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B4 The Bell Thursday July 22


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MajorCrapper Posted: Jul 22 2004, 05:12 AM

 

 

 

Bachelor of Stock Proctology

From Major Crapper on previous thread:

 

Therefore risk takers will in aggregate over time significantly outperform the lenders thereby ensuring a relative flow of wealth their way.

 

That strikes me as "stocks in aggregate over time significantly outperform [whatever]" or "... always go up." I don't buy this reasoning. All stocks go to zero over time; the only question is how long each will take. The sleight-of-hand comes in with the indices. Such pronouncements invariably include "The Dow proves ...." or "The S&P500 proves ...." Sure these indices go up over time. When an included stock goes to zero, the failed corpse is spit out of the index and replaced with a fresh one. Same with risk-takers. Plunger did an excellent job, first reminding us of the obvious fact that most risk fails, and then the process by which banks spit out the failed borrowers. What happens when this spirals to the point when there is no more fresh meat?

 

Furthermore, by providing debt capital lenders are effectively helping to finance projects that would otherwise not have been able to get off the ground due to lack of pure equity financing thereby expanding wealth and economic

 

This is completely off point and says nothing about whether wealth flows to the usurers, or from them toward the rest of society as Major contends ("the reverse" in his words). Nonetheless, I covered this earlier, and I contend that too many projects get off the ground. I mean, I will not feel deprived and poorer if one less SlaveMart gets built. I wouldn't feel like I'm missing something if Enron Field had never been constructed. This crap goes on and on to irrational proportions exactly because it has to to keep the very liquidity system that we are discussing operating.

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Crapper- Your unequivocal pronouncements from on high are not going to fly here. Sorry. The long term rate of return on stock indexes, which are managed and regularly culled, before taxes, before management fees, is around 7.5%, including dividends. (See Shiller for the data.) If you take out taxes, commissions, and managment fees, to say nothing of the fact that managed indexes do not include the drag on performance of stocks that become worthless, that will leave the typical investor with an after tax return of around 3%. If you include the drag of all of the stocks that go to zero which would be in a diversified portfolio, then the return is going to be even lower. How much lower is anyone's guess, but it would appear to me that this is going to be substantially less than the long term return on debt.

 

If you have facts that would support your argument, fine, but pronouncements in the absence of factual support are not very helpful.

To Doc's point, over the last 80 years the numbers breakdown:

 

4.3% div + 1.5% inflation + 2.4% capital appreciation = 8.2% long run avg equity return for a 10 year period

 

According to paper in the Journal of Finance & in the Journal of Political Economy published jointly by UofChicago, UofPenn Wharton. I will try to find link

 

Analysis excluded:

"Friction" in the form of: taxes, management fees, trading fees, hedging costs

Survivorship bias of all publish indicies

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Plunger said in the previous thread:

 

As for entrepreneurs...Are you prepared to enter into a long term lease on a commercial space to open a new enterprise in this environment?? Are you prepared to secure that lease with your house as collateral?? If so, what business would that be?? What market is presently underserved ...?

 

I've been asking myself and others this question for many months.

 

So far, have not been able to come up with any answer or proposal.

 

Does anyone foresee opportunity in an entrepreneurial-level business which is not massively capital intensive?

machinehead,

Excellent question! My son, a philosophy major, is beginning his junior year in college. At the moment, he is interested in law. But if that does not pan out, I've advised him to find an area that he will enjoy working in, and one that he can demonstrate a bit of a difference in. I suggested he look into writing, as in my experience, (aside feom the skilled craftsmen on this board like you. Mark and jickiss, to name a few) young people coming out of college today can't use the written word effectively.

 

While the market is certainly not "underserved" in terms of the number of people involved in it, I would say personal investment management provides wonderful opportunities with low barriers to entry. Treat clients with respect, establish relationships and demonstrate that you care about their interests rather than yours, and you can do very well. I started my own business 7 years ago and we are getting more referrals than ever because people with money are beginning to see Wall Street for what we on this board know it is.

 

Reading the eloquent and thoughtful analysis of so many on this board, I would shudder to have you as my competitors! You guys are GOOD! :D

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Bob Arnott Long Term Equity Return Study

Crapper- Your unequivocal pronouncements from on high are not going to fly here.? Sorry. The long term rate of return on stock indexes, which are managed and regularly culled, before taxes, before management fees, is around 7.5%, including dividends. (See Shiller for the data.) If you take out taxes, commissions, and managment fees, to say nothing of the fact that managed indexes do not include the drag on performance of stocks that become worthless, that will leave the typical investor with an after tax return of around 3%. If you include the drag of all of the stocks that go to zero which would be in a diversified portfolio, then the return is going to be even lower. How much lower is anyone's guess, but it would appear to me that this is going to be substantially less than the long term return on debt.

 

If you have facts that would support your argument, fine, but pronouncements in the absence of factual support are not very helpful.

To Doc's point, over the last 80 years the numbers breakdown:

 

4.3% div + 1.5% inflation + 2.4% capital appreciation = 8.2% long run avg equity return for a 10 year period

 

According to paper in the Journal of Finance & in the Journal of Political Economy published jointly by UofChicago, UofPenn Wharton. I will try to find link

 

Analysis excluded:

"Friction" in the form of: taxes, management fees, trading fees, hedging costs

Survivorship bias of all publish indicies

rog,

Bob Arnott, formerly of First Quadrant, published a lengthy study that reached similar conclusions, I sent it to Doc when he was battling with Bloomberg about the veracity of Ibbotson data. I'll provide the link later.

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Guest yobob1

The declining global liquidity is going to create some very interesting paraducks. Greenspamandeggs needs to keep rates low, especially the critical mortgage rates, for the consumer machine to keep pumping, which by the way has about run out of gas regardless of how low rates go. At the same time with the dollar relatively weak and borrowing demands from the US govt on a steady upward trajectory it will likely take higher yields to attract buyers for treasuries.

 

If the US consumer is about ready to throw in the towel as I suspect, their demands on imports will wane and reduce money flows to the exporters, Asia in particular, reducing their ability to absorb the increasing supply of US debt. To me that says that anything longer term than the fed funds rate may well see the yields go higher. To put it another way the value of held bonds/notes declines reducing the asset base of all holding said paper which in theory reduces their lending ability which may not be all that dramatic if loan demand continues to fall as it should. Simultaneously I would expect spreads to begin widening, again based on the assumption of impaired absorbtion ability.

 

Meanwhile the real economy, IMO, has just finalized the best period it will see for a long time to come and therefore I expect that mid-quarter updates will be needed to ratchet down analcysts expectations with few exceptions. P/E ratios may well climb in spite of falling prices.

 

After the end of this year the final small piece of Shrubcos super stimulus goes away. The one time $100,000 write-off, as opposed to scheduled depreciation, for business becomes history. I suspect that we have already seen most of that effect anyway as business that have any sanity won't go borrow to make those expenditures and the strength of earnings early in the year would have had the bulk of the cash flow concentrated there. Given what I perceive as real visible economic weakness accelerating, those that still have "excess" cash in the kitty will be less inclined to blow it on anything, if they have any doubts about their ability to continue to generate additional cash, prefering instead to keep it for a rainy day.

 

BTW a contentious election period is never good for business, at least that's what my 32 years of retailing tells me.

 

IMO we are beginning the final descent into hell, with the POR a matter of months away at best.

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Big Move Coming

 

But Which Way

 

Uncle Buck and the Long Bong Hit

And you're not kidding. The mixed cycles and indecision over the past couple weeks are making my own personal "online trading experience" miserable. Lots of strain just to squeeze out little ones.

 

I just got stopped out on trade #3, my last for today, all losers, with absolutely dull action throughout. Today is the first time I can ever remember any currency pair trading exactly at the same price at 8:30 a.m. as it was at 3:00 a.m. There's a first time for everything. I hope it's the last time as well.

 

Which way? I wait with bated breath.

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Does anyone foresee opportunity in an entrepreneurial-level business which is not massively capital intensive?

Simple :o

 

1) Develop a stock market trading strategy based upon an obscure, but effective cycle model.

 

2) Think up a sorta wacky, off-beat and slightly naughty theme that appeals to the teenager in everyone.

 

3) Start a web sight that uses that theme to broadcast that stock market trading strategy.

 

4) Invite everyone to join in the fun and register for the web site, which allows them all to make comments, be they innane or inspired.

 

5) Watch the money come rolling in! :unsure:

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CAT & S are going to open way down.

 

To the point of N.Ron's post and MajorPain's response...

 

When somebody here bothers to spend an hour or more of their own valuable time to compose a thoughtful rant, and make it available for all to read at no cost, we would all benefit from complimenting their efforts, pointing out some of the positive elements of their opinion, and if need be, politely pointing out areas where we may differ.

 

Thank you for your efforts N.Ron. They give us much to consider.

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IMO we are beginning the final descent into hell, with the POR a matter of months away at best.

Many folks imagine the inevitable "descent into hell" as a long march sort of thing ... the foreign creditors telling Snowman, "Solly, your rating was cut from AAA to AA, so we charge you 30 extra basis points now, ha ha."

 

No. It's not going to be like that.

 

The unsustainable U.S. consumption machine will be unplugged in the same way as Russia (1998) and Argentina (2000) --

 

A quick and devastating loss of confidence in the currency, a "cold turkey" cutoff of external credit, and a savage hike in the cost of everyday necessities.

 

When this happens is uncertain. But it will play out with shocking speed when it does. The markets shoot first and ask questions later. By the time the "rumors" are confirmed as fact, it will be all over but the crying.

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Mad: Good for you. I have often contemplated being an independent moneymanage ( broker). I think honesty and respect can go a long way. I have tons of well off friends and at times I just shutter at the way they are being treated by their brokers.

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