Stock Market Analysis: 06/07/10
As for loss of business, my experience in valuation is that rather than being punished for doing bad valuations, bankers are rewarded for their deal-making prowess. The courts have tended to give too much respect for precedence and expert witnesses, even when the precedent or expert testimony fails common sense tests and it is possible that these valuations, while abysmal, will pass the legally defensible test. The first is that they give me extended stretches of time when I can work without interruption, no knocks on the door or email or phone calls. That said, the banking work done on deals like the this one vindicate everyone's worst perceptions of bankers as a hired guns who cannot shoot straight, more Keystone Kops than Wyatt Earps! His work with Karl Case in developing a real estate index that is now widely followed has introduced discipline and accountability into real estate investing and his historical data series on boutiques s, which he so generously shares with us, is invaluable.
For those who don’t quite grasp what the CAPE is, it is the conventional PE ratio for stocks, with two adjustments to the earnings. I did tell you that I have a wandering mind and so, if you don't like Superman or stocks, consider yourself forewarned! Finally, I started thinking about Kryptonite, the substance that renders Superman helpless, and what would be analogous to it in the stock market. I pondered whether Superman needed his suit or more importantly, his cape, to fly. These deep thoughts about Superman's cape then led me to thinking about CAPE, the variant on PE ratios that Robert Shiller developed, and how many articles I have read over the last decade that have used this measure as the basis for warning me that stocks are headed for a fall. One of the primary weapons that rational bubblers use to back up their case is the Cyclically Adjusted Price Earnings (CAPE), a measure developed and popularized by Robert Shiller, Nobel prize winner whose soothsaying credentials were amplified by his calls on the dot com and housing bubbles.
In a post from a couple of years ago, I titled these people as bubblers and classified them into doomsday, knee jerk, conspiratorial, righteous and rational bubblers. The last group (rational bubblers) are generally sensible people, who having fallen in love with a market metric, are unable to distance themselves from it. Relative to the fully history, the CAPE looks high today, but relative to the last 20 years, the story is much weaker. Some of this worrying is natural, given the market's rise over the last few years, but there are a few who seem to have surrendered entirely to the notion that stocks are in a bubble and that there is no rational explanation for why investors would invest in them. The current CAPE of 27.27 is well above the historic average of 16.06 and if you buy into the notion of mean reversion, the case makes itself, right? This makes $1.37 an ever greater resistance level but I know exactly where to buy now. This is the easiest way to buy Bitcoin without having to have an actual Bitcoin account.
On this trip, however, I made the bad decision of watching Batman versus Superman, Dawn of Justice, a movie so bad that the only way that I was able to get through it was by letting my mind wander, a practice that I indulge in frequently and without apologies or guilt. Slowing growth can only be addressed in a meaningful way by changing policies to promote employment and the expansion of particular sectors. These renovations will fuel growth and position older restaurants for future growth. In fact, what the stock split signals (to me) is that Google is planning more controversial (and debatable) big decisions in the future and they do not want to either explain these decisions or put them up for a fair vote. This aptly named free Android weather app, developed by Michael Bachman, is one I would recommend to those who just want a plain and simple, easy-to-use app.
