Monday, December 15, 2008

Stocks are on sale - go and buy some..

The FT has a great article talking about two valuation measures - Q and "cape". Q is well known in finance as basically market value to book value. High Q can mean high valuations (although it can get a bit messy as there are other interpretations of this ratio). "Cape" is a "cyclically adjusted price earnings ratio" - but basically a P/E developed by Robert Shiller. Shiller is the guy who said that stocks were overvalued in the late 1990s, and houses were overalued in the 2000s.

Both these ratios point to valuations being below average since the late 1980s. Stocks, by these measures are cheap. Of course, prices could still fall, and even if they are cheap now, they could stay cheap for a long time. But, if you are a long term investor, now would seem like a good time to be buying.

HT: Newmark's door.

Friday, December 12, 2008

Ch 11 and the auto industry

A really nice piece by Joe Stiglitz on why Ch11 is the way to go for the auto industry.

I particularly liked the final paragraph which basically sums it up...
Even if Congress does now give carmakers $15bn as a “stay of execution,” postponing the hard decisions, before the next multi-billon dollar dose of medicine we need to think more carefully about who we are really bailing out and why. This should not end up as just another rescue package for bondholders and shareholders.
I think its pretty obvious that any loan from the Government is just going to delay the inevitable. Furthermore a Car-Czar will have no real power except to pull the financing. Using a medical analogy, this is like a doctor saying that he'll pull the life support plug if the patient doesn't take all the bad tasting medicine. It ain't gonna happen. 6 months from now the big 3 (or 2) will be back, cap in hand, driving their hybrids and begging for more.

On a related note, the Wall Street Journal reviews the Cadillac Escalade Hybrid. To quote the reviewer...
Not in my lifetime has a car company come up with anything as absurd as the 2009 Cadillac Escalade Hybrid, the latest example of hybrid greenwashing

Which reminds me of this "ad" recently posted by Craig Newmark.




Ok, remind me again why we are wanting to bail out these idiots?

HT: Mankiw's Blog

Tuesday, December 9, 2008

Cheap money

Because of unprecedented demand for safe assets, T Bills are being sold at negative rates. (See this Bloomberg.com article). In effect, people are paying the US government to store money. This can't be good. On the bright side, the loan to the auto industry isn't going to cost much in the short run!

Monday, December 1, 2008

Great videos on the financial markets

A big thanks to the unknown professor for posting a couple of these on his blog. These youtube videos are buy Paddy Hirsch of Marketplace.com. They are simple explanations of various aspects of the current financial crisis and are very watchable. Rather than post them all, I'll just provide the link to the youtube site here

HT: Financial Rounds (Unknown Professor)

Ford to sell volvo

Probably makes sense that Ford is going to sell Volvo - the company could use the cash. It'll be interesting to see who would bid for the unit. Given the market for higher end cars today, I imagine it could be had for a bargain.