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The Stingy News Weekly (09/08/02)

The Markets This Week

DOW 30: 8,427 -2.74% with a median P/E of 25.3
S&P/TSX: 6,480 -2.00% with a median P/E of 28.3

The Value View

Dow at a P/E of 20: 6,662 (-21.0%) Poor Value
Dow at a P/E of 15: 4,996 (-40.7%) Fair Value
Dow at a P/E of 10: 3,331 (-60.5%) Good Value

S&P/TSX at a P/E of 20: 4,580 (-29.3%) Poor Value
S&P/TSX at a P/E of 15: 3,435 (-47.0%) Fair Value
S&P/TSX at a P/E of 10: 2,290 (-64.7%) Good Value

Stingy Links

The firms that can't stop falling
"Mr LoPucki looked at the fortunes of firms that emerged from bankruptcy between 1991 and 1996. Within five years, 29% had gone out of business, with two-thirds of these liquidated or merged in distress. In each of those five years, on average, the typical firm in Mr LoPucki's sample racked up losses equivalent to 2% of its total assets."

It's cleanup time
"That's why Linda Selbach, manager of corporate governance at Barclays Global Investors in San Francisco, which manages $770 billion, has changed her home phone number several times. She's tired of executives calling her to complain that Barclays opposes their pay packages. "Some people are polite and gentlemanly," she says, "and some are surprisingly out of control.""

A poolful of risk
"Watch out-junior capital pools are headed for Ontario"

The war on business
"Only individuals can be hurt. By forcing the issue into criminal court, resources that might have been used to give redress to the victims of fraud are now being used by prosecutors and defense attorneys, and if the individual charged is found guilty, the government often seizes that person's property, making it impossible for the actual victims of fraud to be compensated at all."

Dow 5,000
"As Warren Buffett has said, in the short run the stock market is a voting machine but in the long run it's a weighing machine. Despite being down nearly 50% from its highs, this market remains overweight."

The new Buffett way
"With so many stocks having plummeted, so many companies beset by scandal, so much money fleeing the market, and such a crisis of investor confidence, one might expect that the classic value situations that are Buffett's hallmark would be everywhere. Buffett should be grabbing an underpriced company every few days. The fact that Buffett, who has oodles of cash to put to work, hasn't found many-and has instead been nibbling on distressed properties-shows just how overvalued stocks still are."

Detroit's used car blues
"The price collapse is a headache of major proportions for automakers. Lower prices on used cars suck buyers out of the new-car market. Yet marketing initiatives by the Big Three are only exacerbating their woes. By juicing the market with incentives like cut-rate leases, automakers encourage customers to trade in cars more frequently, swelling the supply of used cars. They are also offering sweet deals that motivate Hertz and Avis to replace rental cars every nine months or so, effectively creating fleets of nearly new cars that compete with their factory-fresh ones."

Say's law for our time
"This simple insight was encapsulated by the classical economist Jean-Baptiste Say, who expressed this to the effect that Supply creates its own Demand. Or, to put it in colloquial English, "You want some of these here beans? What you got in yer wagon to trade fer 'em?""

Show me the cash flow!
"The Financial Accounting Standards Board wants to revise the income statement, that all-important piece of financial reporting that delivers a company's bottom line. Here's a way to do it that will allow investors and analysts to see what really drives earnings--and make it tough for companies to mess with the numbers."

Home wrecker
"William Aldinger says he built one of the few successful lenders to bad credit risks by managing smarter. People suckered into his mortgages cite other tactics: lies and deceit."

Sweet purity: why chaste isn't waste
"Here's a news flash--companies that abstain from earnings write-offs outperform those that partake."

The return of big government
"Soon after Bill Clinton declared, "The era of big government is over" in 1996, expenditures started to zoom. Such spending is rising so briskly that, for the first time since the late 1960s, annually appropriated programs have been growing faster than formula-driven entitlement programs like Social Security and Medicare."

Why Japan-style malaise could happen here
"Not so long ago, Japan was deemed so all-powerful that people believed it, too, could ward off any problems. Further, it had one big advantage going for it that we do not: Japan was a nation of savers and a net creditor, while we are a nation of spenders and a net debtor."

Public Participation
"The problem now is that public participation in the stock market through investments in equity mutual funds are at the highest levels ever, and that participation has actually increased since the market peak. This solidifies our conviction that the market has not bottomed and that massive capitulation is still ahead."

Market Trivia

This week's trivia questions are:

Q1. From 1926 to 2001 what was the probability of outperforming the S&P500 by switching to T-Bills each month?
Q2. How much did U.S. fund investors loose by market timing from 1998 to 2001?
Q3. Who said "Unfortunately, for the activist investor, history teaches that in investing patience and fortitude - or benign neglect - are more beneficial than activity."?

The answers to last week's trivia questions are:

Q1. From 1970 to 1996 how many funds outperformed the S&P500?
A1. An annual average of 43.1%.
Q2. Who said "There are two different kinds of problems in trying to beat the market. One problem is that it is so extraordinarily difficult to do so - and so easy while trying to do better , to do worse."?
A2. Charles Ellis
Q3. Who said "If we shopped for stocks the way we shop for socks, we'd be better off."?
A3. Jason Zweig

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Bullishly Yours,
Norman Rothery
ISSN 1499-2795

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