5 Things To Ponder: Hookers, Bubbles & Memorial Day
Submitted by Lance Roberts of STA Wealth Management,
Well, it is Friday and that means it is time to gather my reading list for this weekend. This is particularly the case since it is a long Memorial Day weekend.
Before I jump into this weekend's hodge podge of things to think about, I do want to urge you to remember that Memorial Day is more than just a day to break out the beer, have a backyard cookout and enjoy your families. It is also a day to remember those that have fought and died for the freedoms that we have so willing discarded in recent years in the name of National Security such as our right to privacy and freedoms of speech and religion.
Maybe this is even more the case now as we watch the issues surrounding the V.A. hospitals unfolding. As an American, we should all be somewhat ashamed of the way that our veterans have been treated, they deserved better. So, remember to take a moment this weekend and remember those that have fallen in the name of freedom, liberty and the pursuit of happiness.
"Words are even more feeble on this Memorial Day, for the sight before us is that of a strong and good nation that stands in silence and remembers those were loved and who, in return, loved their countrymen enough to die for them."
1) Creating Systemic Poverty by Jeffrey Snider via Alhambra Partners
"Regardless, the idea of growth in the number of households has taken root with very good reason. The dynamic nature of humanity should at some point revisit this most basic piece of economic growth. Yet, there are negating factors to consider. After all, there is an equally powerful reason that household creation has lagged so severely since this “cycle” began (annual formation was about 1.2 million per year between 1960 and 2006; dropping to only 550k during this “recovery”). By that, I mean systemic impoverishment.
There is a world of difference as to why economic activity takes place. Artificial, credit-stained activity will never be more than a fleeting substitute for fundamental demand. And when the artificiality inevitably subsides, what is left is far worse than not having entertained it at the start. That too is a testament against the illicit concept of neutrality. We may all be dead in the long run, but it used to be nice to enjoy the fruits of free economic expansion whilst awaiting the unavoidable."
2) Hookers And Blow To Boost GDP via Zero Hedge
There is the bizarre, the absolutely unbelievable and the fantastical. Then there are things you just can't make up. This is one of them.
"A year ago it was the US which first "boosted" America's GDP by $500 billion - literally out of thin air - when it arbitrarily decided to include 'intangibles' to the components that 'make up' GDP (in the process cutting over 5% from the US Debt/GDP ratio). Then Spain joined the fray. Then Greece. Then the UK. Then Nigeria, which showed those developed Keynesian basket cases how it is really done, when it doubled the size of its GDP overnight when it decided to change the base year of its GDP calculations. Now it is Italy's turn, and like everything else Italy does, this latest "revision" of the definition of GDP easily wins in the style points category. As Bloomberg reports, "Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year." Yup: blow and hookers. And that, ladies and gents, how it's done."
3) A Look At Record Profit Margins by Larry Swedroe via ETF.com
"You’re probably thinking that record profit margins are a good thing. The companies within the S&P 500 Index reported operating margins of 9.5 percent for the quarter ending June 2013. That was just short of the 20-year high of 9.6 percent reached in the third quarter of 2006. Today the figure is at about 10 percent.
The problem is that profit margins in the past have exhibited a strong historical tendency to “revert to the mean”—above-average margins have tended to fall and below-average margins have tended to rise. According to U.S. Commerce data, the average profit margin since 1952 is about 6 percent.
Clearly, if profit margins reverted to their mean, even if the process took several years, unless sales growth increased rapidly and/or price-to-earnings ratios rose to offset the drop in margins, the stock market could take a sharp hit.
And that begs the question, Should you be worried?"
Also Read: Corporate Profits And Market Crashes by Cris Sheridan via Financial Sense
4) The Stock Market Isn't Where You Get Rich by Cullen Roche via Pragmatic Capitalism
"On average, the stock market generates a real, real return (that’s the after taxes, fees and inflation return, i.e., the 'in your actual pocket' return) of about 6.75% over the long-term. So, if you’re a young aspiring “investor” who allocates, say, $10,000 to the S&P 500 at the age of 25 you can expect to have a whopping $70,000 or so after 30 years (assuming no further contributions of course). Not exactly the “get rich” plan you thought, eh?
But that’s the idea that is continually pounded into our heads through various media sources – this myth that the stock market is somewhere where you get rich. The reality is exactly backwards. Most of the time what you’re buying when you buy stocks on a secondary exchange is a claim on assets that made SOMEONE ELSE rich."
5) Signs Of A Bubble? Retail Investors Jump In by Michael Regan via Bloomberg
"Despite talk of flagging investor confidence and increased scrutiny of market participants, data from retail brokers show that the retail crowd is more engaged than ever,” Avramovic wrote in a report last week.
Combined daily average revenue trades at E*Trade Financial Corp., Charles Schwab Corp. and TD Ameritrade Holding Corp. rose 24 percent in the first quarter from the previous year and reached the highest level ever, according to Raymond James Financial Inc. analyst Patrick O’Shaughnessy.
All of this could conjure up the old Wall Street trope that retail investors are always late to the bull-market party and their exuberance is a sign that the keg is almost kicked. Not to mention that U.S. equity mutual funds are winning net inflows for a second year after six years of withdrawals."
Also Read: Penny Stocks Fuel Big Dollar Dreams via WSJ
Chart Of The Day: Bubble Watch
Yesterday, I got to visit with the portfolio manager of a major global equity income fund. As he was making his case as to why Europe still had "legs" from an investment standpoint. It was at this point that he directed my attention to the recovery in M&A activity as support for his point.
With margin debt just off record levels and complacency near historic highs, I was more concerned about the surge in domestic M&A activity. Such activity is generally focused near the ends of economic cycles as other investment opportunities wane. The last time the U.S. was at these levels was in 2006. Of course, this time could be different.
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