Are there people who actually rely on Larry Kudlow for investment advice? Wouldn't that be a crazy thing to do? If anyone actually does, shouldn't the free market in its infinite wisdom call forth a good means of making money off the suckers in question. I don't mean to disparage the specific claims he makes there, but in general its obvious that the guy doesn't know squat about anything.
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A Question
26 Jul 2007 02:48 pm
Comments (33)
'The pause that refreshes.'
I surmise that if you take Cialis and suffer from priapism as a result, pauses do indeed refresh.
Today is Matty has got my goat day.
Kudlow is an ass, but in general he is right. Stocks are pretty fairly priced in a very benign envornment.
Just cause economic conditions arent wonderful for teh individual, it doesn't mean they are wonderful for corpoartions, their CFO's and comptrollers!
Today is Matty has got my goat day.
Kudlow is an ass, but in general he is right. Stocks are pretty fairly priced in a very benign envornment.
Just cause economic conditions arent wonderful for teh individual, it doesn't mean they arent wonderful for corpoartions, their CFO's and comptrollers!
"The moral of the story is that intelligent investors should be shorting toxic bonds — whether they are corporate or mortgage backed — and buying valuable stocks as they correct lower."
Holy shit, thanks Kudlow!!
Speaking of investing..
I'm looking to invest some money, but I don't know where to invest it. I've been looking for several years, and nothing meets my (admittingly) strict standards.
Here's the criteria:
#1. I want a 5% yearly return.
#2. I don't want to rely on capital gains. I don't believe that stock prices will continue to rise, as the baby boomer retirement will stunt pension plan/401k/IRA growth. I've heard that foreign investment will cover this, but I don't want to take that chance.
#3. I don't want to rely on corporate buyouts/splits.
Basically, I'm looking for stocks with at most a 20-1 Price/Dividend ratio.
Can anybody point me to where I can find that?
Don't mock Kudlow. The Pause That Refreshes is an old Coke slogan, and if there's anyone who knows about coke it's blow-magnet Kudlow.
There's been more coke up Kudlow's nose that you could transport in Linsday Lohan's Denali for the next 10 years.
Kudlow is Don Luskin's brain on drugs.
Karmakin,
You should "invest" in an HSBC Direct Savings Account. FDIC Insured up to 100K, 5.05% APY. No risk. Better yet, get a CD from any number of online vendors for close to 6% yield.
Karmakin,
What BR said, unless you left out details, if your criteria is just getting 5% you can find numerous bank accounts that do that, hell Paypal lets you carry a balance and pays 5%.
Notice that Kudlow pretty much makes his entire rosy "Goldilocks economy" case on "market-cap weighted profits" and profit performance vs. "expectations" (an entirely artificial (and subjective) construct). Notice that he doesn't talk about ACTUAL economic performance compared to last year or compared to any kind of meaningful average.
Total flim-flam.
It's the pause that refreshes in the corridors of power, where top men need a top-off long before the happy hour.
I actually found a bunch. Yahoo has a new lookup tool that allows you to look up via dividend yield (last time I was there it wasn't there).
There's quite a few over the 5% mark, but most of them are secondary investments (meaning that they're investment groups themselves, hedgefunds or the like), I couldn't find any primary investments over the mark. And yes, 5% is very conservative.
But it goes into the bigger point that it really isn't that good of an investment economy right now when you take out the capital gains, something that I don't think you can count of.
While Kudlow may have always been batty, I'm sure his particular brand of irrationality has been exacerbated by the unprecedented performance of the U.S. stock market since the 1980s. It used to not be that unusual for stocks to essentially tread water for decades. If you invested $100, you might not have much more than $100 15 or 20 years later. Since the 1980s, stocks have done nothing but gone up. Sure, they still have corrections. But instead of then staying flat for years afterwards, they almost immediately begin going back up.
Of course, this abnormal behavior is because the financial game has been rigged to favor stocks over other investment options.
Mike
On those "put it in the bank or ING: comments:
What about the 25% federal tax you pay on the interest? Brings your return down to 3.75...a little less if you pay state tax too.
And, after the Federal Reserve takes a pause after raising rates, their next move is almost always down. 100% of the time in the last 30 years. Average rate cut since '75: 40%.
So your CD investment may end up giving you a great rate of 3.25 in the next couple of years. Pay your taxes, you're down to 2.4%. count inflation and you are down to a real return of -0.6% annually. Excellent strategy.
You are saying that Kudlow is wrong, and that stocks are going down? I'll pay you $10,000 for that investment advice, if you promise to indemnify me for any losses I incur from following it. Until you accept, or demonstrate in some other tangible fashion that your money stands behind your advice, talk is cheap.
I'm pretty sure Kudlow is long stocks, so his money is where his mouth is. Kevin Drum was foretelling gloom and doom on May 3: if you listened to him, you have lost money.
"So your CD investment may end up giving you a great rate of 3.25 in the next couple of years. Pay your taxes, you're down to 2.4%. count inflation and you are down to a real return of -0.6% annually. Excellent strategy. "
Don't buy it if it is just 3.25%.
Don't pay taxes on it, get it as part of an IRA.
Still probably not the best way to go. If you are afraid stocks, bonds, real estate and precious metals are all going to tank together then I suggest you invest in paramilitary organizations.
Well, according to a paper I recently read, it might be harder than it looks to make money off of foolish Kudlow groupies. If those Kudlow groupies keep listening to Kudlow and he keeps saying the same things, then people who take positions against the groupies might appear - in the short term - to be doing badly, as the mini-bubble he produces gets even bigger. That might force the smart people to liquidate their positions prematurely, which would prevent the bubble from being popped...
Kudlow is an ass, but in general he is right. Stocks are pretty fairly priced in a very benign envornment.
We are not in a benign environment. Look at the deals that are falling through (Chrysler, KKR). A serious credit crunch has arrived. Nobody is able to sell loan securities right now; there is too much garbage in the ratings and nobody trusts a damn thing. All this easy money has been very important for the stock market. P/E rations left historical fundamentals long ago. Certain sectors, like the home builders, have only kept up because they have used this money to engage in major stock buybacks. There is real danger here.
Now, that doesn't mean that stocks won't go higher. As Keynes said "the market can stay irrational longer than you can remain solvent". Just be sure that you have adequately computed the risk to pay-off.
Matt,
Yes, Kudlow's a knucklehead. But he is essentially right about the stock market not being overvalued now.
Walker,
"P/E rations left historical fundamentals long ago."
Yes, and then they came back. The P/E ratio on the S&P 500 was about 30x in '99 and is now about 17x -- which is about the average of the last few decades. The stock market (as measured by the Dow, S&P 500, and Russell 2000)* is higher now than it was in 2000, but it is also more fairly-valued.
Karmakin,
Take a look at BP Prudhoe Bay Royalty Trust (BPT), which is currently yielding over 11%. I bought some last month. Also big banks such as USB and WM are currently yielding over 5% (I own WM, but not USB). Don't just look at dividend yields though -- it's important to consider whether those dividends will increase or decrease in the future, and how sustainable they are.
You also may want to consider a quality mutual fund that does not move in lockstep with the overall market, because it has a concentrated, deep-value portfolio. My favorite fund that fits that description is The Fairholme Fund (FAIRX). When the S&P was down 22% in '02, the Fairholme Fund was down less than 2%. I just invested a chunk of my mother's money in it.
*Yes, the Nasdaq composite is far from its peak. When the S&P was trading at 30x, the Nasdaq was trading at about 50x -- an even more unrealistic valuation.
"I don't mean to disparage the specific claims he makes there, but in general its obvious that the guy doesn't know squat about anything."
I bet he knows all about the various grades of cocaine available in the street and where to procure it.
Karmakin, I invest in vanguard's money market fund (not FDIC insured, but very safe and earns %5.15 percent), and vanguard's indexed funds.
vanguard is well respected. many call it a charity company because their management fees are so low. and a lot of research suggests that indexed funds outperform mutual funds.
I don't understand matt's animosity towards Kudlow. Matt, give in. Wall street is something to celebrate.
Fred:That's what I mean. I should have been more clear, but the 4th criteria is that I don't want to invest in investment, so to speak.
I want a company that produces a tangible good or service and gives a good return. That's what I mean by a primary investment. Most of the ones I found are various mutual funds/hedge funds/investment groups, the like. I just quickly perused, to be honest and didn't look more in depth. But all of the ones I looked at were of that type. And I think that the market, capital gains wise, is built on some very big terra infirma right now.
It's simple. Other than faith in the other, I'm not seeing what's keeping stock prices up when the boomer generation starts to retire, and those close to retirement decide to sell now when prices dip a bit, and then when prices dip more everybody is running for the exits. Short stocks? Meh. I don't even know if it'll happen, let alone when. I don't think it'll be over the next two years. 2010 is when the boomers start to retire en masse.
But hey. I'm just a know-nothing neophyte. I could be wrong.
Karamkin,
One issue you're neglecting is the underlying value of a stock. Stock prices are set in the marketplace, but what sets them in the long run is what the company can return on the investment [As the value-investing guru Ben Graham put it, in the long run the market is a weighing machine]. Most companies *do not* hand that return entirely over to their investors as dividends [in fact, that's a sign of a bad business]. A really good company, in fact--one that has opportunities to expand its business--will reinvest that money; if the same number of shares of stock are outstanding, they'll be intrinsically worth more. That's what Warren Buffett does at Berkshire; he *never* pays a dividend, but he invests the cash his company throws off in good, solid enterprises. By insisting on basically risk-free cash returns, you're passing on getting a piece of the gains in the value of the assets you could own.
As for the baby boomers selling out at retirement--way overdrawn. I'm nearing that point myself, but I expect to rely on non-equity sources of income as much as possible. Also, buyers will materialize [nowadays, there's a literally a world of them] if the underlying investment is worth it.
That's not to say that stocks are risk free [ha!] or that they won't fluctuate; as some wise man once said when asked what the market will do, they will. And I, for one, doubt that in the immediate future they'll return what they did in the 1980s-1990s bull market [I'm actually surprised they've done so well the past five years]. If Kudlow's advice means bet the farm on stocks NOW, it's stupid. But in the context of a program of regular investment spread among different kinds of assets and looking more than a decade down the road, a dip [even more a bear market] *is* an opportunity; at the very least, it shouldn't be a deterrent.
The way to make money off of Kudlow's advice is to construct a well-diversified portfolio that meets your investment goals and risk tolerance. Then when the a certain asset class (e.g. u.s. stocks) goes out of whack, you rebalance the portfolio to your original allocation. This discipline allows you to sell high and buy low and avoid getting whipsawed by unintentional market timing. Also, put as much as possible in tax-advantaged accounts with not-for-profit companies like Vanguard and TIAA-CREF that index and are extraordinarily low fee. It ain't rocket science. If you don't believe me, read David Swensen's (the endowment manager for Yale) book: Unconventional Success.
"Also, put as much as possible in tax-advantaged accounts with not-for-profit companies like Vanguard and TIAA-CREF that index and are extraordinarily low fee"
I completely agree. utilize your Roth IRA. even if you have to take out a loan, max out your roth IRA. if you max it out, by 60 you'll be millionaire.
I made a lot of assumptions in my previous statement (mainly that your in your younger to mid 20's.) But no matter what age you are, its important to contribute to your roth IRA.
"The moral of the story is that intelligent investors should be shorting TOXIC bonds — whether they are corporate or mortgage backed — and buying VALUABLE stocks as they correct lower."
In other words sell the stuff no-one else wants and buy the stuff everyone else wants --- sell low and buy high. That's a sure-fire way to get rich fast.
Choosing to believe one financial writer or another is kind of like deciding which cab driver to believe. They're all equally adept at predicting what the market is going to do. If you choose the right one, you're a genius - choose the wrong one, you're a dunce.
In fact, nobody can predict what the market is going to do, which is why very few professional fund managers have been able to beat market indexes over time. And these are guys who get paid to follow the market all day long.
"In fact, nobody can predict what the market is going to do, which is why very few professional fund managers have been able to beat market indexes over time."
You don't have to predict what the market is going to do to beat market indexes; you have to be able to estimate the intrinsic values of stocks and then buy a handful at a significant discount to their intrinsic values. Not easy to do, by any means, but a number of pros have done this successfully for years. From the first generation of Ben Graham disciples (Warren Buffett, Walter Schloss, etc.) to the next generation (Seth Klarman, Joel Greenblatt), to Mohnish Pabrai and Bruce Berkowitz. All these managers have, over time, beaten the market averages like a drum with below-market risk. And yet the average 'educated' investor doesn't think it's possible since they've swallowed the Efficient Market Hypothesis and Modern Portfolio Theory whole.
Funny how that works: when it comes to investing you have low-information types who think they can beat the market and don't know what they're doing; then you have folks who imagine themselves to be high-information and think that no one can beat the market, so they dive into Vanguard index funds/ETFs; then you have folks who actually do beat the market, either by letting one of the pros I mentioned above manage their money or by piggybacking their trades.
"All these managers have, over time, beaten the market averages like a drum with below-market risk. And yet the average 'educated' investor doesn't think it's possible since they've swallowed the Efficient Market Hypothesis and Modern Portfolio Theory whole. "
The average investor does not have teams of quantitative analysts running market models 24/7 with up to the minute feeds of accurate and obscure data.
Investments in market models are mirroring industrial behavior with respect to the phenomenon of temporary productivity advantage. A new model is developed. It produces a temporary productivity advantage, and for a while the market is "beaten" by the investor with the superior model. Then the model is essentially matched by other investors.
There are other ways to beat the market - luck and crime come to mind.
Njorl,
Luck and crime have nothing to do with it with those managers' successes, and neither do "teams of quantitative analysts" -- none of those managers relies on such a team. If you have an open mind and want to learn more, read The Superinvestors of Graham-and-Doddsville, for starters. Or not.
Fred,
How have those guys done lately? (It's an honest question, I really don't know) Buffet was talking about the 70s and 80s in that article.
There was no real modelling in investing until the late '80s early '90s. Some analysts thought they were modelling, but they weren't. Most guys doing statistical analysis on stock performance as late as the 1970s knew that they were just creating window dressing to rationalize buying or selling a stock. Even at the later stage the modelling was crude, and too much information was treated as independent for models to do well. It hasn't been until the last 10 years or so that interdependent modelling of investments within the economic environment have been tried.
The problem with buying undervalued stocks is that it is hard. You mentioned that it is hard, but that a small handful of people like Warren Buffet do it, so you can just invest in Warren Buffet or piggy back on him. People know this. That knowledge is part of the market. Because people know that Warren Buffet can do this, that information is not very valuable.
And if you think these guys are not using teams of quantitative analysts now, you're kidding yourself (that article was 23 yers old). They may not be using them to model investment activity, but they use them to analyse company value. Unless you have the resources to analyze value like they do, and like others who have been inspired by their success do, you can't compete with them either.
Kudlow has always reminded me of that line out of one of Tom Holt's books:
"The computer continued muttering, buy Swiss stocks, buy Everglade REITs, buy Australian gold stocks. Finally it implored them by the Bowels of Christ to buy Hong Kong futures, then blew up."
Comments closed August 09, 2007.
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Heads in the Sand
Follow up on your usual hyperbolic statements!
Posted by Matt Lewis | July 26, 2007 2:58 PM