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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?


To: Tommaso who wrote (160354)10/27/2008 12:19:21 AM
From: Jim McMannisRespond to of 306849
 
MARK HULBERT

How low are P/E ratios?

marketwatch.com

(MarketWatch) -- I felt really old on Thursday.
The guest before me on a television talk show expressed astonishment that price/earnings ratios were so low currently. In fact, he pointed out incredulously, some stocks' P/Es had dropped so low that they were now even in the unheard of single digits.
To me, this just showed how little stock market history that this guest really knew. In fact, according to data collected by Yale University Prof. Robert Shiller, the stock market's P/E ratio has been below 10 in 17% of the months since 1871.
That's about one-sixth of the time.
Of course, most of those months came more than two decades ago. That's why those with short memories can get away with thinking that current P/E ratios are particularly low. The last time the market's P/E was below 10, for example, according to Shiller's data, was in 1984, some 24 years ago. Anyone younger than 45 or 46 was probably still in college at that time.
I was prompted by this talk show guest's incredulity to see how the stock market's current P/E ratio stacks up to long-term historical norms. I emerged from my analysis with incredulity, but of just the opposite variety: I was amazed at how high the stock market's current valuation is, even after the market's plunge over the past month.
Any analysis of stock market valuation has to carefully choose which definition of earnings to use when calculating P/E ratios. One can focus on operating earnings, as-reported earnings, and core earnings, for example. And then one can focus on these earnings over the trailing year, or as analysts are forecasting for the coming 12 months.
To be comparable with Shiller's database, I focused on as-reported earnings per share over the trailing 12 months. On this basis, the current PE ratio for the S&P 500 index

Only 21% of the months since 1871 have had higher PE ratios than this, it turns out.
You read that right: Even after a year-long bear market, and especially even after the market's rout over the last month, the stock market's current valuation is still more expensive than 79% of the months over the last 138 years.
How, then, can anyone even think that the market's current P/E ratio is low? One way they can do so is by focusing on projected earnings over the coming year. But analysts are perennially optimistic, and any P/E ratios based on their projections are risky.
To be sure, P/E ratios sometimes are artificially high at the end of bear markets, when earnings are depressed. But I don't think that we can use this possibility to explain away the market's apparently high valuation right now.
Consider, for example, a modified P/E ratio that Shiller calculates; one of its virtues is that it overcomes the problems associated with artificially depressed earnings at bear market lows. The denominator of this modified ratio is average inflation-adjusted earnings over the trailing 10 years. Call this modified ratio "P/E10."
According to Shiller's data, the market's current P/E10 is higher than 80% of comparable readings over the past 130 years.
What does all this mean? For starters, it means that the stock market's current valuation is not abnormally low right now, much less even below average. If you have been basing your bullishness on the belief that it is particularly low, then you need to rethink your bullishness.
Secondly, this analysis suggests that any stock market low that happens at or close to current levels would be the springboard for only a so-called cyclical bull market, not a secular one.
Secular bull markets occur no more often than once a generation. At the beginning of the bull market in August 1982, for example, the market's P/E ratio was below 8. Now that's a secular bull-market valuation, and over the subsequent 20 years the stock market went up more than tenfold.
At the beginning of the bull market in October 2002, in contrast, the market's P/E ratio was 29.1, according to Shiller's data. That only could support a so-called cyclical bull market, and the ensuing bull market didn't even quite produce a double.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.



To: Tommaso who wrote (160354)10/27/2008 12:21:33 AM
From: Jim McMannisRespond to of 306849
 
US Army Prepares To Attack America

armytimes.com

Brigade homeland tours start Oct. 1

3rd Infantry’s 1st BCT trains for a new dwell-time mission. Helping ‘people at home’ may become a permanent part of the active Army


The 3rd Infantry Division’s 1st Brigade Combat Team has spent 35 of the last 60 months in Iraq patrolling in full battle rattle, helping restore essential services and escorting supply convoys.

Now they’re training for the same mission — with a twist — at home.

Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.

It is not the first time an active-duty unit has been tapped to help at home. In August 2005, for example, when Hurricane Katrina unleashed hell in Mississippi and Louisiana, several active-duty units were pulled from various posts and mobilized to those areas.

But this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.

After 1st BCT finishes its dwell-time mission, expectations are that another, as yet unnamed, active-duty brigade will take over and that the mission will be a permanent one.

“Right now, the response force requirement will be an enduring mission. How the [Defense Department] chooses to source that and whether or not they continue to assign them to NorthCom, that could change in the future,” said Army Col. Louis Vogler, chief of NorthCom future operations. “Now, the plan is to assign a force every year.”

The command is at Peterson Air Force Base in Colorado Springs, Colo., but the soldiers with 1st BCT, who returned in April after 15 months in Iraq, will operate out of their home post at Fort Stewart, Ga., where they’ll be able to go to school, spend time with their families and train for their new homeland mission as well as the counterinsurgency mission in the war zones.

Stop-loss will not be in effect, so soldiers will be able to leave the Army or move to new assignments during the mission, and the operational tempo will be variable.

Don’t look for any extra time off, though. The at-home mission does not take the place of scheduled combat-zone deployments and will take place during the so-called dwell time a unit gets to reset and regenerate after a deployment.

The 1st of the 3rd is still scheduled to deploy to either Iraq or Afghanistan in early 2010, which means the soldiers will have been home a minimum of 20 months by the time they ship out.

In the meantime, they’ll learn new skills, use some of the ones they acquired in the war zone and more than likely will not be shot at while doing any of it.

They may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack.

Training for homeland scenarios has already begun at Fort Stewart and includes specialty tasks such as knowing how to use the “jaws of life” to extract a person from a mangled vehicle; extra medical training for a CBRNE incident; and working with U.S. Forestry Service experts on how to go in with chainsaws and cut and clear trees to clear a road or area.

The 1st BCT’s soldiers also will learn how to use “the first ever nonlethal package that the Army has fielded,” 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.

The package is for use only in war-zone operations, not for any domestic purpose.

“It’s a new modular package of nonlethal capabilities that they’re fielding. They’ve been using pieces of it in Iraq, but this is the first time that these modules were consolidated and this package fielded, and because of this mission we’re undertaking we were the first to get it.”

The package includes equipment to stand up a hasty road block; spike strips for slowing, stopping or controlling traffic; shields and batons; and, beanbag bullets.

“I was the first guy in the brigade to get Tasered,” said Cloutier, describing the experience as “your worst muscle cramp ever — times 10 throughout your whole body.

“I’m not a small guy, I weigh 230 pounds ... it put me on my knees in seconds.”

The brigade will not change its name, but the force will be known for the next year as a CBRNE Consequence Management Response Force, or CCMRF (pronounced “sea-smurf”).

“I can’t think of a more noble mission than this,” said Cloutier, who took command in July. “We’ve been all over the world during this time of conflict, but now our mission is to take care of citizens at home ... and depending on where an event occurred, you’re going home to take care of your home town, your loved ones.”

While soldiers’ combat training is applicable, he said, some nuances don’t apply.

“If we go in, we’re going in to help American citizens on American soil, to save lives, provide critical life support, help clear debris, restore normalcy and support whatever local agencies need us to do, so it’s kind of a different role,” said Cloutier, who, as the division operations officer on the last rotation, learned of the homeland mission a few months ago while they were still in Iraq.

Some brigade elements will be on call around the clock, during which time they’ll do their regular marksmanship, gunnery and other deployment training. That’s because the unit will continue to train and reset for the next deployment, even as it serves in its CCMRF mission.

Should personnel be needed at an earthquake in California, for example, all or part of the brigade could be scrambled there, depending on the extent of the need and the specialties involved.

Other branches included
The active Army’s new dwell-time mission is part of a NorthCom and DOD response package.

Active-duty soldiers will be part of a force that includes elements from other military branches and dedicated National Guard Weapons of Mass Destruction-Civil Support Teams.

A final mission rehearsal exercise is scheduled for mid-September at Fort Stewart and will be run by Joint Task Force Civil Support, a unit based out of Fort Monroe, Va., that will coordinate and evaluate the interservice event.

In addition to 1st BCT, other Army units will take part in the two-week training exercise, including elements of the 1st Medical Brigade out of Fort Hood, Texas, and the 82nd Combat Aviation Brigade from Fort Bragg, N.C.

There also will be Air Force engineer and medical units, the Marine Corps Chemical, Biological Initial Reaction Force, a Navy weather team and members of the Defense Logistics Agency and the Defense Threat Reduction Agency.

One of the things Vogler said they’ll be looking at is communications capabilities between the services.

“It is a concern, and we’re trying to check that and one of the ways we do that is by having these sorts of exercises. Leading up to this, we are going to rehearse and set up some of the communications systems to make sure we have interoperability,” he said.

“I don’t know what America’s overall plan is — I just know that 24 hours a day, seven days a week, there are soldiers, sailors, airmen and Marines that are standing by to come and help if they’re called,” Cloutier said. “It makes me feel good as an American to know that my country has dedicated a force to come in and help the people at home.”



To: Tommaso who wrote (160354)10/27/2008 12:29:38 AM
From: Jim McMannisRespond to of 306849
 
Unintended Consequences

dollardaze.org

As you may know, here at Casey Research we are not optimistic about the outlook for real estate, that lynchpin of the U.S. economy. This pessimism is evoked by a number of factors, starting with the simple fact that residential housing increased by about 50% between 1992 and 2007, massively outpacing population and income growth over the period. As you absolutely know, much of that excess inventory is in the hands of individuals who simply can't afford to pay the freight.

Then there is our hardened belief that the equivalent of an express train wreck is about to happen in the 4 - 6 trillion dollar U.S. commercial real estate market. There will be a lot less in the way of Ho! Ho! Ho! this holiday shopping season, and a lot more Oh... Oh... Oh's.

And none of it is helped by the inevitable rise in interest rates, which are today at near 50-year lows. While we might not be quite at the bottom, we're close... after which we expect a persistent rise as the government bailouts flow through the inflationary pipeline. Of course, wounded housing markets react about as well to rising interest rates as I do to the prospect of my taxes going up in the next administration.

Unfortunately for the housing market and by extension the U.S. economy, we are already seeing the ghosts of what's to come. This just in from Bud Conrad...

"The U.S. government's conservator status of Fannie and Freddie was supposed to lower mortgage rates, which it did for a few weeks. But we have now started to see the unintended consequences of guaranteeing the banks - namely that investors are moving away from housing-related debt and investing it in bank debt instead, pushing mortgage rates up. My sense is that movement by foreigners away from agency (Fannie Freddie) debt contributed to the half-point rise in mortgage rate, too. The TIC data confirm that shift.

The result is that housing will be further hurt with the higher rates and will continue to fall in price."

On the same topic, the news is out this morning that in September, single-family home starts in the U.S. fell to the lowest level in 26 years. Just 544,000 new homes would be built over the next 12 months (if the trend were to stabilize here, which it won't).

Just so you have the right perspective, at the peak of the bubble, annualized housing starts in the U.S. were running at 2,265,000 units, so we're seeing about a 75% decrease.

By the time this is over, it wouldn't surprise me to see housing starts fall to 10% of the peak.

Of course, housing is far more than just "another" economic stat. In addition to the tragic financial and emotional implications of coming up short on the mortgage on a personal and even societal basis, there are the direct consequences to the broader economy. No more excess equity to borrow against to fund shopping sprees, and none to allow for a comfortable retirement for far too many.

This is, and will continue to be, a big problem for the economy. While there is no soft solution at this point, the best we could hope for is that the damage will be quick to come and quick to pass. But the only real way for that to happen is for house prices to fall to the point where ready buyers are available. And that entails workouts between lenders and borrowers, or outright foreclosures, to clean up the mess and allow the market to function as it certainly can, and will again... if left to its own devices.

Unfortunately, the plans now being bandied about by the government envision pretty much the polar opposite of letting the market clean itself up. Rather, they involve taxpayers buying defaulting mortgages and even the imposition of a moratorium of some duration on foreclosures. Most people read news such as that and shrug it off. It may help to view these ideas through a narrower spectrum.

For example, imagine you are the president of a small bank and you had lent money in good faith to someone in the neighborhood. We'll call him Joe as that seems to be a popular name for these sorts of examples these days.

For reasons only known to him, Joe has stopped paying on his mortgage, leaving your little bank on the hook for $200,000. Following procedure, you have Mrs. Smith down in the lending department send Joe a nice letter asking him what's up, to which she receives no response. So you personally send him another letter, this one offering to have him down to the bank to have a chat and see if you can work things out.

No response, no money.

So, uncomfortable at having to perform the duty, you give Joe a call and he admits he is in over his head. When you offer to help him work out a payment plan, he calls you a blood sucker and hangs up on you.

Pained by the outcome of your loan, because you'd rather be getting paid back on the agreed-upon terms, you call up your lawyer and reluctantly authorize the expense of beginning the foreclosure proceeding. At that point, you know you will likely spend thousands and the better part of a year trying to get back your property (and it is your property). But what choice are you left with?

And then you hear - as does Joe - that Congress is seriously considering passing a moratorium on foreclosures, and you reach into the locked drawer of your desk for the flask you keep there for such occasions. Joe, meantime, heads down to the local deli for a six pack to celebrate free rent for the foreseeable future, perhaps paying for his purchase by selling off the copper pipes he's ripped out of the guest bathroom.

This exercise is, of course, little more than the morning musings of a sleep-deprived mind, and I am well aware that the circumstances surrounding the defaulting on loans are as varied as humanity itself. Even so, the underlying principles are the same. There is a contractual agreement between a lender and a borrower that no one had to be waterboarded to sign. In the event of a failure to perform on the part of either party, it is up to the two parties alone to resolve -- with the help of an impartial judiciary if an impasse occurs.

Interjecting an overreaching government run by perfect-worlders into the process can only gum up the works. And, I would contend, result in just the sort of unintended consequences now being reflected in jumping mortgage rates. Or, for that matter, the entire housing mess in the first place... much of which is the unintended consequence of Greenspan ratcheting down interest rates instead of pouring himself a nice cup of tea and watching as the participants in the dot-com mania received their just desserts.

Personally, I am shocked by the rising cacophony of calls for more, not less, government regulation. Given the widespread chanting now going on in favor of elevated levels of oversight, retribution, taxation, meddling, and outright nationalization, it is clearer than ever that the laissez faire view I just expressed is in a minority. And the situation is only going to get worse as the next wave of well-intentioned government operators step up to the controls... controls that are being firmly bolted onto the machinery of markets.

We are about to enter a dark period for the free markets. That's the bad news.

The very good news is that, seeing it coming, you can anticipate where the next unintended consequences will occur and position yourself to profit.



To: Tommaso who wrote (160354)10/27/2008 8:56:07 AM
From: DebtBombRespond to of 306849
 
Yen climbs despite G-7 warning
By TOMOKO A. HOSAKA, Associated Press Writer Tomoko A. Hosaka, Associated Press Writer
1 hr 44 mins ago

TOKYO – A warning by top industrialized nations about the recently surging yen fell flat Monday, unable to overcome the deluge of investors buying back the Japanese currency by reversing so-called carry trades that has sent the yen to a 13-year high.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," finance ministers and central bank heads from the Group of Seven countries said in a statement.

The group reaffirmed its shared interest in a "strong and stable financial system" and pledged to continue to monitor markets and "cooperate as appropriate."

But they stopped short of announcing an intervention to sell the yen, disappointing some market players who had been hoping for authorities to act.

"Investors globally are being assailed now, and they have been buying back the yen," said Masafumi Yamamoto, head of foreign exchange strategy at Royal Bank of Scotland in Tokyo. The statement had little if any impact, he said.

The dollar climbed to 92.40 yen Monday afternoon in Tokyo from 94.24 late Friday in New York. It also gained against the euro, which bought 114.44 yen.

The yen jumped Friday as investors rushed to unwind speculative yen carry trades, which involve buying yen to invest in currencies with higher-yielding bonds and other assets. The global financial crisis has scared them into pulling money out of those investments, forcing them to buy back the yen and lifting its value.

On Friday, the dollar fell as low as 90.89 yen, the lowest since August 1995, before strengthening some. A week earlier, the dollar was above 100 yen.

The rise of the yen has alarmed Japan, where export-oriented businesses are already hurting because of the global financial crisis. A rising yen makes Japanese products more expensive abroad and reduces the value of overseas profits when repatriated.

Tokyo stock prices have tumbled in response, with the key stock index plunging more than 6 percent Monday to its lowest close in more than a quarter century. It has lost more than 20 percent since last week and 40 percent in the last month.

Investors unloaded shares of major exporters, sending automakers Toyota Motor Corp. and Nissan Motor Co. more than 8 percent lower.

A move earlier Monday by Japanese Prime Minister Taro Aso to introduce measures to calm volatile stock markets failed to revive flagging sentiment.

Calling an emergency meeting of the Cabinet and ruling party officials, Aso urged steps including tighter controls on short-selling and expanding a government fund to recapitalize banks to as much as 10 trillion yen ($106.1 billion) from 2 trillion yen, according to Kyodo news agency.

Aso did not suggest intervening in foreign exchange markets, but Japanese Finance Minister Shoichi Nakagawa used his strongest language yet to describe the yen's appreciation. He called the recent swings "excessive" and said he is extremely worried about the impact on Japan's economy.

He told reporters that the G-7 issued its statement at Tokyo's request. The G-7 includes Japan, the United States, Britain, France, Germahttp://news.yahoo.com/s/ap/20081027/ap_on_bi_ge/as_japan_g7_yen_1/print;_ylt=As.dyqOCWfxyQYyQ4siBv6Fv24cAny, Canada and Italy.