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Stock Market Analysis: 10/26/09

In short, there is almost nothing of use to investors from poring over current macroeconomic data, which is one reason why markets have started ignoring them. In all of this discussion, you will note that I have not mentioned the Fed, and to those who are Fed-focused, it may seem like I am ignoring the elephant in the room. To those in the media and the investment community who profess to be shocked by the latest economic numbers, my question is whether you are just as shocked to see your speedometer at zero, when your car is parked in the driveway, or when your pie does not bake in an oven that is not turned on? Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. 18) The objective of a prudent financial manager is to eliminate all foreign exchange risk. Note that all of the values in the data are in US dollar terms to allow for comparability, but that does mean that exchange rate effects will add to local trendy boutique market effects.


As markets have recovered from their mid-March lows, there are many who are puzzled by the rise. Note that I have centered the simulations around the median estimates of earnings for 2020 and 2021 from analysts, while building in the range in the estimates into the distributions. A close over $4.48 and I think Citi will trade back up to the $5-$6 range. Analysts vary on how much, though, with a range of a drop of 30-70% in buybacks and 10-30% in dividends. As with earnings, this crisis will result in cash flow shocks, and dividends and buybacks will drop this year. Given that dividends tend to be stickier than buybacks, the drop will be lower fro the former than the latter. If you are more pessimistic about the future, perhaps because you think the market is under estimating the likelihood of a second wave of shutdowns or a surge in company defaults, your valuations will be much lower. For others, the question is whether markets are adequately reflecting the potential for long term damage to earnings and cash flows, as well as the cost of defaults, from this crisis. As inflationary pressures become evident, the Fed will respond with a series of rate hikes, which have the potential to push the American economy into recession.