Author: Don Luskin

Stocks Look Cheap Historically, But They May Get Cheaper

With stocks at new highs, are prices too high for the value-minded investor to pay? I say no — although if you are a value-minded trader, the answer may be yes. The way I look at stock valuations is by comparing consensus forward earnings to current long-term interest rates. That tells me whether the earnings power of stocks can compete with the interest income you can earn by holding bonds. Today the yield of 30-year Treasury bonds is 4.83%. If you think of the S&P 500 as a bond that pays out its earnings as a “yield,” then the...

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Republicans: The Party of Big Government?

What should investors do about this month’s elections, in which control of Congress went to the Democratic party for the first time in a dozen years? I suppose the first thing is to say “Thanks” to the guys who got booted from office on Tuesday. Be grateful — it’s been a nice run for investors since the Democrats lost control of Congress in 1994. The compound annual total return for the S&P 500 over those 12 years was 11.3%, compared with an average of 10.3% over previous history. Inflation only eroded your winnings at an average annual rate of...

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Creating Unemployment

Her’s a fantastic idea that will make everybody richer. Let’s pass a law setting a minimum price on used cars. How about, say, $15,000? If you’ve got an old beater you want to sell, and you were worried that you’d only get a couple thousand bucks for it, then this law is for you! Now you’ll get $15,000 for it! This law would help the least fortunate Americans most of all. Those with the lowest incomes tend to own the oldest cars in the worst condition. With this law, they’ll be assured of getting a terrific price. There’s just...

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Hands Off My Net

The S&P 500 has more than doubled over the last 10 years — a decade in which the Internet came out of nowhere, and established itself as the technology platform of the new global economy. The Internet has been the greatest engine of economic growth the world has ever seen. Now, for the first time, the continued expansion of the Internet is at risk. We’re about to kill the goose that lays the golden global eggs. How? By regulating it. Ever since the Department of Defense turned over the Internet for public use, it’s been a free-for-all. The result...

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Maryland Wallops Wal-Mart

If you own stock in Wal-Mart Stores, be afraid — be very afraid. Yes, it wasn’t all that long ago that I was recommending buying shares of the giant retailer. But things have changed. Right after I recommended Wal-Mart last October it rallied by as much as 15%. But now it’s given most of that back, even as the Dow Jones Industrial Average — of which Wal-Mart is a part — has climbed to within shooting distance of all-time highs. And it’s not because the Christmas selling season turned out to be good rather than great. It’s because of...

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Stocks Will Shine Again

Two weeks ago I suggested that investors sell Exxon Mobil and use the proceeds to buy Wal-Mart Stores. If you’d made the trade that day, then you’d be ahead 11% overall — Wal-Mart is up 3.6%, and Exxon Mobil is down 7.4%. I imagine most people didn’t follow my advice, and I understand why. It’s nearly impossible for investors to bring themselves to make investments that are deeply contrary to the prevailing consensus. In this case, the consensus all year has been that energy prices were going to go up forever, and that oil company stocks would go up...

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Running Out of Gas

There aren’t many iron-clad rules in investing, but there’s one: Bet against anything that the vast majority of investors agree upon. Right now, based on conversations with my clients, who are some of the best and brightest investors on Wall Street, I’m seeing a strong bullish consensus about energy and energy stocks. While I hate to disagree with my clients, this is one of those times when I just have to. It always pays to bet against the majority, but not because investors are stupid. Quite the opposite. It’s because investors are so smart and have such strong incentives...

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Don’t Look a Gift Horse in the Mouth

Alan Greenspan had his “conundrum,” and I’ve got mine. Greenspan’s conundrum: why are long-term interest rates staying so low for so long? Mine is why stock-market volatility is so low despite a global economic background that, on the face of it, is fraught with risk and uncertainty. Volatility is simply a fancy word for the amount by which stocks move around. There’s no need to get hung up on precisely how it’s calculated. At times when stocks hardly move at all, like now, volatility is low. At times when they move around a lot, like the crash of October...

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Lessons From the Poker Table

Last month in Las Vegas, 5,619 contestants were vying for the 36th annual World Series of Poker’s No-Limit Texas Hold-‘Em Championship. The total prize pool was $52,818,610 — by far the richest purse in the history of sports. Just think about what’s at stake. $7.5 million goes to the first-place winner. Any player who finishes in ninth place or better gets at least a million. The smallest prize is $12,500 — and that goes to the player who finishes in 560th place. Yet compared with the stock market, this is penny-ante stuff. That $52.8 million prize pool represents only...

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The London Terrorist Attacks and the Stock Market

Why did stocks finish the day higher after Thursday’s tragic terrorist bombings in London? There are several very simple reasons. To begin with, the market wasn’t surprised. Ever since September 11, 2001, markets have been braced for terrorist attacks. London knows as well as any city in the world what it’s like to live with the threat of terror. From 1981 to 1996, the Irish Republican Army carried out a series of bombings in public places in London ranging from small pubs to huge office buildings. Separately, government officials were kidnapped, beaten and murdered. I remember doing business in...

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FINANCIAL CRISIS

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