And there’s joy at Fenway as  Boston Puts It To the Yankees.

If….you love the Yankees, I understand.

Every morning after a Red Sox game, Lisa’s grandmother tells me about the game. I already know what she tells me, but she gets quite excited at age 95.

She says, “Big Poppie (David Ortiz) clocked his third home run, and things are looking up for him” and “the stock market”, I add.

OK; not so fast, Randall. We have a lot of ground to travel before returning to solid ground. No banners hanging over Wall Street yet.

Just the same, the news is better.

Market analysts support viewpoints with statistics. Most of us find the data dreary. We scan the dull parts faster than a furtive glance.

Baseball stats dull the sound of the bat, the “wave”, and a Fenway Frank. Just the same, statistics and probabilities matter.

This summer, I went to my second Red Sox game. We sat perpendicular to third base. What seats! To my right and to my left, two middle-aged men kept track of every hit and every pitch for every inning.

I asked, “How come you do that?” They both said, “I just enjoy the game more when I do.”

So, for those who enjoy stock statistics, the attached SEI Investments commentary gives you plenty to ponder.

Quiz:  Can you guess the stat before reading the right coloumn? They all seem esoteric to me.

Here’s the article, “Small-Cap Stocks: Too Far Too Fast or Just the Beginning?” by James Solloway, CFA, Senior Portfolio Manager, Global Portfolio Strategies, SEI Investments, Inc.

Whoever told us that getting what we want, no matter what the cost, rewards us with profits?

What presumptions did we assume during the Industrial Revolution?

Did someone say the earth has a voracious appetite for our refuse without choking?

Paul Hawkens contradicts our presumptions, assumptions, and earth-born arrogance by recognizing an eternal premise: the earth lives, and we have no right, in the name of profits, to destroy the land.

Hawkens, (read The Ecology of Commerce) taught Ray Anderson that sustaining the earth is consistent with making profits. You can treat your customer with high regard, make decorative carpets with sustainable characteristics, offer free recycling of what you make, while making profits.

Ray Anderson is the founder of Interface, the company that makes those adorable Flor carpet tiles (as well as lots of less whizzy but equally useful flooring and fabric). He was a serious carpet guy, focused on building his company and making great products. Then he read Paul Hawken’s book The Ecology of Commerce. Something clicked: with his company’s global reach and manufacturing footprint, he was in a position to do something very real, very important, in building a sustainable world.

Here’s what Ray Anderson told a Ted conference (If you want to learn innovative ideas from critical thinkers, check out “Ted, Ideas worth spreading“.

Last week’s chart illustrated the current plunge of S&P 500 earnings. Today’s chart illustrates how this plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the current plunge in earnings and the recent 2.5 month stock market rally, the PE ratio has spiked to the low 120s – a record high.

Notes:
- Where’s the market headed? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

Source: Chart of the Day

Chart of the Day
While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today’s chart helps provide some perspective as to the magnitude of the current economic decline. Today’s chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.

Notes:
- Where’s the market headed? The answer may surprise you. Find out right now with the exclusive & Barron’s recommended charts of Chart of the Day Plus.

Source: Chart of the Day

On December 19th, 2008, Robert Brokam of the Motley Fool, asked John Bogle (born 1929), founder of The Vanguard Group, if we are heading for a depression (Bogle grew up during the Depression).

“Today, we hear a lot of people invoking the possibility of another Depression. So what is your take on today’s crisis? Are we looking at another Depression?”

Bogle answered,

“…This is my tenth bear market, defined as one that goes down at least 20%. And this is in a lot of ways the most difficult one that we have had because the gross excesses — the unacceptable excesses in our financial sector — are carrying over to the economy at large…I think the excesses of Wall Street and Wall Street’s greed have carried over and done substantial harm to Main Street and the people that make America go….”

In the Berkshire Hathaway 2008 Annual Report, Warren Buffet refers to the performance table (see page 4) tracking the 44-year performance of Berkshire’s book value and the S&P 500 index.

“…2008 was the worst year for each. The period was devastating as well for corporate and municipal bonds, real estate and commodities. By year-end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.”

There was no place to hide, and asset allocation didn’t matter.

An “Investment News” survey concluded that “70% of 329 advisers said that the economic downturn and its effect on clients have negatively affected their physical and/or emotional health.”

Jed Horowitz, author of the article, writes,

“Mental-health professionals say that stress can trigger depression, which can lead some advisers to feel unjustified guilt over unpredictable client losses.”

“As many as 80 percent of Americans are stressed about their personal finances and the economy, according to the annual survey conducted by the American Psychological Association,”

according to CNNHealth.com.

Dr. Katherine Nordal, the association’s executive director for professional practice said,

“This year…the No. 1 concern is both money and the economy. In my 30 years of experience…this was not the thing that would be high in complaint lists…what we’re seeing today is that the economy and finances are viewed as significantly more stressful, by more than 8 out of 10 Americans”

(7,000 Americans replied to the survey from April to September 2008).

During his March 24th press conference, President Obama reminded Americans that

“We will recover from this recession, but it will take time, it will take patience, and it will take an understanding that when we all work together; when each of us looks beyond our own short-term interests to the wider set of obligations we have to each other — that’s when we succeed.”

.

Recent news suggests, but may not be conclusive, that this recession has found its bottom and finds it attractive.

Getting The Facts

“Just the facts, ma’am”

Sergeant Joe Friday never said, “Just the facts, ma’am.”

He said, “All we want are the facts, ma’am…All we know are the facts.”

“The story you are about to hear is true; only the names have been changed to protect the innocent.”

The narrator introduced the story.

On April 26, 1951, on a black and white Zenith television, viewers heard, “You’re Detective Sergeant, you’re assigned to auto theft detail. A well organized ring of car thieves begins operations in your city. It’s one of the most puzzling cases you’ve ever encountered. Your job: break it.”

The past two years of stockmarket activity is “the most puzzling” I’ve “ever encountered.” My job is to explain it with just the facts.

Finding facts stripped of emotion and sales pitch takes some searching.

Finding reliable sources for facts takes some investigation.

The facts you are about to read are accurate, to the best of my knowledge; the names have not been changed, and there’s plenty of guilt for everyone.

My best resource:

Asset Allocation: Balancing Financial Risk by Roger Gibson

So, what am I learning now from Mr. Gibson.

David Drucker, an independent registered investment advisor, interviewed Mr. Gibson on March 26, 2009. “Roger Gibson on the Market Crash” is available on Morningstar Advisor (a service provided by Morningstar).

“All we want are the facts…All we know are the facts.”

Drucker’s first question, “Do we need to somehow recognize and incorporate a new level of volatility in the asset classes we use?”

Gibson’s answer, “It depends on whether we’re looking at short- or long-term volatility. Certainly 2008 was without much precedent in terms of how big the losses were and how far they stretched across all asset classes….”

Facts:
• All of Morningstar tracks 3,734 funds invested primarily in U.S. stocks lost money
• All of the 978 non-USA funds lost money.
• All of the 144 U.S. and non-U.S. realestate funds lost money.
• All of the 128 natural resource funds lost money.
• More than 4,000 funds tracked by Morningstar lost value.

Before going back to Drucker’s interview, an overview of corporate earnings might add prespective to mutual fund returns.

Mutual funds gain or lose value because of corporate earnings. If corporations do well, thier stocks perform well (not always, but usually).

Stocks go up or down, most times, because corporate earnings go up or down. Standard and Poors reports that corporate earnings for the past 20 months decreased more than 90%. Corporate earnings have been recorded since 1936. Current corporate earnings, or lack of earnings, are the worst on record.

“In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.” (Chart of the Day)

Drucker proceeded to ask about bond/fixed income funds since asset allocation models include both. Gibson’s firms studied bond fund performance too.

Facts:
• The Morningstar database tracks 1,730 bond funds (taxable and municipal)
• 1176 (68%) fixed income funds lost money.

“In 2008, panic fed on itself. I had more than a couple of sleepless nights in the last quarter as foreign markets were in a freefall because the U.S. markets were in a freefall, and the next morning U.S. markets were again in a freefall because foreign markets were in a freefall, and so on.”

Roger Gibson, David J. Drucker interview, March 26, 2009

Risk premium may inprove in future years.

Risk premium is the difference between the return received for a risk-free investment and the return on a risk-investment (stocks, commodities, etc.)

For example:

If stocks returns are 9%

and if Treasury returns are 4%

The risk-premuim is 5%

“During times of excessive optimism, people overshoot markets on the high side, and during times of extreme fear and panic, markets overshoot on the downside. In 2008, people panicked and dumped securities, which sets the stage for higher-than-normal rewards for people holding on.”

Roger Gibson, David J. Drucker interview, March 26, 2009

Drucker: So there will just be some years–like 2008–where asset allocation, with all its benefits, won’t keep us safe.

Gibson: Let me answer that with my favorite quote, by Paul Volcker, who, 15-20 years ago, was at CFA conference and said, “You cannot hedge the world.” I love that quote, if you’re living on this planet, you can manage risk, but you can’t eliminate it. We got that lesson in 2008.”

“All we want are the facts…All we know are the facts.”

Stockmarket opinions rage on every page about the future upward or downward direction of the stock market. Some comments are worth hearing not because they are predictive or prescient, but because they seem informed and somewhat reasonable.

Bloomberg news and Bloomberg radio offer reasonable views from seemingly informed authorites. Bloomberg seems a bit less tenentious when asking questions (compared with Fox Business News or CNBC). Professor Roubini’s views merit attention.  His comments were made earlier this year (I can’t locate the date at the moment).

Listening requires more than hearing words and data. Listen includes facial expression, voice inflection, eye movement, and persona impressions. Watch Professor Roubini, his humor may be quick and laughter may break his composure, but his mood here appears dour. He may have reasons for this. Click on the link to see the video.

Roubini Says Stocks May Fall Another 20% Before Recovery

 

A few streets in Boston have cobblestone or brick pavement. Treking along these walkways involves paying attention to your feet. You also have to stay alert to your destination.

The stock and bond markets are similar. Every now and then you can trip, but if you keep your eyes on the destination, you’ll get there most of the time.

Remember the TV ad, “I’ve fallen and I can’t get up”? Stock and bond investing is not like this. You may fall (your portfolio value), but you will get back up. The only way you might not get up is if the walkway turns to rubble. That predicament does not seem likely.

Hyperlinks on this website are provided as a convenience and we disclaim any responsibility for information, services or products found on websites linked hereto. 

NOTE: This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. For more information, including a prospectus with charges and expenses, call the number of any brokerage firm, mutual fund company, investment advisor, or insurance company.. Please read the prospectus carefully before investing. . Mutual fund investing involves risk, including the possible loss of principal. In addition to the normal risks associated with equity investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments typically exhibit higher volatility. Products of companies in which technology funds invest may be subject to severe competition and rapid obsolescence. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Past performance does not guarantee future results. Ethos provides this news page for information purposes only and it should not be construed as legal, accounting, tax, or professional advice. Ethos Advisory Services disclaims any loss or liability which is incurred as a consequence, directly or indirectly, of the use or application of this news page or any page on ethosadvisory.com or echievements.com.

October 29th, 2008

Nothing about the stock market is too predictable…what you expect usually does not happen.

Some will disagree. For them, the direction of the market is clear. At least clear when claiming prescience. They’ll never admit when wrong; they will boldy exclaim and humiliate when right.

Stock trading intra-day has relevance, but what seems to matter most is what the market indexes say at 4PM (or after the final trades settle around 4:10 or later).

Here are three observations:
• Volatility prevails
• The better hedge funds seem to be standing on the sideline
• Nobody is really certain about what happens next; Those who are certain see “gloom and doom”
• Many wait for the next economic “shoe-to-drop”

Finally, whatever happened to dollar-cost-averaging?

You’ve heard or read the story about Chicken Little (I have five of them roosting outside my office window; in moments of distraction, I watch them eat while my dog snores on the office couch.)

Anyway, Chicken Little hunts and pecks for morsels, gets whacked by a flying acorn, and thinks (chickens don’t, but you get the point) the sky is falling. Off she runs to Federal Reserve Chairman of the Kingdom. News gets out, and the eggs start falling off the wall, the sky starts cracking, and everyone runs for cover with egg-on-the-face.

Every story has a moral. Chicken Little teaches us to have courage, fortitude, and conviction. One version tells us that everyone runs for cover because the sky is falling. That story line tells us not to follow the herd or in this case, the flock.

How come we feel so much worse when markets decline, crash, collapse, or crumple? What makes us so vulnerable when thinking events have turned against us? Behavioral science gives us an answer.

Investors feel worse over a loss than they feel good over a gain. Feeling loss of any type reminds us of death, deprivation, disappointment, and depletion. Loss reminds us of mortality. You may find this a thougtless-stretch; I find it a thoughtful-truth. Fear shouts louder than confidence because facts lack relevance when facing danger.

No matter how many facts line up to reassure us, most of us just can’t be convinced. That ugly feeling in our gut will not go away. The facts matter (as time may confirm), but sometimes feelings overwhelm and many investors become Chicken Little. However our confidence, resilience, determination, and commitment toward work and innovation may just prevent the sky from falling.

“If you can keep your wits about you while all others are losing theirs, and blaming you. . . . The world will be yours and everything in it, what’s more, you’ll be a man, my son.” – Rudyard Kipling, English short-story writer, poet, and novelist. Nobel Prize(1907), 1865-1936

Chinese customer service representatives speak Japanese. China and Japan, ardent enemies, find economics assuages enmity. The U.S. government lowered the bar so foreign investors may invest in U.S. airlines. A mint farmer closes his farm because Indian farmers grow mint with less overhead; the U.S. farmer has lost his edge. Yugo, Honda, and Hyundai diminish Ford and GM earnings. Wait until the Chinese vehicles arrive. World markets remind Americans that the NYSE and the NASDAQ trade many stocks and bonds, not all of them. Look beyond your shores.

Read some of my other articles found as Ethos Musings