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Investing in a Post Crash Economy Barry Ritholtz, CEO Fusion IQ Citywire NY June 22, 2011
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Transcript of Citywire ny
Investing in a Post Crash Economy
Barry Ritholtz, CEO Fusion IQCitywire NY June 22, 2011
Today’s Powerpoint Presentation:
10 Steps to a Financial Crisis
Source: Bailout Nation
Source: Bailout Nation
The Credit Bubble and
Housing Boom’s Shaky
Foundation
Source: Ritholtz.com, RAB Capital
US Homebuilder’s Construction Binge
4 Million excess homes = 2010Household formation = 0.9 million / yearHomes built = 0.6 million /year Current rate = 12 years to absorb excess
Source: Ritholtz.com, NDR
Residential Real Estate Relative to Median Income, Rent
Source: Ritholtz.com, BIS
Residential Real Estate Boom Was Global
Emailer: Why don’t you think Fannie, Freddie, CRA was to blame?
Source: Ritholtz.com, Calculated Risk
Time Until Full Employment Recovery Post-Recession
Economists are looking at the wrong data set: Instead of “ALL CYCLICAL
RECESSIONS, try substituting CREDIT CRISIS RECESSIONS.
Hence, why they seem to be perplexed by weak job creation and soft GDP.
100 Years of Secular Markets, P/E Expansion & Contraction
Source: Ritholtz.com, Crestmont Research
100 Year Dow Industrial Chart
Source: Ritholtz.com, Bloomberg
1966-82 Cyclical Markets
Source: Ritholtz.com, Bloomberg
S&P500: 2009-11 Compared to 1973-74
Source: Ritholtz.com, TheChartstore.com
Recession Bear Market vs. Armageddon
Source: Ritholtz.com, Bloomberg
Source: Ritholtz.com, TheChartstore.com
“100-Year Floods” seems to come along far more often than their name implies
Duration and Intensity of Bear Market Rallies
Rally averages over 12 and 24 months, going back to 1929
After 12 months, returns range from 21.4% (1987) to 121.4% (1932), followed by 81.4% (1935). Remove the post-depression outliers, and 1982 becomes the next most intense move at 58.3%.
That is, until the 2009 rally. After 12 months, it stood at 68.6%. The average of these rallies at the 1 year mark was 47.3%.
From one to two years, the rallies strengthened to 56.1%. Note that the two post-depression rallies eventually give up all their gains. (See S&P 90, lower right)
2009 is now the outlier. After just 23 months, this market is up nearly 100%. 1974 is the runner up at 65.7%.
How intense is this rally? The current run is 50% greater than the next closest one, and nearly 2X the 2 year average.
~~~
How much of this is attributable to the Fed? We can only guess, but if only half of the excess gains over prior rally averages are attributable to the Fed, it means that the US Central Bank has artificially created several trillion dollars in market capitalization.
Source: Ritholtz.com, Investech Research
S&P 90 Roundtrips:
1932Bottom June 4th 1932 $4.21 Peak September 10 1923 $9.49Low March 4, 1933 $5.47
Peak July 22 1933 $12.44
1935 Bottom March 23 1935 $8.02Peak March 13 1937 $18.84Low April 2 1938 $8.36
Composite 19 Secular Bear Markets
Source: Ritholtz.com, Morgan Stanley Europe
Source: Ritholtz.com, Morgan Stanley Europe
War & Peace + Inflation + Secular Bull = 500% Gains
Source: Ritholtz.com, Stock Trader’s Almanac
Looking Backwards: Downsizing America
Source: Ritholtz.com, February 2009
How Does the ‘09 Rally Stack Up Against ‘82 Bull Market?
Lose the News: Beware the Recency Effect
Source: Ritholtz.com, WSJ
WSJ: 2007 WSJ: 2010
Do Markets Forecast the Economy? (No)
Source: Ritholtz.com, Bloomberg
Analysts Are (Still) Too Bullish
Source: Ritholtz.com, McKinsey
“Analysts have been persistently overoptimistic for the past 25 years, with estimates ranging from 10 to 12 percent a year, compared with actual earnings growth of 6 percent… On average, analysts’ forecasts have been almost 100 percent too high”
-McKinsey study
Congress for Sale: 2009 Lobbying $3.49 Billion
Source: Ritholtz.com, Time
• Derivative trading banks spent $28 M to save $5-7 billion collateral allocations
$ = Annual profits $3 billion (risk remains on the taxpayers)
• Auto Dealers spent < $10M dollars ($6.3m lobbying, + $3.4m campaign contributions)
$ = Saved undisclosed added interest, fee kickbacks, other over-priced loans worth $20 billion annually to dealers.
Barry L. Ritholtz
CEO, Director of Equity ResearchFusion IQ
535 Fifth AvenueNew York, NY 10017
212-661-2022516-669-0369
[email protected] Big Picture
http://www.ritholtz.com/blog
for more information, contact
