Below is the direct quote from the Monetary Policy Objective of the Federal Reserve from the Federal Reserve Act inacted by congress:
"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
I don't see the phrase "being rackless with printing machine" mentioned anywhere here.
The statement of the Monetary Policy Objective is found on the Federal Reserve website.
Saturday, June 18, 2005
Friday, June 17, 2005
Notable and Quotable
Overvaluation implies that given the current security price, the stream of future cash flows delivered by that security is likely to result in an unsatisfactory long term investment return.
- John P. Hussman (Google, iPods and George Foreman Grills)
Sell in May and Go Away.
- Anonymous
Intrinsic business value is derived by estimating the future free cash flows available to
owners and discounting those by a number that compensates for the fact that money in the future is worth less than money today, and for the estimation error that accompanies the difficult task of making reasonable estimates of future free cash flows.
- Bill Miller (Bill Miller’s Commentary - First Quarter 2005)
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
- Warren Buffett
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
- Warren Buffett
The secret to success is to know something nobody else knows.
- Aristotle Onassis
Under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.
- James Surowiecki (The Wisdom of Crowds)
A bull market can be thought of as a bucking bronco, trying its darndest to throw us off its back on the way to the other side of the rodeo ring.
- Mark Hulbert (The stock market as bucking bronco - cbsmarketwatch.com, 05/19/2006)
- John P. Hussman (Google, iPods and George Foreman Grills)
Sell in May and Go Away.
- Anonymous
Intrinsic business value is derived by estimating the future free cash flows available to
owners and discounting those by a number that compensates for the fact that money in the future is worth less than money today, and for the estimation error that accompanies the difficult task of making reasonable estimates of future free cash flows.
- Bill Miller (Bill Miller’s Commentary - First Quarter 2005)
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
- Warren Buffett
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
- Warren Buffett
The secret to success is to know something nobody else knows.
- Aristotle Onassis
Under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.
- James Surowiecki (The Wisdom of Crowds)
A bull market can be thought of as a bucking bronco, trying its darndest to throw us off its back on the way to the other side of the rodeo ring.
- Mark Hulbert (The stock market as bucking bronco - cbsmarketwatch.com, 05/19/2006)
Dogs of S&P 500 as of 6/17/2005
Investing in the dogs of dow stocks has been a successful method for beating the market for decades now. The following table lays out the dogs of S&P 500 index. These stocks have P/E ratio of less than 15 and the current yield of 3% or more.
This is not a recommendation to buy or sell any of these securities. Please do your own research or consult your financial advisor before making any investing decisions.
All disclaimers apply.
| Symbol | Company Name | P/E Ratio | Current Dividend Yield | Previous Day's Closing Price |
| PGN | Progress Energy, Inc. | 14.6 | 5.3 | 44.45 |
| UST | UST Inc. | 14.3 | 4.8 | 45.73 |
| MRK | Merck & Co., Inc. | 12.7 | 4.8 | 32 |
| RAI | Reynolds American, Inc. | 13.3 | 4.7 | 80.4 |
| WM | Washington Mutual Inc. | 13.1 | 4.7 | 40.37 |
| VZ | Verizon Communications | 11.7 | 4.6 | 34.94 |
| KSE | KeySpan Corporation | 14.7 | 4.5 | 40.44 |
| MO | Altria Group, Inc. | 14 | 4.4 | 66.62 |
| USB | U.S. Bancorp | 13.2 | 4.1 | 29.52 |
| FHN | First Horizon National Corporation | 12.2 | 4.1 | 42.3 |
| NCC | National City Corporation | 8.9 | 4.1 | 34.45 |
| SLE | Sara Lee Corp. | 13 | 4 | 19.89 |
| BLS | BellSouth Corporation | 11.9 | 4 | 26.9 |
| ASO | AmSouth Bancorporation | 14.5 | 3.9 | 25.92 |
| KEY | KeyCorp | 14.1 | 3.9 | 33.03 |
| BAC | Bank of America Corporation | 11.9 | 3.9 | 46.43 |
| AEP | American Electric Power | 11.8 | 3.9 | 35.72 |
| DUK | Duke Energy Corporation | 13.8 | 3.8 | 28.63 |
| CMA | Comerica Incorporated | 12.5 | 3.8 | 57.62 |
| C | Citigroup Inc. | 14.4 | 3.7 | 47.54 |
| WB | Wachovia Corporation | 13 | 3.6 | 50.61 |
| PNC | PNC Financial Services | 12.8 | 3.6 | 54.88 |
| BBT | BB&T Corporation | 13.6 | 3.5 | 39.8 |
| F | Ford Motor Company | 8.3 | 3.5 | 11.37 |
| JP | Jefferson-Pilot Corporation | 11.8 | 3.4 | 49.76 |
| HBAN | Huntington Bancshares Incorporated | 14.6 | 3.3 | 24.38 |
| PCG | PG&E Corporation | 9.1 | 3.3 | 36.25 |
| CBSS | Compass Bancshares, Inc. | 14.6 | 3.2 | 44.44 |
| NFB | North Fork Bancorporation, Inc. | 14.3 | 3.2 | 27.93 |
| WFC | Wells Fargo & Company | 14.8 | 3.1 | 61.45 |
| LNC | Lincoln National Corporation | 11.1 | 3.1 | 47.29 |
| STI | SunTrust Banks, Inc. | 13.9 | 3 | 73.4 |
| EMN | Eastman Chemical Company | 13.8 | 3 | 58.57 |
| CINF | Cincinnati Financial Corporation | 12.3 | 3 | 40.11 |
| WY | Weyerhaeuser Company | 11.6 | 3 | 67.14 |
This is not a recommendation to buy or sell any of these securities. Please do your own research or consult your financial advisor before making any investing decisions.
All disclaimers apply.
Tuesday, June 14, 2005
Load Funds with Good Performance
All front-load funds dig investers into a hole as soon as the investor puts money into it. A lot of load funds tends to lag the overall market, but some funds do shine even after the load is taken into consideration.
The table below lists load funds with at least $1 billion in assets with outstanding performance for the last 10 years.
The information here is taken from the MSN Moneycentral website. This is not a recommendation to buy or sell any of these funds.
All disclaimers apply.
The table below lists load funds with at least $1 billion in assets with outstanding performance for the last 10 years.
| Symbol | Fund Name | Front Load | Total Assets | 10-Year Annualized Performance |
| CVGRX | Calamos Growth A | 4.75 | 9,715,739,648 | 21.19% |
| SSRAX | BlackRock Aurora Inv A | 5.75 | 1,841,639,936 | 19.73% |
| PQNAX | Allianz OCC Renaissance A | 5.5 | 2,357,939,968 | 17.30% |
| ETHSX | Eaton Vance Worldwide Health Sci A | 5.75 | 1,169,110,016 | 17.02% |
| FPPTX | FPA Capital | 5.25 | 1,744,739,968 | 15.90% |
| CVTRX | Calamos Growth & Income A | 4.75 | 2,479,269,888 | 15.59% |
| LAVLX | Lord Abbett Mid-Cap Value A | 5.75 | 6,444,950,016 | 15.28% |
| UNSCX | Waddell & Reed Adv Science & Tech A | 5.75 | 2,021,590,016 | 15.22% |
| SHRAX | Smith Barney Aggressive Growth A | 5.00 | 3,186,599,936 | 14.76% |
| SGOVX | First Eagle Overseas A | 5.00 | 4,454,949,888 | 14.48% |
The information here is taken from the MSN Moneycentral website. This is not a recommendation to buy or sell any of these funds.
All disclaimers apply.
S&P 500 Earnings Estimates
The Standard and Poor’s publishes the quarterly earnings estimate for S&P 500 index in an excel workbook. Currently, we have earnings estimates for the remaining quarters of 2005 and the entire year of 2006. These estimates are listed below.
As we see from the table above, the operating earnings for the calendar year 2005 are estimated at $75.02. The estimates for 2006 are $82.96 on the operating earnings basis.
Reported earnings estimates come below the operating numbers and they are $65.52 and $72.50 for the calendar year 2005 and 2006 respectively.
We also notice that current estimates put 2006 earnings numbers about 10% higher than 2005 earnings. These “estimates” do not anticipate any slowdown in the economy.
So, what is the fair-value of S&P 500 index? Assuming a multiple of 17 (a notch below today’s levels of 18) times operating earnings, we should have S&P 500 index at $75.02 * 17 = 1275.34 at the end of 2005. Assuming multiple of 16 (another notch below the estimated 17 at the end of 2005) times the operating earnings for 2006, we should have S&P 500 index at $82.96 * 16 = 1327.36 at the end of 2006.
All disclaimers apply.
| Quarter Ending | Operating Earnings Estimate | As Reported Earnings Estimate |
| 12/31/2006 | $21.91 | $16.70 |
| 09/30/2006 | $21.08 | $18.10 |
| 06/30/2006 | $20.44 | $18.90 |
| 03/31/2006 | $19.53 | $18.80 |
| 12/31/2005 | $19.91 | $15.00 |
| 09/30/2005 | $18.90 | $16.80 |
| 06/30/2005 | $18.26 | $16.80 |
| 03/31/2005 | $17.95 | $16.92 |
As we see from the table above, the operating earnings for the calendar year 2005 are estimated at $75.02. The estimates for 2006 are $82.96 on the operating earnings basis.
Reported earnings estimates come below the operating numbers and they are $65.52 and $72.50 for the calendar year 2005 and 2006 respectively.
We also notice that current estimates put 2006 earnings numbers about 10% higher than 2005 earnings. These “estimates” do not anticipate any slowdown in the economy.
So, what is the fair-value of S&P 500 index? Assuming a multiple of 17 (a notch below today’s levels of 18) times operating earnings, we should have S&P 500 index at $75.02 * 17 = 1275.34 at the end of 2005. Assuming multiple of 16 (another notch below the estimated 17 at the end of 2005) times the operating earnings for 2006, we should have S&P 500 index at $82.96 * 16 = 1327.36 at the end of 2006.
All disclaimers apply.
Monday, June 06, 2005
Stocks As Income Source
The 30-year bond yield stands at 4.24% today. Mr. Greenspan has termed these low rates as a “conundrum”. The long rates today are at the low range of historical averages and are falling in the face of rising short-term rates.
The value stocks of United States has current yield of about 2.50%. I am using the Vanguard Value Index (Symbol: VIVAX) as proxy for the value stocks of US. The historical dividend growth in the US has been around 5% for the last 50+ years.
The following table lays out the expected income generated by the long bond and the value stocks for the next 30 years. In each case, a $10,000 initial investment is assumed. For each year the income generated by value stocks and long bond is displayed in a row.
As we see from the totals that the value stocks will generate more income than long bond for the next 30 years if 5% year over year growth in dividend continues.
All disclaimers apply.
The value stocks of United States has current yield of about 2.50%. I am using the Vanguard Value Index (Symbol: VIVAX) as proxy for the value stocks of US. The historical dividend growth in the US has been around 5% for the last 50+ years.
The following table lays out the expected income generated by the long bond and the value stocks for the next 30 years. In each case, a $10,000 initial investment is assumed. For each year the income generated by value stocks and long bond is displayed in a row.
| Year | Value Stocks Yield | Value Stocks Income | Long Bond Yield | Long Bond Income |
| 2005 | 2.50% | $250.00 | 4.24% | $424.00 |
| 2006 | 2.63% | $262.50. | 4.24% | $424.00 |
| 2007 | 2.76% | $275.63 | 4.24% | $424.00 |
| 2008 | 2.89% | $289.41 | 4.24% | $424.00 |
| 2009 | 3.04% | $303.88 | 4.24% | $424.00 |
| 2010 | 3.19% | $319.07 | 4.24% | $424.00 |
| 2011 | 3.35% | $335.02 | 4.24% | $424.00 |
| 2012 | 3.52% | $351.78 | 4.24% | $424.00 |
| 2013 | 3.69% | $369.36 | 4.24% | $424.00 |
| 2014 | 3.88% | $387.83 | 4.24% | $424.00 |
| 2015 | 4.07% | $407.22 | 4.24% | $424.00 |
| 2016 | 4.28% | $427.58 | 4.24% | $424.00 |
| 2017 | 4.49% | $448.96 | 4.24% | $424.00 |
| 2018 | 4.71% | $447.41 | 4.24% | $424.00 |
| 2019 | 4.95% | $494.98 | 4.24% | $424.00 |
| 2020 | 5.20% | $519.73 | 4.24% | $424.00 |
| 2021 | 5.46% | $545.72 | 4.24% | $424.00 |
| 2022 | 5.73% | $573.00 | 4.24% | $424.00 |
| 2023 | 6.02% | $601.65 | 4.24% | $424.00 |
| 2024 | 6.32% | $631.74 | 4.24% | $424.00 |
| 2025 | 6.63% | $663.32 | 4.24% | $424.00 |
| 2026 | 6.96% | $696.49 | 4.24% | $424.00 |
| 2027 | 7.31% | $731.32 | 4.24% | $424.00 |
| 2028 | 7.68% | $767.88 | 4.24% | $424.00 |
| 2029 | 8.06% | $806.27 | 4.24% | $424.00 |
| 2030 | 8.47% | $846.59 | 4.24% | $424.00 |
| 2031 | 8.89% | $888.92 | 4.24% | $424.00 |
| 2032 | 9.33% | $933.36 | 4.24% | $424.00 |
| 2033 | 9.80% | $980.03 | 4.24% | $424.00 |
| 2034 | 10.29% | $1029.03 | 4.24% | $424.00 |
| Totals | - | $16,609.71 | - | $12,720.00 |
As we see from the totals that the value stocks will generate more income than long bond for the next 30 years if 5% year over year growth in dividend continues.
All disclaimers apply.
Saturday, June 04, 2005
US Household Savings Rate
The US Department of Commerce Bureau of Economic Analysis reported on May 27th 2005 that the US personal savings rate was 0.4 percent of disposable personal income in April 2005.
The median US household income was $43,318 in the year 2003. Let’s assume that the median US household income for 2005 will be about $45,000. An average family will save about $180 dollars with the current 0.4% savings rate!
The median US household income was $43,318 in the year 2003. Let’s assume that the median US household income for 2005 will be about $45,000. An average family will save about $180 dollars with the current 0.4% savings rate!
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