The best of the week’s money articles.
I don’t expect corporate earnings to collapse. I don’t expect a renewed recession, let alone the Depression so cavalierly predicted.
Could we get a recession? Sure – we always could, at any time.
A Eurozone break-up would probably do it, just like the gloomy say. If I thought it was a serious possibility, I’d hold far fewer equities, at least until it happened.
What I think is much more likely is that Western economies will continue to bump up and down, as corporates fail to squeeze much more juice out of their hard-pressed and increasingly skint workers, whilst continuing to enjoy the fat of the land from developing markets.
That might not sound particularly gangbusters, but it’s got us this far. Investors over the past month have been predicting something different [1], wiping roughly 20% off share prices that weren’t very stretched to begin with.
Citigroup has crunched some numbers on what happens when markets fall 20% but earnings fail to follow the script and don’t collapse:
[2]
That’s the sort of bet I like making. Unfortunately the source, Business Insider [3], doesn’t give any more detail on how this data was constructed.
No worries though, because adding to equities for the long-term is common sense right now.
UK gilts haven’t yielded so little since Britain had an Empire. Yet P/Es on shares are low and the market’s forward dividend yield is at least 1.5% over gilts (and likely more). Corporates are awash with cash – and occasionally even spending it. Hewlett Packard’s purchase of FTSE 100 firm Autonomy [4] for a 75% premium seems far closer to me to an accurate valuation than the prices the trading robots and summer interns are putting on shares.
And valuations are what matter, not investors’ manic depressive swings.
The market may well be right, but it will be wrong tomorrow – it’s inevitable, because it’s swinging more vigorously than Ron Jeremy after putting his car keys into a bowl at a party in Berkshire.
I wouldn’t trust a nutter like Mr Market [5]
From the blogs
- Most people don’t sell everything in a panic – The Finance Buff [6]
- Do the indices give you enough overseas exposure already? – Swedroe [7]
- Sleeping like a baby with your investment dollars – Investing Caffeine [8]
- Yay! Bloodbath on the markets again – Simple Living in Suffolk [9]
- The triumph of the pessimists – The Psi-Fi blog [10]
- Richard Beddard is republishing his value investing series – iii [11]
- Great bargain, shame about the price – Mon£y Grow£rs [12]
- When not to invest in shares – UK Value Investor [13]
- The National Lottery: It could be you – Amateur Investor [14]
- Retailers attract us with up to 20 ‘seasons’ – Consumerism Commentary [15]
- Poverty, aspiration, and the riots [Great personal blog] – Rosamicula [16]
- Container gardening using DIY pots – Early Retirement Extreme [17]
- Life planning: An alternative to financial planning – The Digerati Life [18]
- How long to become a millionaire? [US politics] – Financial Samurai [19]
Book of the week: For all you naughty active traders and stock market obsessives out there, Amazon is taking pre-orders for this year’s legendary Stock Trader’s Almanac [20]
Mainstream media money and investing
- Warren Buffett: Stop coddling the super rich – New York Times [21]
- Buying farmland delivered a 16% gain last year – Bloomberg [22]
- Europe and the Euro: The bonds that tie, or untie – The Economist [23]
- The decline of Asian marriage – The Economist [24]
- The seven highest yielding Buffett stocks – Motley Fool [25]
- Poof, it’s gone! [Old video, almost relevant again!] – South Park / YouTube [26]
- Is the UK and America turning into Japan? – BBC [27]
- Former Soviet Republics: Winners and losers [Graphic] – BBC [28]
- Drip feeding profitable in volatile markets – FT [29]
- Volatility puts pensions at risk – FT [30]
- Lenders cut rates in home price war – The Independent [31]
- [And people wonder why I don’t get married] – The Independent [32]
- How to invest in… Romania – The Independent [33]
- Half of would-be first-time buyers given up on owning – Telegraph [34]
- Goldman Sachs staff furious at pot plant cutbacks – Telegraph [35]
- What sports stars blow their money on – Telegraph [36]
- British Gilt yields lowest since 1890s – The Guardian [37]
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