Value Expectations's blog

Wal-Mart has so far been unsuccessful in its efforts to secure permission to open stores in the five boroughs. This has no doubt pleased its many clueless detractors apparently able to afford higher-cost grocery items, but for the New Yorkers already suffering nosebleed rents in what is one of the world’s most expensive cities, they’ll continue to overpay for basic goods in order to prop up local grocery stores able to mark up prices thanks to a lack of realistic competition.

It’s not so much that we should ignore what President Obama or congressional leaders have to say, as much as what they say and do shouldn’t concern us that much. Limited by a very clear document, their actions shouldn’t impact how we live to a very high degree.

Quality companies that have either taken a warranted or sometimes unwarranted pounding in the market, but still possess an attractive valuation to value-hungry, long-term focused investors

As the market has rallied over the past few months, the expectations for sales growth have risen and currently look lofty relative to what the S&P 500 has delivered in sales growth historically.

The problem with the deficit commission's recommendations is that it's assumed deficits exist due to a lack of revenues, rather than a government that does to much. But the tax simplification achieved through the abolishment of deductions is pro-growth, and will wake the half of the country up that doesn't pay for the cost of government

Price stability is the new fad among Fed critics who understandably want to see its mandate reduced. The problem is that even if the Fed could engineer price stability, this would be very economically damaging. Prices gyrate with regularity, and their movements tell producers what we want more and less of. If the Fed is to be given any mandate it should be one in favor of dollar-price stability. Nothing more than that.

When companies are unproductive and destroying wealth, management teams should not be looking to grow that business. Instead, management needs to improve profitability by either divesting it unprofitable units and/or restructuring the units to make them profitable before they earn the right to expand. The alternative is also true, just as investors do not like to see management grow a unprofitable business, investors do like to see management grow a profitable business (generating positive EMs) to maximize its profitability

Today we will highlight the stocks “Gurus” have either recently been adding to their portfolios as new holdings or companies that they have recently increased their position in the last quarter and rate them using the Economic Margin Valuation model. In the coming weeks we will be taking the pros picks and give them letter grades (A,B,C,D,F) based on how we look at the company (based on value score).

There's an enduring myth that the U.S. has never defaulted on its debt, but that's merely a function of how default is defined. When Treasury abrogated the gold clause in 1933, holders of U.S. debt suffered serious losses, and as evidenced by the dollar's decline versus gold since 1971, Treasury has been a serial defaulter ever since. Assuming a default of the haircut variety, this has been the global norm for at least two centuries, and if the U.S. were to default in this way, it's not something we should fear. Post WWII the largest economic powers were regularly in default of the haircut kind, and the global economy boomed.

The negative incentive effects of unemployments are well known. What's maybe not discussed enough are the less visible effects of jobless benefits, which include reduced productivity on the job, not to mention reduced savings thanks to it being known that unemployment brings with it a check from the government

With Black Friday kicking off this morning we have focused our attention on retail stocks we find attractive.

Paul Volcker's public loss of control of the Federal Reserve Board in 1987, combined with President Reagan's unwillingness to publicly back him, ultimately led to Volcker's resignation that same year. Kevin Warsh's Wall Street Journal op-ed wasn't just coincidence, and it presumably signals rising discontent within the Fed that will eventially reveal itself in votes against Bernanke. Volcker's loss of control led to his resignation, and Bernanke's similar problems probably point to his.

There once was a time when the "learned" believed the sun revolved around the earth, the world was flat, and government spending led to sustainable economic growth. This week's Investment Advisor Ideas focuses on another such misconceived idea, classifying stocks with growth and value designations. While the investment consultant community has firmly adopted the growth vs. value concept, at some point, hopefully in the near future, this classification will go the way of the buggy whip, leaching, and the above silly misconceptions. After all, the classification tends to imply a choice between owning a stock that can grow but doesn't offer much value, versus one that offers a compelling value but doesn't offer much growth. Such a choice is silly - every stock valuation implies a future stream of cash flows to justify its price. If today's price implies a smaller cash stream than a company is capable of generating, it is a value stock. If a stock's price implies greater cash stream than a company is capable of generating, it is a value trap, regardless of how sexy its products are or how strong its future revenue growth appears. It does not get much simpler than that.

PG: A company that earns above its cost of capital (positive Economic Margins) and is growing its asset base is considered to be following a wealth-creating strategy. Back-tests have proven these companies to be more likely to outperform those companies following a wealth-destroying strategy (negative Economic Margins and growing assets). PG also is trading below it's intrinsic value.

Despite a full-time job, frequent opinion pieces, not to mention a wife and children, Bill found time to write what I think is an essential book, The Courage to Do Nothing. Flax’s excellent book is a moral defense of markets and freedom, and if read it will greatly strengthen the arguments made by existing free-market advocates, while possibly converting more than a few skeptics.