Tuesday, October 21, 2008
Overnight Dollar Libor Declines to 1.28 Percent (BLOOMBERG)
Overnight Dollar Libor Declines to 1.28 Percent, BBA Says
By Gavin Finch
Oct. 21 (Bloomberg) -- The London interbank offered rate, or Libor, that banks charge each other for overnight loans in dollars fell to 1.28 percent, below the Federal Reserve's target for the first time since Oct. 3.
The rate dropped 23 basis points, or 0.23 percentage point, according to the British Bankers' Association. The cost of borrowing for three months also declined 23 basis points, to 3.83 percent, the BBA said today.
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
European weather map (FT)
European weather map
Published: October 20 2008 21:35 | Last updated: October 20 2008 21:35
Stormy conditions prevail across Europe’s economies after the arrival of a full-blown banking sector crisis this month sent confidence plummeting and threatened widespread-economic damage.
The FT’s latest European economic “weather map” shows the extent of the deterioration since July and April. In July the continent’s economies had largely avoided a credit crunch but were being hit by sudden and steep rises in energy prices, compounded by the effects of a strong euro. In October, inflation is ebbing and the euro has softened.
The weather symbols were compiled by Ralph Atkins, Frankfurt bureau chief, and draw from official data as well as his own analysis. Click on a period to see the forecast.
Valuations Need To Fall Further for a Sustainable Rally
Last week we discussed Robert Shiller’s S&P500 trailing 10-year price earnings ratio that has averaged 16.3 since 1881 and the fact that it had dropped to 15 as of October 10th. While we saw prices increase last week and a rise in P/Es, what does the longer-term future hold?
In our next chart, we show annual trailing 10-year P/Es from 1920 to August 2008 using Dr. Shiller’s data. As we see from this chart, every major recession has resulted in P/Es falling below 10 for an extended period of time - lasting decades, not years - typical of secular bear markets. Click to enlarge:
At 15 last week, the P/E was back to just below the long-term average, but this was a daily drop, not an annual P/E. It will take many more months (possibly a year or more) to get back below 15 on an annual basis, meaning we probably won’t see this occurring till 2009 or even 2010.
After that, it could take a few more years to get back to single digits like we had during the last major recession in 1981-1982. In other words, markets and economies will need a long rest with P/Es below 10 before they will be able to mount the next sustainable bull market. A similar situation occurred during the Great Depression into the early 1950s, as we see from the chart above.
Could we get another cyclical bull market rally lasting a few weeks, months or even years as we saw between 2003 and 2007? Very possibly, but as we learned, more often such rallies are short-term and often end abruptly and rather unexpectedly. There are also the raft of fundamental financial challenges facing a sustained U.S. economic recovery like the crushing levels of debt, rapidly deflating derivatives and housing bubbles, falling Treasury sales and mounting government deficit as a result of more than $2 trillion in bailouts so far.
But that doesn’t mean you can’t make money trading the powerful reactive rallies embedded in every secular bear market. This is a trader’s market where it's important to set tight stops and take profits off the table regularly, not a time to buy and hold for the long-term, as the so-called pundits would have us believe, if we are in a true secular bear market.
found at: http://seekingalpha.com/article/100666-valuations-need-to-fall-further-for-a-sustainable-rally?source=feed
Lex (FT) on The crunch stole Christmas
The crunch stole Christmas
Published: October 20 2008 15:04 | Last updated: October 20 2008 20:55
If investors are to be believed, Santa’s sack will be light this year. Share prices of Mattel and Hasbro, the two big US toymakers, have fallen by a third since August. Third-quarter numbers released on Monday from both manufacturers prompted downgrades to earnings expectations in spite of solid sets of topline growth. Has Christmas been cancelled?
Some caution is natural. After 15 years of declining prices for toys, 2006 and 2007 were notable for rises in average product prices. New mechanisation and computerisation techniques had allowed the creation of must-have robotic playthings, handing their manufacturers a rare degree of pricing power. Yet with consumers retrenching from all discretionary spending, it is hard to see too many parents forking out for Hasbro’s $180 FurReal Friends Biscuit animatronic puppy, or Mattel’s $60 Elmo dolls.
Christmas is always a nervy time. Shares in the toymakers tend to perform best in the first half of the year, when the fourth quarter turns out not to have been so bad as feared, and the following year’s line-up starts to prompt excitement. Toys have historically proved relatively recession proof, thanks to parents’ perennial desire to see happy faces on Christmas morning. More than half of Hasbro’s products sell for less than $20; more than three-quarters of Mattel’s for less than $25. Retailers know the pull of toys and discount hard-to-lure customers – Wal-Mart has announced a top 10 for $10 deal.
Currency headwinds lie in wait next year, and ambitions to make mid-teen margins are likely to stay long-term goals for now. But demographics, international growth and well established brands remain on the toymakers’ side, suggesting a future of steady, if unexciting growth. With Mattel now trading on a lowly 10 times prospective earnings, the spirit of Scrooge may have gone too far.
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