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Buy and Hope Investing - 02-27-2009 - Audio Version

John Mauldin — Thu, 12 Mar 2009 15:14:13 GMT

This week Professor Jeremy Siegel (author of Stocks for the Long Run) had an op-ed in the Wall Street Journal showing that stocks are now cheap. I was on Tech Ticker, and Henry Blodgett challenged me about my e-letter last week, where I talked about how expensive stocks are. So which is it? We look at Professor Siegel's work -- and I let you decide. But first, and quickly, I just wanted to take a moment and remind you to sign up for the Richard Russell Tribute Dinner, all set for Saturday, April 4 at the Manchester Grand Hyatt in San Diego -- if you haven't already. This is sure to be an extraordinary evening honoring a great friend and associate of mine, and yours as well. I do hope that you can join us for a night of memories, laughs, and good fun with fellow admirers and long-time readers of Richard's Dow Theory Letter....

Time for a Reality Check - 02/14/2009 - Audio Version

John Mauldin — Fri, 20 Feb 2009 15:12:53 GMT

It is not just the US that is in recession. The world is slowing down, and rapidly. This week we quickly survey the rest of the world, and then come back to the US. We follow up with the implications for corporate earnings worldwide, and specifically address my speculations about earnings forecasts for 2009. Let's start with some charts from my friend Simon Hunt, out of London. The following chart shows World Merchandise Export Values and World Industrial Production falling off a cliff. This is the worst such period since the end of World War II. And as the data we will examine next indicates, it is likely to get worse....

Here Comes Tarp 3 and 4 - 01-24-2009 - Audio Version

John Mauldin — Mon, 09 Feb 2009 21:54:20 GMT

What does it mean for Citigroup to be at $3? As it turns out, it distorts the information we think we are getting from the Dow Jones Industrial Index. And more TARP money is surely in our future, and far more than anyone in authority is now suggesting. This week's letter will cover both topics and a little more. I think you will find it interesting. Before we get into the letter, just two quick housekeeping items. First, I spend most of my week researching and writing. Part of that process is the ability to call friends and esteemed colleagues to discuss our different points of view about the present markets and economy. I have offered, for the first time, exclusive access for my readers to listen in on those conversations. The first "Conversation" will be with Dr. Lacy Hunt and Ed Easterling next Tuesday, and we will have it ready for subscribers to my new service shortly thereafter. This new subscription service will allow you to listen in on Conversations with me and my friends about the most critical financial and economic topics of the day.

The Endgame - 01-17-2009 - Audio Version

John Mauldin — Tue, 27 Jan 2009 05:25:18 GMT

Deflation? Stimulus? Deleveraging? Recession? A soft depression? A return to a bull market? With all that is going on, how does it all end up? When we get to where we are going, where will we be? In chess, the endgame refers to the stage of the game when there are few pieces left on the board. The line between middlegame and endgame is often not clear, and may occur gradually or with the quick exchange of a few pairs of pieces. The endgame, however, tends to have different characteristics from the middlegame, and the players have correspondingly different strategic concerns. And in the current economic endgame, your strategy needs to consist of more than hope for a renewed bull market.

I Meant to Do That - 12-19-2008 - Audio Version

John Mauldin — Tue, 27 Jan 2009 05:23:34 GMT

The Fed has taken interest rates to zero. They have clearly started a program of quantitative easing. What exactly does that mean? Are we all now Japanese? Is the Fed pushing on a string, as Japan has done for almost two decades? The quick answer is no, but the quick answer doesn't tell us much. We may not be in for a two-decades-long Japanese malaise, but we will experience a whole new set of circumstances. In what will hopefully be a shorter holiday version of the e-letter, I will tackle these questions and more.

2008: Annus Horribilis, RIP - 01-02-2009 - Audio Version

John Mauldin — Tue, 27 Jan 2009 05:21:51 GMT

This week we look at a very interesting, if not altogether encouraging, piece of research on the length and severity of recessions that come during periods of financial crisis, which can apply to not just the US but all countries that are involved in the current crisis. But being forewarned is better than blindly stumbling through, so we will take some time to peruse it. Then we (briefly) look at the depth of the manufacturing numbers in the US, which leads us into the recent bout of earnings downgrades and some thoughts as to where that might suggest the market is going. That should be enough for this week.

The Velocity Factor - 12/05/2008 - Audio Version

John Mauldin — Fri, 12 Dec 2008 20:33:51 GMT

A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labour markets from rising unemployment will control labor costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1 per cent level that leads to concerns about deflation. Deflation is dangerous as it leads to a liquidity trap, a deflation trap and a debt deflation trap: nominal policy rates cannot fall below zero and thus monetary policy becomes ineffective. We are already in this liquidity trap since the Fed funds target rate is still 1 per cent but the effective one is close to zero as the Federal Reserve has flooded the financial system with liquidity; and by early 2009 the target Fed funds rate will formally hit 0 per cent. Also, in deflation the fall in prices means the real cost of capital is high - despite policy rates close to zero - leading to further falls in consumption and investment....

Electing the Janitor-in-Chief - 10/31/2008 - Audio Version

John Mauldin — Wed, 12 Nov 2008 15:55:26 GMT

This week we survey the economic landscape that the new president will inherit. It is a polite understatement to say that he will be getting a serious mess. In reality, the US goes to the polls this next Tuesday to elect a Janitor-in-Chief. He will face a task that rivals that of Hercules in cleaning out the Stygian stables (legendary huge stables that had not been mucked out for ten years). However, there are no convenient rivers at hand for a probable President Obama to redirect that will quickly be able to clean out the mess left in the stables of our economy. This will indeed be an Herculean task and one that will take most of the first term of the next administration. So, let's look at what will face the next president. It should make for an interesting, even if not optimistic, letter....

How Shall We Then Invest? - 10/27/2008 - Audio Version

John Mauldin — Wed, 05 Nov 2008 18:52:14 GMT

Warren Buffett says buy. Jeremy Grantham says it will get worse. Both are celebrated value investors. Who is right? It all depends upon your view of the third derivative of investing. Today we look at valuations in the stock market. This is the second part of a speech I have given in the past few weeks in California and Stockholm. I am updating the numbers, as the target keeps moving. While from one perspective things look rather difficult, from another there is a ray of hope. What can you expect to earn from stocks over the next five years? It should make for an interesting letter. Note: this will be a little longer than usual, but part of it is there are a LOT of charts. I should note that I am rewriting this on Monday. For the first time in over 8 years, I missed my Friday night deadline (see below). Last week's title for the letter was "The Economic Blue Screen of Death." By that I referred to the old "blue screen of death" that we used to get on early versions of Microsoft MS-DOS and Windows. You could be working away and suddenly, for no apparent reason, the computer would freeze up and you would get a blue screen. The only thing you could do was unplug the computer and hit the reset button - losing everything that was not saved when the computer crashed...

The Economic Blue Screen of Death - Audio Version - 10-17-2008

John Mauldin — Mon, 27 Oct 2008 17:55:13 GMT

This week I am in California giving two speeches to the Financial Planning Associations of San Diego and Orange County. This and next week's letters will be the broad outline of the speech. We will look at how the retreat of the American consumer will affect the stock market. Has the recent drop (can we say crash, gentle reader?) in stock market valuations given us an opportunity to find value? We look at some very powerful evidence that suggests that may be so. Then we look at the counter to that view. Are we at the bottom, or is there more pain? And given the current state of affairs, how should we then invest? Where do we put our money to work when the dust settles, as it surely will. As I noted above, this will be a two-part letter, finishing up next week. It will also print out a lot longer than normal as I have a lot of PowerPoint slides that are really important for you to see. A note to the 25% of my one million-plus readers who are outside the US: I am using illustrations from the US stock market to discuss timing and valuations, but the principles will translate to markets worldwide. In fact, considering that most stock markets worldwide are down even more than the US markets, they may be even more applicable. The time to become bullish on a lot of markets may be closer than we think. Let's jump right in....

Where Do We Go From Here? - 10/10/2008 - Audio Version

John Mauldin — Mon, 20 Oct 2008 18:19:02 GMT

I have been writing for almost a year that the next shoe to drop on US banks would be commercial construction lending. Today we look at some hard numbers. We look across the pond to sort out the problems in Europe. We look at the consequences of the losses stemming from Lehman. Then we look at one of the more serious consequences of the banking crisis, one that will bring the crisis home to you. Finally, we look at what the various governments of the world must do in response. It may not be fun, but it should be interesting. And it is important. Feel free to forward this letter to anyone who asks why we not only need the bailout but will need even more coordinated government action....

The Curve in the Road - 10/03/2008 - Audio Version

John Mauldin — Mon, 20 Oct 2008 18:16:30 GMT

The 'Bailout Plan' was passed. Will it work? The answer depends on what your definition of 'work' is. If by work you mean no more government intervention and no further costly programs and a functioning market, then the answer is no. But there are things it will do. This week I try to help you see what might lie ahead around the Curve in the Road. We look at how the rescue plan will function, see what is happening in the economy, and finally muse as to whether Muddle Through is really in our future. It will make for an interesting, if not very upbeat, letter, so strap in. I would like your promise to not shoot the messenger. I am just trying to give you some of my thoughts as to what may lie in our future. And remember, as you read this, we will get through it. There are better days a'coming....

Betting on Financial Armageddon - 9/19/2008 - Audio Version

John Mauldin — Fri, 10 Oct 2008 16:20:59 GMT

My Dad used to tell me there is no accounting for standards when looking at something that seemed odd. Today, we have faulty standards for accounting that are ripping apart the fabric of the world's economy. How can a security that has a high probability of full repayment be downgraded from AA to junk levels? What we will explore today tell us a lot about why we are in the crisis state of affairs. Since I wrote you last Friday, the financial landscape of the world has changed even more. And what will happen this weekend will change it even more. And our kids will be paying for it for a long, long time. At the end I offer a few thoughts on the events, and if there is time my thoughts on the new short covering rules. All in all, it should make for an instructive and interesting letter. We'll jump right in....

It's more than Fannie and Freddie - 8/22/2008 - Audio Version

John Mauldin — Fri, 10 Oct 2008 16:14:35 GMT

Yet another crisis confronts us, as we will have to deal with the aftermath of a rather large number of bank failures over the next year, which is likely to overwhelm the ability of the FDIC to insure your bank deposits. Today we look at the banking system, the FDIC, and Freddie and Fannie. It's not pretty, but as realists we must know what we are facing. But first, I just want to say I am glad that Richard Russell is doing fine. For those who do not know, he suffered a mild stroke last Friday. I talked to him yesterday, and he was a little tired but doing better. He has decided to cut back his writing schedule and relax a bit more, which is a good thing. At 84, he has written a daily (and sometimes lengthy) commentary and has been writing the monthly Dow Theory Letter since 1958. He is the dean of newsletter writers. He has forgotten more than most of us will ever know about the markets....

The Rise of A New Asset Class - 08/01/2008 - Audio Version

John Mauldin — Tue, 09 Sep 2008 18:35:36 GMT

This week I am in Maine on vacation with my son, and next week is my daughter Tiffani's wedding, so for the next two weeks I am going to send an updated version of a speech I have been giving the past few months on what I think is the likely potential for the rise of a brand new asset class. It is too long to be sent as one letter, so we will start with the first part today and finish with the second part next week. This first part can be read as a standalone letter. I think we're at a watershed moment, what Peter Bernstein defines as an "epochal event," with the very order of the investment world changing as it did in 1929, in '50, in 1981, where a number of things came together - it wasn't just one thing but a number of events happening that conspired to change the nature of what worked in the investment world for the next period of time. It took most people a decade after 1981-2 to recognize that we were in a different period, because we make our future expectations out of past experience. It's very hard for us to recognize a watershed moment in the process. We're going to look back in five or ten years and go, "Wow, things changed." As we will see, it's going to be a change that's going to cost people in their portfolios and in their retirement habits....

A New Asset Class, Part Two - 08/08/2008 - Audio Version

John Mauldin — Tue, 09 Sep 2008 18:29:49 GMT

Last week's letter was the first part of a speech I have been giving on what I think will be the rise of a new asset class. This week will be the second and final part. Let me set up this section with a few paragraphs from last week's letter and then a quick summary. If you want to read the entire letter from last week, you can go to the website archives. But first, a quick note. George Friedman from Stratfor was at my daughter's wedding rehearsal dinner last night. He had just found out about the invasion of South Ossetia by Georgia and was keeping track of the events over his Blackberry from his correspondents on the ground in Georgia....

Whatever Happened to Decoupling? - 08/15/2008 - Audio Version

John Mauldin — Tue, 09 Sep 2008 18:24:43 GMT

The old mantra was that if the United States sneezed, the rest of the world would catch a cold, as the US was seen as the main driver of world growth. That was then. Economists and analysts began to argue that China and the developing markets were starting to provide a consumer base for the world. And Europe's new and growing markets would be able to stave off problems from abroad and stay on their own growth path. The world, we were assured last year, would not suffer from problems in the US economy. Today, we look at evidence that this might not quite be the case. And if it is not, those who look for diversification in global markets may be disappointed. Also, I quickly look back at my January forecasts and feel it may be time for a mid-course correction. It seems I may have been a little too optimistic. It should make for an interesting letter....

Earnings and Mr. Bear - 07/25/2008 - Audio Version

John Mauldin — Sun, 03 Aug 2008 19:31:56 GMT

"The stock market is a voting machine in the short run and a weighing machine in the long run." - Benjamin Graham -- The voting part of the equation is tempered by fear and greed. It is largely emotional, although investors like to think of themselves as rational players. That emotion is driven by views of the future. If you can be confident of large and growing returns, you are less likely to be swayed by the erratic movements of a stock. But as confidence wanes? Well, that is the stuff that bear markets are made of. Because at the end of the day, what the market weighs is earnings and the ability of a company to reliably produce them. This week we look at what earnings are likely to be over the next year and see if we can discern what that suggests for the markets. We also take a look at the energy markets, the possibility of a further drop in the price of oil, and muse on what a sane energy policy for the world would look like. There is a lot to cover, but it should make for an interesting letter....