Latepost Auld Lang Syne: Remembering 2011

There are exclusively a yoke of hours left inwards 2011 inwards New York together with it is already the novel twelvemonth inwards many parts of the world. Let me pass my terminal post for this year, looking dorsum at the twelvemonth that was together with looking frontwards to the twelvemonth to come, using a few of my favorite marketplace props: cash flows/earnings, marketplace prices, conduct chances costless rates together with conduct chances premiums.

1. It was a goodness twelvemonth for earnings at U.S.A. companies, amongst earnings on the S&P 500 companies ascent close 16%. That makes what happens to stock prices a footling puzzling, since the S&P 500 index started the twelvemonth at 1257.64 together with ended the twelvemonth at 1257.60. As a outcome , the aggregate PE ratio for the index declined from 15.03 at the start of the twelvemonth to 12.96 at the end. 
2. It was an fifty-fifty ameliorate twelvemonth for cash flows: dividends on the S&P 500 companies rose 12.5%, merely buybacks surged to a greater extent than than 80%. The total dollar buybacks inwards 2011 (at to the lowest degree for the iv quarters ending September 2011) almost matched buybacks inwards 2006, though they nonetheless remained good below the historic highs laid inwards 2007. While the dividend yield on the index remained anemic (2.07%) the total cash current (including buybacks) yield on the index was 5.90%, in ane lawsuit again good to a higher house the ten-year average of 4.72%.
3. The x twelvemonth treasury bond which started the twelvemonth at 3.29% ended the twelvemonth at 1.87%, the origin fourth dimension it has ended a twelvemonth at below 2% inwards the terminal 50 years. The drib inwards the  rates equally good made U.S.A. treasuries ane of the ameliorate investments for the year, amongst the x twelvemonth bond returning 16.04% for the year; the cost appreciation element accounted for 12.75%. Ironic, don't you lot think? After all, this was the twelvemonth of the keen S&P downgrade of the U.S.A. sovereign rating that I talked close on my summertime opor-garai inwards August. Are lower involvement rates goodness news? I don't intend then together with I posted on the point before this year.
4. As many of you lot know, I select been estimating an implied equity conduct chances premium for the S&P 500 for a long time, annually until 2008 together with monthly since September 2008. I dorsum out the premium using the flat of the index together with expected cash flows inwards the future. The premium started the twelvemonth at 5.20%, surged during the summertime to striking a high of 7.64% at the terminate of September together with ended the twelvemonth at 6.04%. The fact that stocks were apartment for the twelvemonth (the provide amongst dividends was 2.07%) had the contrary outcome on the historical conduct chances premium (where you lot human face at the divergence betwixt annual returns on stocks together with treasuries over long periods of past times history), amongst the historical conduct chances premium dropping to 4.10%. After a long menstruum (1981-2007), where historical conduct chances premiums exceeded implied premiums, this is the 4th twelvemonth inwards a row that implied premiums select exceeded historical premiums.

So much for terminal year! What does all this nation us close side past times side year? It strikes me that the numbers are sending discordant messages. The earnings together with cash flows betoken to a recovery, at to the lowest degree inwards corporate earnings, the treasury bond marketplace is awfully pessimistic close hereafter increase together with the stock marketplace vacillates betwixt euphoria together with despair. I actually select no sentiment what side past times side twelvemonth volition bring, merely I am willing to brand a guess. I human face the treasury bond marketplace to grudgingly admit higher economical increase prospects together with motility upwards (to 3%), equity conduct chances premiums to give-up the ghost less volatile together with motility dorsum towards lower numbers (5-5.5%). Buybacks together with dividends volition rest rigid merely volition stabilize together with earnings increase volition moderate. The internet outcome volition hold out to brand the stock marketplace a to a greater extent than hospitable house to invest together with the bond marketplace a less attractive investment. So, I am adding to my equity exposure, selling my treasury bonds together with praying that the Eurozone does non plow my predictions to dust.

I apologize for both the US-centric together with macro nature of this post merely I am starting on my annual information update this week. Over the side past times side x days, I volition hold out exploring the raw information that I select downloaded on 50,000+ companies globally, since the unopen of trading yesterday, together with volition hold out generating my industry average tables. During that analysis, I volition hold out looking at how equities select moved globally together with world-wide trends inwards both valuation multiples (PE, Price to book, EV/EBITDA etc.) together with corporate finance variables (dividends, debt ratios, returns on equity/capital). I volition select a much to a greater extent than detailed post when I am done merely I human face frontwards to learning a keen bargain to a greater extent than from the numbers than from listening to proficient prognostications. 

So, happy New Year! I wishing you, your families together with your loved ones the really best for the coming year! Be happy together with healthy!

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