"Common stocks have one important investment characteristic and one important speculative characteristic. Their investment value and average market price tend to increase irregularly but persistently over the decades, as their net worth builds up through the reinvestment of undistributed earnings. However, most of the time common stocks are subject to irrational and excessive price fluctuations in both directions, as the consequence of the ingrained tendency of most people to speculate or gamble”.
SPRINGFIELD, Virginia- Today, Campaign for Liberty Chairman Ron Paul issued the following statement in response to the Federal Open Market Committee’s decision to continue its failed bond buying program:
“Chairman Bernanke and the government falsely believe they can single-handedly control interest rates. Yes, there can be some manipulation, but markets are much more powerful.
“The Federal Reserve has lost control of interest rates, and we are seeing the results in higher yields on Treasury notes, likely due to the Federal Reserve’s unprecedented monetary expansion over the past few years. Until our leaders understand that the Federal Reserve’s drastic intervention in the US economy has made our economic problems worse, the American people will continue to suffer high unemployment, rising prices, and now, rising interest rates for years to come.”
Speaking at a Franklin Templeton investment conference in London this week, Zahn said his overall view of Europe is that “it’s not great, it’s not terrible, it’s moving along and reforming.” He says investors need to be patient—and selective.
David Zahn “My overall take on Europe is that it’s not doing badly. There is still a lot of rebalancing that needs to be done between the periphery and the core countries. This will take time. There are still measures that need to put through. There are a number of structural problems in Europe that still need to be dealt with, and they are being dealt with at a reasonable speed. If Europe doesn’t contract in the next year or two, we think that could be considered as doing quite well.
"I don’t have the slightest interest in gold. I like understanding what works and what doesn’t in human systems. To me that’s not optional; that’s a moral obligation. If you’re capable of understanding the world, you have a moral obligation to become rational. And I don’t see how you become rational hoarding gold. Even if it works, you’re a jerk." -- Charlie Munger
The Eurogroup welcomes the decision of the Board of Directors of the European Stability Mechanism to approve the first tranche of EUR 3 bn of financial assistance to Cyprus, in the context of the programme whose key features were agreed between Cyprus and the euro area Member States on 25 March and of the Memorandum of Understanding signed between Cyprus and the European Commission at the end of April. The first disbursement under the first tranche for an amount of EUR 2 bn took place today. This is an important step towards the stabilisation of the Cypriot economy reflecting our unwavering commitment to preserving the financial stability of the euro area and its Member States.
Cyprus has implemented all prior actions as agreed in the MoU preceding the decision by the ESM on the first disbursement. The Eurogroup commends the Cypriot authorities for delivering on their commitments to date and reiterates its appreciation and understanding for the efforts made by the Cypriot citizens.
The Eurogroup also welcomes the completion of the independent assessments of compliance with the anti-money laundering framework in Cyprus. The Troika institutions have reported the key findings to the Eurogroup, and recommendations to rectify deficiencies will be integrated in the AML action plan to be agreed between the Troika institutions and the Cypriot authorities at the time of the first review. The action plan will need to target areas covering implementation of customer due diligence by banks, including through adequate supervision, and the functioning of the company registry, among others. It remains essential to proceed with the implementation of the adjustment programme in a steadfast manner in order to restore financial stability in Cyprus and to lay the foundations for a sustainable path of growth.
What was the role of decisions by Cyprus, decisions by Europe, and other factors in producing the crisis we see now?
A number of factors played a role. The global financial crisis and exposure to Greece made Cyprus vulnerable. But the outcome was determined by decisions taken by the previous government in Cyprus as well as the broader malfunction of the euro area over the past three years.
Two months after Cyprus joined the euro area [in January, 2008], there were presidential elections and the Cypriot public elected as president a communist, Demetris Christofias. The public was convinced he could solve the political problem we had with Turkey and reunify the island. The issue was not economic.
If one thing has become clear over the last five years in Cyprus, it is that the euro area, which is not just a market economy but a currency union with strict rules, is not compatible with a communist government. Why is this important? This government took a country with excellent fiscal finances, a surplus in fiscal accounts, and a banking system that was in excellent health. They started overspending, not only for unproductive government expenditures but also they raised implicit liabilities by raising pension promises, and so forth.
Global equity markets continued their march upward in the first quarter, making undervalued stocks all that much more challenging to find. Our overall coverage universe is trading at 97% of fair value, based on a market-cap-weighted average. Within that, our U.S. coverage is the most expensive, trading at 99% of fair value, followed by Europe at 96% of fair value; Asia is the least expensive at 93% of fair value.
"Somebody once said that in looking for people to hire, you should look for three qualities: integrity, intelligence , and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy." -- Warren Buffett
The current forward 12-month P/E ratio for the index is 13.7. The P/E ratio is based on Thursday’s closing price of 1563.23 and forward 12-month EPS estimate of 113.71.
This 13.7 P/E ratio is above the prior 5-year average forward 12-month P/E ratio of 12.8, but below the prior 10-year average forward 12-month P/E ratio of 14.2. It is also slightly above the P/E ratio of 13.5 recorded one month ago. Over the past month, the price of the index has increased 2.8% (to 1563.23 from 1521.38), while the forward 12-month EPS estimate has risen 0.7% (to $113.71 from $112.93). At the sector level, the Telecom Services sector has the highest forward 12-month P/E ratio at 17.3, while the Financials (11.9) and Energy (12.0) sectors have the lowest forward 12-month P/E ratios. Over the past month, the Telecom Services (to 17.3 from 16.7) sector has seen the largest increase in forward 12-month P/E ratios of all ten sectors, while the Consumer Staples sector (to 12.0 from 12.1) has witnessed the largest decline in the forward 12-month P/E ratio of all ten sectors.
Europe is reporting a decline in economic growth relative to last year. According to FactSet Economics, the European Union recorded a decrease in GDP of 0.6% in Q4 2012, compared to growth of 0.8% in Q4 2011. During the fourth quarter earnings season, many companies stated that economic conditions were still weak in Europe.
“The decline in Ford Europe's fourth quarter pre-tax results was more than explained by unfavorable volume and mix. The industry for the 19 markets Ford tracks in Europe was 13.5 million units, the lowest quarterly SAAR since 1995.” – Ford Motor (Jan. 29)
Economic growth in countries in emerging markets has also been decreasing over the past year. According to FactSet Economics, two of the four “BRIC” countries recorded slower GDP growth and one country recorded constant growth during this time. For Q4 2011, China, India, and Brazil recorded GDP growth of 8.9%, 5.8% and 1.4%, respectively. By Q4 2012, GDP growth rates for China, India, and Brazil had fallen to 7.9%, 4.1% and 1.4%.
However, the 7.9% GDP growth reported by China reflected a sequential improvement relative to the GDP growth reported for Q3 2012 (7.4%). A number of companies have stated that they saw strength in emerging markets in the fourth quarter, or that they expect stronger economic growth and demand for goods in emerging markets (particularly China) in 2013.
“Growth in China is showing signs of picking up with positive implications for the rest of Asia. The general consensus of our business leaders on China is the economy is improving and this will continue through 2013.” –DuPont (Jan. 22)
Will revenue growth continue to be weak in Europe? Will revenue growth improve in emerging markets (China)? These will be themes to monitor during the upcoming earnings season
France is just tanking. PMI Services out at 41.9 vs. 44.0 expected in the lowest reading since the bottom of the crisis in 2008. Hollande's growth (or lack of) policies are failing miserably. //Saxo Bank
Valero Energy (NYSE: VLO) had its price target raised by Barclays Capital from $70.00 to $75.00 in a research report released on Friday morning. Barclays Capital currently has an overweight rating on the stock.
UBS does not believe that the Euro will break up. We still do not believe that the Euro will break up. The bail out of Cyprus over this weekend has not helped that conviction, however, and contagion risks are higher as a result of the terms of the bail out.
The "wealth tax" on all Cypriot domiciled bank deposits is effectively a grab of deposits. No matter what assurances are offered, it is likely in the future that depositors in ANY Euro banking system that is considered at risk of requiring a bailout will be more inclined to panic and withdraw their deposits in anticipation of similar treatment.
Every Euro area finance minister should be reminded, daily, that history tells us that monetary unions die as a result of bank runs. Preserving confidence in the integrity of banking systems is critical to a stable monetary union. Moreover, people will irrationally overreact to even a small threat of losing what they already own.
Elsewhere, Italy's Bersani got a speaker elected to the lower house and the Senate of the Italian parliament, but the level of support for his candidates underscores the weakness of parliamentary support for any possible Bersani administration. Euro trade data and US housing data make the calendar today.
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