Trader’s Narrative

David Rosenberg, strategist at Gluskin Sheff continues to be staunchly bearish. He digs into his trench even further it seems with each point the S&P 500 climbs. Today he lists the contrasts between now and 1982 to argue why this is not a secular bull market:

• P/E Multiples were 8x, not 26x.
• Dividend yields were 6%, not sub-2%.
• The stock market was trading at a discount to book, not a 2x premium.
• Monetary policy was aimed at reducing money growth and inflation rates, not
  creating both as is the case now.
• Fiscal policy was aimed at reducing nondefense spending, not accelerating it.
• Deficits were peaking and coming down, not surging to 10%+ relative to GDP.
• Global trade barriers were being torn down; not erected.
• Deregulation back then was in; today it is all about re-regulation and
  government ownership.
• Union membership was on the way down; today it is back on the rise.
• The dollar was entering a Plaza Accord bull market, not a mercantilist bear
  market.
• Credit, household balance sheets and participation rates were expanding, not
  contracting.
• Tax rates, income, capital gains and dividends, were declining then; rising now.

He also compares the batch of government bureaucrats and politicians now to back then:

In 1982, Ronald Reagan was President (two consecutive terms as Governor of
California), Don Regan was Treasury Secretary (35 years of financial sector experience), Martin Feldstein as the Chief Economic Advisor to President Reagan (the dean of business cycle determination), and Paul Volcker was Fed Chairman (9 years of prior financial sector experience). Compare and contrast to Barrack Obama (junior senator from Illinois for 3 years); Timothy Geithner (21 years experience in government, three years as a lobbyist); Larry Summers (no private sector experience; 27 years of academia and government) and Ben Bernanke (no private sector experience; 30 years of academia and government).

Which team do you think deserved the higher multiple — the one with actual experience in the real world or the one immersed in academia and government?

To play devil’s advocate, no two bull markets are equal in every way. It is a stretch to require a secular bull market to require experienced politicians for example. But cheap (or at least, reasonable) valuation is a condition that is difficult to explain away.

In today’s highly charged political environment, apparently everything and anything is game for the machinations of partisan political hacks. Even the US dollar has been pulled into this. So much so that it is generally believed and accepted that the US dollar is kaput, done for, worthless. And that the blame resides on the shoulders of Obama and his young administration.

But what if we step back from the raging and weeping talking heads on TV and instead of opinions, we just look at the facts?

Here is a chart of the US dollar for the past quarter century:

Reagan’s presidency presided over a boom and bust in the dollar - with the bust being the winning side. Trickle down didn’t really work but the deficit ballooned as tax cuts to the wealthy reduced government revenues. In 1989, the Republicans continued control of the White House with H. W. Bush’s presidency. While his administration managed to avoid a similar feat, the US dollar fell to new lows during the first half of his term.

The US dollar regained 50% of its value during Clinton’s presidency. You could argue that it was due to the balanced budgets and the elimination of the federal deficit. Or that it was due to the increase in the tax burden on the wealthy. There was even talk of reducing the federal debt. All that ended with the advent of the W. Bush administration.

Budget deficits and the US debt ballooned due to massive spending increases as well as tax cuts for the wealthy. The result was another major decline in the US dollar. Almost at the end of Bush’s second term the US dollar fell to multi-decade lows but recovered slightly as the last days of his administration drew to a close.

And that brings us to the present day with President Obama. He inherited an economy which almost overnight went into free fall. While I don’t agree personally with the measures taken to buttress the US economy, it bears noting that the US dollar is still above its recent W. Bush low. Also, as a contrarian, it is difficult to ignore the incredibly bearish view on the dollar right now.

So talk of a US dollar crash is either prophetic (if it becomes true) or Chicken Little-ish (if it doesn’t). And while 25 years or so is too small to make judgements on which, the Republicans or Democrats, are the better custodians of the US dollar, it is reminiscent of the counter-intuitive result of looking at the returns of the stock market under different political banners.

No, there is no free lunch. But for my US readers, there is a free trading magazine subscription in their future.. For a limited time, you can get a complimentary subscription to SFO magazine (Stocks, Futures, and Options).

It takes less than a minute to sign up and you need to provide some basic information. But as I mentioned, you need to be a resident of the US (because you need to provide a US address). Enjoy!

For economic and market news and to see what you may have missed last week, check out the list below. It is just a few choice examples from news.tradersnarrative.com:

• What Does Climate Change Have to do with Goldman Sachs?
• Barry Ritholtz Podcast Interview
• Five Pitfalls of Developing Traders
• KKR Goes Public Through IPO Backdoor
• Get a FREE Subscription to Financial Magazines
• Spotting Trend Reversals With MACD
• Obama’s Financial Reform
• End of Nortel - Sale to Nokia & Delisting
• Buffett: US Economy In “Shambles” .. No Signs of Recovery Yet
• What is the difference between a triangle and a pennant?
• Free trading videos
• Volcker Not Calling Shots in Financial Reform
• Central Banks Can’t Control the Market

For the complete list, follow the graphic below:

And remember to check back regularly since there are interesting links added throughout the week.

Week Ahead

Everyone is riveted by the tumultuous events in Iran. The best sources of up to the minute developments is the Huffington Post’s Nico Pitney and the Atlantic’s Andrew Sullivan. The MSM has for the most part dropped the ball completely - with the exception of the BBC.

More closer to home the big news was the Obama administration’s reforms of the financial sector. For more economic and market news and to see what you may have missed in last week, check out the list below. It is just a few examples from news.tradersnarrative.com:

• Five Things to Know About the Financial Regulatory Overhaul Plan
• Not Everyone Is Cheering Fed’s New Role
• China’s Fake Booming Economy
• Soros urges governments to outlaw ‘’toxic’ credit default swaps
• Get a FREE Subscription to Financial Magazines
• Three Suggestions for Reforming Rating Agencies
• Breakdown and Snapback
• Did the Madoff Sons Know?
• Why the Fed Isn’t Igniting Inflation
• Financial overhaul is a curious mix of audacity and timidity
• Free trading videos
• Goldman to make record bonus payout
• The Good, the Bad, the Ugly: Financial Sector Regulation

For the complete list, follow the graphic below:

And remember to check back regularly since there are interesting links added throughout the week.

FDIC Chair on the Regulation Revamp

Ah Sunday, a perfect time to catch up on what you missed and to prepare for next week. (Right after you mow the lawn.) Here are just a few choice readings from the past week’s list at news.tradersnarrative.com.

• Top 10 Questions for Buffet from Jeff Matthews blog, Not Making This Up
• Comparing Sentiment During This Rally & Past New Bull Markets
• Get a 120 page report FREE from Global Market Perspective (limited time offer)
• Why the Market Should Thank Obama
• The Market Doesn’t Have to Be Fair - Lesson From DNDN
• Ideas Trump Crisis: Lessons From 1929
• Tech Stocks Are Coiling for a Breakout
• Conde Nast Shutters Portfolio. Why It Failed
• Who sez there’s “no free lunch”? Get a Free Subscription to Futures Magazine
• 25 Years to Bounce Back? Try 4½

Follow the link below to get much, much more:

And remember to check regularly since there are new links added everyday.

Week Ahead: Capitalism’s Woodstock