August 2011

Robert Shiller’s PE Ratio & Real Returns

by Glenn Busch August 31, 2011
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We’ve looked at Tobin’s Q and we’ve looked at Total Value of Equities as a Percentage of U.S. GNP (Warren Buffett’s favorite) and in this post I’ll cover another broad market valuation metric, Professor Robert Shiller’s 10 year Average Inflation-Adjusted P/E Ratio, also know as CAPE.

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Does a Better Than Expected Chicago PMI Equal a Stronger National ISM?

by Glenn Busch August 31, 2011
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Will the ISM print below 50 or will it not? Today’s Chicago Business Barometer (PMI), usually a good proxy for the national ISM, came in better than expected this morning. The index recorded its 23rd month of expansion, albeit; at a much slower rate of growth and at a 21 month low.

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Warren Buffett’s Favorite Valuation Metric and Real Returns

by Glenn Busch August 29, 2011
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The strength of this metric is as a tool to measure the potential real long-term returns. When equity as a percentage of GNP is above-average then total real returns for U.S. equities have a high probability of being below average. When equity as a percentage of GNP is below-average then total real returns for U.S. equities have a high probability of being above-average.

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Texas Manufacturing Survey Remains Positive, Barely

by Glenn Busch August 29, 2011
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Texas factory activity was largely unchanged in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell from 10.8 to 1.1, suggesting growth stalled this month.

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Finding Out How Much Income You’ll Need in Retirement

by Glenn Busch August 26, 2011
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The standard answer is 75% of your current income.Will this work for you? Have you tried living off 75% of current income? Herein lies a worthwhile exercise, try living off 75% of your income. Try it for 6 months; try it for a year.

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2nd Quarter GDP Growth Revised Lower

by Glenn Busch August 26, 2011
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Second quarter GDP was revised down and it came in below the consensus estimate. The first estimate released by the Bureau of Economic Analysis had a 2nd quarter GDP at 1.3%. Today’s release of the second estimate revised GDP growth down to 1.0% and the consensus estimate was 1.1%.

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A Flat Manufacturing Survey from the Federal Reserve Bank of Kansas City

by Glenn Busch August 25, 2011
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After three weak reports from the Empire Manufacturing Survey, Philly Fed Survey, and the Federal Reserve Bank of Richmond Business Survey, a flat manufacturing survey from the Federal Reserve Bank of Kansas City is a welcome break.

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The Key Driver to Stock Market Returns

by Glenn Busch August 24, 2011
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What drives stock market returns? While earnings growth, dividends, and share buybacks provide parts of the total return, the largest contributing factor is the P/E ratio. The expansion or contraction of the broad market P/E ratio creates secular bull and bear markets.

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The Durable Goods Report and Stalled Capital Spending

by Glenn Busch August 24, 2011
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The best thing to do is to strip away defense orders and non-defense aircraft orders to arrive at the capital spending of U.S. businesses. On a seasonally-adjusted basis, capital goods less defense and aircraft is down from $66.9 billion in June to $65.9 billion in July. Compared to May capital goods less defense and aircraft is slightly up.

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Richmond Federal Reserve Business Activity Survey: Another Region, Another Weak Report

by Glenn Busch August 23, 2011
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In August, the seasonally adjusted composite index of manufacturing activity—our broadest measure of manufacturing—declined nine points to -10 from July’s reading of -1. Among the index’s components, shipments lost sixteen points to -17, and new orders dropped six points to finish at -11, while the jobs index inched down three points to 1.

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