EUCOM Economic Analysis - Part I

[Firn]

@Surferbeetle:Greece reminds me a bit about the following canzone di Faber. The male fatto in un ora was done over many years but to some extent I fear the lyrics mirror the feelings of many Greeks...

Anyway your point about the inflation is a rather interesting one. So far the massive injection of liquidity has not quite the impact on inflation, clearly due to lack of demand having caused the famous liquidity trap. How long and how strongly it will remained trapped is a key question...

Unternehmensanleihen - Das Beste ist vorbei raises a very important aspect. While bond yields of great companies hit massive heights during the big downturn and financial crisis pushing me to acquire some, but sadly due to the lack of trust into my intellectual judgment, too few, the are now at an almost historic low.

I shifted in the last quarter increasingly from bonds into stocks after considerable thought, aided by Graham. The yield of those German enterprises is around 2%, while the dividends of them should be a tad over 4%. At least the Euro Stoxx 50 pay out roughly 50% of their earnings out to the shareholder so they should earn roughly between 8-9% on the invested capital. Of course it is difficult to know the true owner's earning or the respective ROIC, the return on the owners invested capital.

The Graham/Dodd or Shiller P/E (present price/earnings of the last 7 or 10 years) were also with 11 or 12 at that time IIRC quite attractive. The liquidity is massive but not so much in stocks and despite the troubles in the economy and the markets I thought the margin of safety offered by me with the prices of Mr. Market was quite good.

To sum it up why should I now invest into bonds when I can get at low prices shares of mostly great enterprises earning me roughly 5% more on my capital? It is a businesslike investment which resulted to the recent ralley in considerable speculation gains on paper. We will see how things go on, but as long as enterprises to so well I don't know why I should sell them anytime soon.

P.S: It is interesting that Ben Graham uses very similar words to Ludwig Beck when talking about the importance of trusting a personal judgement and acting on it after a careful and intelligent use of the grey cells. No wonder that I try to limit my ambitions

[Surferbeetle]

Firn,

Appreciate your latest well thought out (and thought provoking) post, i will get back to it later this weekend when there is more time and i can focus the sole braincell that i have left. Until then here are a few placeholders that i will try and cover at that time:

• A Japan Scenario for the rest of the western world

• Target2 Imbalances

• Foreign Direct Imports

• Sector Analysis

• Can stocks be thought about as the present value of expected cash flows?

• Screening Criteria/Growth at a Reasonable Price/Growth/Value/Technical Metrics

• P/E ratio's...how are earnings calculated?

• Currency Exchange Rates/ADR tracking gaps

[Firn]

Interestingly when I reread "The intelligent investor" Graham makes in Chapter 20 the same case, which I must have internalized, about 1972 bond and stock market.

Assume in a typical case that the earning power is 9% on the price and that the bond rate is 4%.; Then the stockbuyer will have an average annual margin of 5% accruing in his favor. Some of the exess is paid to him in the dividend rate; even though spent by him it enters into his overall investment result. The undistributed balance is reinvested into the business for his account [Ideally increasing the future earnings, intelligent buy-back of stocks].

Earning power or earning yield are very roughly the inverse of the price/earning ratio. Of course it just a facet and the book earnings don't tell the whole story and Graham used additional means to screen stocks and analyse enterprises.

I forgot to mention just high the price of some older bonds is right now to get to as such low overall yield. It is indeed a liquidity flight into the perceived safety of good enterprise bonds. A good deal of that big Bertha liquidity was also key to bring down the spreads on PIS gov. bonds.

Worldwide the corporate bonds seem to close in on the historic low:

The potential for issuance to continue surging is strong as companies seek to refinance debt at extremely low cost.

The Barclays index only needs a slight nudge to hit a record-low yield. The index finished Monday at 3.37% -- a six-month low and just one basis point away from the all-time low set on Aug. 4, 2011. The index dates back to 1973.

Basically it should get even better for shareholder, as the companies into which they are invested have to pay considerably less interest. How could I forget to add that point in the first place.

[Surferbeetle]

I shifted in the last quarter increasingly from bonds into stocks after considerable thought, aided by Graham. The yield of those German enterprises is around 2%, while the dividends of them should be a tad over 4%. At least the Euro Stoxx 50 pay out roughly 50% of their earnings out to the shareholder so they should earn roughly between 8-9% on the invested capital. Of course it is difficult to know the true owner's earning or the respective ROIC, the return on the owners invested capital.

Firn,

Keeping mind that i am only a small beer retail guy (I track and work in a small 'universe' of stocks with small amounts of money that is 'disposable'), went from investing (~3-5 year horizon) to tactical trading (~2% profit/loss on principle risked) in January with a small portfolio. Booked a years worth of profits in Feb.

Today's a bloodbath in the Euro financial sector's exposed to Greece, FDI into the Euro industrials (and the 'promised' delivery of future dividends) is not happy, and the euro is down.

Massive amounts of risk and uncertainty out there as we close in on the 8th of March (Athens threat to bond holdouts, By Richard Milne and David Oakley, Last updated: March 6, 2012 5:40 pm, Financial Times, www.ft.com)

Sell when the angels sing, buy when the blood runs in the streets?

[Firn]

Firn,
Sell when the angels sing, buy when the blood runs in the streets?

This month there won't be any personal buying or selling until the trend gets more bloody. In the latter case it might be worthwhile. Of course nobody knows the future as it has that nasty habit of being unpredictable, that is why one should prepare for it. I have already a list of bonds up I would shift in that case, depending of course on their price.

The economic situation is as it is and the stock market won't have a big impact on that in the short term. All we can do is to make the best of it and look now on then if there are any new threats or chances for the dear money.

In the end I'm completely confident that in the long term the investment will pay off. Fear has already been my dear friend in the past as well as the angels singing, considering that despite my often glaring omissions my portfolio advanced in the last 7 years a bit over 50% while the Euro Stoxx 50 lost IIRC over 10%.

On a big sidenote I really hope that Europe will grow again, it is just painful to see so many young people out of work in many regions. So much productive power, so much hope lost there. Puts things into perspective.

[Firn]

More on the flight into safety by some desperate liquidity.

Bund zahlt Anlegern so niedrige Zinsen wie noch nie

Der deutsche Staat kommt so billig zu Geld wie noch nie. Bei der Emission von Staatsanleihen mit fnfjhriger Laufzeit fiel der durchschnittliche Zins auf 0,79 Prozent, teilte die mit dem Schuldenmanagement des Bundes beauftragte Finanzagentur am Mittwoch mit. Noch nie fiel die Rendite bei einer Versteigerung in dieser Anleihenklasse so niedrig aus. Das alte Rekordtief lag bei 0,9 Prozent und wurde im Januar erreicht.

Trotz der niedrigen Rendite hatte der Bund keine Probleme, Geldgeber zu finden. Die Aufstockung der Bundesobligationen splte gut 3,3 Milliarden Euro in die Staatskasse, sie war 1,8-fach berzeichnet. Das war unter dem Strich eine sehr gute Auktion, sagte Analyst Michael Leister von der DZ Bank.

0,79% yield for 5 year bundesanleihen, we are really witnessing financial history.

Pil in calo. E la cassa integrazione vola

L'economia frena, la cassa integrazione decolla. Il Pil nell'Eurozona calato dello 0,3% nel quarto trimestre 2011, cos come quello della intera Ue a 27. In Italia il calo si conferma pi sensibile della media Ue: -0,7% nell'ultimo trimestre dello scorso anno. il dato della seconda stima resa nota da Eurostat che conferma i dati preliminari pubblicati lo scorso 15 febbraio. Nel confronto su base annuale, ovvero rispetto al quarto trimestre del 2010, il prodotto interno lordo della Ue-17 risultato aumentato dello 0,7%, quello dell'Italia invece calato dello 0,5%.

Unsurprisingly bad news from the Italian economy, the last decade was a terrible one in part thanks to a bald man. We have really suffered quite a bit more then many other EU member states. Let us hope that we finally will have true reforms able to tap into the many, mostly human ressources of this country.

[Surferbeetle]

Firn,

Thought this might be of interest as we consider the importance of growth (aka nation building in some circles); I do not see the issues as being limited to America.

Special Report: Restoring US Competitiveness, Harvard Business Review, March 2012

Why U.S. Competitiveness Matters to All of Us
by Nitin Nohria

The Looming Challenge to U.S. Competitiveness
by Michael E. Porter and Jan W. Rivkin

WORKFORCE
A Jobs Compact for America's Future
by Thomas A. Kochan

A Warning Sign from Global Companies
by Matthew J. Slaughter and Laura D'Andrea Tyson

Rethinking School
by Stacey Childress

STRATEGY
Choosing the United States
by Michael E. Porter and Jan W. Rivkin

Does America Really Need Manufacturing?
by Gary P. Pisano and Willy C. Shih

How to Make Finance Work
by Robin Greenwood and David S. Scharfstein

POLICY
Macroeconomic Policy and U.S. Competitiveness
by Richard H.K. Vietor and Matthew Weinzierl

Reviving Entrepreneurship
by Josh Lerner and William Sahlman

Green Rules to Drive Innovation
by Daniel C. Esty and Steve Charnovitz

CONTEXT
The Incentive Bubble
by Mihir Desai

Fixing What's Wrong with U.S. Politics
by David A. Moss

Enriching the Ecosystem
by Rosabeth Moss Kanter

...and here is a quick internet drive-by on some of the topics I am thinking about with respect to my equity selection and trading:


• A Japan Scenario for the rest of the western world

After half a century of trade surpluses, Japan is now in deficit, Jan 14th 2012 | from the print edition, The Economist, http://www.economist.com/node/21542794

Deficit in current account biggest ever, Friday, March 9, 2012, Japan Times, http://www.japantimes.co.jp/text/nb20120309a1.html

• Target2 Imbalances

What is the meaning of TARGET balances?, By Silvia Merler on 29th February 2012, Bruegel, http://www.bruegel.org/blog/detail/a...rget-balances/

Debate on Target 2, Bruegel, http://www.bruegel.org/debate-on-target-2

• Foreign Direct Investment

Inward Foreign Direct Investment from the rest of the world, Eurostat

http://epp.eurostat.ec.europa.eu/por..._code=TGIBC410

• Sector Analysis

By Yahoo Finance

Industry Browser - Industrial Goods Sector - Industry List, http://biz.yahoo.com/p/6conameu.html

Industry Browser - Financial Sector - Industry List, http://biz.yahoo.com/p/4conameu.html

• Can stocks be thought about as the present value of expected cash flows?

Net present value, http://en.wikipedia.org/wiki/Net_pre...ecision_making

• Screening Criteria/Growth at a Reasonable Price/Growth/Value/Technical Metrics

Stock selection criterion, http://en.wikipedia.org/wiki/Stock_selection_criterion

Trend following, http://en.wikipedia.org/wiki/Trend_following

• P/E ratio's...how are earnings calculated?

P/E ratio, http://en.wikipedia.org/wiki/P/E_ratio

Earnings per share, http://en.wikipedia.org/wiki/Earnings_per_share

• Currency Exchange Rates

Currency pair, http://en.wikipedia.org/wiki/Currency_pair

• ADR tracking gaps

ADR Arbitrage Opportunities for Dummies, BEATRIZ AMARY OTAVIO OTTONI, http://people.hbs.edu/mdesai/IFM05/AmaryOttoni.pdf

[Surferbeetle]

Cam Penner, Rye Whiskey from the album What's Kickin

Homeric Similes And Spanish Debt, Posted on March 6, 2012 by Edward Hugh at a Fistful of Euros

“Nothing” remember, “is more hateful to wisdom (astucia) than true cleverness”, which means if you try to go rummaging round round Spain for Goldman-Sachs-style interest-rate-swaps you will almost certainly leave empty handed. Handiwork here is all much simpler, and more artesanal than that, and therein lies the beauty and the sophistocation of the thing.

Hence, if you are someone who is really interested in trying to answer the question about just how high the present level of Spanish sovereign debt actually is (officially it was to have been 67.8% of GDP in December, but that estimate was made before the latest set of budget deficit “revelations” and when the estimate of 2011 GDP was rather higher than it turned out to be, so it is probably nearer to 70% now, even on the official Eurostat EDP measure) you should start here, with the Financial Accounts of the Spanish Economy. The part you really need is Chapter Two the “Financial Accounts” – actually, I will add in a small but revealing personal anecdote here, since when I sent all these links off to the IMF Spanish Mission Head back in the spring of 2010 he mailed me back saying “thanks a lot” – he plainly didn’t know that this sort of thing existed., although the Spanish head of Global Financial issues for the IMF - ex Bank of Spain man José Viñals – most surely did, but he simply hadn’t seen fit to brief his colleague. As I say, this is how Spain works, you have to ask the right person the exactly right question, and make sure you don’t get sidetracked. Otherwise you will learn nothing apart from a lot of useless and most likely thoroughly misleading information.

[Surferbeetle]

Cam Penner, Walk On, from the album Felt Like a Sunday Night

Los sindicatos exhortan al Gobierno a retomar el dilogo para desconvocar la huelga general, TONI FUENTES / AGENCIAS / Barcelona, Domingo, 11 de marzo del 2012 - 17:24h, El Peridico

Ms de 450.000 personas, segn los sindicatos, y 17.000, segn la Guardia Urbana, se han manifestado en Barcelona contra la reforma laboral aprobada por el Gobierno bajo el lema Ni reforma laboral, ni recortes, una protesta convertida en un llamamiento a que la huelga general del 29 de marzo sea un xito. La manifestacin se ha celebrado al mismo tiempo en una sesentena de ciudades de toda Espaa.

Toxo: "Si el Gobierno no rectifica, habr conflicto y no terminar el da 29", MANUEL V. GMEZ Madrid 11 MAR 2012 - 14:47 CET, EL PAS

"La huelga del da 29 no es el fin de nada, que sepa el seor Rajoy que la movilizacin va a continuar alrededor de las alternativas". Este es el mensaje que el secretario general de CC OO, Ignacio Fernndez Toxo, ha querido lanzar al Gobierno al trmino de la gran manifestacin convocada en Madrid por los sindicatos. "Seor Rajoy, tiene el mes de marzo para abrir la mesa de negocio y para presentar unos Presupuestos razonables y los sindicatos estarn ah", ha agregado Toxo, quien, junto al secretario general de UGT, Cndido Mndez, ha advertido que las medidas adoptadas por el Ejecutivo para salir de la crisis no son temporales, sino "para toda la vida".

Los dos sindicatos mayoritarios han organizado 60 manifestaciones en Espaa que sirvan para poner en marcha la maquinaria de movilizacin contra la reforma laboral y de paso medir sus fuerzas para la huelga general del 29 de marzo. Segn las estimaciones sindicales, la participacin en la marcha ha sido de medio milln de personas. Fuentes policiales lo reducen a entre 25.000 y 35.000 asistentes.

Ignacio Fernndez Toxo, by wikipedia

Comienza su vida laboral como aprendiz en la Empresa Nacional Bazn de Construcciones Navales Militares S.A. (Bazn), empresa que se fusion con Astilleros Espaoles, S.A. (AESA) en julio del 2000, constituyendo la empresa Izar Construcciones Navales. En esta empresa continuar su vida laboral hasta que es prejubilado dentro del ERE iniciado por la SEPI en abril de 2005.
Durante su juventud fue militante de la Liga Comunista Revolucionaria2 y posteriormente del Partido Comunista de Espaa.

Su actividad sindical comienza en Bazn durante su etapa como aprendiz. Con 19 aos participa en la organizacin de la huelga general de Ferrol del 10 de marzo de 1972. Durante las manifestaciones la Polica Armada acorral a algunos huelguistas, entre los que se encontraba el joven aprendiz Toxo, y comenz a disparar indiscriminadamente, hiriendo a ms de 40 personas y matando a dos trabajadores de Bazn, miembros de CCOO, Amador Rey y Daniel Niebla.3 La vida sindical de Toxo, que acude regularmente a la ofrenda floral anual frente al monumento en Ferrol a los asesinados el 10 de marzo, fue marcada profundamente por esta experiencia de juventud, como se desprende de sus sucesivas declaraciones sobre los hechos.4

Como consecuencia de la huelga del 10 de marzo Toxo ser despedido y condenado a 5 aos de prisin.5 Toxo huye del penal de La Corua y pasa a vivir en la clandestinidad hasta la aprobacin de la Ley de Amnista de octubre de 1977, no obstante lo cual se presentar a las elecciones generales de Espaa de 1977, como cabeza de lista del Frente por la Unidad de los Trabajadores para la provincia de La Corua.6 Por aplicacin de la ley de amnista Toxo recuperar su empleo en Bazn, donde llegar a ser elegido presidente del Comit Intercentros de la empresa.7

En noviembre de 1987 es elegido Secretario General de la Federacin del Metal de CCOO en sustitucin de Juan Ignacio Marn,8 cargo que ocup hasta noviembre de 1995, cuando se fusionan las federaciones del Metal y de Minera del sindicato. Tras la fusin, Toxo es elegido Secretario General de la organizacin resultante, la Federacin Minerometalrgica de CCOO, cargo que ostentar hasta que en 2004 es sustituido por Felipe Lpez Alonso. En esta etapa es de destacar su defensa de la posicin sindical ante la reconversin industrial y, muy especialmente, su participacin en la organizacin de la Marcha de Hierro.9

Desde 2004 a 2008 desempe el cargo de Secretario de Accin Sindical y Polticas Sectoriales de la Confederacin Sindical de CCOO, y es miembro del Consejo Confederal y de la Comisin Ejecutiva Confederal del sindicato.
El 19 de diciembre de 2008 fue elegido Secretario General de CCOO en el 9 Congreso Confederal, sustituyendo a Jos Mara Fidalgo.10
El 18 de mayo de 2011 fue elegido Presidente de la Confederacin Europea de Sindicatos en sustitucin de Wanja Lundby-Wedin, miembro del sindicato LO de Suecia.11

Generación 'nimileurista', CARMEN PÉREZ-LANZAC Madrid 9 MAR 2012 - 17:59 CET, El Pais

Hace seis años, en agosto de 2005, una joven catalana escribió una carta a este periódico. Se titulaba ‘Yo soy mileurista’, término que ella acuñó. Carolina Alguacil tenía entonces 27 años y se quejaba de la precariedad laboral de su generación: “El mileurista es aquel joven, de 25 a 34 años, licenciado, bien preparado, que habla idiomas, tiene posgrados, másteres y cursillos. Normalmente iniciado en la hostelería, ha pasado grandes temporadas en trabajos no remunerados, llamados eufemísticamente becarios, prácticos (claro), trainings, etcétera. Ahora echa la vista atrás, y quiere sentirse satisfecho, porque al cabo de dos renovaciones de contrato, le han hecho fijo (…) Lleva tres o cuatro años en el circuito laboral, con suerte la mitad cotizados (...). Lo malo es que no gana más de mil euros, sin pagas extras, y mejor no te quejes. No ahorra, no tiene casa, ni coche, ni hijos, vive al día. A veces es divertido, pero ya cansa (...)”. Releer hoy aquella carta deja un sabor amargo. Porque evidencia que se ha retrocedido. El mileurismo ha dado paso a una versión aún más precaria de sí mismo, el nimileurismo. “Antes éramos mileuristas y aspirábamos a más. Ahora la aspiración es ganar mil euros”, resume la propia Alguacil, que estudió Comunicación Audiovisual, es autónoma y se ha mudado a Córdoba. “Ni mucho menos me imaginaba yo entonces que la cosa iba a ir a peor”. Ella ya no es mileurista, pero no cree que gane lo que debería: “No me conformo”.

En España viven 10.423.798 personas de entre 18 y 34 años. Al igual que Pedro, reman contra los elementos y un mercado laboral menguante mientras los ya viejos problemas empeoran y se alimentan: salarios precarios, paro de larga duración, sobrecualificación, tardía emancipación, fuga de cerebros… Su ingreso medio neto (incluyendo a los parados), es de 824 euros al mes. Y los que están trabajando, ganan de media 1.318 euros mensuales (datos del Consejo de la Juventud de España). Profesiones que parecían a salvo del mileurismo, ya no lo están. La Politécnica de Valencia siguió los primeros pasos laborales de ingenieros y arquitectos que se licenciaron en 2008: uno de cada cuatro no llegaba a mileurista. Y lo que es más grave: el nimileurismo había avanzado un 8% respecto a los graduados un año antes.

Ante la falta de expectativas, muchos cerebros de la generación mejor preparada siguen haciendo las maletas, protagonizando una fuga de cerebros “sin precedentes”, en palabras de Fátima Báñez, ministra de Empleo y Seguridad Social. Según el último eurobarómetro de la Comisión Europea, un 68% de los jóvenes españoles está dispuesto a marcharse de España; un 36% por un plazo limitado. Y un 32%, por mucho tiempo. Sólo cinco países —de 31 encuestados— nos superan: Islandia, Suecia, Bulgaria, Rumania y Finlandia.

Youth on the move, Flash Eurobarometer, Fieldwork January 2011 (A Gallup poll with 30309 respondents)