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GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 13

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  • #151
    "How do you guys like the EUR/USD rate?"

    I'm wondering when it will make the US financial bubble implode.

    On the related issue, I'm not the only madman raving about US structured finance:

    Fortune
    http://www.fortune.com/fortune/investing/articles/0,15114,427751-1,00.html
    Generated by create next app


    Btw, do Sten, Dan & co still believe there is no housing bubble in the US?
    “Now we declare… that the law-making power or the first and real effective source of law is the people or the body of citizens or the prevailing part of the people according to its election or its will expressed in general convention by vote, commanding or deciding that something be done or omitted in regard to human civil acts under penalty or temporal punishment….” (Marsilius of Padua, „Defensor Pacis“, AD 1324)

    Comment

    • #152
      Well the PPP rate for the Euro is €1=$1.12 and the ECU (which preceded the euro) tended to vary in a range with the PPP at roughly the midpoint.

      That would suggest that the Euro still has a long way to climb against the dollar (maybe to as high as €1=$1.30).

      However the ECU was more really a DM zone rather than a proper € zone, and as many of the countries that make up the euro zone (specifically Spain, Portugal & Greece) have traditionally had undervalued currencies (in relation to their PPP) then it seems likely that the range of the € will be lower (maybe with the PPP at the upper end of the range).


      On a side note I just did a full anaysis of the discrepancies between reported growth and the change in GDP relative to the US (the spreadsheet has a breakdown for the discrepancy for the 1970's, 1980s, and 1990s).
      Attached Files
      19th Century Liberal, 21st Century European

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      • #153
        I'm still looking for 1.40.
        “Now we declare… that the law-making power or the first and real effective source of law is the people or the body of citizens or the prevailing part of the people according to its election or its will expressed in general convention by vote, commanding or deciding that something be done or omitted in regard to human civil acts under penalty or temporal punishment….” (Marsilius of Padua, „Defensor Pacis“, AD 1324)

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        • #154
          Well if the € went as overvalued vs the dollar as it was recently undervalued then the peak would be €1=$1.48
          19th Century Liberal, 21st Century European

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          • #155
            Taking the euro back in time via the DM, it flactuated between 0.6 and 1.4 vs the $. Given the relative fall of the $ by PPP, and the unprecedented manipulation and distortions in the US economy, 1.40 is more like a low guesstimate.
            “Now we declare… that the law-making power or the first and real effective source of law is the people or the body of citizens or the prevailing part of the people according to its election or its will expressed in general convention by vote, commanding or deciding that something be done or omitted in regard to human civil acts under penalty or temporal punishment….” (Marsilius of Padua, „Defensor Pacis“, AD 1324)

            Comment

            • #156
              Yes, but as I said before the € is not the DM - I think it's unlikely to behave in quite the same way.

              I expect the € to be undervalued more often than it is overvalued - the opposite was true for the DM
              19th Century Liberal, 21st Century European

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              • #157
                I don't think that follows simply from "have traditionally had undervalued currencies (in relation to their PPP)". They also had inflationary policies.
                “Now we declare… that the law-making power or the first and real effective source of law is the people or the body of citizens or the prevailing part of the people according to its election or its will expressed in general convention by vote, commanding or deciding that something be done or omitted in regard to human civil acts under penalty or temporal punishment….” (Marsilius of Padua, „Defensor Pacis“, AD 1324)

                Comment

                • #158
                  Originally posted by HershOstropoler
                  On the related issue, I'm not the only madman raving about US structured finance...
                  btw - over the past ten years in my career, I have liquidated every derivative structure in every portfolio I have managed; written stringent anti-derivative policies at my various firms; and had people fired for using the stuff. In fact in my current job I was originally hired to unwind a derivatives portfolio.

                  For the record: I am anti-derivatives.

                  However, the vast majority of derivatives are totally fine, useful and necessary to offset risk. Most of the risk and therefore illiquidity is in what are known as exotics - a tiny portion of the derivative universe.


                  I still contend that there is not a widespread US housing market bubble. I continue to contend that there are localized bubbles (such as my market) and that general valuation is much too high, but that overvaluation is not much more than 20%, and so falls well short of what I would consider to be a bubble. The extent of the potential housing value decline will not be visible until mortgage rates rise with the rising economy later this year, but I am not expecting much more than a 10% decline in median home prices.

                  Median home prices are about 3x median incomes in the US, versus 4x in the UK and 6x in Japan - and it doesn't take an architect to tell you that you get more for your money in the States.


                  When the EUR went public it was 1.13 vs the USD. It sold off during conversion since it was viewed as a weakening of the DM and now it has recovered. Not a big deal. (but thanks for the nice total return from my OBLs at 0.86!)

                  Be the bid!

                  Comment

                  • #159
                    Hehe derivatives are hardly inherently evil; they can be used to hedge or leverage........you can't blame the tools when you use a hammer to knock in a screw, and then the sh1t hits the fan.

                    I empathise though, one must always be cautious. In the UK we had the split capital investment trust shenanigan, in which the stupidity of the players involved boggles the mind.

                    Comment

                    • #160
                      Sten,

                      Your estimate for the housing market seems low, especially for SF. I'm gonna hold you to it. There has to be a bubble somewhere. I say it's in the housing market.
                      "When you ride alone, you ride with Bin Ladin"-Bill Maher
                      "All capital is dripping with blood."-Karl Marx
                      "Of course, my response to your Marx quote is 'So?'"-Imran Siddiqui

                      Comment

                      • #161
                        Sten,

                        Your estimate for the housing market seems low, especially for SF. I'm gonna hold you to it. There has to be a bubble somewhere. I say it's in the housing market.

                        Duncan - you will notice that I say there are some local bubbles like my market - which is San Francisco. I am paying $80,000 after tax in rent - you bet your ass that is a bubble!!
                        Be the bid!

                        Comment

                        • #162
                          Originally posted by Sten Sture
                          I am paying $80,000 after tax in rent - you bet your ass that is a bubble!!
                          "When you ride alone, you ride with Bin Ladin"-Bill Maher
                          "All capital is dripping with blood."-Karl Marx
                          "Of course, my response to your Marx quote is 'So?'"-Imran Siddiqui

                          Comment

                          • #163
                            Sten:

                            "Most of the risk and therefore illiquidity is in what are known as exotics - a tiny portion of the derivative universe."

                            I doubt it is such a tiny portion. Also, were LTCM's troubles based on such exotic bets?

                            "... that general valuation is much too high, but that overvaluation is not much more than 20%"

                            I think that a 20-30 % range is about right. I'd also consider that a bubble in such a conservative asset category, esp when you have inflationary expectations and a highly artificial financing of that rise.

                            "but I am not expecting much more than a 10% decline in median home prices."

                            Would leave us about 10 % overvalued. Why not expect an overshooting on the downside?

                            Also, what would even just a 10 % decline, concentrated in the most bubbled areas, do to the mortgage market?

                            "Median home prices are about 3x median incomes in the US, versus 4x in the UK and 6x in Japan - and it doesn't take an architect to tell you that you get more for your money in the States."

                            Not sure what the point there is?

                            Duncan:

                            "There has to be a bubble somewhere."

                            I'm thinking about making that my sig...
                            “Now we declare… that the law-making power or the first and real effective source of law is the people or the body of citizens or the prevailing part of the people according to its election or its will expressed in general convention by vote, commanding or deciding that something be done or omitted in regard to human civil acts under penalty or temporal punishment….” (Marsilius of Padua, „Defensor Pacis“, AD 1324)

                            Comment

                            • #164
                              Sten,

                              A 10% fall in the median house price can still do great damage.

                              After our housing bubble burst here in Britian in the 1990's the total price fall was only 9% - but that was enough to cause widespread damage to the economy.


                              Britian has again got a housing bubble - i'm expecting falls of around 15%-20% over the next 2-4 years, which will lead to sluggish growth for that period (below 2%) and at least a 10% fall in the value of the £.
                              19th Century Liberal, 21st Century European

                              Comment

                              • #165
                                I think more people own houses than stocks so a fall in real estate values should have an even greater effect on our economy than the recent effect of falling stock prices.
                                "When you ride alone, you ride with Bin Ladin"-Bill Maher
                                "All capital is dripping with blood."-Karl Marx
                                "Of course, my response to your Marx quote is 'So?'"-Imran Siddiqui

                                Comment

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