Friday, October 21, 2011

Friday Thoughts


The company’s quarterly report was a bit of a disappointment, but I maintain my positive view.

Most of the miss to expectations was non-operating -- $5 million loss from hedge fund seed and a much higher effective tax rate (46% vs. 35%).

Fund inflows and institutional inflows were reasonably strong (at $1.5 billion, respectively), but market depreciation (at -$7.2 billion) was slightly worse than forecast.

Comp and benefit line was within expectations.

Run, don’t walk, to read Zero Hedge’s take on the student loan bubble.

Apple, Baidu, Schlumberger, GE, Microsoft and Citigroup are conspicuously weak.

Does a two-year low in the Chinese stock market concern anyone besides me?

Skepticism, on the part of both retail and institutional investors, is at an extreme.

The U.S. stock market is already trading at a discount to its historic valuations -- at only about 12x 2012 S&P profits while the yield on the 10-year note stands at only 2.15%. By contrast over the past 50 years, stocks have averaged 15x while the yield on the 10-year note has averaged 6.67% (or over 3x the current yield).

Remember, catastrophic (Black Swan) events rarely occur. Obviously. Despite the disparate interests, the eurozone's leaders are fully aware of the consequences of inaction. They will address the serious debt issues in the days ahead, and the market might have already priced in the eurozone's problems.

The U.S. stock market has gone nowhere for years. Skepticism, on the part of both retail and institutional investors, is seemingly at an extreme (as measured by domestic equity outflows and low net invested exposure of the hedge fund community).