In a post the other day I talked about what looks like a crash in Spain. I mentioned a couple of stocks from there including Telefonica (TEF). In that post I made a brief case for TEF being able to stay in business (which is not an argument to buy). While I think it can stay in business it made news yesterday for suspending its dividend and stock repurchase program obviously due to uncertainty with world events (I say world events so that you can plug in whatever you think that should mean).
Economic conditions in the Eurozone stink (as I've been saying for years) and I think they are going to continue to stink for many years to come. One relevant question is whether or not conditions in Europe can bring down the rest (or most) of the world economy. We can surmise that Australia will be immune to a global recession; only half joking but it only had one quarter of GDP contraction during what has been the worst of the financial crisis.
I don't know whether Europe would indeed bring down the rest of the world because so many parts of the world are looking at their own serious near term (think the next few years) threats to prosperity. Who can say for sure what is causal and what is coincident?
I will say that like last summer things seem to be deteriorating on many fronts in many places (many weak econ data points and corporate earnings). Market history would say good things for the second half of a presidential election year. Also the chart for the S&P 500 looks good as in the last few weeks the market has been making higher lows and the 200 DMA at 1316 has been gaining ground quickly.
So market indicators good (I realize there is always a mix of good and bad) and fundamental indicators not good. When you see certain talking heads on TV they will take a side and really defend it which seems odd. How can someone always be bullish or always be bearish? On this front I am influenced somewhat by John Hussman in that there are always risks to client portfolios (and my own) but do current conditions indicate heightened or reduced risks. This is an ongoing analysis.
Interpreting that correctly along with figuring out how to position the portfolio over the course of the entire stock market cycle will determine the success had and of course this site is in part a look over my shoulder at how I try to do that. If you can be correct a little more often than you are incorrect and if you can avoid being really wrong when you are wrong then you give your self a very good chance of having enough when you need (you also need to save some money).
Wikinvest Wire
7 comments:
In Telefonica's case they are switching their funding model as funding at the holding company level is Spain is not possible given the borrowing costs/equity environment. They are trying to move more to an operating company funding model by issuing debt at Telefonica Brasil and publicly listing a portion of the German business. I think they will be able to do it, but in the interim they have debt maturities at the holding company that need to be paid hence the suspension of dividend/buy backs. I know it was not the focus of your piece but it points to companies needing to de-centralize funding, particularly if the head office is in the EU periphery.
A classic Roger hedge! ;)
I read your entire post twice and I still have no idea which way you are leaning. Are you leaning towards heightened risk or reduced risk? A better second half or a worse second half? Let's keep it simple and focus on the US stock market. Obviously conceding the caveat that your analysis is on-going, as things stand right now, are you bullish or bearish?
Dave, for the short run I tend to think market indicators get more heed. The more important thing is investment discipline but on a breach I would tend to go easy of defensive action because of the slope of the yield curve.
"Short run" meaning 6 days? 6 weeks? 6 months?
I tend to agree w/ you, BTW.
as i wrote that I was thinking three months-ish
Dr. Hussman has been convinced that we are going down 50% yesterday. i expect his next post to be written in a bomb shelter. The man is really bright, and a deep thinker. What do you see that he is missing , or vis versa?
Thanks,
Sam
Sam, thanks for tomorrow's blog post :-)
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