Posts filed under ‘Profiles’
Ooops…Siegel Data Questioned
Professor Jeremy Siegel is well-known in large part due to his famed book, “Stocks for the Long Run,” which Siegel uses as a foundation for his assertion that stocks have dramatically outperformed bonds since 1802. Siegel has four versions of his book, but the basic conclusion is that stocks have averaged about a 7% annual return (approximately 10% after accounting for inflation) versus around 4% for bonds, over a two hundred plus year timeframe. One problem – the validity of 69 years of the data (1802 – 1870) are now being questioned.
Any Utopian study or mathematical model is only as valuable as the data that goes into it. “Garbage in” will result in “garbage out.” According to a Wall Street Journal article (Does Stock-Market Data Really Go Back 200 Years?) written by Jason Zweig, the index data used by Siegel was too narrow on an industry basis and involved too few stocks (e.g., primarily banks, insurance and transportation stocks). In addition, the reliability of the conclusions is being second guessed because the data used by Professor Siegel starting back as far as 1802 were compiled decades ago by two separate economists, Walter Buckingham Smith and Arthur Harrison Cole.
According to Zweig, another area of concern is the fluctuating dividend yield used by Professor Siegel:
In an article published in 1992, he estimated the average annual dividend yield from 1802-1870 at 5.0%. Two years later in his book, it had grown to 6.4% — raising the average annual return in the early years from 5.7% to 7.0% after inflation. Why does that matter? By using the higher number for the earlier period, Prof. Siegel appears to have raised his estimate of the rate of return for the entire period by about half a percentage point annually.
I’m sure Professor Siegel has a rebuttal to all these accusations, but we’ll just have to wait and see how credible the response is. Maybe Siegel’s next book will be entitled, “Bonds for the Long Run”?
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.
Pinning Down Roubini Requires a Lasso
Pinning down a Nouriel Roubini forecast is like lassoing a frenzied cow. They say a broken clock is right twice a day, and maybe the same principle applies to renowned economist, Professor Roubini (NYU)? Sure, credit should be given where credit is due. He nailed the forecast relating to the housing led financial bubble and subsequent financial collapse – even if the prediction was years early.
Here’s where I have a beef. Now that Roubini has become a celebrated rock star with frequent television interviews and speaking engagements, his touring views are becoming more fluid and slippery as time progresses. Sure it’s more comfortable to ride the fence and lean in whatever direction the weekly economic winds are blowing. I suppose if you throw out enough changing viewpoints, which adjust to evolving moods, you can never be wrong.
Let’s examine some of his views:
- Out of Context: Just last week, Mr. Roubini said the “worst is behind us,” but in order to retain his “Dr. Doom” celebrity status he felt compelled to issue a press release clarifying his statements. He noted his “views were taken out of context,” and added, “I have said on numerous occasions that the recession would last roughly 24 months.” That’s funny, because he just stated last year it would be 12-18 months (Click Here for Video).
- Sweating Out Rebound: Maybe the 41% bounce in the S&P 500 or the 49% jump in the NASDAQ from March 9th lows compelled Roubini to make the “worst is behind us” comments, but why then at the beginning of this year did he say, “We are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst.” Hmmm…excuse me while I scratch my head.
- Alphabet Soup Recovery: Also frustrating are the John Kerry-esque waffling comments relating to whether this economic recovery will be a U, W, or L-shaped economic recovery. Last April he was in the U-camp: “My view is closer to a U-shaped recession as I expect that the economic contraction will last at least 12 months and possibly as long as 18 months through the middle of 2009.” Now, as early as last month Roubini is warning of a double dip or “W-shaped” recovery with the rising possibility of a “perfect storm” in 2010 (Click Here for Video). He sees the expiration of tax cuts, rising oil prices, inflating debt and interest rates leading to another downturn. So is it U or W, or will we hear more about an “L” shaped recovery? Maybe the worst is not behind us? I’m confused.
- Doomsday Earnings Yet to Arrive: Still early in the quarterly earnings reporting season but Roubini’s call for a downside in corporate earnings has yet to materialize. As a matter of fact, Zacks Investment Research reported last week that early second quarter upside surprises are beating downside surprises by a ratio of 7 to 1. So far not too “Doom-full.”
I’m no economist or recovery expert, but what I do know is that I’m having difficulty pinning down Professor Roubini’s ever-changing views. I suppose I will just mail CNBC, Bloomberg, or the bevy of other Roubini media groupies a lasso in hopes they will pin Mr. Roubini down.
Wade W. Slome, CFA, CFP®
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.
Slome Takes Pre-4th of July Pitstop
Slome on the Airwaves with Dare to Dream
President and Founder of Sidoxia Capital Management, Wade Slome CFA, CFP®, recently sat down for an interview with Dare to Dream radio host Deborah Dachinger. Slome spoke about his book, How I Managed $20,000,000,000.00 by Age 32, along with life experiences that shaped his career and financial trends occurring in the marketplace.
Kass Attempts the “Triple Lindy”
Although Doug Kass, founder and president of Seabreeze Partners, has historically been primarily a dedicated short-seller, he presciently called the market low in March 2009 (what he now calls a “generational low”). Like in the movie Back to School starring Rodney Dangerfield, Doug Kass is trying to successfully execute the impossible “Triple Lindy” dive of his own. Thus far, Kass has completed the first two legs of the dive by accurately being bearish in late 2007 and subsequently bullish at the recent market bottom in March 2009. Now he sees, “potholes on the road to higher prices,” and he thinks we will be stuck in neutral for quite a while.
Click Here for Kass’ Yahoo! Video Interview
Like other prognosticators, I feel like Mr. Kass is trying to have a little of his cake and eat it too, since he previously called a run to 1,050 (S&P was at 942 on 6/4/09) and now he has adjusted his posture to a neutral stance. Therefore if prices move upwards, his previous 1,050 call is firmly in place, and on the other hand if we move sideways or downwards, then his neutral prediction is still in play.
The "Triple Lindy" Dive
As one of the American judges, I give Kass a score of 9.0 regardless of whether his squishy call for a potential double-dip (consumer led recession) comes to fruition in late 2009, or early 2010. Congratulations Doug on completion of the first two sequences of the Triple Lindy!
Slome Interviewed on Business Beat Live TV Show
Click Here For Video on Sidoxia Site
I just got back from doing a television interview in Connecticut with John A. Troland at Business Beat Live. Troland may be no Larry King (is that a good or bad thing?), but he is no slouch either. He’s been running his show for 15 consecutive years, including an interview with Maria Bartiromo, a.k.a. the “Money Honey” (incidentally, a name she attempted to trademark for herself).
Stay tuned for the eventual video posting on my website (www.Sidoxia.com) (NOW UPDATED), but first the digital interview file must be compressed into a video jpeg gif, then optimized through an FTP to my HTML server, before the synthesized content is uploaded the to my http URL. Even if I were to improperly use the tech acronyms, the project should still be no sweat…for my tech guy.
Once I get settled, I’ll do my best to be back in productivity mode with further Investing Caffeine posts.
Rogers Sees an Explosion in Stock Prices…Or Complete Collapse
CNBC Interview with Jimmy Rogers
I love it! Jimmy Rogers, chairman of Rogers Holdings is really going out on limb this time. Well, not really. It’s more like he is on a fence, and ready to fall over to whichever side the wind blows. Let me explain this claim in more detail. With the Dow Jones Industrials Average currently trading at about 8,800, Rogers sees the market climbing higher by +240% to 30,000 or perhaps collapsing another -43% (after the worse bear market in decades) to 5,000.
“I’m afraid they’re printing so much money that stocks could go to 20,000 or 30,000,” Rogers said. “Of course it would be in worthless money, but it could happen and you could lose a lot of money being short,” he adds.
Why stop there – why not a more outrageous range of guesses between 100,000 and 1,000? If inflation is his worry, then maybe Mr. Rogers should be concerned about declining PE (Price/Earnings) multiples, which reached single digits in the late-1970s and early-1980s when we were experiencing double-digit inflation.
Thanks Jimmy, those meticulously defined predictions will make many fellow astrologists proud. These prophetic claims remind me of my prescient call this year that I would either gain 100 pounds or lose 100 pounds. So far my forecast has turned out to be spot on, however I won’t confess which direction my weight has swung.
Although Jimmy’s tone is notably pessimistic, he reminds us that this is the last time he has had NO short positions since after the “Crash of 1987.” If lightning strikes twice, maybe his actions demonstrate that now is not such a bad time to buy.
However, be wary because Rogers is not only frightened by inflation. He goes onto say that some country is going to suffer a currency crisis, but he does not know which one yet. “I expect there to be a currency crisis later this year or maybe next year,” he states. Let us hope that “Zimbabwean-esque” inflation does not take hold, otherwise we will be in line with Rogers at the grocery store buying millions of dollars in the vegetable aisle.
Jimmy Rogers is obviously a bright investor (not to mention the Wall Street bow-tie king) who has achieved great success over his career. Nonetheless, I believe he could go into a little more detail in explaining his outrageous, sensationalized claims. For some reason I don’t think this trend will change, but at a minimum, he will continue to provide food for thought and fantastic entertainment.
“Bill, Say It Ain’t So…”
Bond guru and Newport Beach neighbor, Bill Gross, is out with his entertaining monthly PIMCO piece (Click Here). Try to keep a box of tissues close by in case you cry during the read. His views support my stance on short duration bonds and TIPs (Treasury Inflation Protected Securities), but big Bill would NEVER stand to root for equities – especially after his call for Dow 5000 a while back.
In this CNBC piece, he points out the obvious troubles we face from all the debt we’re choking on. As a country, we need the “Heimlich Maneuver!”
"Save to Your Grave"
Investing Caffeine 
