Toro's Running of the Bulls Market Blog
I have been getting aggressively short the semiconductor stocks the past week. Intel did me a huge favour by purchasing a software company this morning.
Intel Corp. agreed to buy McAfee Inc. for $7.68 billion, its largest acquisition, adding security software to its chipmaking arsenal.
A couple of weeks ago, I highlighted the absurdity of large, high-quality companies paying higher dividend yields than yield to maturities of their bonds.
This evening, I scanned through the components of the Russell Utilities Index and found nearly 40 companies with dividend yields greater than the yield-to-maturities on their bonds.
In this chart, the bonds expire in eight to twelve years.
We have the biggest economic crisis in 80 years, yet most economists were admittedly clueless about the cause of the crisis.
Earnings have been good this quarter, but earnings are not the primary driver of the recent stock market strength. If earnings were driving the market higher, one would expect interest rates to firm. But that is not happening as rates have collapsed and the dollar gets whacked every day.
The Wall Street Journal published this story regarding the recent high volume of bond issuance on Friday.
The global corporate-bond boom is gathering steam as companies rush to take advantage of some of the lowest borrowing costs in history.
The one word you won't find on Running of the Bulls is "hyperinflation," at least as it pertains to the United States.
I have seen "hyperinflation" used to describe the inflation of the 1970s, but I do not consider 7%-9% inflation to be "hyperinflation." Instead, hyperinflation is what has happened in Zimbabwe or Latin America during the 1980s or the Weimer Republic.
And I do not believe hyperinflation is coming to America.
From The Wall Street Journal.
Analysts said Russia even may cease or curtail shipments abroad. Meanwhile, other countries included in the group of the top-five wheat exporters also are facing problems. Canada's crop has struggled due to excessive rains, and Australia is battling a plague of locusts. [emphasis added]
What next, Australians turning into piles of salt?
Last week, The Wall Street Journal published an article regarding China's shift to an era of slower growth. What was more interesting to me were the descriptions of soaring costs.
DASHIMEN VILLAGE, China—In this corn-growing hamlet in northern China, signs are emerging that the nation's supercharged economic growth may be reaching its limit.
If you needed any more evidence that the market is run by machines all banging out correlation trades, look no further than today. The TSX Composite spiked 60 points in a manner of minutes on news that the SEC would be holding a press conference to announce a deal with Goldman Sachs.
I look at several valuation metrics to ascertain whether or not the market is expensive.
Median Price/Earnings Ratio
First, the median price/earnings ratio of the stocks in the Russell 3000. The median forward operating PE ratio of the Russell 3000 is currently 14.5x. This is a bit higher than the long-term average.
Price to Book Value
The price to book value of the S&P 500 is currently 2.1x. This is somewhat higher than the long-term average.