30-01-2003 20:47									#121
	Support Apolyton buy from Amazon

Knight him Rt.Hon Lord of Weirnameshire or make hime Warren de Buffet with a chateau and a vineyard?

	30-01-2003 21:28									#122
	Remove this text

Marquis Varrain de Buffet sounds about right. A la votre!

	30-01-2003 22:08									#123
	Avatar Enlargement: We've got the solution

Btw, does that mean we can welcome Warren Buffet to the circle of pitiful opportunity-lacking Euros?

Roland: That's what I was thinking. To be fair, though, WB's investments are the type that would make the entrenched class conscious Euros happy.

When did GP get banned?

Sten: Don't know. Apparently, he made one too many Greek troll and cheesed off MarkG.

On another subject, what does everybody make of Sony, Toshiba and Hitachi moving to a more US-like corporate governance style?

	30-01-2003 22:20									#124
	Increase the size of your Attachments

"To be fair, though, WB's investments are the type that would make the entrenched class conscious Euros happy."

No, the entrenched class conscious Euros dream of something more along the lines of Dubya's "business" "career".

	01-02-2003 10:01									#125
	Enter the AD-FREE zone

Following up on discussions that I had with Colon while he was in the States, the INS just released its estimate of the number of illegal immigrants in the US (i.e., we don't have a clue where they are or what they're doing). Who knows if their lowballing the number. It comes out at 7 million, 70% of whom are Mexican nationals (or 5% of Mexico's population and probably much more of the potential workforce).

http://www.cnn.com/2003/US/01/31/illegal.immigration/

This would also be a sizeable portion of our workforce, too, I guess.

Last edited by DanS on 01-02-2003 at 10:18

	03-02-2003 15:14									#126
	Get a bigger avatar today!

You know, it just occurred to me that I haven't heard the "zero inflation goal" blah for several years now. Amazing how the world changes.

	03-02-2003 16:03									#127
	Got spare money?

That's because anyone with any sense knew complete price stability was a silly thing to want to have..........of course you can get exposure for your radical ideas in the short term, but ultimately reality triumphs.

	03-02-2003 20:03									#128
	Support Apolyton, buy Galactic Civilizations

Yeh, the nutters came out of the woodwork on this one. It's fun to see these things sometimes in the more popular press, though, even if just for giving the opportunity to say "you're nuts!".

	03-02-2003 23:22									#129
	Support Apolyton buy from Amazon

Well it's always tempting to try and look deeply insightful by flying in the face of conventional thinking (not thinking about any poster in particular ).......unfortunately it's very often conventional for very good reasons.

	04-02-2003 14:12									#130
	Support Apolyton, buy Call to Power 2

And even more often conventional thinking serves best as a contrarian indicator.

	07-02-2003 21:58									#131
	Get a bigger avatar today!

Sten: Do you have an updated outlook on S&P earnings in '03 and '04? How is the corporate debt market going and how long do you think it will take to trickle down to the bottom line in large numbers?

	08-02-2003 01:05									#132
	Help yourself to an AD-FREE life

Hersh - hence my sig - buy when everybody else is selling... The frustrating thing is when you are being contrarian, and conventional thinking starts to agree with you!


Dan-yo-san - the average number I have seen for the SPX for '03 is $51.70, with 8% growth for '04. What does that make for '04.......... $55.84. Still a fair amount of dispersion in the numbers though, I have seen a $44 for '03. $51.70 gives us a 16.5 or so P/E. '03 is still trickling in but I think a low $47 is going to be the result --> 17.7x. Of course all of that is continuing operations. With all of the write-offs the EPS number for '03 would have been $28.5 or so.

The good news in earnings was that on average everyone was a little too pessimistic about Q4 and the numbers are going to be 7% higher than what was projected before earnings season. Then again the projections had come down about 15%.


The corp bond market continues to recover because of the better EBITDA numbers. With the cuts in CapEx that we saw in '02, the turn around was huge. Of course the cut in CapEx cratered the companies that would have benefited from the spending, but....

For example Sprint did $1.3B in free cash flow in '02, compared to $-4.5B in '01; that is a $5.8B turn around. They did it on roughly identical (+4%) sales and they eliminated short-term borrowings. Multiply that time the number of companies doing the same thing and you can see the level of balance sheet fortification going on.

The (US market #s) investment grade corporate bond market did +3.08% in Q4 while Treasuries did just +0.46%. High yield bonds did +6.74% in Q4. The same trend was in place for January. Tsy did -0.30% and Corps did +0.32%. Junk was +3.33%. All of those numbers are in the context of the reverse results during the preceeding several quarters. US High Yield still lost money during '02 even with the 6.74 in Q4, for example.

So the bond markets are reflecting anticipated improved conditions in the US, and globally. The speed with which a lot of companies have shored-up their balance sheets has been remarkable, and any wiff of demand could bring them back to the CapEx table. Unfortunately for bond investors, positive relative returns in corporates, would probably then be offset by negative nominal returns in the underlying Treasury market, so it will probably be a wash year for bonds in general.

I am looking for an acceleration in Q2, but that is earlier than most.

	08-02-2003 01:50									#133
	I gave this thread 5 stars! Support Apolyton, pre-order Civilization IV

If you guys are illuminati just remember that you owe me, k?

	09-02-2003 08:21									#134
	Get a bigger avatar today!

Thanks, Sten.

Looks like it might be time to start picking up some here and there.

I wonder what impact the changed pension investment return assumptions will have on earnings going forward...

	09-02-2003 09:36									#135
	Get a bigger avatar today!

OK, let's try this one again. I'm curious about it...

I've got a pretty basic question that I'm hoping someone here can answer.

Why does anybody buy corporate bonds, when government bonds offer almost the same total returns as do corporate bonds?

From Ibbotson's Stock, Bonds, Bills, and Inflation Yearbook 2002, page 31, geometric mean of annual total returns 1926 to 2001...

Long-Term Corporate Bonds = 5.8%
Long-Term Gov't Bonds = 5.3%

Which means that the default risk premium is only 0.5%.

Edit: As I understand it, 2002 had one of the highest corporate debt default risk premiums on record, but I guess this wouldn't make much difference in the overall numbers.

Attachment: risk-premiums.zip
This has been downloaded 2 time(s).

Last edited by DanS on 10-02-2003 at 08:10

	10-02-2003 08:51									#136
	Support Apolyton buy from Amazon

Reading the just-released Economic Report of the President, there are some interesting arguments. For instance...

1) Stronger correllation than normal '95-'00 between equity prices and corporate investment;

2) Eliminating capital income taxes should address a distortion on the propensity to invest v. consume;

3) There is not a housing bubble, due in part to increased demand from immigrants, a reduction in the default risk premium. See pg. 43;

4) The accumulated current account deficit is far from a point where we need to be concerned about it. See pg. 59;

http://w3.access.gpo.gov/usbudget/f...df/2003_erp.pdf

	10-02-2003 09:38									#137
	Put an end to popups!

There probably isn't a nation wide housing bubble but home prices here in SanDiego have been appriciating at around 15% per year for the last three years and 10%-12% for the 10 year period before that. Population went up but so did the amount of housing stock so it seems there is a slight bubble forming at least in southern California.

	10-02-2003 21:09									#138
	Support Apolyton, buy Alpha Centauri

This could be interesting, just don't have the time to read it at the moment:

http://www.ofheo.gov/docs/reports/sysrisk.pdf

"SYSTEMIC RISK: FANNIE MAE, FREDDIE MAC
AND THE ROLE OF OFHEO"

And it seems the boss of ofheo was fired over this ?

	12-02-2003 00:31									#139
	Suffering from ads?

On corp bonds...

The return numbers are not directly comparable because of the differences in maturity structure that we in place during those years; those same differences are in place today. Differences in bond duration on the "long" end of the curve can be substantial, and especially at low interest rates, a 10yr bond can have radially different return characteristics than a 30yr bond. Also differences in prepayment penalties can impact returns. For a substantial portion of those years a large number of long corporate bonds had call provisions which were different from the government provisions. A bond that is 30yrs to maturity but callable in full after ten years will perform much different than either a 10yr bond or a 30yr bond.

The way we deal with these return differences now is to look at each individual corporate bond and compare its return to a similarly structured treasury bond to derive "Excess Return". The math for evaluating call options in bonds wasn't really in play until Black/Scholes and Merton developed their model in the late 70s, and Excess Returns have only been actively used in the past 5 years, so to my knowledge we haven't had anyone go back and run historical return information using modern methodology.

The credit composition of corporate bond indecies has changed dramatically over time as well. For instance just 10 years ago the percentage of traded corporate bonds outstanding relative to Treasury bonds was about 35%, now it is about 125%. And the BBB component has grown the fastest of the corporate credit buckets.

So now we look at corporate bonds using their (option adjusted) spread to similar treasuries, and that weighted spread is about 175 basis points, or a 3.10% on Treasuries versus a 4.85% for all corporate bonds.

So the spread needs to compensate investors for assuming default risk, and the relative level of nominal rates is important as well. With Treasuries at a 3.10, +175 is a big percentage improvement, however if Tsy was 15.00% then 16.75% might not seem like such a great deal.

Historically, even with a disasterous 2002, the default rate on investment grade bonds (BBB or higher) has been almost negligible. In fact for BB rated junk bonds it has barely been material. So returns that are very close to Treasury returns are not that difficult to accept.

	12-02-2003 01:05									#140
	Support Apolyton, buy Alpha Centauri

quote: Originally posted by Sten Sture The math for evaluating call options in bonds wasn't really in play until Black/Scholes and Merton developed their model in the late 70s, and Excess Returns have only been actively used in the past 5 years, so to my knowledge we haven't had anyone go back and run historical return information using modern methodology.

Yeah....there is bagloads......I don't have my stuff here with me now but I know Lo and Mackinlay (huge empirical finance geezers) have quite a few articles applying modern math to timeless problems.

	12-02-2003 01:49									#141
	Help yourself to an AD-FREE life

Thanks for that nice explanation, Sten. I'll have some follow up questions. But for now, here's a post for Banned GP:

Questions:

1. Does long term mean the same thing for the different groups?

2. What grade of corp bonds (AAA or junk?)

3. What grade of government bonds (US treasuries or local governments or foreign debt).

Discussion:

It would be interesting to look at actual default rates and see if that difference is reasonable or not. I haven't seen this done for the exact comparison you have here. But I have seen it done for different ratings of corp bonds. I.e. BBB vers BB, etc. Broadly speaking the results showed that the different ratings for the bonds and different yeilds correlated reasonably well with default rates. You can take the numbers and do risk-adjusted rates of return. And the answers seemed to make sense. Not completely clean.* But made sense.

*I think there were more AAA bankruptcies than AA. But otherwise, the rankings seemed to match well with the incidence of bankruptcy. and the different yeilds matched as well.

---------------------------

Didn't we already cover all of this?

	12-02-2003 02:07									#142
	Avatar Enlargement: We've got the solution

does this work...


Nope.

How about I just type it in.

Since 1983, annual default rates by rating subcatagory

Ba1 0.70% (highest junk rating)
Ba2 0.60%
Ba3 2.70%
B1 3.80%
B2 6.70%
B3 13.20%
Cs 19.40% (Caa - C)


GP - long term generically means maturing in 10yrs or more, so it includes about 15% of the broad domestic bond market ex-money market stuff.

Generally Corporate bond indecies just include investment grade stuff Baa/BBB and higher. Though recently there has been a lot of all-in type of numbers generated as the high yield (junk) market has matured.

Government bonds refers to both direct US Treasury and indirect US sponsored Agency note and bonds, but not state issued, or agency mortgage backed issued stuff.

	12-02-2003 04:02									#143
	Suffering from ads?

quote: Originally posted by DrSpike Yeah....there is bagloads

Thanks, I should have assumed as much. I've been brainwashed into thinking that no one cares about bonds.

	12-02-2003 04:13									#144
	Support Apolyton, pre-order Civilization IV

Hehe right about now I wouldn't have thought that would be a problem.

	26-02-2003 21:10									#145
	Support Apolyton buy from Amazon

DanS:

Do you have a link for the Financial Times article on valuing Iraqi oil reserves? I did not find it on a search here or elsewhere, and I think their analysis may have missed something.

	26-02-2003 21:26									#146
	Tired of ads?

Here's the link, but apparently after a certain amount of time, only subscribers are allowed to access it.

http://news.ft.com/servlet/ContentS...p=1012571727092

	26-02-2003 21:34									#147
	Got spare money?

When he calculated the effects of lower prices, do you recall whether that applied to Iraqi oil, imported oil, or all oil? Should have been applied to all oil.

	26-02-2003 22:00									#148
	Support Apolyton, buy Galactic Civilizations: Deluxe Edition

I don't recall.

Edit: I now have the article in front of me. I'll try to PDF it later on today. In short, the author makes a narrower argument. He assumes that Iraq's production will not increase or decrease substantially from current levels.

10% discount rate on 2.5 million barrels/day production. $25/barrel.

Last edited by DanS on 26-02-2003 at 22:25

	27-02-2003 02:42									#149
	Remove this text

Let's see if this works.

Attachment: allaboutoil.zip
This has been downloaded 2 time(s).

	05-03-2003 13:47									#150
	Support Apolyton, buy Call to Power 2

Bump!

And a link about the Roland Stenish crowd

http://www.foulds2000.freeserve.co.uk/economists.htm

How do you guys like the EUR/USD rate?