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Thoughts From Rosie and Taibbi
The logical follow up to Rosie's earlier CNBC appearance is the teaser from his "Snack With Dave" email sent out to Gluskin Sheff clients. For the full body, we suggest readers apply for a free subscription to all of Rosie's musings.
We heard at the market lows in March 2009 that the stock market had sunk to Armageddon levels. We have often thought about that because we can certainly understand that at the 2.0% lows on the 10-year Treasury note yield, we had gone to a place we had not seen in over five decades. Also, with Baa spreads north of 600bps, we could see that corporate bonds had moved to levels not seen in seven decades as well.
But this notion that we had moved to Armageddon lows in equities does not seem to hold water. After all, the forward P/E multiple on the S&P 500 at the lows was 11.7x. That was not a multi-decade low or some massive standard-deviation figure — we were actually lower than that at the October 1990 lows when the multiple was 10.5x and frankly, coming off the 1987 collapse, the forward P/E had compressed to 9.8x. As it now stands, the multiple is back very close to where it was at the October 2007 market high, when the multiple had expanded to 15.0x. The range on the forward P/E over the last quarter-century is between 9.8x and 21.8x (excluding the tech bubble), so at 14.5x currently, it is hardly the case that this market can be viewed as a bargain.
On a trailing earnings basis, the P/E multiple has actually widened, from 17.0x at the lows to 23.3x currently, a huge multiple expansion. At this stage of the 2003 recovery, the multiple hardly expanded at all, earnings were driving the rebound; coming off the October 1990 lows, the multiple expansion four months into the rally was closer to 2x and the powerful surge in the post-1982 recovery saw a 3x multiple point expansion at this juncture — not 6x!
As an aside, with the U.S. government now putting its fingers into more than one-third of the economy (health, finance, autos, energy, housing), one would expect that the fair-value multiple in the future will be lower than it has been — given the implications for productivity and the potential non-inflationary growth potential.
Also, Matt Taibbi is slowly emerging from the post article vacuum: his first written interview since the GS piece, compliments of Wall St. Cheat Sheet. Some excerpts:
Damien: The last word I wrote after I finished reading “The Great American Bubble Machine” was ‘Leviathan’. Since you’ve done some great research covering Wall Street and Washington, do you know of policy tools we can use to dismember what you affectionately called the “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”?
Matt: I interviewed a government regulator for my previous piece [“The Big Takeover”] who said state regulators already have enormous power. The state banking commissions or insurance agencies, SEC, or the Office of Thrift Supervision can simply write a letter to these banks and say, “You won’t exist tomorrow unless you …” or, “You’re not going to get government funding unless you do this.”
So, they already have enough power to correct all the problems people are worried about. The problem is getting the appropriate people to staff those bureaucracies. If enough people put pressure on members of Congress and the President to appoint the appropriate people, then we should solve most of these issues. I’m not sure what new policy initiatives would be needed. I just think we need new people.
Damien: Do you believe the citizenry can put enough pressure on our legislators, or are we the sheeple who are too confused, ignorant, or entertained to affect change?
Matt: The real problem is people aren’t organized enough to make it worth the while of politicians to pay attention to ordinary people. The disadvantage the average Joe has against Goldman Sachs is Goldman can concentrate its campaign contributions in its favor. The typical politician is not going to upset or alienate the five most powerful investment banks because he knows realistically he will jeopardize 30% or 35% of his next election cycle’s contributions. On the other side, there isn’t a way for the average person to organize and deny these politicians the money they need to get reelected. So, until we solve the campaign contribution problem, we won’t have the legislative tool to rebalance the power.
Damien: So are we living in a Catch-22 where we have to choose between the Goldman Leviathan sucking the world’s wealth from loopholes or the omniscient eye at the top of the governmental pyramid which becomes the one crown reigning over us all?
Matt: It’s pick your poison. But before we can even worry about the international government question, we have to start at home with our own country. We have to start by protecting the citizens of our country. Even in the United States, Goldman is allowed to get away with things they shouldn’t be allowed to get away with. If we can tighten up and enforce the rules here, we will be much better off before even looking at the international issue.
Damien: Most powerful institutions such as the Federal Reserve and Vatican dismiss most criticisms as “fringe conspiracy theory.” Why should the average citizen not dismiss your claims against Goldman as fringe conspiracies about bankers or Jews?
Matt: That was the tactical criticism I got from Goldman who said to the media, “Next thing you know he’s going to blame us for the Kennedy assassination and say we faked the moon landing.” But if you pay attention to all the criticisms they are leveling, it’s what we call in this business a “non-denial denial.” When people respond by calling names and changing the subject, it means they don’t have any issue with the factual allegations in the article. So, in response to being called a conspiracy theorist, the fact is they are resorting to the rhetorical non-denial denial shows they don’t have any real basis to criticize the facts in the article. The article speaks for itself and the fact they don’t have substantive issues with the piece is highly revealing. In fact, before the article went to print I was extremely nervous we had gotten something wrong and Goldman would come out with a whole list of things they’d say we made mistakes about. But the fact that they didn’t come up with a single thing greatly emboldens me to think we got it right.
Good reading.
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Listen to this little flunkey, this little quisling:
"If enough people put pressure on members of Congress and the President to appoint the appropriate people, then we should solve most of these issues. I’m not sure what new policy initiatives would be needed."
It's not about people, it's about individually enforceable rights.
You see why this creep, just like Roubini, is just another hustler. It's about what HE wants to do for US. He wants US to empower HIM. He doesn't want to empower us.
Or rather, he was to empower US to empower HIM. It's all HIM HIM HIM: HIS ideas, HIS view of the economy, HIS idea of reform. It's never the INDIVIDUAL, it's always the LEADER.
The only difference between this creep and George Bush is the flavor of fascism. With these clowns, it's always about the LEADER.
Don't buy this creep's snake oil.
That's why we call them "talking heads." It's all about THEM: THEIR ideas, THEIR careers.
But it's not about that: it's about
INDIVIDUALLY ENFORCEABLE RIGHTS.
Where do you see Taibbi asking for HIS own empowerment?
Where have you read that in the excerpt you're quoting?
He's simply stating that the laws and regulations are already in place but there are no individuals interested to deploy them. There is no Taibbi in this statement.
Why can't we base the SP500 PE on dividend percent? Any other number is concocted by a bunch of accountants in a mushroom farm.
To do a dividend you actually need something no firm seems to have: cash. They all seem to have debt, but manage to move off balance sheet or to the asset side. Lets end this pillage of America. Bailouts, Stimulus, PPT-all a Goldman scam. good articles: http://tinyurl.com/phy7j7
Yo, Tex! Calm down and put those 6-guns back in their holsters. Nowhere in that article did Taibbi talk about empowering himself. Nowhere did he talk about empowering a leader. In fact, he explicitly said he doesn't think we need more power in the leader. He explicitly argues that individuals need to empower themselves.
Bonddude
I'm not a lefty at all but I remember Roubini sticking his neck out almost 3 years ago on CNBC only to be banned
for almost a year and a half and called crazy.
Even if you believe he's pimping it now, you surely
couldn't say that 3 years ago. So how do you explain his
willingness to go out alone on a limb 3 years ago?
* this message paid for by Friends of Goldie.
MT speaks exactly to individual enforceable rights being violated, but then reminds us that without political support for these individual rights, the behaviors (that look so illegal) just get passed on as usual because of the incredibly strong bank lobby--the privately held federal reserve monopoly and all their agents which include GS. He is really quite different (180 degrees) than a talking head that is trying to build their own image and career.
Honestly, it sounds like MT is trying to issue a call to arms so that someone else can take the reins and lead the cause. If you are saying that he (or Roubini for that matter) is trying to vault themselves into politics by building public awareness then they're chasing Nader's dream. I think we need a "Financial Ralph Nader"...but not as president.
They are both doing what they can to build their credibility but MT is a writer and Roubini is a professor...both, in their current careers, require extensive credibility to be successful...
But, definitely, take the time to contact the two for the obligatory "I'm an idiot" article that you feel they both should write.
i think the point is that we don't need someone or something to be big enough to go after GS.. we just need o have these big firms divided up - anything too big is a problem
Dude, you are off the rocker. Taibbi has no agenda and he certainly isn't promoting policy that somehow empowers him over all the citizens of the US and world. Are you OK?
Ask yourself? What is an individually enforceable right? It's an idea, buddy. One that exists only in the cerebral mush in your head (and some others). Ask your friend "individually enforceable rights" to help you next time you are getting robbed or your 401K gets halved.
Either your 1) still in college, 2) work/worked with Goldman et al, or 3) sitting in a little cabin in upstate Oregon.
And, the irony: your post is YOUR ideas. YOURS, YOURS, YOURS.
blow me wouldya?
I think America needs a new election system.
This ridiculous, idiotic handshake,babyshake campaigns which costs hundred of millions benefit only the rich.
Like in Germany you need a system where the money for the partys comes from the state/taxpayer.
The total cost of the election in 2005 was 65 Million Euro.
I think the campaign 2008 in the US was about 1 Billion.
Only Millionaires have a chance.
So money rules.
But Millionaires are not the better politicans.
But maybe you call this modell unamerican.
No what we need are new voters. The ones currently voting are ignorant, stupid, indifferent, or all 3. (Gee, sounds a bit like Congress.) How else can one explain Franken becoming a Senator? The very idea of people who live entirely off of the government having a say in the electoral process is ridiculous. It's akin to the child telling the parent what to do, and that type of "lawlessness" inevitably leads to disaster. We have far too many people with no experience, education, or common sense making monumental financial decisions. Some of these people are challenged in balancing their own checkbooks. I recall recently, during a Congressional hearing with the usual government finance "leaders", Bernanke was asked a convoluted question by the ever so ineloquent , uneducated, and frankly, idiotic Maxine Waters. Her question took around 3 minutes just TO ASK IT. It was apparent through her inability to pronounce/ enunciate/ articulate various parts of the question that she had no part in its construction. As the end of her bout of verbal diarrhea, Benanke looked at her with an incredulous expression and simply said something to the effect of Congresswoman, the question you asked makes no sense to me. Can you try asking in again in another way? It was hilarious and she was clueless so she passed on the remainder of her time. This is what I mean when I say the people running the show have no idea what is really going on.
Don't say this is new either. Our founders warned us over 235years ago. Ben Franklin said a republic will last only until the people learn they can vote themselves money from the public treasury. Well, we are obviously there and have been there. Folks need to wake up and realize that without something literally historic happening (more than a minority President) this country will cease to exist in the form in which we know it. It's already far different than what the Founders intended. I try to warn people regularly and their heads are firmly entrenched in the sand. Unfortunately for them, they are more likely to find Red Foreman sticking a foot in their asses than they are to find a solution to their and our problems.
The problems we have must be handled by someone with balls and understanding that a lot of people will not be happy with how they are affected. But, we are talking about the ultimate survival of a nation, and make no mistake, that is exactly what we are talking about. If someone has gangrene in one's hand, does he not treat or if necessary remove the hand before the illness spreads up the arm and eventually to the body? We've not only refused treatment, we are exacerbating the situation speeding our demise. If nothing else, it will be interesting to see how it all plays out. I just hope everyone is preparing accordingly.
Doesn't "people who live entirely off of the government" pretty much include the investor class and most elderly people in the US now? If so, then perhaps your proposal to strip them of their voting rights might have some benefit after all.
Secondly, I can explain Franken becoming a senator by pointing out how (increasingly) poor Republicans are at fielding candidates that are worth >= two cents.
Coleman was SUCH a little cockroach. Pawlenty will be gone soon, Inshalla. -Francis
Meanwhile those who supposedly need protection, can't be called to action because they are too busy watching the MJ funeral.... or porn.
"MARK IT ZERO, DUDE"
P.S. Taibbi is famous for his name- calling tirades, no?
People need to ponder the mathematical implications for the U.S. of stupid people reproducing at rate of 3-5x that of smart people.
I think your 3-5x factor is woefully flawed...once you get to triple digits, then I'll listen.
Can you imagine the paradise we'd have if only
ZeroHedge readers procreated?
I mean we have to add two numbers together just to post. That eliminates 94.8% of the population right there.
Check out the movie "idiocracy". It shows us our future as you describe.
Highly recommended. Here's the opening sequence:
http://www.metacafe.com/watch/2682654/idiocracy_opening_sequence/
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXE_NxcOLRXc
PROBLEM:
Regulators want to become part of the companies they are regulating, to make the big bucks, so they overlook law breaking acts or are easily paid off.
SOLUTION:
Give regulators a cut of fines levied as a result of their findings. 5% of 100 million to a group of 10 who brought and won charges against Goldman for securities fraud would be a nice payday.