Mean: 16.38
Median: 15.76
Min: 4.78 (Dec 1920)
Max: 44.20 (Dec 1999)
Looks expensive to me now. If stocks were to revert to mean, either earnings go up 40% or stocks go down 40%. Let's just take the middle path to be neutral. That’s at least a 10% downside to go.
Current S&P 500 Dividend Yield: 1.78%
Mean: 4.35%
Median: 4.29%
Min: 1.11% (Aug 2000)
Max: 13.84% (Jun 1932)
Low dividend yield states that investors are betting on capital appreciation instead of dividend returns. Doesn’t bode well. The last time it went that low was in year 2000.
Current Treasury Bond Rate: 3.41%
December 23, 2010
Mean: 4.69%
Median: 3.84%
Min: 1.95% (Jan 1941)
Max: 15.32% (Sep 1981)
The 10 year treasury bond rate is higher than dividend yield. This is the risk free rate. Investors would probably prefer to park money here than take risk in stocks in medium term.
Current Inflation Rate: 1.14%
(November 2010)
Mean: 2.41%
Median: 2.48%
Min: -17.19% (Jun 1921)
Max: 21.24% (Jun 1920)
Interest rates will remain low, in line with Keynesian liquidity trap theory. People are not spending as they have low confidence in the economy. That’s for sure if every 10 people you meet, one is unemployed.
Current Unemployment: 9.80%
November 2010 unemployment rate — published December 05, 2010
Mean: 5.71%
Median: 5.60%
Min: 2.50% (Jun 1953)
Max: 10.80% (Dec 1982)
Needless to say, spending in US is struggling now. GDP really need to grow by another 3%-4% to bring down unemployment.
If there are reasons to be bullish on the US economy, I will really love to hear.
14 comments:
One more reason: USD is a depreciating asset
US stocks =/= US economy.
There are many S&P stocks which are really tied around the fortune of the world economy at large
So little cupid, so that's an unequal sign?
That said, US is still the largest economy in the world at US$14 trillion, which is much larger than China US$ 4.9 trillion and Germany US$ 3.3 trillion combined.
short term likely to go up ( 6 months )
We could say that asset prices will pushed up just due to too much money chasing too few assets...
Betting on this.
Take it as a Bluffer's viewpoint on this topic. For the record, I am vested in US shares.
Why I will hold US shares?
-US shares are very liquid. Look at how it blinks on the screen, compared to SGX stocks. It is easier to enter and exit. Local shares have too many prop desk and syndicates relative to the liquidity. Your trades are closely monitored.How often have you entered a stock, only to have the buy/sell queue react instantaneously to your order, as if there is a spy behind you?
-US economy is showing signs of picking up; housing is the last criteria that needs to be fulfilled while jobs numbers have to strengthen. The economic news in the USA has been so horrendous that a lot has been factored in the prices. I am just waiting for USA property to pick up.
-Like it or not, USA is the sole superpower currently. All roads lead to NY, at least for the next 10 years. Look at 1890s London and 1930s NY, whoever is the first class Great Power at that time, all the money will be awash there. I believe when the whole world wants to buy stocks, the first market to benefit is NY.
-Euro crisis. If you think USD is weak, look at the Euro. The destiny of the Euro is questionable. The fundamental weakness of Eurozone weaken the European coys there. That's another story to debate about. My point is with this Euro crisis, USA market is relatively safer.
-The hot money that is pouring into Asia now distorts the fundamentals of its economies. Very much like days when Ireland was able to get super cheap financing to build offices and Spain was able to build many monuments over a few years. The economic news in Asia my be rosy now. I won't be surpised if we get a Greek style crisis in Asia in a few years time. While it may seem distant, I don't wish to be holding the baby in Asia when it happens.
-While it is true that the US indices are showing very high ratios, I think we may have to factor in the record cash stockpiles that the companies hold. PE ex cash may bring the ratio down to more attractive levels. Also,dividend payout ratios may rise; that may make the stocks relatively more attractive than in the past, thus widening the historical channel of the PE ratio.
-Also, due to the QEs, the required rate of return has been lowered; thus stocks may demand a higher PE valution compared to historical data.
-The US market holds a lot of global brands. Why buy a Hi-p when you can buy RIM or a MOT; why buy Venture when you can buy HP? Why buy DBS when you can buy BAC? There are stronger and more global companies in NYSE compared to those in SGX.
Some pointers that I anyhow shoot with a pitch of salt. Nice to see you writing again this month, Singapore Blue Chips.
Fair point DW. The thing is, when US stocks go up, Asia go up even more. Higher beta relative to US. Anyhow, I still hold SBCs, so no matter US good or bad, I still cling on to my holdings, tightly. Excellent analysis there!
If US stocks go up, there must be a lot of buying activities involved. If that were the case, we have to wonder where the money is coming from?
Either it's a shift from some risk free investment or an outflow from some other markets?
Hi Lizardo,
My personal take is if the US market rallies, this could be due to a shift away from US treasuries and bonds. As commodities rally and whips up inflation, risk appetite will grow ; investors will avoid low yield assets that give negative real returns.
Also due to the inflow of money from the American QEs and the EU QE, stocks will have to rise. An equity price squeeze upwards will result.
Coming from overseas will be SWF money. Rather than hold USD reserves or low yielding US T Bills, I believe SWFs will go to higher volatility US stock markets to negate inflationary effects and the depreciating USD. Whereas, in the past, the funds could diversify into Euro assets, the Euroland crisis has swing the pendulum back in favour of the US market.
Also, I believe the Chinese also know the imbalance in money flows cannot last forever. Chinese money is likely to trickle into the US stock markets as they snap up the US blue chips (The way they snap up SG properties)It is the only way USA will have money to pay for more Chinese goods.
SGB yes that's an unequal sign.
S&P companies take in approx 45% of revenue overseas. E.g. Coke, 80% of revenue are dervied from overseas.
I am actually quite bullish on US companies, quite in line with the reasons DW mention.
Hello.
I'm new to your blog.
I like your brief summary of America's economic situation.
Respectfully, I find a flaw in your reasoning.
- we make & lose money from investing in stocks. Not the economy.
It's the price action of the stocks you own that will determine your profits. Not the economy. So my thesis would be that we are better off watching the stockmarket than the economy.
I won't debate about whether there is any correlation between the stockmarket and the economy. Although I'd venture to say that a case could even be made that it's the stockmarket that influences the economy and not the other way around.
I could spend 10 hours analyzing Tharman's Budget speech. Or I could spend the same amount of time analyzing the stockmarket and the price action. I KNOW which of these 2 activities will make me money.
Every time I catch myself reading the news or "infotainment";
I tell myself; "It's the STOCK MARKET, stupid!"
Noted, you can make money in Japanese stocks if you are good too. But with their economy at this state, will you put money in it?
Dear SgBluechip.
And that's the whole point.
YES. I would invest in the Japanese stock market if;
a. the Japanese stock market is going up AND
b. the Japanese stock market is outperforming the Singapore stock market.
As for the Japanese economy;
c. I don't know anything about it
d. I don't think it's relevant to my decision as to whether to put money into Japanese stocks.
e. as far as I'm concerned, the economy and the stock market are two different animals.
The economy is NOT relevant in deciding what stocks to invest in.
Dear SgBluechip.
Sorry to persist on the same point.
Right now, the US stock market is outperforming the Singapore stock market.
I'm invested in USA right now, enjoying the gains while the Singapore investor is sitting out a temporary consolidation.
And when Singapore stock market starts to outperform the US stock market, I'll be back in Singapore again just like all our foreign talents.
It's all stock market action. Nothing to do with the USA economy or the Singapore economy.
Good point Peter. Stock prices move because of sentiments and future cashflow. A booming/recovering economy will definitely help to boost sentiments and increase stock prices.
I think if your current view allow you to make consistent profits, then follow it. No right or wrong in finance.
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