1) I was speaking with a fellow value investor last night and, as we shared tales of woe, he said something that really resonated: “I’ve never seen such a disconnect between what the companies we own are telling me about their businesses and what the stocks are doing. Stocks were cheaper in late 2008 and early 2009, but I understood it then because companies told me that their businesses were falling apart, but today that’s not the case at all.”
2) To this point, here’s some fascinating data courtesy of Doug Kass:
Three Years After
10:23 a.m. EDT
· The U.S. stock market might be cheaper today than three years ago.
On October 3, 2008, the S&P 500 closed at 1099.23, the exact same level that it closed at last night.
Let's compare the data points from three years ago with today.
In observing this data, one can make the case that the U.S. stock market might be cheaper today than three years ago. (Hat tip to subscriber Mike for this idea!)
My thoughts: a) What a remarkable coincidence that the S&P closed at the exact same level exactly three years later; b) Despite interest rates being MUCH lower, stocks are much cheaper by any metric; c) On the negative side, growth, consumer confidence, and personal spending are slower, while unemployment, inflation and the budget deficit are higher; however, on the positive side, industrial production, the purchasing managers index, manufacturing and non-manufacturing ISM, retail sales, and auto sales are higher, while the trade deficit, initial jobless claims and job losses are lower.
Overall, I’d say that we’re in MUCH better shape now – but three years ago, things were about to get MUCH worse. Is this true today? Clearly, this is what investors fear and it’s being reflected in the debt and equity markets. But there’s a big difference, in my view, between the economy actually falling apart vs. the fear that it MIGHT fall apart. I think there’s a 20% chance of this happening, in which case stocks have much more to fall – but this also means that I think there’s an 80% chance that things – in the U.S. anyway – do NOT fall apart, in which case beaten down stocks priced as if there’s going to be a severe recession should do very well.