From today's WSJ (link)
"The rise in the stock market, even if it isn't always a reliable predictor of the direction of the economy, could offer a sorely needed boost to confidence. "What you're trying to do is reverse psychology," said Robert Barbera, an economist at ITG, a research and trading firm. "You're trying to get people to think of the glass as a third full instead of 97% empty. ..."
Mar 16, 2009
Mar 6, 2009
Are Investment Advisors Worried Enough?
According to a survey by discount brokerage Charles Schwab summarized here,
Fifty-five percent [of independent financial advisors polled] said it could take as long as three years for portfolios to return to their levels of last September..." (emphasis mine)
Assuming that the "levels of last September" are the Dow's closing price of 10,851 on September 30 and the poll was taken when the Dow was hovering around 7,000, that implies that 55% of the respondents think the Dow will recover 3,851 points in three years. That's a 55% return over the period, or a 15.7% compound annual return.
What are the odds?
The graph above is the distribution of rolling 3-year compound annual price changes for the Dow Jones Industrial Average since 1930, according to Yahoo! Finance. (This captures only the change in the index, not reinvestment of dividends). Based on the past 78 years of market history, the odds of a 3-year return of this magnitude are about 15-16%.
Which makes the following quote pretty hilarious.
“Advisers don’t have a GPS to guide them, but they have the experience and savvy to see that there are still potholes on the road ahead,” said Bernie Clark, senior vice president for Schwab’s adviser services, which supports 5,700 independent investment advisers. “Their long-term view, reasoned outlook and steady approach will serve their clients well in this environment.”
Despite the gloom in the economy and markets these days, sell-side optimism appears undimmed.
Fifty-five percent [of independent financial advisors polled] said it could take as long as three years for portfolios to return to their levels of last September..." (emphasis mine)
Assuming that the "levels of last September" are the Dow's closing price of 10,851 on September 30 and the poll was taken when the Dow was hovering around 7,000, that implies that 55% of the respondents think the Dow will recover 3,851 points in three years. That's a 55% return over the period, or a 15.7% compound annual return.
What are the odds?
The graph above is the distribution of rolling 3-year compound annual price changes for the Dow Jones Industrial Average since 1930, according to Yahoo! Finance. (This captures only the change in the index, not reinvestment of dividends). Based on the past 78 years of market history, the odds of a 3-year return of this magnitude are about 15-16%.
Which makes the following quote pretty hilarious.
“Advisers don’t have a GPS to guide them, but they have the experience and savvy to see that there are still potholes on the road ahead,” said Bernie Clark, senior vice president for Schwab’s adviser services, which supports 5,700 independent investment advisers. “Their long-term view, reasoned outlook and steady approach will serve their clients well in this environment.”
Despite the gloom in the economy and markets these days, sell-side optimism appears undimmed.
Mar 5, 2009
Greenspan-o-Meter - Two Down, One to Go
On December 5, 1996 Fed Chairman Alan Greenspan famously wondered whether stock prices reflected an "irrational exuberance" on the part of investors. This afternoon, The Nasdaq Composite index joined the S&P 500 by closing below its level on that day more than twelve years ago. For its part, the Dow Jones Industrial Average is a mere 2.4% above its level that day, or about one day's volatility in this choppy market.
As it turns out, Greenspan was perhaps too modest about his abilities to spot a bubble. For earlier posts on the same subject, click here and here.
Mar 2, 2009
"We Don't Need No Stinkin' TARP Money" - Northern Trust
Northern Trust has released a response to Congressman Barney Frank regarding its sponsorship of the Northern Trust Open, a PGA golf tournament. Congressman Frank, Senator John Kerry and a score of political grandees have been publicly harrumphing about Northern Trust's expenditures on the golf tournament while the US Treasury holds preferred stock in Northern Trust under the Capital Purchase Program of the Troubled Assets Relief Program (TARP).
Northern Trust's basic message is "We're happy to give back the money we didn't ask for.... where should we send the check?"
In his letter to the Congressman, Northern Trust CEO, Frederick H. Waddell, gets the nuance right when he says, "As we have stated publicly, the Northern Trust Open and its related activities were in no way reliant upon Capital Purchase Program funds, and would have occurred even had we not received Capital Purchase Program funds."
Click here for my earlier post on the topic.
At the end of the day, congressional meddling in the day-to-day operations of TARP recipients may be the most effective way of getting the funds back quickly. But it will certainly cause investors -- and possibly depositors -- to discriminate between those banks who can and do return the funds and those who can't. When the Treasury took stakes in the various banks late last year, it apparently cajoled some of the stronger financial institutions into accepting the funds. The Treasury's intent was to characterize the financial crisis as a systemic liquidity issue that could be alleviated by a temporary injection of capital from the government. The Treasury specifically tried to avoid singling out banks that needed the money to avoid creating more concerns among their counter-parties and depositors.
As the Treasury Department put it back on October 14,
"Nine large financial institutions already have agreed to participate in this program, moving quickly and collectively to signal the importance of the program for the system. These healthy institutions have voluntarily agreed to participate on the same terms that will be available to small and medium-sized banks and thrifts across the nation."
With Citicorp trading at $1.27 per share at the moment, maybe the Treasury's desire for benign opacity was naive. But if Northern Trust, JP Morgan, Goldman Sachs and a few others rush to repay the TARP money so they can be left alone to run their businesses, it could have a serious impact on those banks who don't.
This is a pretty serious policy reversal to be driven by a golf tournament.
Addendum: Northern Trust's June 17, 2009 press release regarding its repayment of TARP funds.
Northern Trust's basic message is "We're happy to give back the money we didn't ask for.... where should we send the check?"
In his letter to the Congressman, Northern Trust CEO, Frederick H. Waddell, gets the nuance right when he says, "As we have stated publicly, the Northern Trust Open and its related activities were in no way reliant upon Capital Purchase Program funds, and would have occurred even had we not received Capital Purchase Program funds."
Click here for my earlier post on the topic.
At the end of the day, congressional meddling in the day-to-day operations of TARP recipients may be the most effective way of getting the funds back quickly. But it will certainly cause investors -- and possibly depositors -- to discriminate between those banks who can and do return the funds and those who can't. When the Treasury took stakes in the various banks late last year, it apparently cajoled some of the stronger financial institutions into accepting the funds. The Treasury's intent was to characterize the financial crisis as a systemic liquidity issue that could be alleviated by a temporary injection of capital from the government. The Treasury specifically tried to avoid singling out banks that needed the money to avoid creating more concerns among their counter-parties and depositors.
As the Treasury Department put it back on October 14,
"Nine large financial institutions already have agreed to participate in this program, moving quickly and collectively to signal the importance of the program for the system. These healthy institutions have voluntarily agreed to participate on the same terms that will be available to small and medium-sized banks and thrifts across the nation."
With Citicorp trading at $1.27 per share at the moment, maybe the Treasury's desire for benign opacity was naive. But if Northern Trust, JP Morgan, Goldman Sachs and a few others rush to repay the TARP money so they can be left alone to run their businesses, it could have a serious impact on those banks who don't.
This is a pretty serious policy reversal to be driven by a golf tournament.
Addendum: Northern Trust's June 17, 2009 press release regarding its repayment of TARP funds.
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