Cold Grey Pre-Dawn Open Thread: Merry Festivus, Wall Street!

You knew Trump was a serial bankrupt when you threw your panties the keys to the economy at him, bankers!

Open Thread: The Chinese Leaders Are Laughing *At* You, Donald



Read more

Tulips. Tulips I Tell You

Prediction is hard, especially about the future.  But a quick glance at the Wall St. Journal’s Market Data page made my eyes pop.

I wanted to see if my general sense of unease around the financial markets had any quantitative basis, so I was looking up the price to earnings ratio of the major market indices.  The first number I noticed was the current p/e number for the S & P 500: 24.13.  That’s only a smidge up from a year ago, but is still historically pretty high.

It is, it should be noted, nowhere near the stratsopheric numbers achieved in the 2009, when earnings crashed so far and so fast that market prices couldn’t crash fast enough to keep up, but it is not far off those in the summer of 2008, just before the Great Recession became brutally obvious.

That’s got me generally a little concerned, as it doesn’t take much to spook “smart” money, and a high p/e is always a good excuse to sell.

But what made my eyes pop was the estimate of forward p/e: 17.65.  That is, in essence, a prediction that company earnings are going to improve significantly over the next year — enough either to ease the market into a soft landing, a return to more historically normal valuation, or (if you’re an ebullient sort) to keep the market powering upward for a while yet.

That’s all well and good, and as I’m a lot closer to retirement than my first day at work, I’ve got no objection to such an outcome.

But what has me antsy is that I don’t know the assumptions that went into that estimate, and known or not, I don’t trust ’em.  I’m writing now about the South Sea Bubble of 1720, and I’m continuously struck by how easy it was for very smart people — Isaac Newton, forsooth! — to persuade themselves the party would continue, even very late in the game.

All of which is to say that three hundred years of securities market adventures tell us that it’s always when, not if for unpleasant surprises.  I don’t know if one is imminent, but I do know two things: given current events, a big crash could produce true social and political ugliness in a hurry; and there are at least a few reasons to watch out for market hubris.

Any jackals got a similar feeling? Any actually knowledgeable types out there want to weigh in?

Necessary disclaimer:  I’m not a financial expert. I do not watch the markets closely.  Most of my retirement funds are in the most boring possible index funds I can find.  I have enough time — a decade-ish — so that I can ignore near term gyrations (ask me again around 2025 how I feel). And I’m certainly not an expert on company valuation, or the connection of or utility of macro- and political economics to something as fine-grained and context-dependent as a market investment.  I’m not a financial advisor, nor do I play one on TV.  I’m just a guy getting a little queasy.

Also too — a guy who thought we could use some more thread.

Over to you.

Image: A Stock Market Cleaner, cover of Puck, v. 15, no. 376,  May 21, 1884

Late Night Open Thread: 24-Carat Ingratitude

Much more of a symbolic protest than an actual boycott, of course; if not to the Repubs, where are a bunch of bloodthirsty economic parasites gonna go?

As national Republicans scramble their resources for a high-stakes midterm election year, some of the party’s biggest and most reliable donors have quietly withheld their support for Senate and House Republican groups out of frustration with the new tax law, CNN has learned…

…[S]ome of the Republican Party’s powerhouse donors in fact feel deeply stung by the law and have made their displeasure known to party leaders by keeping their wallets shut, according to multiple sources familiar with the situation, who spoke with CNN on condition of anonymity. Although some of the donors have not sworn off contributions to individual campaigns or even the Republican National Committee, all have so far withheld contributions to the House and Senate Republican campaign arms — which are key players in the 2018 midterm elections — as a way to send a message over the law.

The donors who have boycotted, all of whom are leaders of prominent hedge funds, include Paul Singer, of Elliott Management; Citadel’s Ken Griffin; Warren Stephens of Stephens Inc.; Cliff Asness of AQR; Bruce Kovner, formerly of Caxton; and Third Point’s Daniel Loeb. Combined, their donations accounted for more than $50 million to Republican groups during the 2016 election cycle; Singer ranked among the top 10 donors of either party, while Griffin and Stephens ranked in the top 20.

Collectively, they have bristled at what they view as favored treatment for corporations under the law. While the corporate tax rate was slashed from 35% to 21%, hedge funds are largely taxed at the top individual rate, which ticked down from 39.6% to 37%…

Although Singer has donated six figures to the Republican National Committee this year and has given directly to the campaigns of Reps. Martha Roby and Claudia Tenney, he has uncharacteristically not donated to groups supporting House and Senate Republicans. Stephens’ only engagement has been maxing out to a few congressional campaigns in Arkansas, his home state. Griffin has not donated to any federal campaigns or committees this year, according to FEC data, although a source familiar with his thinking said donations to congressional candidates and national Republicans are forthcoming.

Asness donated $250,000 to the Congressional Leadership Fund last year, in addition to more than six figures to the NRCC — but has not given since Trump signed the tax law. Loeb has supported Mitt Romney’s Senate campaign in Utah and Roby’s reelection bid but has not opened his wallet for any national Republican groups. And Kovner has not donated this year to federal candidates or committees — after last year giving six-figure sums to the NRSC and Speaker Paul Ryan’s PAC…

Brother, Can You Spare a Dime?

To follow up on DougJ’s generational musings last night let me share a story with you. A few years ago I was worrying over my figure and when I expressed concern to my wife she said, “Chubby? No. You’re not chubby. I mean, you wouldn’t call Bing Crosby chubby, would you?” I still puzzle over this.  Not too long after that we were listening to something or other by Crosby and my wife was telling me  about this soporific’s profound popularity. It was seriously like Beatlemania. Sarah observed that Crosby was emblematic of the war generation. Play some Bing and you’re right there spiritually.

For the boomers when you play “Paint it Black” I fully expect to see helicopters flying over the jungle. “Magic Carpet Ride” will always be accompanied by hippies cavorting naked in some sylvan setting.

“But what music is emblematic of your generation?” she asked. What will be the documentarian’s shorthand for Generation Xers? My first impulse was to say The Pixies but she rejected that as being too artsy and underground. She’s probably right. They are not universally known. I thought about it some more and concluded, for better or worse, it’s probably U2. Or maybe Run DMC? Michael Jackson?

What do you think? What about you in-betweeners who are too old for MTV but too young for the Beatles. Is it disco? And if there are any millenniums out there (this is what may dad calls millennials) what is the one song or band that will be the shorthand for your period?

And after you’ve sorted that out, go ahead and see if you can dig a little deeper for the fund that’s split between all eventual Democratic nominees in House districts currently held by Republicans.

Goal Thermometer