The S&P/Case-Shiller 20-City Composite Index rose 0.6 y/y on a seasonally adjusted (s.a.) basis in February 2010, the first y/y gain since December 2006. However, on a monthly basis, home prices in the 20 metro areas fell 0.1% between January and February 2010, after eight consecutive months of monthly gains. On a seasonally unadjusted basis, the 20-city composite index fell for the fifth consecutive month, down 0.8%, following a 0.4% decline in January 2010. Only one of the 20 cities showed a monthly gain in prices in February 2010, compared to a peak of eighteen cities in July 2009, when the first time home buyer tax credit was in full effect. Some analysts assert that the recent stabilization will pave the way to a gradual recovery in home prices in 2010. Others argue that the stabilization is temporary and that further downward correction of home prices is likely once government support to the housing sector is withdrawn, beginning with the phasing out of MBS purchases by Q1 2010 and the expiration of the home buyer tax credit in April 2010. The marginal success of mortgage modification programs and the expiration of foreclosure moratorium also pose the risk of a wave of distressed homes entering the market and pressuring home prices in 2010.
RGE Analysis by Prajakta Bhide and Christian Menegatti: Recent housing data reports are consistent with our predictions for a double dip in home prices. Prices were expected to stabilize temporarily but fall as government support is phased out. Positive data in the run-up to the expiration of the extended home buyer tax credit may push home prices higher over the coming months, but fundamentals indicate that a sustainable pick-up is unlikely. Additionally, vacancies, foreclosure rates and mortgage rates deserve careful attention, as they are expected to exert further downward pressure on struggling prices.
Source: www.roubini.com, Roubini Global Monitor
Friday, April 30, 2010
Wednesday, April 21, 2010
S&P 500 Overvalued?
According to the Shiller P/E ratio, the S&P 500 is now 35% overvalued — a full one standard deviation event.
The April data was just updated and showed the inflation-adjusted normalized P/E, premised on “bird-in-the-hand” (as opposed to consensus earnings forecasts, which is historically more than 20% higher than we actually get — one reason why Wall Street banks are dubbed “the sell side”) 10-year trailing profits, expanded to over 22x from 21x in March.
This is not nosebleed territory, but it is expensive; the historical average is 16.4x. So, this implies that the market is currently 34.7% overvalued benchmarked against the historical norm. It would be nice to say that a higher-than-normal P/E is justified by low inflation and low interest rates. But frankly, real bond yields are not that far from their long-run averages; however, equity valuation is, and something is going to give at some point.
Valuation metrics are not meant to be timing devices. Assets, securities, and currencies can stay overvalued for extended periods of time, but inevitably Bob Farrell’s rule number one on the concept of “mean reversion” will come into play. The operative strategy is to buy low and sell high, not the opposite; and to be paid to take on risk as opposed to be paying for taking on the risk.
Defensive income-oriented strategies, at this point, make perfect sense from our lens.
Source Article
The April data was just updated and showed the inflation-adjusted normalized P/E, premised on “bird-in-the-hand” (as opposed to consensus earnings forecasts, which is historically more than 20% higher than we actually get — one reason why Wall Street banks are dubbed “the sell side”) 10-year trailing profits, expanded to over 22x from 21x in March.
This is not nosebleed territory, but it is expensive; the historical average is 16.4x. So, this implies that the market is currently 34.7% overvalued benchmarked against the historical norm. It would be nice to say that a higher-than-normal P/E is justified by low inflation and low interest rates. But frankly, real bond yields are not that far from their long-run averages; however, equity valuation is, and something is going to give at some point.
Valuation metrics are not meant to be timing devices. Assets, securities, and currencies can stay overvalued for extended periods of time, but inevitably Bob Farrell’s rule number one on the concept of “mean reversion” will come into play. The operative strategy is to buy low and sell high, not the opposite; and to be paid to take on risk as opposed to be paying for taking on the risk.
Defensive income-oriented strategies, at this point, make perfect sense from our lens.
Source Article
Friday, April 9, 2010
Is This The Great Recession?
Below is a link to three WSJ graphs measuring different attributes of past recessions. Based on the three attributes it appears we are truly in the "worst" recession since The Great Depression. Final judge will be left to history.
WSJ Graph Link
Wednesday, April 7, 2010
Not All ETF's Are Created Equal
Below is a link to a great article highlighting the differences between ETFs that on the surface, according to the name, look to be the same. The author offers five factors that have an impact on the underlying ETF’s performance. They are as follows:
1.Method of Construction
2.Expense Ratio
3.Fund Size
4.Capital Structure of the ETF
5.Composition
This is way doing your homework is so important.
Seeking Alpha Article Link
1.Method of Construction
2.Expense Ratio
3.Fund Size
4.Capital Structure of the ETF
5.Composition
This is way doing your homework is so important.
Seeking Alpha Article Link
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