quantified by anyone because there is huge pressure not to tell the truth.'"
Predictability of the simple trading rules
"In a true out of sample test we find no evidence that several well-known technical trading strategies predict stock markets over the period of 1987 to 2011. Our test is free of the sample selection bias, data mining, hindsight bias, or any of the other usual biases that may affect results in our field. We use the exact same technical trading rules that Brock, Lakonishok and LeBaron (1992) showed to work best in their historical sample. Further analysis shows that this poor out-of-sample performance most likely is not due to the market becoming more efficient - instantaneously or gradually over time - but probably a result of bias."
Making no cents
"Inflation killed the farthing just as it has killed the Canadian cent. Small coins are living on borrowed time once they become useless for buying individual items. A single penny could buy the first British postage stamp, the Penny Black, in 1840 and was still sufficient to buy a small ice cream for a short-trousered Buttonwood in the late 1960s. Nowadays you would struggle to find a humble ice lolly selling for less than a pound."
Equity cult still dying
"Since then, two 50% bear markets have taken their toll. On our measures, the equity cult is now dead in continental Europe and Japan. It is looking decidedly unhealthy elsewhere. A bond cult has risen in its place."
A run they cannot stop
"It's been a week since shares in Bankia plummeted on reports, later denied, that customers were pulling deposits out of the Spanish lender. Fears of a full-scale bank run in Greece have not yet materialised. But the possibility of a deposit run in Europe's peripheral states is still very much alive. It is also the thing that policymakers are least prepared for."
Information suppression in competitive markets
"Following Becker (1957) we ask whether competition eliminates the effects of behavioral biases. We study products with add-ons. In competitive markets with costless communication, Bayesian consumers infer that hidden prices are likely to be high prices. Hence, firms choose not to shroud information. However, information shrouding may occur in an economy with some myopic consumers. Such shrouding creates an inefficiency. Sometimes firms have an incentive to eliminate this inefficiency by educating their competitors' myopic consumers. However, if add-ons have close substitutes, a"
'Fair and square' pricing? That'll never work
"Sounds like a sales pitch aimed at consumer advocates and collectors of fine print frustration, like me. As it turned out, it was a sales pitch that only a consumer advocate could love. Shoppers hated it."
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