Bull Market Stew Under a New Presidential Administration
-
Upload
smead-capital-management -
Category
Economy & Finance
-
view
1.449 -
download
0
description
Transcript of Bull Market Stew Under a New Presidential Administration
www.smeadcap.comwww.smeadfunds.com © 2009 Smead Capital Management, All Rights
Reserved.
Manager of the Smead Value Fund
Bull Market StewUnder a New Presidential Administration
Bull Market StewUnder a New Presidential Administration
The Generational Opportunity
Here’s the rolling 40-year returns of T-Bills and T-Bonds over the last 70 years:
Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
The Generational Opportunity
Here’s the rolling 40-year returns of Stocks over the last 70 years:
Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
The Generational Opportunity
Let’s look at what happened to US stocks the first time they earned less than 4% per year for a 40-year stretch, as they did in 1941. Here is what happened the following 5, 10, and 20 years following that event:
Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
What are the Ingredients?
Bull Market Stew
Bull Market Stew
Ingredients1. One or more major Bear Market
declines in the prior ten years, preferably with a decline of more than 40% and overall poor multi-year stock market performance
Bull Market Stew
Bull Market Stew
Ingredients2. Historically depressed stock
prices, especially among the traditionally most admired companies
Bull Market Stew
BRK.ABerkshire Hathaway
MRKMerck
DISDisney
Avg Price in 1982 667.5 Avg Price $2.24 Avg Price $1.22Dividends $0.08 Divdends $0.03Div Yield 3.48% Div Yield 2.06%
Ingredients (continued)
3. Massive negative psychology among individual and professional investors
Bull Market Stew
Bull Market Stew
AAII Index – March 5th, 2009
Bullish 18.9%
Bearish 70.3
Neutral 10.8
Source(s): Barron’s & Bespoke Investment Group
Ingredients (continued)4. Normally successful and
admired money managers called out on the carpet and in some ways humiliated (preferably on the front page of the Wall Street Journal)
Bull Market Stew
Bull Market Stew
“A Recent Filing With Securities and Exchange Commission says the trustees of DWS Dreman High Return Equity (KDHRX) voted last June to remove the fund's manager after a 20-year run.”“The manager, 72-year-old David Dreman of Dreman Value Management, led the fund to a 47% loss in the past year, admittedly a bad year for all, placing it in the bottom 3% of its peers, according Bloomberg data.”
“In a surprise move, First Pacific Advisors said that its well-known chief executive, Robert Rodriguez, will leave for a one-year sabbatical starting in January.”“Mr. Rodriguez has been frustrated with the world of professional investing in the past year. He correctly predicted the credit crunch and subsequent economic downturn but has struggled to deliver strong stock returns.”
Source(s): WSJ.com
Ingredients (continued)5. Buy and hold investing viewed
as an idea that is no longer useful
Bull Market Stew
Bull Market Stew
Source(s): Businessweek.com
Jim CramerCNBC Host
Ingredients (continued)6. Seemingly unsolvable economic
problems as part of a deep recession
Bull Market Stew
“The 40 years ending in 1941 included the stock market panic of 1907, which drove down the Dow Jones Industrial Average nearly 38 percent; the World War I Era, where the period between 1910 and 1919 was one of the worst ever for stocks; AND, oh yes, the Great Depression. Finally, icing on the 40-year cake, the Japanese bombed Pearl Harbor on December 7, 1941.”
Bull Market Stew
Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
Ingredients (continued)7. Accommodative Federal
Reserve Monetary Polices and stimulative fiscal policies from the U.S. Government
Bull Market Stew
Source(s): frbatlanta.org
Bull Market Stew
Ingredients (continued)8. Public short selling has hit
record levels
Bull Market Stew
Value Line – December 26, 2008% of total NYSE short sales by:
Wk. ending Wk. Ending12/17 12/10
Public: 72 74NYSE Spedialists: 7 6Other NYSE Members: 21 20
Bull Market Stew
Ingredients (continued)9. Cash in Money Market Funds at
record levels in relation to stock market capitalization and paying low interest rates
Bull Market Stew
Bull Market Stew
Source(s): Hays Advisory
Bull Market Stew
Source(s): Hays Advisory
Ingredients (continued)10. Very intelligent and credible
economists and analysts explaining clearly and logically how terrible things are going to be for many years.
Bull Market Stew
Bull Market Stew
Nouriel RoubiniProfessor at NYU
Source(s): The Wall Street Examiner
Bull Market Stew
Nouriel RoubiniProfessor at NYU
Source(s): Badische Zeitung
Bull Market Stew
DJIA S&P 500 IndexAverage over 1982 960.8 Average over 1982 131.6
Today’s DJIA Level 8409.85 Today’s Index Level 907.39
Appreciation 8.75x Appreciation 6.90x
Smead Capital Management 1420 5th Avenue, Suite 2625Seattle, WA 98101(877) [email protected]