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Weekend reading: Everyone is at it

Weekend reading

Good reading from around the Web.

I suspect that if everyone writing articles about the correction in the stock market this week actually went out and bought some stocks, the crash would have been severely dampened.

In fact, one of the only things that makes me nervous about buying in these markets is that so many people are saying you should do so. Normally you get a fair few johnny-come-lately pundits arguing we should run to the hills, but they’ve been very thin on the ground.

According to the FT, even private investors in the UK have been buying quite aggressively. Hurrah, I say, and it mirrors the actions of the Monevator readers who’ve left comments on my articles. But it’s a bit of a negative indicator, unfortunately.

Perhaps the short duration of the bull market since 2009 means we haven’t sucked in enough fair weather investors yet – maybe only the battle-hardened are still standing?

Anyway, of the many pieces I read, my favourite was a fairly dry summary of the current situation from the blog macrofugue, entitled The Fat Pitch.

After pointing out how (US) cheap stocks look relative to bonds, the author also makes an economic case for looking through the panic:

So far in this earnings season, the S&P 500 has a 91% beat rate, and has smashed top-line, bottom-line & operating margin estimates.

There are more than 1.2 million jobs from 12 months ago, 40,000 less per month applying for initial unemployment insurance, and consumer credit rose a mammoth 15.5% (annualised) last month.  The big knock since November on consumer credit was the lack of participation in non-government, revolving credit — we’ve now posted two straight monthly gains in those categories.

The pace of Commercial & Industrial loans is up $55B in 9 months.  The financial stress indices from three Federal Reserve branches, which indicated in the past with months of notice on lending contraction, have been in solidly negative (improving) territory for months.

The end of the dreaded de-leveraging seems in sight.

Saying the economic situation is improving is genuinely contrarian, and it follows my own hunch.

I don’t deny some other indicators look a bit ropey (for example, GDP has been wobbly in the US, France, and the UK, and the latest inventory purchasing data was a bit iffy). But there is good data around if you care to look for it.

Moreover, I’ve been saying all week that if companies can do so well when the US economy is still in the dumpster (particularly unemployment and housing) then there’s plenty more fuel in the tank.

There will come a time when this blog argues that the stock market is expensive and it’s time to be more aggressively overweight in bonds and cash. But I don’t think it will be when the FTSE 100 is on a P/E of around 10 and interest rates are near-zero (cash is king!) and unemployment still high in much of Europe and the US, and investors have rarely had it so rough for a decade.

As for the UK riots, I take no pleasure in having predicted them back in 2009 when I wrote my article David Cameron’s Curse: To save the UK economy and be hated for it:

At the risk of sounding like an old Colonel Blimp (which I’m really not!) I think law enforcement could be among the more secure public sector areas over the next few years, especially if you’re in the front line.

I suspect we’ll see a couple of riots (in the miners’ strike / poll tax mould) before this has played out.

Seeing young people so marginalised and full of hate and nothing is just utterly depressing.

From the blogs

Deal of the Week: Get Drive by Daniel Pink for half-price (£4.50), and discover the surprising truth about what really motivates us.

Mainstream media money

  • After the crash: The case for doing nothing – Investors Chronicle
  • These overseas markets are going cheap – The Motley Fool
  • Central banking and the crisis – The Economist
  • The web turns 20 – The Economist
  • The $50 billion flight to safety – FT
  • Strong yields from stronger building societies – FT
  • Equity falls and lower annuity rates cut new pension payouts by 18% – FT
  • Anthony Bolton: Hold your ground in a two-speed world – FT
  • The UK riot act may cover damages if you move fast – Telegraph
  • The first 100% mortgage is back – Telegraph
  • Student loans: How a £50,000 debt racks up – The Guardian

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{ 5 comments… add one }
  • 1 The Money Grower August 13, 2011, 10:51 am

    @ Mr Monevator

    Many thanks for the inclusion. B-)


  • 2 TFB August 13, 2011, 4:02 pm

    Thank you for including my post in the roundup. I agree with your analysis on the market.

  • 3 Paula @ AffordAnything.org August 13, 2011, 7:01 pm

    Thanks for including my post in the roundup! I have to admit I don’t totally understand the London riots. I keep reading that the youth are marginalized and/or the poor feel poorer, but as an American, I’ve always had the impression that London is a place with many more social services than the U.S., which is why the riots surprised me. But I’ll be the first person to admit I don’t really understand the U.K. economy at all.

  • 4 ermine August 13, 2011, 9:53 pm

    I don’t agree with you that the economic situation is improving. But I still bought this week, and have plans to buy in more stages over the coming months 😉

    It depends what you mean by economic situation. I think Joe Public in the UK is going to see Depression type stuff in the coming years. Companies, OTOH, due to globalisation and a vastly expanded workforce have a fair chance of doing OK. So maybe I do agree with you in some peculiar way…

  • 5 The Investor August 15, 2011, 1:05 pm

    @ermine — I think the economic situation *for investable UK companies* is improving on a medium term view.

    Investing on the basis of short term economic uncertainty is near impossible — trading might be, but that’s another subject.

    Equally, I’m not convinced the uk’s longer term economic challenges has an obvious readover for the companies I tend to favour — 70%+ of earnings from overseas, and cheap money, uk unemployment, and a weak pound could all conceivably help them.

    I’m certainly don’t think a depression is even vaguely likely unless we get some catastrophic event like an EU breakup (which I don’t expect)– and if I did I’d be selling shares not buying!

    Still that’s what makes a market. 😉

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