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Greenblatt is a winning formula in Europe

Six months ago I went to the presentation of the Italian edition of little book that beats the stock market of Joel Greenblatt, and then I wrote a post that quickly became the most widely read of this blog. The article summarizes the work of Greenblatt and praising his winning formula, a condensed genius of the tradition of value investing based on two simple criteria of value and quality as the profits / price and the return on capital.

The reaction of readers, as I mentioned, was of great interest, but also brought to light a question which I did not know an answer satisfactory. The Formula - as shown by Greenblatt - had allowed the selection of stock portfolios that have had great success in the U.S. market. But in Europe was just as effective?

Then I was only able to argue with recourse to rationality. The reasons for the success of the formula were fundamental . The European equity market is not, in essence, different from the American. So there was no reason to believe that the formula does not work here too.

The limit for this answer, of course, was that there was no feedback empirical. There was no confirmation of the facts .

Now I've found the proof. And I am pleased to communicate to my readers. He's in a book published a few months in English and I arrived at home these days, Behavioural investing of James Montier .


On Montier and its credibility as a scholar I would like to first say a few words. For years, for work, I read the report of the strategist City of London and Wall Street . Montier I was immediately regarded as one of the sharpest analysts, original and credible.

Young, era già global equity strategist di Dresdner Kleinwort , che ha poi lasciato per andare a occupare la posizione di global strategist a Société Générale .

Ma la sua atipicità è sempre stata quella di essere un value investor e un grande esperto di finanza comportamentale , due tratti anomali in un analista sell-side . Figure così eccentriche emergono se sono straordinariamente dotate. Negli ultimi tre anni, Montier ha vinto per tre volte di fila il premio Extel come miglior strategist, una specie di Oscar della City.

Tornando a noi e al Piccolo libro , investing in Behavioral I found the winning formula of Greenblatt Montier had devoted a study in 2006, in collaboration with Sebastian Lancetti , a quantitative analyst at Dresdner Kleinwort.

Outperformance and low volatility

The research involved 750 market securities American, European , British and Japanese , covering the years 1993 to 2005 , and was intended to verify their if the formula had Greenblatt validity and robustness "outside the borders of the United States, where it was originally tested.

The findings, described as "impressive " by Montier, may be summarized thus:

a) During the period considered winning formula has allowed to select a portfolio of securities anywhere that has largely outperformed indices market. Compared to the U.S., the ' outperformance was even more pronounced in other regions, particularly in continental Europe and Japan .

b) Everywhere all'outperformance has married a volatility, and hence a perceived risk, lower than the market.

c) The use that Greenblatt ago, as a parameter value of of multiple EBIT / EV (EBIT / Enterprise Value) instead of the more common E / P (earnings / price) is proved amply justified. In all regions, except in Japan (where the two multiples have the same effect), the EBIT / EV has obtained superior results.

d) L ' EBIT / EV alone achieves long-term results even better than winning the Formula , especially in the U.S. and Britain. There

However, a problem which is why Greenblatt recommends its use in combination with a quality parameter such as ROC (return on capital). Alone, the EBIT / EV is more volatile and select portfolios that underperformed for a longer and more pronounced.

During the 13 years covered by Montier, the underperformance compared to the indices would have been unacceptable to many investors during the bubble of the century (when the madness for the technology sector led the bulk value to ignore titles ) .

s) At the end of his book, Greenblatt suggests that those who want to do itself but has no access to data for the calculation of EBIT / EV and the ROC (as defined by Greenblatt) instead of using the most common E / P and ROA (return on assets ). The results, according to Montier, confirming the goodness of the views of Small book.

performance, compared to the original version of winning formula, it is less bright, but still allows, with a lower volatility , to beat the market indices of 4 points in the U.S., five and a half points in Europe Continental, 6 and a half points in Britain and more than 9 points in Japan. The combination of E / P and ROA is more effective than use of ' earnings yield (E / P).

Investing is simple but not easy

Montier study confirms that the strategies value help beat the market, and that indicated by Greenblatt does it better than others.

Why this continues to happen, despite the apparent pervasiveness and ease of application of a recipe as the one proposed in little book, which if adopted would need to see more from reduced its effectiveness, is well explained by the same Greenblatt and confirmed by Montier.

The use of two simple multiple selection, almost mechanical, securities is too "boring" for many investors expect that by investing instead emotions, challenges and rewards of that 'instinct for the bet "we already talked about John Maynard Keynes .

addition, the value investing requires patience and a long-term approach . By winning the Formula of Greenblatt worse can happen to the market for years. In a world of investors so "myopic" to want to also measure the goodness of their daily results, the value investing proves too frustrating.

short, if the little book is so effective is because, as Warren Buffett says , " investing is simple but not easy."

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Food for thought

The following are the link a bit 'of articles I've read in the last week and that I consider interesting. Since the lyrics are not in Italian, I loved my brief summaries. The overall tone, as we shall see, is marked by a certain pessimism. In the field remains the most optimistic strategist of investment banks, the reliability of forecasts which, unfortunately, is not to be excessive illusions.

The strategist, but not too optimistic

The Blog Bespoke Investment Group reported in a table (see below) the latest updates from price target for the S & P index 500 indicated by the main strategist of investment banks. Compared to earlier this year, when the target average was 1,632 points by end 2008, optimism was a bit 'attenuated. The consensus forecast now stops points to 1519, representing an increase of 10% over current levels.

not because he thinks I take note that these price targets are useful references for investors. On the contrary, I expect to be able to return later this year in this post to take note of what they were unfounded.


The financial sector lost the leadership of the S & P 500

Reports an article Bloomberg that after a collapse of 31% the end of 2006 financial sector ceased last week to be the first to capitalization S & P 500 index . It 'was in fact passed by the technology sector . Both sectors account for just over 16% the market index. Third in importance, with just under 15%, the energy sector .

The financial sector had become the first U.S. market in late 1995, when they replaced the top consumer goods. They had been temporarily overcome by technology in the bubble years, but the Nasdaq had regained the leadership in 2002.

And 'round inflation

In an article titled Inflation's back, the 'Economist reported as two-thirds of the world will in the coming months to live with inflation in double digits. The immediate cause is the continual increases in the price of oil and raw food . But the problem has deeper roots that might create a crisis situation such as that of the '70s.

Anchoring the U.S. dollar of many developing countries forces them to imitate the expansionary monetary policy of the Federal Reserve . This combination of low cost of borrowing in the U.S. and rigid exchange rates in emerging markets is a dangerous cocktail.

At the global level - refers to the Economist - the real interest rates are now negative . Monetary policy has never been so expansive '70s. But if low interest rates may be justified for America, which is on the brink of a recession, not at all to the economies of many developing countries operating at the limit of their capacity and have long are overheating.

With inflation rising a bit 'everywhere, the danger is that they move upward from the expectations by striking vicious wage-price spirals . Then a hard landing, or a hard landing for the global economy would become difficult to avoid.

Recession in the U.S.? For Buffett will be long and deep

Around Europe in search of investment opportunities, Warren Buffett talks with Spiegel Online and declares that, in America, the recession "will be deeper and will last longer than many expect. " bankers, he says, had prepared a" poisoned potion, "of those who usually like to sell to others. But they found themselves having to drink themselves.

The collapse in house prices without end

In a speech in Vancouver on May 13 Janet Yellen, president of the Federal Reserve Bank of San Francisco , has torn apart the illusions of those who own plan a subsequent stabilization of the housing market American. "The indicators - he said - link to the downside."

Stocks of unsold homes are so high that can not hope for a quick recovery in construction activity. Despite the significant decline in prices (first chart below) - the main proceedings dell'impennata nella percentuale di mutui in sofferenza (secondo grafico qui sotto) – i contratti future e il rapporto ancora molto alto tra prezzi e affitti (terzo grafico qui sotto) inducono a pensare che la discesa delle quotazioni è destinata a durare a lungo, almeno fino al 2009 inoltrato.




(i grafici sono a cura della Federal Reserve di San Francisco)

Trichet ammonisce che gli shock economici non sono finiti

In un’intervista al Wall Street Journal , il presidente della ECB Jean-Claude Trichet argues that "the accumulation of shock" resulting from the credit crisis and rising oil prices and food commodity "is clearly not over."

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How much is the excess risk of self-confidence

He wrote me notes expressing a player, and motivated civilians, one of my post. What makes me happy. Constructive criticism is to stimulate and enhance the views. He, however, hit a particular the nickname of prettysmart , as a business card that I found it too difficult and too - as we shall see - risky.

Non conosco la persona che si cela dietro a una tale ammissione di talento fuori dal comune. E dunque non è di lei che parlerò. Ma del piccolo dettaglio di un nick vorrei approfittare per introdurre un grande tema che da tempo intendevo affrontare, e cioè quello dell’ eccesso di fiducia nei nostri mezzi e dei guai che ne possono derivare per un investitore .

Il campo d’indagine, come molti già avranno capito, è quello della finanza comportamentale , nata negli anni ’70 grazie alle ricerche di due psicologi cognitivi, Amos Tversky e Daniel Kahneman .

Dai loro studi, nell’ultimo quarter of a century, has developed a particularly fruitful line of reflection on the limits of our cognitive abilities and decision-making, which ultimately undermine the most fundamental assumptions of classical finance.

The overconfidence, a cognitive error of normal people

The direction of this revolution has been summarized, with rare effectiveness, in a famous phrase from another of its stars, Meir Statman : "The people in traditional finance, are rational. In behavioral finance, however, are normal. "

If the 50s had left the models of condensing finance abstractions of mathematical calculations in dense, built around the human agents of which assumes perfect rationality, then, with the advent of behavioral finance, there has been large - for the first time - of the empirical studies from which it was possible to determine as our decision-making under conditions of uncertainty, are populated by systematic errors.

Often, therefore, wrong. And this is because our information is incomplete and our rationality is influenced by emotions.

Among the most frequent sources of errors there, as he writes in Matteo Motterlini good book Economics emotional , "our ability to believe that instead of knowing things we do not know at all, and to give skills and expertise beyond that which they actually have."

This is called "the trap of complacency " or" cognitive boldness, a lack of systematic review in which we tend to incur overconfidence or over-confidence in ourselves.

Research done over the years are now many and leads to unambiguous conclusions. 90% of Swedish drivers, according to one study, considers himself better than average. Or 70% of studenti di liceo americani si attribuisce capacità di leadership superiori alla norma, mentre va ancora peggio tra i professori, il 94% dei quali è convinto di svolgere il proprio lavoro meglio della media dei colleghi.

In un altro famoso test, un campione di persone è stato sottoposto a delle domande di cultura generale e richiesto di dire che fiducia avesse nelle risposte formulate. Tra le risposte ritenute esatte con un grado di fiducia del 100% solo poco più del 70% erano effettivamente corrette.

Competenza e livello di cultura non sono di per sè un rimedio contro gli errori di overconfidence. Anzi.

Prendiamo ad esempio una professione elitaria come quella dei gestori di fondi .

Research - as reported by Motterlini - asked to provide a sample for each of 12 titles if the prices would have appreciated or depreciated over a period of time. 47% of the predictions proved to be correct (less than might be expected for a simple effect of chance), but the confidence expressed by the media managers in the accuracy of their forecasts was 65%.

The dangers of investment in the activity dell'overconfidence

to infer pretty smart, just like my reader proclaims with his nickname, is therefore a global trend. But what results the door? From the point of

evolutionary perspective, being equipped with overconfidence - to an extent, maybe not exaggerated - could have been an advantage. That would have given humans the confidence that would have helped to overcome, thanks to the maintenance of motivation, especially critical environmental challenges.

In the investment world, however, the "cognitive boldness" is due to a series of troubles that have been carefully documented.

as outlined in the book Michael Pompian Behavioral Finance and Wealth Management , there are four types of errors that investors end up be induced due to a systematic over-confidence.

a) once an investment choice is made, the excess of confidence in its correctness leads to ignore the negative information that would normally serve as warning signals. The investor overconfident, in short, tends to dwell only on evidence that confirms the soundness of its decisions and ignore contrary evidence. Doing so raises the risk of negative or even catastrophic, in violation of what the two great thinkers such as Charles Darwin and Albert Einstein considered a golden rule: the constant exercise of self.

b) The overconfidence leads to ' overtrading , and that is an exaggerated activism that increases the cost to the detriment of portfolio returns. The investor "bold" feels in possession of accurate knowledge and preference that seem to constantly promise new revenue opportunities. It is, however, an illusion.

c) The investor overconfident ignores the findings of the past and tends to systematically underestimate the risks in the markets. The crises seize the unprepared.

d) The general tendency to underestimate the risk can also be seen at the portfolio level, where the investor too confident in itself does not usually take care to put in place adequate diversification . The result is a concentration of risk far exceeds the capacity of tolerance.

True knowledge

Over-confidence, then, is a serious error from which the prudent investor must learn to look at, diligently exercising their critical thinking skills and self-criticism.

considered pretty smart just cause trouble, as he teaches Charlie Munger, the acute and wise socio di Warren Buffett :

“Persone come noi hanno tratto un enorme vantaggio nel lungo periodo dal tentativo costante di agire evitando di essere stupidi anziché cercando di essere molto intelligenti. Ci dev’essere una qualche saggezza nella massima che dice: ‘Sono i nuotatori forti che finiscono per annegare'.”

Il pensiero, naturalmente, corre alla straordinaria parabola di LTCM , l’hedge fund dei “ geni ”, costituito nel 1993 dal più brillante bond trader di Wall Street in partnership con due premi Nobel. Dopo quattro anni di funamboliche performance – rendimenti annui 40% and low volatility - the fund collapsed miserably in just five weeks during the summer of 1998.

John Meriwether, Robert Merton and Myron Scholes , unlike Warren Buffett and Charles Munger, had forgotten one of the basic principles of an ancient wisdom, Confucius already (pictured above) had stated:

"True knowledge is knowing that you know what you know and you do not know what you do not know."

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financial performance, the lessons of history

Addressing financial markets without having a ' idea of \u200b\u200b returns che possono offrire è un po’ come navigare senza avere con sé le carte nautiche, con la differenza che il secondo comportamento è punito dalla legge mentre il primo non lo è.

L’investitore, dunque, se vuole evitare naufragi, non può fare affidamento su vincoli esterni ma solo su se stesso. Sembra facile e invece si tratta di uno scoglio in più che per molti risulta arduo superare.

C’è anche un’altra complicazione. Le mappe dell’investitore non si riferiscono al mondo fisico, con la sua relativa chiarezza e stabilità. Vengono dalla storia , una maestra spesso inascoltata.

Come diceva Antonio Gramsci , "The illusion is the most tenacious weeds in the collective consciousness: the story teaches, but not students."

In fact, most investors chasing mirages and feeds on self-deception.

the warnings but I would add a boost: the investor who is willing to learn from history now has at its disposal more resources than ever before.

One of these, the best is Stocks for the Long Run of Jeremy Siegel, a book which was released a few months, the fourth edition is completely updated and expanded with new chapters (the third edition 2002, was published in Italian in 2003 under the title financial performance and investment strategies ).

Shares, the best investment

The last effort of the Wharton School professor - arrivatami America these days - has led me to revise a post, cycles and market returns , I wrote at the beginning of this blog and in which Estimates of Siegel on yields of shares and bonds in the last two centuries, thinking a bit 'up (call to re-read that post, because here I'm going to deeper issues that I mentioned just there, but I will ignore completely somewhere else - although important - which a year ago I stopped).

I wrote then that "real returns of the shares (adjusted for inflation) have been very consistent over time, and far higher than any other asset class."

The history of financial markets teaches us, then, that "there is nothing in the long run more profitable and safer than a diversified investment in equities."

This is, in essence, the lesson of Stocks for the Long Run . But Let us see in more detail e con l’aggiunta di qualche utile precisazione, partendo dai dati essenziali, che ho raccolto nella tabella qui sotto.


Siegel ha ricostruito la performance delle principali classi di asset per il mercato americano dal 1802 a oggi (azioni, bond ossia titoli del Tesoro a lungo termine, T-bill ovvero titoli del Tesoro a breve termine, oro).

Ai rendimenti nominali ha sottratto il tasso d’inflazione (indicato nell’ultima colonna) al fine di ricavare i rendimenti reali . Si tratta di total returns , e cioè di rendimenti che tengono conto del reinvestimento di interessi, dividendi e capital gain.

The two centuries have been divided into three sub-periods: the 1802-1870 when America was an "emerging market", the 1871-1925 in which America became the first power in the world, in 1926-2006 that America has consolidated its leadership through dramatic ups and downs, like the crisis of 1929 and the Great Depression, World War II and the economic boom that followed.

The postwar period has been further broken down into three shorter periods, corresponding to the recent bull and secular bear market in the stock market: 1946-1965 (bull), 1966-1981 (bear), 1982-1999 (bull).

The lessons of history

We are now ready to derive from the table a number of key observations:

a) The performance of dominates the actions of other assets. Siegel calculates that an equity investment of one dollar in 1802 would have reached a value of $ 12.7 million at the end of 2006.

By comparison, all other assets obtained disappointing results. A dollar invested in bonds generates a return of only $ 18.235, a dollar invested in T-bill not exceed $ 5.061, a dollar invested in gold stops at $ 32.84, providing barely maintaining the purchasing power of the original.

b) In the long term (ie for periods exceeding 50 years), the return on shares is extraordinarily stable , close to that 6.8% real which is the average for the two centuries covered study by Siegel that for sixty years more recently, by the end of World War II to the present. That

6.8% acts as an anchor for the markets, so much so that two analysts of the first magnitude as Andrew Smithers and Stephen Wright , in their book Valuing Wall Street , the ' called "Siegel's constant". What is should yield such stability is not clear. A convincing theory for now, does not exist.

c) The constancy of performance of the shares is in contrast to the great instability of bonds, both long-and short-term. Over the past 80 years, bonds and T-bill were affected before low interest rates during the Great Depression, then the high inflation of the '70s.

Overall, the transition from low and stable inflation era of the gold standard the highest price dynamics of the era of fiat money (or legal tender) has depressed real returns of fixed income securities.

d) L ' gold has followed the trend over time in the general level of prices in the economy. In periods of high inflation protection offered , but nothing more. In the long run its real yield has been shown to almost zero.

e) Returning to actions, stability of yield in the long run gives way to a variability of results is more pronounced as it reduces the 'time horizon . The

volatility in equity markets in the short term is unknown. As is well known that it tends to be more pronounced in downturns, when the economy is in recession. But the table also shows that for periods of ten or twenty years, stocks have offered returns very different from the norm. In

bull market of 1982-1999, the most extraordinary in the history of the Stock Exchange, the average return was a real extraordinary 13.6% per annum. But the market cycle was followed by the disappointment suffered by investors in the previous fifteen years, between 1966 and 1981, when the annual real returns were negative even ( -0.4%).

should be added that in the last two centuries, the longest period of negative real returns for the stock market did not exceed 17 years, while bonds had negative returns for cycles of 30 years.

f) When is therefore that the investment in shares can ensure both high profitability relative constancy of results? Siegel's studies show that to achieve this ideal condition, where the high performance is married to the low risk , the investor must go over a twenty-year horizon.

E 'beyond this threshold, it is stated that the equity markets, until now, without exception, the principle of regressione verso la media ( mean reversion ), per cui a fasi caratterizzate da rendimenti inferiori alla media ( bear market secolari) seguono fasi di rendimenti superiori alla media ( bull market secolari), e viceversa.

Grazie alla mean reversion dal 1871 le azioni hanno fatto meglio delle obbligazioni nel 95% dei periodi ventennali e nel 100% dei periodi trentennali . L’ultimo ciclo trentennale in cui i bond, nel mercato americano, riuscirono ad avere un rendimento medio annuo superiore a quello delle azioni si concluse nel 1861 , prima della guerra civile. Poi, un evento simile non was repeated.

g) From the above, and the above table, we can derive some guidance for future ? In a world of legal currency, monetary stability which is subject to political influence, the bonds probably will not be different But from the very middle of the last 80 years, nominal yields between 4% and 5%, inflation between 2% and 3%, real returns of around 2%.

And actions? The table shows how the super-bull market of 1982-1999 yields declined in recent years are gone but not enough to bring them into line with the average long-term: 9,0% medio del periodo 1982-2006 resta al di sopra del 6,8% storico.

Un modo speculare di affrontare questa questione parte dall’osservazione che al rendimento del 6,8% corrisponde un P/E di mercato di circa 15 volte . Quello è il livello medio, il fair value di lungo periodo. Ma il mercato azionario americano continua oggi a scambiare a un multiplo ben più elevato. Resta, cioè, sopravvalutato .

Siegel , per la verità, ritiene che i più bassi costi di transazione, le minori tasse, la maggiore facilità a diversificare i portafogli internazionalmente e la maggiore stabilità macroeconomica siano tutti fattori che potrebbero giustificare più alti multipli di equilibrio da qui in avanti, forse prossimi a 20 volte piuttosto che a 15 volte gli utili.

Se così sarà, i rendimenti reali attesi potrebbero scendere verso il 5% nel lungo periodo dal 6,8% del passato. Se invece non sarà così, il mercato potrebbe dover completare il bear market iniziato nel 2000 ed eliminare in tal modo la residua sopravvalutazione prima di riprendere un nuovo ciclo espansivo.

Nell’uno e nell’altro caso, ritorni reali non inferiori al 5% annuo garantirebbero la permanenza di un equity premium , e cioè di un vantaggio dell’investimento equity than bonds, at least 3 points , unless the war but in line with the average of the last two centuries.

U.S. markets and international markets

remains to be addressed, in conclusion, one last question. All the analysis done so far concerns the American market. But who assures us that it is also important to invest in other countries? After all, the U.S., over the past several decades, there have been a reality at all typical. They were instead the richest country in the world, the only true superpower.

doubt is legitimate but fortunately there are those who demonstrated both in substance and unfounded.

Three British economists - Elroy Dimson , Paul Marsh and Mike Staunton - published in 2002 a research on stock returns and long-term debt in 16 countries , titled Triumph of the Optimists : 101 Years of Global Investment Returns .

results, updated to 2006 are summarized in the chart below, taken from Global Investment Returns Yearbook 2007 , by ABN Amro .


As you can see, the returns on shares and bond, in the U.S. Were above average but not by much. Three out of 16 countries have done better than them Sweden, Australia and South Africa. countries in the bottom of the standings ( Belgium, Italy , Germany, France , Spain, Japan ) are, in general, including those who suffered the most devastating destruction during the two wars world.

Worst of all, when looking at stocks and bonds in the complex, is the result of 'Italy with an annual real return of only 2.6% for equities and negative, of' 1.8 % , for bond. Will perhaps explain why the task of another post. The effects of war, Italy has joined a protected economic system, corporate, statist, which has generally paid little and not so much the shareholders that holders of public debt.

For Italian investors that these results provide one more reason, if any were needed, to appreciate the benefits of portfolio diversification outside the narrow borders.

Camila Rodriguez Travesti Blog

U.S. market and prospects of the house Cycle II

In first part of this article I referred to the opinion of Martin Feldstein that the risk of recessione negli Usa sono in aumento e non in diminuzione come sembra invece pensare la maggioranza degli investitori.

Ho anche scritto come per Feldstein è il mercato della casa che continua a porre i problemi più gravi.

I consistenti cali dei prezzi dell’ultimo anno, che non hanno precedenti nella storia americana del dopoguerra, stanno facendo lievitare il numero di famiglie alle prese con debiti verso le banche superiori al valore degli immobili ipotecati (una condizione detta di negative equity ).

C’è il rischio che si inasprisca sempre più la spirale perversa tra cali dei prezzi e insolvenze on loans with such an impact on household wealth and the assets of the banks to make it possible - in the words of Feldstein - one of the "most severe and sustained recessions of the last several decades."

To better understand the fears of Feldstein in this second part I would like first to focus on house prices and see what are the prospects of the U.S. market. I shall refer to an excellent article in the weekly 's Economist last week.

We therefore build on the data. Unfortunately, statistics on the U.S. housing market there are several, mostly so selective to become unreliable when used as a measure of the national situation.

As discussed in the Economist, although none of the existing indices is quite satisfactory, the least imperfect is certainly the ' S & P Case-Shiller , whose last update, reported in February (see graph below the rate of annual change in the last twenty years), was made public last April 29.

The S & P Case-Shiller says essentially three things:

a) prices fell in February, on an annual basis, between 12.5% \u200b\u200b (index more wide on a sample of 20 cities) and 13.6% (index of 10 major cities);
b) in recent months the fall in prices has been accelerating;
c) there are signs that has hit rock bottom.

Among the data, you could also mention the future index S & P Case-Shiller, which indicate that the market suffered a further decline in prices of about 20% before reaching the minimum in 2010 .

As the Economist notes, however, these contracts recently created and still very illiquid, which may provide unreliable information.

The fact that the pricing environment remains marked downward, however, there is no doubt. Easily be deduced from the analysis of demand and of ' offer. The

stocks of unsold homes continues to grow and that the Economist there is an oversupply estimated at about 1.1 million housing units, a total of 4.06 million units sold at end of March.

As the manufacturers have drastically reduced their activities, supply is fed by the influx of more and more people properties offered at auction at the conclusion of the procedures foreclosure - rose in April, RealtyTrac second, 4% and 65% in March from a year ago.

A fundamental level, a way to identify the threshold of support to the current fall in prices is to determine what is missing to achieve assessments in line with the historical average, even though experience shows that after a boom in prices tend to exceed the downward before running at the fair value .

Goldman Sachs analysts , reports the Economist, have developed a model that relates house prices to disposable income of families and interest rates in the long term.

Result? The level of equilibrium should be reached only after a fall in prices at the national level, the about 20% from the peak. The process of correction of excesses, according to this yardstick, it would be more or less half of its course.

Another recent study by Morris Davis University of Wisconsin-Madison and Andreas Lehnert and Robert Martin the Federal Reserve, has instead sought to establish what level of balance in the relationship between prices and rents - what is sometimes called the P / E del mercato immobiliare.

La conclusione dello studio è che tra il 1960 e il 1995 il rendimento medio (rapporto affitto/prezzo ) si è mantenuto in America molto stabile, in una forchetta compresa tra il 5% e il 5,5%. Dopodichè si è inabissato, per effetto dell’ascesa dei prezzi, fino a un minimo del 3,5% al picco del boom.

Secondo Michael Feroli , un analista di JP Morgan citato dall’Economist, l’indice S&P Case-Shiller dovrebbe scendere di un altro 10%-15% da qui alla fine del 2009 per riportare i rendimenti in linea con la media di lungo periodo.

Anche in questo caso, il crollo dei prezzi sembra essere, nella migliore delle ipotesi, appena a metà strada.

Effetti sull'economia del crollo del mercato immobiliare

Da qualsiasi parte si analizzi la situazione, la risposta è dunque che il mercato deve ancora scendere molto. Con quali effetti sull’economia?

Per capire meglio i motivi del pessimismo di Friedman vorrei utilizzare un’analisi dei nessi tra mercato immobiliare ed economia americana pubblicata un mese fa da Paul Kasriel, chief economist di Northern Trust.

S’intitola “How housing has affected the economic ecology” e ne raccomando la lettura who has a little 'familiarity with the English language and the macroeconomy. Kasriel known to be clever, simple and essential and his studies on the U.S. economy are among the best and most accessible that I know.

analysis Kasriel try the steps here to report salient.

First, to understand the effects of sboom must not lose our sense of context and perspective. The crisis in the housing market followed the biggest boom in postwar history.

At the peak, the single-family home sales came to represent the 16.3% of GDP compared to a historical average of 8, 4% (see chart below by Northern Trust). The real estate sector can be traced back nearly a third of the jobs created during the growth cycle of the past.



addition, the peculiar characteristics of the U.S. market have meant that, in the presence of steadily rising house prices, households have been able to renegotiate the loans ( refinancing) and to obtain loans banks ( home equity loans), obtaining additional liquidity that - at the peak - it's got to be equal to 6% of disposable income.

(On this also see the clear explanation offered in the box House prices and household consumption in the United States p. Chapter 14 of Economy and Economic Policies of bulletin Bank of Italy in March 2006).

Such liquid extraction of resources from good home (home equity extraction ) added to large net sales of shares that families have put in place towards the corporate sector (up to 7% of disposable income) can to explain why the consumption expenditure has reached the height of the last cycle of expansion between 2005 and 2006 highs to equal 96% of disposable income .

Naturalmente, ora che il boom è diventato crollo, questi potenti fattori di espansione dei consumi e dell’attività economica si sono messi a operare in senso inverso.

La ricchezza immobiliare delle famiglie sta rapidamente diminuendo. C’è meno possibilità di estrarre risorse liquide dal bene casa. E’ più difficile ottenere un mutuo o un prestito garantito dall’immobile. Inoltre, il generale rallentamento dell’economia spinge all’insù il tasso di disoccupazione.

Non stupisce, di conseguenza, che la fiducia dei consumatori sia precipitata ai livelli più bassi dalla recessione del 1980 (vedi grafico sotto, a cura di Northern Trust).


Nor surprisingly, the consumption been in pain. In particular, retail sales began to shrink in real terms, marking the first quarter of an annual decrease of 2.4% (see chart below, by Northern Trust).

In April, as announced a few days ago, the decline continued with a -0.3% in real terms compared to March (the result, in accordance with the "saucy" trend that has taken hold among analysts and market participants in recent weeks, has generally been welcomed).


If the real estate sector continues to bend down and consumption is obvious that the activity in other areas come into difficulties. L 'optimism companies, both large and small, fell to the lowest level since the recession of 1990 while both the capacity utilization that industrial production are diminishing. The investments will be affected.

Crisis in the housing market and banking system

Finally, there is to consider the financial dimension of this real estate cycle of boom followed by crisis.

families have made an appeal to the exasperated debt, came to touch the 52.5% the value of residential property - an unprecedented level. And mortgages have become the first class of debt in the U.S. economy is twice as important of Treasury securities.

The common opinion is that the banks have originated loans but do not have then held in the portfolio, ending instead to distribute widely in the capital markets through securitization transactions .

This "conventional wisdom " Kasriel observes, is just the reality.

Indeed, in the assets of U.S. banks loans and loans secured by real estate - Then look at products without mortgage backed ( mortgage bonds or MBS ) - have grown so large in recent years, from 20% of total credit in 2001 to 30% in 2006. Many

MBS, then, if they have been distributed have also been repurchased at a certain point. So much so that, overall, mortgages and MBS , so all activities linked variously to the property market, have come to represent the 60% of 'active of large U.S. commercial banks, a record as shown in the chart below (by Northern Trust).


"Here lies the problem ," says Kasriel . "The side of the most important class of debt in the U.S. economy is experiencing the most severe price declines since the war."

The result, as we began to see, will massive losses on a wide range of classes of assets, which will reduce the banking system in a state of weakness and thin.

concludes Kasriel: "Even if the Fed will continue to provide low-cost liquidity to the financial system, the banks' demand for delivering the Fed will be weak dato che si troveranno prive del capitale per sostenere il credito al settore privato.”

La conseguenza ultima di questo stato di cose non può che essere duplice:

a) la recessione in corso (“ current recession ”, così si esprime Kasriel e io concordo) sarà più severa di quella del 2001, perché centrata sul settore delle famiglie, che conta per il 75% circa del Pil.

b) la ripresa, quando avrà inizio (per Kasriel non prima della fine di quest’anno), sarà lenta per l’inadeguato sostegno di un sistema bancario sottocapitalizzato: piuttosto che a V, will be U-shaped or even L, which means that rather than a recovery is likely to be a stagnation expected to continue at least through 2009.

Morphine For Someone Dying Of Dementia

U.S. home market and prospects for the rating cycle

Last week, in the post U.S. economy, the risks of recession remain high , I was unbalanced by making a series of evaluations is at odds with the market consensus that the recent positions taken by the Federal Reserve.

Inspired by the analysis team of macroeconomists Northern Trust, criticized the interpretations, in my view too optimistic, which have been given some important set of statistics, come quelle sul Pil del primo trimestre e sull’ occupazione di aprile.

Concludevo così: “ L’economia Usa, nonostante il sostegno che viene dal dollaro debole e da una domanda estera ancora tonica, resta un malato in via di peggioramento.”

Vorrei ora aggiungere, a quanto lì esposto, il sostegno di un’altra fonte tra le più autorevoli - Martin Feldstein (nella foto sopra) - e un’analisi più circostanziata del mercato della casa americano, che resta d’importanza vitale – oggi come un anno fa quando fece da innesco alla crisi dei mercati – nel determinare l’evoluzione della congiuntura.

L'inganno del Pil svelato da Feldstein

Il 7 maggio, e cioè il giorno dopo la pubblicazione del mio post (la sequenza temporale è ovviamente casuale), sul Financial Times è apparso, proprio sulle stesse questioni, un editoriale di Feldstein – uno dei più eminenti economisti al mondo, professore all’ Università di Harvard , presidente del National Bureau of Economic Research e, nel 2005, il più serio e titolato concorrente di Ben Bernanke per la nomina a presidente della Federal Reserve.

Sotto il titolo “Ingannevoli statistiche sulla crescita offrono falso conforto”, l’articolo mette in evidenza come, dall’inizio dell’anno, l’economia americana ha cominciato a contrarsi un po’ in tutti i settori: è in calo l’occupazione (che ha toccato il suo picco a novembre), sono in diminuzione i redditi, continua a crollare il mercato della casa, scendono le vendite al dettaglio, flette la produzione industriale.

E il Pil ? Non è forse aumentato dello 0,6% nel primo trimestre?

E’ questa per Feldstein la statistica “ ingannevole” che rischia di indurre un infondato senso security, a bit 'in all but particularly among the political and monetary authorities (the reaction of the Secretary of Commerce, Gutierrez Carlo, for example, was to observe how the data confirm the forecasts of the GDP' Bush administration for a weak but positive growth in the first half of the year, and then gradually stronger in the second half).

The ratio of GDP is in fact constructed to compare the average level of activity of a quarter with the average for the previous quarter.

The slight increase in the first quarter of 2007 on the fourth - which is also only a preliminary estimate subject to revisions also significant - it is not inconsistent with more recent evidence, namely the fact that since the beginning of this year all major components of the U.S. economy began to turn downward.

In fact a research center as Macroeconomic Advisers, which calculates a monthly estimate of GDP (and not quarterly as the official one), believes that in February and March, the GDP has been over the previous month contract, for a cumulative decline over the last two months of about 0.9%.

And in perspective?

rating Feldstein is that "even if tax rebates arriving (worth 117 billion dollars, ed) may be of some help temporarily, the combination of real incomes and declining household wealth coupled with the dramatic fall in the indices of consumer confidence suggest that household spending and GDP are intended to shrink further .

housing market, the greater risk

"But the greater risk - Feldstein continues - is that the precipitous fall in house prices - declined by over 12% last year, and 25% annually over the past three months - face increased the number of mortgages with negative equity, multiplied delinquencies and foreclosures. "

In its editorial, Feldstein explains how the U.S. contracts do not allow lenders to make up on other assets of the borrowers beyond the property mortgaged. When a borrower is left with a debt whose value is higher than that of the house (what exactly is defined negative equity), the incentive is to declare themselves insolvent.

mortgages with negative equity, the United States, have already eight million, about 15% of the total . And an idea of \u200b\u200bhow the situation is screwing up if stessa la dà il fatto che insolvenze e pignoramenti sono raddoppiati rispetto a un anno fa.

Notando come non ci sia più spazio utile per l’azione di politica monetaria , e come ciò che serve è un intervento – politicamente problematico – di sostegno fiscale che fermi la corsa verso le dichiarazioni di insolvenza , Feldstein conclude nei seguenti termini, tutt’altro che rassicuranti:

“Una spirale al ribasso nei prezzi delle case intaccherebbe la ricchezza delle famiglie e il capitale delle istituzioni finanziarie, e potrebbe produrre la recessione più severa e più duratura tra quelle degli ultimi svariati decades. "

We will see in second part of this article as the most reliable estimates on the possible evolution of the housing market leading some analysts to believe that the price drop is just half of its course - for So, to continue at least until the end of 2009 to a total collapse of not less than 20% from its peak cyclic two years ago.

We will also try to understand in more detail, what are the mechanisms of transmission that make so formidable, even for the overall tightness of the mighty U.S. economy, the crisis of a housing market gonfiatosi so in the years of bubble to become too important in the financial assets of households in the financial system.

Poptropica Not Saving Items

Why brokers are unaware

Bloomberg.com today published an interesting news on new guidelines that Merrill Lynch has established for its equity analysts.

From now on every one of them will be assigned a rating of sell (sell) at least 20% of the securities under coverage. The neutral and buy (buy) shall not exceed, respectively, 30% and 70% of the shares.

Currently, only 12% of the ratings issued by analysts at Merrill Lynch is a sell, a percentage much lower. The same article reported that each year the securities that have a trend of declining prices are 37% of the total. Obviously, the more numerous still are the ones who end up appreciating however to do worse than the market indexes.

E 'should be noted that Merrill Lynch is different in some way for his "serious" than the average. Overall, in fact, among analysts of investment banks and brokers on Wall Street of the rating sell are only 5% del totale , una quota risibile e di per sè sufficiente a definire la credibilità di queste raccomandazioni.

Ma qual è il motivo che ha spinto i vertici di Merrill a rivedere i criteri cui si deve ispirare la sua ricerca azionaria?

Secondo gli esperti citati nell’articolo, la terza maggiore banca d’investimento americana intende seguire la strada già imboccata da Goldman Sachs e venire incontro alla richiesta che arriva dalla clientela istituzionale più importante e più ricca – gli hedge fund , sempre a caccia di idee su titoli da vendere allo scoperto . Goldman, al momento, ha un rating di sell sul 15% delle actions followed by its analysts.

What to say? There is little in this motivation that can reassure small investors, so far often led into extravagant investment decisions by over-enthusiastic recommendations of sell-side analysts , then uncritically disseminated and freely from the financial media.

will not be a punch in the most negative rating, fed to those who short selling, solve the basic problem for the normal retail investor, namely the fact that this kind of "advice" not responding all their needs.

In a good book, Treasury of Investment Wisdom , Dean LeBaron offriva qualche anno fa suggerimenti (rivolti in primo luogo agli investitori istituzionali, ma estendibili in certa misura a chiunque) su come scegliere dei manager o dei consulenti per la gestione dei portafogli. Il tutto si condensava nella regola delle cinque “P”: (qualità delle) persone, performance, procedure, prodotti, principi.

L’ultimo e più decisivo dei criteri attiene dunque ai “ principi ”, e cioè: il consulente da cosa è motivato, da “passione per la sfida intellettuale, denaro, altruismo o egoismo, ego, collegialità ”?

Così concludeva LeBaron: "In selecting a manager or investment adviser, discusses those principles. If you find that there are, run like hell. But if we are but are not for you, go away quietly. Finally, assess whether they are consistent with your value system, and if other "P" are also present in a satisfactory way, stop: find what you're looking for. "

The news appeared on Bloomberg today, with its significant kit data does not reveal anything sensational for those who know the markets.

In the case of many small investors but perhaps can be used to refresh a useful warning: when you read a credit rating issued by this or that broker about this or that title, forget it.

E 'a suit that was tailored for the needs of the bank and its rich clients: buy when there is to grow the investment banking fees, sell when it comes to placing some ideas for the short selling hedge funds. In both cases, small investors, not for you.

Hair Highlights Pale Skin Gallery

Berlusconi IV, is also in the jungle "Tarzan" fragile

Del Berlusconi IV I would not take care for now. Already do in many. And in the end the facts speak. But a

article Filippo Ceccarelli on Republic today I would like to report them.

's dedicated to the "new" Foreign Affairs Undersecretary Enzo "Tarzan" Scott well known - in the days of wrangling within the old correntizie DC - "for the remarkable ability to hover on the fearsome jungle shield crusader just using the currents as lianas. "

the Ministry Enzo Scotti already set foot - as Minister - in the summer of 1992. There remained little 25 days. It was the end of an era politics, the terminus of a long career.

Now, 16 years later, we returned to settantaquattrenne Secretary.

Ceccarelli wrote: "As often happens in Italy it is not clear if it's something funny, or sad, or both things together." Unfortunately, it is.

After I Did A Brazilian Wax I Broke Out Why

The rally from the lows of the stock exchange between March

What was the nature of Bags rally from the lows of March? This is the question facing many investors correctly.

It 'obvious that you can imagine two scenarios opposite depending on whether the bullish movement innescatosi two months ago with the rescue of investment bank Bear Stearns be interpreted as a simple " bounce" in a trend Primary descending ( bear market) or as a decisive reversal of the cycle which begins a new bull market . How

teaches Martin Pring in his classic manual Analysis of Financial Markets , Handbags of the trends, it is possible to distinguish primary trends (bull markets and bear markets), intermediate trends (both in the sense in contrast to the primary trend, in which case are called " corrections" in an upward trend or "bounces" in a descendant), and short-term trends, not significant and lasting a few weeks at most.

What developed over the past two months is, obviously, a movement in between. But what kind? Again, this is the start of a new primary bull trend or a tricky bounce in contrast to the primary bearish trend (bear market rally )?

Characteristics of intermediate trend

I will return the description, clear and accurate, that Pring is the movement of the intermediate market. We can help. He writes on page 50 of the Volume:

"[...] There are basically two types of intermediate price movements: the first, following the direction of the main trend, trend can be called primary intermediate, the second is a phase of variable duration from four weeks to three months (and sometimes more) that usually retraces in reverse one-third to two thirds of the way covered by the trend in the intermediate phase immediately preceding and movement is called secondary or reaction. "

" Given that a phase intermediate primary follows the same direction as the primary trend of the market, most of the time it longer than that movements against the secondary, its size is generally higher also in terms of price changes . "

" As these phases of contrast notoriously difficult to predict for its character, magnitude and duration, from the point of view of trading should be avoided as a rule since almost always subject to ups and downs that can be confusing, they are inherently misleading and can be very dangerous . "

Extend Rally from the lows of March

Let's performance of equity markets . What Italian touched the highest in mid-May a year ago, but declined by 32% to the lowest in mid-March, then recovered about one third of that decline. What American fell by about 20% by mid-October to mid-March, then recovered half of its losses. What World (MSCI World Index, denominated in Euros) sold 28% before regaining about 40% of that downward movement over the past two months.

For duration and intensity, the intermediate trend is still going well within the range as defined by Pring characteristic of the secondary movement or reaction. " In short, it could well qualify as a bear market rally , "misleading" and "dangerous" as is the nature of these rapidly advancing trend.

On the other hand, it is conceivable that the movement of large purchases and extend, taking on their characteristics to the start of a new bull market.

But how realistic is this second line of interpretation?

application of an important technical

Always Pring in his book, operates a useful simplification When outlines the following "important technical principle "

"At any time there are four factors affecting the price: psychological, technical , Economic and Monetary ."

These are the things that came to me instinctively to review the past few days.

I did it to my account because I had the feeling that the intermediate trend started in mid-March could be about to run out and I did not find me unprepared for the next phase of the market.

To my readers I have made, animated by the same motivations, the two post U.S. economy, the risks of recession remain high and Among bear market and Bear Stearns, where does the stock market?

In those articles I've come to the conclusion that:

a) markets there is too much optimism (negative psychological factor);
b) 's U.S. economy is deteriorating and is in recession or close to recession, against the advice of the (negative economic factor, which could easily be expanded on a global scale, noting that in Europe and Asia the situation is deteriorating);
c) "the horse does not drink ", that is, in spite of the impressive action of relaxing the monetary policy implemented by the Federal Reserve, the credit - both enterprises and consumer - is contracting (monetary factor negative).
d) a bear market that had been concluded in March would be a strange animal, too gentle and kind than the typical bear market of the past (technical factor negative).

Technical analysis of the rally from the lows of March

This aspect - the technical - but it deserves to be deepened with an analysis attentive not only to long-term but also to specific characters of the recent rally from the lows of March.

And here I would refer to an article that Brett Steenbarger, one of my favorite analysts, today published on his excellent blog, TraderFeed .

Steenbarger makes extensive use of a set of indicators, such as sectoral performance, the new highs and new lows, the line advance / decline (A / D) and the flows of money, which in technical jargon can be united under the diction of market internals - that is, indicators and "internal" to the market, aimed at illustrating the robustness, the breadth and strength of a trend.

It is, in my opinion, the most useful part of the analysis technique, which for the rest - the use of mass which is made of trendline, support and resistance, or figures variously interpreted - but leaves me quite indifferent.

What they tell us, then, the market internals the recent rally?

The following is the chart published by Steenbarger.


Show how the rise in the prices of the New York Stock Exchange (NYSE, top graph for the last six months) was not matched by an equal recovery of the line A / D (chart below). After

an initial impulse, the rally quickly lost size and strength, becoming more selective . The gains of the indices are in fact attributable to the performance of a few securities, while the "troops" is left behind.

The sectoral analysis confirms this response. Over the past two months the U.S. stock market has halved so the losses of the previous five months, but due to a large extent, a rotation that has benefited some sectors - such as energy, the consumer discretionary and technology - to expense of others - including pharmaceuticals, financial and consumer products.

Same is the verdict of the indicator New High-New Low , which compares the number of titles that are marking new highs and new lows at 52 weeks. In the last month, as market indexes have risen, the New High-New Low remained virtually flat: 797 compared to 747 new highs new lows.

"This is not the condition of a healthy market," notes Steenbarger. "I can not imagine that the market can hold a significant upward movement on a selective basis as well."

His conclusion is convincing. The rally from the lows of March, apparently as lively in going price indexes, è stato in verità asfittico e fragile . Non è di questa pasta che sono fatte le fasi iniziali di un nuovo bull market, che sono invece cariche di energia repressa.

I quattro fattori ricordati da Pring – psicologico, tecnico, economico e monetario – per quanto io riesca a vedere sono tutti, nel complesso, di segno negativo .

La situazione può cambiare. La mia analisi è senz’altro fallibile e incompleta. Ma, al momento, sarei molto sorpreso di vedere il rally continuare ancora per molto. Più probabile, mi pare, è che prima o poi si torni ai minimi di marzo per spingersi, magari, anche oltre .

Which 7.1 Receiver Should I Buy

bear market and Bear Stearns: where does the stock market?

"Those who can not remember the past are condemned to repeat it." Among the investors this aphorism of philosopher George Santayana is so well known that, in practice, either.

Especially when the markets give satisfaction, because they rise - as it is happening again from 15 March, when the Federal Reserve orchestrated the rescue of investment bank Bear Stearns - the ability to move away from current and "remember the past" becomes a rare virtue.

That this is so is back to let me present, so a little 'light-hearted, the latest weekly commentary John Hussman, one of the best managers and American analysts.

Deja vu

In an article titled Deja vu , published Monday, Hussman begins with what appears to be a synthetic description of the current state of the market.

- the S & P 500 index that after declining from the maximum of 20% has recovered half of its losses;
- the risk of recession always present but in the U.S. economy where the unemployment rate is just half a point worse than the peak of the cycle;
- the volatility and credit spread falling sharply;
- the renewed optimism analysts.

summarize the situation in one sentence, "all suggest to investors that the worst is over, thanks largely to the action of the Federal Reserve."

But really talk about today? What a mockery, this Hussman! No, what he cites is his comment January 2001, which ended this way:

"Everyone seems to think that thanks to the Fed, the market has already bottomed out and that the economic slowdown is now old news . We are skeptical. "

" [...] We think the economy is at the beginning of a cycle of deleveraging (ndr, expansion financed with loan capital). Investors who believe the omnipotence of the Fed have clearly forgotten expressions such as "liquidity trap" or push with a rope, which economists use to describe the inability to stimulate economic activity with the easy credit when spending is stagnant. This is what will happen. "

Hussman, then as we have seen, he was right.

The bear market, an ugly beast

the vigorous recovery of the Stock Exchange in January 2001 followed - using the yardstick of ' S & P500 - a rapid decrease of 19.7% through April, then another bear market rally of 19.0% between April and May and hence a fall of 26.4% up from the lows of September, after the attacks on the Twin Towers and the Pentagon.

The Fed said the shock generated by the madness of the terrorists with a further, large injection of liquidity and investors regained confidence, pushing the S & P 500 rising by 21.4% up in January 2002. The market then fell by 7.9% between January and February but recovered with an advance of 8, up 3% in March.

happened here another collapse, with losses of up to 31.8% in July, followed by a furious rally by 20.7% between July and August. But the story was not over. The last act was a fall of 19.3% to minima in October 2002. the bear market ended, after this succession of falls and breathtaking lift, duration over two and a half years, with a loss overall 49.1%.

read and reread the percentages of movements of the primary bearish trend and the upward revision is a useful exercise. It gives depth to our understanding of what a infida creatura sia un bear market, più di quanto non faccia la consueta visione di sintesi, condensata ad esempio nel grafico decennale che segue, a cura di Barchart :

Qual è, dunque, la lezione che ci viene dallo studio del passato? La riassume bene Hussman :

“Gli investitori davvero non hanno capito nulla delle dinamiche del mercato se credono che un bear market associato a condizioni recessive dell’economia comprenda un unico ribasso del 20%, o anche meno, seguito da un rimbalzo a forma di V che porta a un nuovo bull market.”

Non è così che funziona la psicologia collettiva, it is not evolving economic cycles, it is not moving the stock. I already wrote in my post stock markets and the risk of recession . But it bears repeating.

If you are all ' S & P 500 since 1950 there have been 16 bear market with decreases exceeding 15% (excluding the current one, which we know the beginning but not yet the end). Nine of these have coincided with a recession U.S. economy (traditionally if somewhat simplistically defined as a period of contraction in GDP, which comprises at least two consecutive quarters).

The bear market with no recession sono durati in media 215 giorni (poco più di sette mesi) con cali contenuti tra il 15% e il 25%; quelli con recessione si sono prolungati per 491 giorni (oltre 16 mesi) con esiti molto più variegati e imprevedibili.

In alcuni casi, le perdite sono state non dissimili da quelle dei bear market senza recessione, ma in altri casi, come nel 1968, 1973 e 2000 – quando le Borse erano caratterizzate da una forte sopravvalutazione – hanno superato, anche di molto, il 35%.

Qualcuno obietterà: dov’è oggi la recessione? Dov’è la sopravvalutazione?

Prima di rispondere vale la pena notare che, in ogni caso, ritenere che il bear market iniziato Wall Street in mid-October has been exhausted with the double-dip (see chart below by StockCharts ) recorded in mid-March - just five months later - is not very responsive to the typical profile of "bear markets of the past - even the most benign.

To hear the optimists today, in fact we are dealing with a bear genetically modified, a new beast, whose alleged sighting should command - in any prudent investor - a healthy skepticism.

The event, of course, is not impossible but until proven otherwise be considered unlikely. To be explicit, hours of betting money on the proposition that the bear market is over in March is a gamble, un'avventatezza.

Bear market and recession

If we then consider the situation , as I wrote in post U.S. economy, the risks of recession remain high , the interpretation that the most they have given Recent U.S. macroeconomic statistics surprising as it is superficial, misleading, wrong.

sins of excess optimism that already has led me in recent days to re-enter among my priorities - as an investor - an assessment of ways and times for the possible purchase of equity index put options (a strategy which, as I wrote in this blog, I tend to use to hedge my portfolio at times when I think there is a significant risk of substantial discounts).

to what I wrote in that post I would just add that in January 2001, few believed that the U.S. economy was headed toward a recession.

The economy began to contract two months later, but it was clear to the great mass of observers only much later and after countless revisions of official statistics.

Just as an example, Ben Bernanke, now head of the Federal Reserve and then the head del dipartimento di studi economici dell’Università di Princeton, fu in grado di reiterare il convincimento che una recessione sarebbe stata evitata addirittura nell’agosto. A quel punto, la recessione – iniziata, come poi si capì, a marzo e conclusasi a novembre – era prossima più alla sua fine che al suo inizio.

Tra quanti riuscirono a capire, a inizio 2001 - nell’ottimismo che ancora pervadeva i mercati – che gli Usa erano già in “territorio recessivo” vi fu naturalmente John Hussman . Ma vi fu anche l’ Economic Cycle Research Institute ( ECRI ) di Lakshman Achuthan e Anirvan Banerji , the most prestigious research centers that seek to identify business cycle turning points.

What do you think it's early today Hussman said. The comment ends on Monday in explicit terms:

"Aside from the belief that, at present, the risks are not as full bodied as potential reductions in 2000-2002, for the rest of my assessments of the current cycle are fully in line with what I expressed at the end of bear market rally in January 2001. "

"For the first time in history, ' household debt exceeds GDP (editor's note, see chart below by Ned Davis Research , with the progression from 25% in 1952 to 102% today, and, in particular, the explosion of the last decade due to the swelling of the housing bubble) , while the total debt in the U.S. economy is equal to 350% of GDP. "

Continue Hussman: " Taking into account that the delinquencies on real estate part of that debt is increasing, and that the compression of the profits will also risk the service charges by the companies 'marginal', it is difficult to share the optimism of many analysts about the possibility that the difficulties existing investors will end up being free to leave. "

" [...] It's not that the amount of the debt is, in itself, especially sensitive to recessions. Rather, As the economy slows, the burden of debt that tends to amplify its effects by imposing spending cuts, employment and investment. "

short, simple terms, the point is that with the 'U.S. economy now stops there maneuver on interest rates that can quickly restore momentum to the demand in the presence of a load of debt so oppressive.

Nor can it be a decisive fiscal stimulus like that devised by the Bush administration and approved quickly by Congress, in an amount which, with its 117 billion dollars, is presented as a drop in the ocean of liabilities.

dynamics prevalent now that growth has been slowly strangled, is that the huge debt burden - which leads to the contraction of economic activity.

As for ' ECRI, is expected to be several weeks that a recession, as is also the last weekly update of his Leading Index (leading indicator of the cycle), made public Friday.

Although it has risen from a minimum of 14 weeks ago, the indicator, as reported by one of Reuters dispatch , "remains heavily in negative territory, suggesting that the prospects (editor's note, the U.S. economy) are still recessionary. "

What is a recession in the U.S. because there is already

A article Achuthan and Banerji , appeared last week on CNNMoney , adds a bit 'of useful context.

The two co-founders of ECRI remember, beyond the simplistic definition based only on GDP , what is essentially a recession :

"[...] A contraction in economic activity that tends to self-reinforcing, when a decline in expenditure leads to cuts in production and, consequently, in the workplace, and this produces a loss of income that is spreading throughout the country, from industry to another, weighing negatively on sales and, consequently, of new production, in what is revealed be, in effect, a vicious circle . "

It follows that the accurate statistical definition of a recession can not be entrusted only to the data on GDP or industrial production, but must include the labor market, income, consumption, all oriented - in a spiral - downward.

When these factors tend, in concert, to contract so "pronounced, pervasive and persistent" , there is a recession.

What is the current situation?

"GDP still is not decreasing - write Achuthan and Banerji - but already there have been four consecutive months of decline in employment . And this suggests that the economy is passing into recession . Implies that at least one of the last two quarterly estimates of GDP, which were slightly positive, and perhaps both, will be revised and corrected data is negative within the next year. Or, we'll see one or two quarters of negative growth in GDP during the rest of the year. "

" While the final determination of recession might have to wait at least another year, the fact remains that our leading indicators are not have never been so weak, if not during a recession. "

Bear market is overvalued

Let me conclude with a reference to fundamental question of market valuations.

We have seen, in contesti di sopravvalutazione e in concomitanza con recessioni economiche, i bear market azionari assumano proporzioni devastanti: lunga durata e crolli degli indici compresi – come nel 1968, 1973 e 2000 – tra il 35% e il 50%.

Non so, ovviamente, se sia proprio questo l'esito che ora ci attende. Ma è chiaro che le Borse restano, in una prospettiva di lungo periodo, fortemente sopravvalutate .

Ho già più volte citato gli studi di Andrew Smithers , e spiegato il significato che va dato ai parametri di valutazione che lui utilizza, il q e il CAPE ( Cyclically Adjusted P/E ).

Non mi ripeterò, limitandomi a fare riferimento ai post I multipli di Borsa restano elevati e Sul cattivo uso del P/E e il P/E normalizzato .

Vorrei qui aggiungere solo l’ultimo aggiornamento del grafico che Smithers pubblica sul suo sito e che raffigura la serie storica delle sue stime su q e CAPE.

Sopra la linea dello zero, il mercato (indice S&P 500) è sopravvalutato rispetto al suo valore medio di lungo periodo, e viceversa. Come indicato, l’ultima stima si riferisce a dati aggiornati al 31 dicembre 2007, quando l’S&P 500 shares 1468 points - a 6% above current levels. At that time the

U.S. stock market was overvalued by 71% based on P / E adjusted for the cycle (CAPE), while the non-financial sector, according to q (which can not be calculated for financials) was overestimated by "only" 17%.

As the chart makes clear Smithers, these levels of overvaluation have few (if q) or no history (in the case of estimation based on CAPE) outside the period of speculative madness at the turn of 2000.

The bear market does not end with Bear Stearns

As is also clear, history tells us that cycles of euphoria and excessive overstatements have systematically followed protracted phases of pronounced depression and underestimation.

So, to sum up, the clues seem to be converging to me and lead me to think that, as in January 2001, the equity bear market is now far from being exhausted. Better

therefore be wary of those - and there are many - are arguing that the rescue of Bear Stearns in mid-March, the Federal Reserve wrote an end to the credit crisis and, consequently, the winter of markets.

The Fed is not omnipotent. And Bear Stearns did not make a summer.