Hussman & Hester vs Wall Street Finest.......

Once more brilliant "Anti Spin" & almost a rant from the usually polite Hussman.....Spot on with my take Of Course It Is Still A Good Time To Buy, Buy, Buy..... when it comes to Wall Street Finest.....

There maybe are legitimate reasons to buy stocks, but a favourable opinion from "Wall Street Finest" should definitely not play any role among your screening process .... Except you use them as a "contrary indicator".... ;-)

Einmal mehr deutliche Worte vom ansonsten doch recht zurückhaltenden Hussman....Eine erstklassige Ergänzung zu meinem früheren Posting Of Course It Is Still A Good Time To Buy, Buy, Buy.....

Grundsätzlich mag es ja durchaus gute Gründe die für Aktien sprechen geben, man sollte aber sicherstellen das die Einschätzungen der "Experten" beim Auswahlprozess keinerlei Rolle spielen....Es sei denn man nutzt sie als Kontraindikator.... ;-)

H/T Randy Glasbergen Collection

Misallocating resources John Hussman

On a valuation basis, the S&P 500 remains about 40% above historical norms on the basis of normalized earnings. The disparity between our valuation assessment and the putative undervaluation being touted by Wall Street analysts is so great that a few remarks are in order. First, virtually every assessment that "stocks are cheap" here is based on the ratio of the S&P 500 to year-ahead operating earnings estimates, and often comes with a comparison of the resulting "earnings yield" with the depressed 10-year Treasury yield. What's fascinating about this is that this is the same basis on which analysts deemed stocks to be about 40% undervalued just prior to the 2007 top, following which the market plunged by more than half.

To properly understand the price-to-forward operating earnings ratio, you have to recognize that operating earnings exclude a whole host of charges - what some observers correctly call "recurring non-recurring" charges. These include large and often quite regular losses that the companies deem, often on the thinnest basis, to be detached from their core business - even if the losses are directly related to their core business.

More on this topic in "Reported Earnings vs Operating Earnings"

Mehr zum Thema in "Reported Earnings vs Operating Earnings"

When you hear analysts say that the historical average P/E ratio is about 15, you have to recognize that this is the normal P/E based on trailing 12-month earnings after subtracting all writeoffs and other charges. Forward operating earnings are invariably much higher, and it turns out that the comparable historical norm, as I discuss in that 2007 piece, is only about 12. If you exclude the late 1990's bubble valuations, you get a historical norm closer to 11.5. The 1982 and 1974 market lows occurred at about 6 times estimated forward operating earnings

A final observation is crucial. Current forward operating earnings estimates assume profit margins for the S&P 500 companies that are nearly 50% above their long-term historical norms. While we did observe such profit margins for a brief shining moment in 2007, profit margins are extraordinarily cyclical. Investors will walk themselves over a cliff if they price stocks as if profit margins, going forward, will be dramatically and sustainably higher than U.S. companies achieved in all of market history.

They also ignore the large percentage of reported earnings that are actually quietly distributed to corporate insiders through the issuance of stock and options.

They blindly accept that "share repurchases" are somehow a pleasant distribution of earnings, whereas the majority of share repurchases are actually made by companies to do nothing more than offset the dilution from stock shares and options granted to insiders.

A good question to ask in the years ahead, immediately after profits are reported, is "how much of this figure is actually delivered to shareholders?" If you've been attentive over the past decade, the answer turns out to be much closer to the dividend yield than to the operating earnings yield that companies have reported.

For a moment, at least, it is good to be a corporate insider, particularly at major financial companies.

First, you get to report productivity gains and "operating profits" - not by making smart investments in productive assets, but instead by writing up debt thanks to Treasury intervention, by misstating your balance sheet thanks to FASB changes last year, and at industrial firms, by cutting the number of workers per unit of capital.

Next, you quietly write off large losses on bad investments and unrecoverable loans as "extraordinary expenses," to which investors pay no notice.

And to add insult to injury, you deliver a significant portion of the remaining profits to yourself as "incentive compensation," followed by buybacks of stock to offset the dilution, which investors actually cheer because they don't realize they've been taken for suckers.

Wall Street Earnings Expectations Ignore Economic Divergences Bill Hester / Hussman Funds

The graph below attempts to contrast the erosion in the global PMI indexes against the rising optimism of stock analysts.

Six series of data are plotted: the changes in earnings expected for the companies in the S&P 500 and the Euro Stoxx Index, and four PMI indexes for the US, the Euro area, Germany, and China. Each of the series is indexed to 100 in April, the month where most of the PMI data peaked.

Now take a look at the Chart showing the period between 2007 and 2008 using the same indices.... I highly recommend to read the entire links.... There is much more.....

Hier zum Vergleich der identische Chart für die Zeit von 2007 bis 2008...... Empfehle die kompletten Links zu lesen... Wie üblich findet man dort noch deutlich mehr "Anti Spin"......

UPDATE:

RARE INTERVIEW WITH JOHN HUSSMAN: WHY HE IS BEARISH RIGHT NOW PragCap

Stocks Expected To See 12% Increase In Revenues In Q2, 41% Increase In EPS, And A Summary Outlook From Rosenberg ZH

As for all of 2010, the consensus is at $82 operating EPS, and for a new record to be reached in 2011, at $96 — breaking the record of $88 three years ago. Good luck in seeing a further 30% increase in profits with nominal GDP rising at a 3.0-4.0% annual rate at best in the next six quarters and at a time when margins are already back to cycle peaks.

For the full John Hussman archive visit the blogroll.....

Für eine komplette Auflistung der gesammelten Werke von Joghn Hussman bitte Blogroll beachten.....

Tony Dwyer Is Not Alone..........Of Course It Is Still A Good Time To Buy, Buy, Buy.....

What a "surprise"......Keep the following stats in mind when the daily spin "stocks are cheap on forward pe´s" is hitting the MSM... If you want to hear the "rationale" for a 2000 S&P target in 2013 visit Tony Dwyer & his "brilliant playbook" UPDATE: A guy named Altucher is almost as good It's Not a 'V', It's Even Better, Look for New Highs by 2012 .... There maybe are legitimate reasons to buy stocks, but a favourable opinion from "Wall Street Finest" should definitely not play any role among your screening process .... Except you use them as a "contrary indicator".... ;-)

Welch "Überraschung"......Behaltet die nachfolgenden Daten im Hinterkopf wenn es wie tagtäglich in den Medien und auch der Fachpresse gebehtsmühlenartig wieder heißt "das Aktien auf Bewertung der 2011er Gewinne günstig sind"..... Ein eindrucksvolles "Schauspiel" in dieser Disziplin bietet Tony Dwyer mitsamt seinem "brillianten Playbook" für sein 2000 S&P Ziel im Jahr 2013 UPDATE: Dieser Typ ist mindestens ebenbürtig It's Not a 'V', It's Even Better, Look for New Highs by 2012..... Grundsätzlich mag es ja durchaus gute Gründe die für Aktien sprechen geben, man sollte aber sicherstellen das die Einschätzungen der "Experten" beim Auswahlprozess keinerlei Rolle spielen....Es sei denn man nutzt sie als Kontraindikator.... ;-)



Bespoke

Bloomberg surveys sell-side Wall Street strategists on a weekly basis for their year-end S&P 500 price targets. At the start of 2010, the average year-end S&P 500 price target was 1,225, which would have been a gain of just about 10%. As markets moved higher in the first quarter, strategists upped their year-end targets, and the current average target stands at 1,268. (In the table below, green shaded price targets are ones that have been increased so far this year. No strategists have lowered their targets since the start of the year.) A target of 1,268 translates into a gain of 13.68% for the year and 16.48% from current S&P 500 levels.

There are no strategists with year-end targets that are lower than the index's current levels.

Analysts Projecting 27% Gain in S&P 500 Defy El-Erian Bloomberg

Combined price estimates from more than 2,000 forecasters tracked by Bloomberg show the S&P 500 will rise 27 percent in the next year, the fastest projected rate since February 2009, data compiled by Bloomberg show.

The rally above 1,350 will be led by industries most tied to the economy, according to analysts who boosted individual share projections by an average of 0.9 percent in May, the 14th straight monthly increase.

Should analysts’ forecasts for a 27 percent gain in the S&P 500 come true, the gauge would climb to 1,360 by next May, the highest level since June 2008.

The real story here are not the S&P 500 targets from the "strategist" but that they have managed to increase the target since the beginning of the year.... Despite events like the Flash Crash ( "Cancel All Orders, Cancel All Orders....." ), "minor headwinds" when it comes to Sovereign Debt,China , for US companies an unfavourable strong $ , impact from the "Oil Spill" on drillers & still insolvent Banks it´s fair to say that ROSE COLORED GLASSES are still a must have item among way too many among "Wall Street Finest"... ;-)

Die eigentliche Botschaft sind nicht die angegebenen Kursziele, sondern vielmehr die Tatsache das diese trotz einiger unschöner Ereignisse die vermehrt seit Jahresbeginn aufgetaucht sind wie dem sog. Flash Crash ( "Cancel All Orders, Cancel All Orders....." ), "minimalen" Problemen wenn es um Sovereign Debt,China den für US Firmen ungünstigen "starken $" , seit dem BP GAU die Probleme der Ölförderer & die immer noch bemerkenswert schwachen Banken geht, munter fleissig angehoben worden sind..... Denke es ist keine Übertreibung zu sagen das eine ROSAROTE BRILLE unter etlichen von "Wall Street Finest" noch immer zur "Standartausrüstung" gehört.... ;-)

I´ll let "Mr. Anti Spin" David Rosenberg du some further "bashing"..... Do yourself a favour & subscribe to his free DAILY REALITY CHECK... SUPERB!

Überlasse es "Mr. Anti Spin" David Rosenberg noch mehr Wasser in den Wein zu gießen....Empfehle allen sich frei Haus die tägliche Dosis Rosenberg zu genehmigen....

"It’s also fascinating to read the “Ahead of the Tape” column in the WSJ today and to read about the fabulous earnings performance of U.S. companies — a revival built on a weak U.S. dollar, accelerating global growth, fiscal stimulus and a steep yield curve.

Meanwhile, the consensus has just now gone ahead and projected peak earnings for 2011 just as each of these main crutches are reversing course."

AMEN....

McKinsey: Equity Analysts Are Still Too Bullish via Barry

Moreover, analysts have been persistently overoptimistic for the past 25 years, with estimates ranging from 10 to 12 percent a year, compared with actual earnings growth of 6 percent.

Over this time frame, actual earnings growth surpassed forecasts in only two instances, both during the earnings recovery following a recession. On average, analysts’ forecasts have been almost 100 percent too high.”

This chart completes the not so glory picture when is comes to the credibility & reputation from "Wall Street Finest".... If you have the "guts" to read the "rationale" behind Goldmans bullsih call you should read Goldman: "We Raised S&P 500 EPS Estimates Despite Worst May Performance In Almost 50 Years"

Dieser Chart paßt hervorragend ins Bild unm das das wenig glorreiche Bild abrunden....Für alle die die Nerven haben und wissen möchten auf welchen "Modellen" die Schätzungen von Goldman basieren Goldman sollte Goldman: "We Raised S&P 500 EPS Estimates Despite Worst May Performance In Almost 50 Years" lesen....

UPDATE:

Profit-Margin Outlook for U.S. Is ‘Extremely Bad’: Chart of Day Bloomberg

Best Stocks Liked Least by Analysts Missing U.S. Gain Bloomberg

Profit Margins, Margin Debt & Margin Of Error.......

Combine the data points with the excellent When Risk-Return Makes No Sense: How To Deal With An Overvalued Market and it should be clear that Mr. Market is walking on very thin ice now... I must admit that this is my view since September/October......Cannot help but it at least smells a little bit like "Flucht In Sachwerte"... I still think that the risk / reward is far more favourable in GOLD... ;-)

Wenn man die folgenden Daten mit dem extrem lesenswerten When Risk-Return Makes No Sense: How To Deal With An Overvalued Market kombiniert wird klar das man sich momentan auf sehr dünnem Eis bewegt.... Muß gestehen das ich diese Ansicht seit dem September/Oktober vertrete.... So langsam kann man zumindest unterschwellig das Gefühl haben das zumindest in Teilen eine "Flucht In Sachwerte" eingesetzt hat.....Bin mehr denn je überzeugt das in Sachen Chance/Risiko die Aussichten für GOLD weitaus vielversprechender sind.... ;-)

William Hester / Hussman Funds

While earnings growth expectations are steep, sales growth expectations are more modest. Sales-per-share for S&P 500 companies is expected to grow about 5.5 percent this year and about 7 percent next year, according to forecasts. The difference between the growth rates of the top and bottom lines is implies a forecast for sharply rising operating profit margins. The graph below is updated from an earlier piece, and includes forecasts through the end of 2012. It plots the long-term level of S&P operating margins in blue. In red, I've plotted the operating margins currently being forecasted by analysts based on their projections for sales and earnings. Last October, analysts were about half way to pricing in profit margins that matched the record levels of 2007. Now, they are just about there.

David Rosenberg / Gluskin Sheff

As for 2011, the consensus is looking for $97 on S&P 500 operating EPS — we did $95 at the peak of the last cycle when the unemployment rate was at 4.5%, the industry CAPU rate was 81%, private sector credit xpanding at a 16.2% annual rate and nominal GDP at a 4.9% YoY pace.

So the consensus believes that barely two years into the second weakest post-recession recovery in the past six decades that we will actually get back to peak profit levels seems to be a tad outlandish.

Stock Market Rally Explained The Mess That Greenspan Made

Ad in the the Money & Investing section of today’s Wall Street Journal

Factoring in the tight junk spreads right now one must assume that looking at the next chart the "Margin Of Error" is probably "slim"......

Da momentan selbst historisch gesehen recht enge Junk Spreads vorherrschen muß man beim Anblick des nächsten Charts wohl unterstellen das in Sachen "Margin Of Error" wenig "Spielraum" bleibt.....

Investors really ♥ junk. We mean really. FT Alphaville

In most discussions of the high-yield bond market, historical spreads play a major role. But comparing spreads today to those of the past assumes that junk bonds are a constant entity over time. Unfortunately, junk is junkier today, as illustrated by this chart [at left] from last October’s Global Financial Stability Report.

The fraction of CCC or lower-rated bonds approximately doubled from early 2007 to early 2009. And according to a recent report from Fitch, the fraction at the end of 2009 was still 27%.

Debt ranked in the BB category gained 39.1 percent in the past 12 months, underperforming the CCC tier by 66 percentage points, according to Bank of America Merrill Lynch index data.

H/T EconomPicData

The "risk trade" is currently clearly not in the early innings....... Looks like the Mantra Bullish. No Matter What & the "Moon Trade" ( brilliant!) is still alive & kicking.... ;-)

Der sog. "Risikotrade" befindet sich sicher nicht mehr im "Anfangsstadium"..... Sieht so aus als wenn das Motto Bullish. No Matter What sowie Ladies and Gentlemen, We Are Trading On The Moon ( brilliant!) momentan noch immer zu greifen scheint...... ;-)+

UPDATE:

PARTS OF THIS MARKET ARE LOOKING IRRATIONAL PragCap

Why Young People Should Buy Stocks on Margin Time H/T Denninger

We just survived the worst debt-fueled binge since the Roaring '20s. Now two professors at Yale University are suggesting we introduce leverage into a new realm of our lives —our retirement portfolios. TIME's Barbara Kiviat asked economists Ian Ayres and Barry Nalebuff to explain themselves.

You are advocating that people in their 20s and early 30s take all of their retirement savings and buy stocks on margin. Can you explain why that's not as crazy as it sounds?

"It's not as crazy as it sounds because it helps people better diversify risk across time"

Read this twice....

UBS: EQUITY MARKET RISKS APPROACHING EXTREMES PragCap

Irrational Exuberance Is Here: VIX Lowest Since July 2007 As Options Speculation Highest Since Dot Com Days

The VIX has just hit the lowest level since July of 2007 as Sentiment Trader reports that "speculation in the options market has spiked to its highest levels since the spring of 2000."

As i´ve said, not in the early innings.....

Wie gesagt, nicht mehr im Anfangsstadium......

Abby Joseph Cohen 2009 vs Abby Joseph Cohen 2001.....Which Call Is Worse?

What´s a year without a "brilliant" call ( even more important the rationale behind the call ) from Abby Josef Cohen.....Just in time after a 30% plus (technical ) rally in the major indices worlwide.....In the past especially the calls from permabull Cohen were close to near and often long term market tops...... To my knowledge one of the better "contrary" indicators......

Was wäre ein Börsenjahr ohne Weisheiten von Abby Joseph Cohen.....Man beachte das brilliante Timing.... Rechtzeitig nachdem alle bedeutenden Indizes 30% und mehr gewonnen ( technisch bedingt ) haben..... Ein prima Kontraindikator. Die "Prognosen" vom Permabullen Cohen haben in der Vergangenheit zeitlich oft ein längfristiges Markthoch markiert...... Besonders wenn die Begründung für die avisierten Kursziele schon fast tragischkomischen Charakter haben bzw. man befürchten das die Schweinegrippe auch Wall Street erreicht hat...

Call 2001 just bevor the collapse:

bigger/größer

Hat tip Wall Street Follies

Call 2009 S&P 500 at 880:

Goldman Sachs’s Cohen Says S&P 500 May Surge to 1,050

May 1 (Bloomberg) -- The Standard & Poor’s 500 Index may jump 20 percent to 1,050 over the next six to 12 months as investors buy stocks trading at low valuations, said Abby Joseph Cohen, Goldman Sachs Group Inc.’s senior investment strategist.

> Low valuations....? "Fair value based on recession earnings" ( Quote Cohen ) ? She is probably using the following model showing the "high" quality of earnings ( backing out large parts of costs doing business like write downs, restructoring charges etc / see also the update at the end of the posting) or she is the only one thinking the Fed Model ( see "Fed Model" Knowing What Ain't True ) is usefull.....

> Niedrige Bewertungen.....? "Faire Bewertung die auf rezessionsgestählten Ergebnisprognosen basieren" ( Zitat Cohen )? Mag ja sein das sie Ihre Bewertungsmodelle auf der nachfolgenden Rechnungsmodellen basiert die an Kreativität ( "Sonderfaktoren wie Abschreibungen, Restrulturierungskosten usw werden ausgeklammert ) kaum zu überbieten sind ( siehe auch Update am Ende ). Denkbar auch das Sie als einzige dem Fed Modell ( siehe "Fed Model" Knowing What Ain't True ) glauben schenkt...........

“You could see the market sustain at these levels,” Cohen, 57, said in a Bloomberg Radio interview. “We’re going to set a new trading range much higher than the trading range in February and March.”

Cohen was replaced as Goldman Sachs’s chief forecaster for the U.S. stock market a year ago. She had been the second-most bullish Wall Street strategist at the start of 2008, a year when the S&P 500 tumbled 38 percent to 903.25 for the steepest annual loss in seven decades. Cohen predicted in December 2007 that the index would end last year at 1,675. David Kostin took her job.

At least i think her 2009/2010 call will be closer to the target than her over 40 percent miss for the 2008 December estimate...... :-)

Immerhin wird sie wohl Ihre 40% Zielverfehlung Ihrer letztjährigen Prognose verbessern können...... :-)

UPDATE:

This just in from David Rosenberg via Zero Hedge . I highly recommend to read the entire link. Compare this to the call from Cohen.....

Den nachfolgenden Link via Zero Hedge empfehle ich allen die das Kontrastprogramm zu Cohen lesen wollen. Eine realistische und fundierte Marteinschätzung von einem der auch die bisherigen Probleme vorhergesen hat ( David Rosenberg ).

The market, as a whole, cannot be considered cheap

In the meantime, earnings forecasts are being trimmed steadily for the balance of the year. In fact, forward P/E multiple of 15x operating and 30x on reported EPS are not that compelling. So, we do not have a strong valuation argument. We do not have a strong earnings argument.

Compare the following chart with the former S$P500 1675 target from Cohen......

Vergleicht den nachfolgenden Chart mit dem vorherigen Kursziel ( S&P 500 1675 ) von Cohen.....

via Chart Of The Day

While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today's chart helps provide some perspective as to the magnitude of the current economic decline. Today's chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.

US Profit Growth Q2 / Thomson Financial

And even the 4.4 percent could be to optimistic. The start with massive warnings from Home Depot, Sears, DR Horton, Ryland, Huntington etc was lousy..... But maybe the oil sector can rescue some of the growth....But i´m not so sure if this is the sector in which you want to see big profits when you are looking for a healthy market......And this at times when you are paying very high multiples with margins and corporate profits to GDP already at record highs.....But maybe the crashing $ will boost earnings...... :-)

So wie es aussieht könnten selbst die 4,4% zu hoch gegriffen sein. Nachdem der Start der Gewinnsaison mal eben gründlich nach hinten los gegangen ist wird es sehr schwer. Ectl. kann aber der Ölsektor die Kohlen aus dem Feuer holen. Wenn man das allerdings als Zeichen eines starken Marktes sehen möchte muß man schon recht nahe der Wall street wohnen oder zumindest Hausmeister von CNBC sein. Und das zu Zieten wenn die Bewertungen, Margen und der Gewinnanteil zum GDP bereits teilweise neue Hochs erreichen..... Aber evtl. wird ja auch der fallende $ den Gewinnen unter die Arme greifen.....

Profit is expected to rise only 4.4 percent!

The estimates have steadily gone down since the start of the year. In January the expectation was for a 7 percent rise.

Despite the recent slowdown Thomson Financial is still expecting profit growth to reach 7.8 percent.

But the quality of this profit growth is worth a closer look. Thomson estimates that almost 23 percent of the grwoth is generated through buybacks


Die großen US-Konzerne starten mit gemischten Aussichten in die zweite Jahreshälfte. Nach goldenen Jahren mit prozentual zweistelligen Gewinnsteigerungen hat sich das Wachstum vor allem im Heimatmarkt spürbar abgeschwächt. Zum Beginn der Bilanzsaison für das zweite Quartal rechnen Wall-Street-Analysten für die im Börsenindex S&P 500 abgebildeten Firmen nur noch mit einem durchschnittlichen Ergebnisplus von 4,4 Prozent. Das geht aus einer Prognose des Finanzdatenanbieters Thomson Financial hervor, der die Schätzungen aller großen Investmenthäuser bündelt

Die Erwartungen an die US-Konzerne sind in den vergangenen Monaten kleiner geworden: Zu Jahresbeginn hatten Analysten noch mit einem Gewinnwachstum von knapp sieben Prozent für die Zeitspanne zwischen April und Juni 2007 gerechnet

Dennoch wird laut Thomson Financial für das Gesamtjahr 2007 ein Plus von 7,8 Prozent erwartet, weitgehend getragen von einem mehr als zwölfprozentigen Plus im Schlussquartal.

Ökonomen geben allerdings zu bedenken, dass viele Firmen ihre relativen Gewinne mit milliardenschweren Aktienrückkäufen aufpolieren. Thomson Financial geht davon aus, dass die Unternehmen inzwischen 23 Prozent ihres Ertragswachstums allein diesen aktionärsfreundlichen Programmen verdanken. Durch den Rückkauf eigener Aktien sinkt die Zahl der außen stehenden Papiere. Dadurch erhöht sich automatisch der Gewinn je Akti.. "Es ist offensichtlich, dass der Einfluss von Rückkaufprogrammen größer wird", sagte Thomson-Direktor Michael Thompson dem Handelsblatt.

Global M&A volume a record $2.88 trillion in first half

Global mergers and acquisitions volume surged to $2.88 trillion in the first half of 2007 up 55% from the same period a year ago, according to Dealogic. A 133% increase in financial sponsor-led buyouts fueled the increase and M&A in the U.S. surged past $1 trillion, a 75% increase above the same period last year. The average deal size rose 58% to $298 million


The main force that is keeping stocks alive and driving equities to lofty levels. How important the debt market this time with ultra low borrowing cost is shows the following graph. Back during the tech bubble the majority of big mergers were stock deals with no money flowing from the debt to the stock market. At the margin these stock deals were a zero sum game and didn´t pump new money to equities. Today this changed significantly. I´ll expect that with more risk aversion coming back to the market and spreads widening we will see a swing back to a much higher equity component. That doesn´t mean that the $ amount will be lower. I think the opposite is true. When you can pay with inflated stocks the original announced price will increase. But for how long......See AOL/Time Warner.....

M&A sind die wirklich treibende Kraft die Aktien zu immer neuen Höhen pushen. Wie wichtig hierbei inzwischen die ultrabilligen Kreditmärkte geworden sind zeigt sich an der nachfolgenden Grafik. In den wilden Zeiten der Nasdagblase wurden die meisten Übernahmen anhand von reinen Aktientransaktionen abgewickelt. Diese Deals haben den Aktienmärkten unterm Strich keine neue Liquidität seitens der Kreditmärkte übermittelt. Es ist also kein neues Geld in den Markt geflossen. Heute passiert das genaue Gegenteil. Ich bin mir aber sicher das sich das mit der steigende Risikoaversion die mit höheren Finanzierungskosten einhergeht ziemlich bald ändern wird und wir wieder eine deutlich höhere Aktienkomponente sehen werden. Das muß nicht zwangsweise zu niedrigen M&A Zahlen führen. Vermutlich wird die angekündigte Summe sogar ansteigen. Es ist halt viel einfacher mit hoch und überbewerteten Aktien zu zahlen. Es bleibt nur abzuwarten wie lange sich der ursprünglich angekündigte Preis halten kann......Bestes Beispiel hier sicher AOL/Time Warner.....

Some people try to spin the recent M&A number and point out that the average premium paid is stilll far below the peak in 1999 and implying that there is still more to come. Sounds desperate to me. As i´ve written above AOL and others have paid with almost worthless paper/stocks. I can remember a deal from JSDU that bought SDLI with a huge premium for over $35 billion. No wonder that premiums were high......

Einige Marktbeobachter un Kommentatoren verweisen bdei den M&A Zahlen immer auf den Punkt das die momentan gezahlten Prämien noch nicht annähernd die Höhen von 1999 erreicht haben und somit immer noch Luft nach oben ist. Klingt mir eher wie das Argument eines Verzweifelten. Wie bereits oben beschrieben wurden damals Deals mit nahezu wertlosen Aktien bezahlt. Ich persönlich kann mich sehr gut an die Übernahme von SDLI von JDSU über satte 35 mrd$ inklsuive einer satten Prämie erinnern. Alles Aktien.....

Here comes the real story! This graph show the purchase price (including debt) on a cash flow basis (ebitda). This parameter is hitting new historic highs! The fact that at the same time margins are also at all time highs makes this number even more worrysome.....We will see down the road how many of the recent deals were/are "smart" deals. But one thing is for sure....the deals are not cheap!

Diese Grafik umschreibt die eigentliche Geschichte. Nach dieser Kennziffer sind Deals noch nie so teuer eingekauft worden wie z.Zt. Hinzu kommt das die Margen der Firmen momentan überall ebenfall neue Allzeithochs erreichen....Wir werden es in naher Zukunft erleben ob die ganzen Übernahmen wirklich "clever" waren. Eines ist in jedem Fall sicher...billig sind sie nicht.

UPDATE:
Hilton Hotels Sells Itself to Blackstone Group for $20 Billion in Cash

Sale of the century - Buy Backs / Economist

in almost every conference call or press release management has tried to save bad earnings with a large buyback. very often debt fueled. some of them are just 3-6 month later in big big trouble ( several lender, homebuilder etc ) or already gone (new century...). the percentage of junk as shown from s&p doesn´t makes things more comfortable.......another point is that management is unloading their shares at the same time the companies are buying back the shares.... and the scary thing is management doesn´t bother if their debt fueled buyback triggers a downgrade of the entire debt......
kann diese einschätzung nur bestätigen. in nahezu jedem call oder veröffentlichung hat das management versucht schlechte ergebnisse durch massive (ofte auf pump) aktienrückkäufe zu verschleiern. etliche von denen sind keine 3 bis 6 monate später in großen problemen oder gar pleite. die betrachtung der s&p statistik macht das ganze nicht gerade gemütlicher.....ausserdem verkauft das management in gleicher zeit in rekordtempo eigene aktien/optionen.....besonders bedenklich wird es wenn das management auf pump aktien zurückkauft und dadurch sogar die unmittelbare herunterstufung de kreditwürdigkeit achselzuckend in kauf nimmt.


Companies are buying back their own shares at a record rate

BUY now while stocks last. The retailers' traditional slogan is being re-enacted in the American stockmarket. The supply of quoted shares is shrinking fast.

The biggest buyer is the corporate sector itself. According to Tim Bond, of Barclays Capital, American companies acquired (via takeovers and buy-backs) some $602 billion of shares last year. In the fourth quarter, the pace of purchases was running at an annualised rate of 6% of the entire market. April 23rd was the biggest day for takeover announcements since the AOL/Time Warner deal of January 2000 and the following day saw IBM announce a $15 billion buy-back. With that kind of support, it is hardly surprising that investors can shrug off economic and geopolitical concerns and push the Dow Jones industrials to a new record above 13,000, as they did on April 25th.


Mr Bond says this equity-buying splurge is almost exactly matched by the corporate sector's financial deficit—in other words, companies are borrowing money to buy back shares. This gearing up of the balance sheet is occurring when profit margins are at their highest level since the 1950s. It looks like hubris....


größer / bigger http://tinyurl.com/yv5pgu

Smithers & Co, an economic consultancy, takes a gloomy view, arguing that American profit margins are reverting to the mean and thus the prospects for company earnings are all downhill from here. It has observed an inverse link between profit margins and personal savings, which are very low in America. This creates the risk of a vicious circle in which any fall in the stockmarket will push up personal savings, depressing profits and hurting the stockmarket further.......
Despite good results so far, HSBC says forecasts for 2007 earnings per share for S&P 500 companies have edged down from $95 in the middle of last year to less than $93 today. And Dave Rosenberg, a Merrill Lynch economist, says that, over the past six months, business sales have fallen at an annual rate of 2.3%.

If business conditions are getting more difficult, a bit of financial engineering will help. Buying back shares with borrowed money boosts earnings per share, so profit growth can continue to look healthy. That was an important driver in the final stages of the 1990s bull market.

>here one example from the builders. and at the same time they have bought back stocks.

> hier das beispiel der builder. alle haben in 06 aktien zurückgekauft.

More than half, or 11, of the 21 builders that Moody's rates failed to generate more cash than they spent in 2006, analyst Joseph Snider in New York said in a report today

Pulte was one of three investment-grade companies generating negative cash flow for the previous 12 months at the end of the year, Snider said. The other two are Dallas-based Centex Corp. and Toll Brothers Inc. in Horsham, Pennsylvania.

Speculative-grade companies losing cash at the end of 2006 were: Red Bank, New Jersey-based Hovnanian Enterprises Inc.; Irvine, California-based Standard Pacific Corp.; Hollywood, Florida-based Technical Olympic USA Inc.; Columbus, Ohio-based M/I Homes Inc.; WCI Communities Inc. in Bonita Springs, Florida; Reston, Virginia-based Stanley-Martin Communities LLC; William Lyon Homes Inc. in Newport Beach, California; and Meritage Homes Corp. in Scottsdale, Arizona.

http://tinyurl.com/29pvre

In the long run, this is not sustainable. But so far, investors do not seem to have noticed. Slowing profits forecasts have been offset by an increase in the prospective profits multiple on American shares. Corporate borrowing rates are at cyclical lows, increasing the incentive for companies to buy back shares and for private-equity groups to launch takeovers. For as long as that buying spree continues, those who worry about the long-term will look out of touch.

> the homebuilder etc have been forced to shift priroties to be bondholder friendly within a quarter. things can change very quickly.

> am beispiel der homebuilder kann man sehen wie schnell sich die prioritäten des managements verändern können.

disclosure: short several homebuilder

Investors Need Not Be Bearish to Hedge Risk / hussman

excellent!

While the S&P 500 has gained just 4% from its March lows on a weekly closing basis, it is clear that investors and market analysts now view the recent market correction as ancient history. The Investment Intelligence figures on advisory sentiment have shifted clearly to the bullish camp, with 50.6% of advisors bullish and 26.3% bearish.....

As earnings pre-announcements begin this week, continue to listen for comments relating to profit margins. Analysts are already slashing expectations for earnings growth. As the New York Times noted last week, analyst expectations at the beginning of 2007 were for first-quarter earnings to post year-over-year growth of 8.7%. Current estimates have been cut to an expectation of just 3.3% growth.

thanks to http://www.nytimes.com/ and barry ritholtz http://bigpicture.typepad.com/

Second quarter growth is now projected to be just 3.5% year-over-year, with full-year growth estimates down to 6.3% (effectively building rapid growth expectations into the second half to compensate). If investors no longer have hopes for a near-term easing from the Fed, nor hopes for rapid earnings growth, the only remaining notion is the belief that stocks are appropriately priced on the basis of “forward operating earnings.” As I've emphasized in recent comments, this belief is fiction

>this is for sure the contrary of the animal spirit in the asset markets these days......

>dies spiegelt sicher das gegenteil der treibens an den asset märkten wieder.....

i´m your spirit animal

In all, investors continue to look for hopeful signs on which to base a speculative outlook.

more on this topic also from barry http://tinyurl.com/2wnaju

The "Money Flow" Myth and the "Liquidity" Trap / HUSSMAN

this only a very small sample of the good and long post with quotes like this.

dieses ist nur ne kleine zusammenfassung. in dem report von hussman verstecken sich zitate wie

" am increasingly losing confidence that Wall Street
operates on a well-defined base of knowledge. Instead, I am struck by the number of platitudes and false constructs that seem to dominate the investment management industry."

click on the headline to read the full piece / bitte auf die überschrift klicken


I've noted for some time that S&P 500 earnings are at the very top of their long-term 6% peak-to-peak growth trendline – a level of earnings that has typically been associated with an average price/earnings multiple of 10 (not the current 17). See last week's market comment for a review of these conditions. Meanwhile, the dividend yield on the S&P 500 is about 1.9%.


In order for the S&P 500 to achieve a “normal” annual return of about 11% over the coming 5 years, we have to assume a maintenance of record margins, sustained top-of-channel earnings growth (which has never before been sustained for such a period), and an expansion of valuations to a multiple of 20 times peak earnings (the same multiple as at the 1929 and 1987 peaks, which is double the average historical multiple on top-of-channel earnings). Investors should think now about whether these assumptions are plausible, because they may find themselves wondering later why they ever did.

My impression is that the probable expectation for total returns on the S&P 500 over the coming 5-years is below 5% annually, in a likely interval that includes zero. It takes implausibly optimistic assumptions to move substantially above that range.

As for 10-year returns, for which the historical evidence has typically allowed tighter confidence intervals, the following chart updates the study that appeared in the February 22, 2005 market comment (“The Likely Range of Market Returns in the Coming Decade”) using the same methodology. Note that actual market returns moved outside of the typical range only during the late 1990's bubble, and that the most recent 10-year return of about 7.6% since 1997 has been at the top of the expected range precisely because current valuations are at the top of historical norms.

Currently, the likely range for S&P 500 returns over the coming decade is between a -3% annual loss and a 5% annual return, centering in the low single digits. That range will seem preposterous to some investors, but remember that it took the late 1990's market bubble to move actual returns even 5% outside of this set of bands. Unless investors anticipate a repeated excursion into similar valuation extremes, it would be a good idea for them to recognize now, rather than later, that stocks are unlikely to produce satisfactory long-term returns from current valuations.

Great Profit Expectations Can't Be Met / kass

and the erosion of margins has already begun / die entwicklung is im vollen gange

"50% reported lower profit margins so far..."
http://immobilienblasen.blogspot.com/2007/01/50-reported-lower-profit-margins-so-far.html

"Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly." (click on the headline/überschrift for the rest )

größer/bigger http://www.thestreet.com/tsc/common/images/storyimages/020907theedge.gif

looks like hussman isn´t the only one highlighting this fact.(thanks to wall street we all know that this time it is different....)

sieht so aus als wenn hussman anhänger gefunden hat. ( dank wall street wissen wir das dieses mal alles anders ist...)