SLM -
The run-off value of the current portfolio approximates $20 a share now.
Away from the company's ongoing business and franchise, the run-off value of the current portfolio approximates $20 a share now.
If one can’t money on SLM, making money is next to impossible on the long side. Barclays upgraded the shares of SLM last week.
I fully expect a Greek bankruptcy. With its paper yielding extraordinary returns, it is a given, quite frankly. The question is whether the inevitability of a Greek bankruptcy has been incorporated in share prices.
From The Washington Post -
"If you go back over the last eleven recessions — the first nine all had 5 to 15 percent profit drops. Perhaps the recession of 2001 was an outlier, caused by the bursting of the dotcom bubble's sky-high P/E multiples. The 2008 recession was even more unusual — with unprecedented leverage in real estate, banking and in corporations."
-- Doug Kass, in Barry Ritholtz's "The Investor's Dilemma: Earnings, Valuation and What to do Now" in The Washington Post
Worries -
1. the stock market's continued volatility and instability;
2. the growing sovereign debt contagion in Europe (and failure of their leaders/central bankers to respond intelligently);
3. continuing political partisanship (and failure of our leaders to properly confront our fiscal imbalances and to promote pro-growth policy); and
4. an inability to gauge whether the erosion in the August sentiment measures (impacted by U.S. stock market and domestic/overseas economic uncertainties) will translate into weakness in hard domestic economic data.
Uncharted Waters
What makes matters current conditions even more difficult to gauge is that resolution of the aforementioned fiscal imbalances (in the U.S. and overseas) is dependent on the effective imposition of bold and creative fiscal and monetary policy. Recent and past historical experiences suggest that it is rarely a good bet to hold on to, be dependent on and put heavy weight upon the hope that our world’s political leaders and central bankers will rise to the occasion. We are walking on what is looking more and more like a tightrope in which recovery is being weighed down by the aftermath of the last cycle of excessive debt creation and the lack of financial responsibility (and growing imbalances) across the private and public sectors.
Positives? -
* an inverted yield curve (it is positively sloped);
* acceleration in inflation (inflation is contained and so are expectations);
* an increase in real interest rates (anything but!);
* bloated corporate inventories (low inventories to sales in place now);
* retreating retail sales (they are expanding);
* negative year-over-year leading economic indicators (advancing now);
* a drop in factory orders (also rising) and;
* outsized durable spending relative to GDP (housing and autos remain at or near cyclical lows).
Today over 55% of the companies listed in the S&P 500 yield more than the U.S. 10-year note. The earnings yield (the inverse of the P/E multiple) less the yield on corporate bonds is as wide as its been in decades, and the possibility of a meaningful reallocation out of record low-yielding fixed income into more attractively priced stocks could produce a surprising upturn in the U.S. stock market once there is better economic clarity both domestically and overseas.
