Thursday, October 29, 2009


My favorite commentator, Victor Davis Hanson, has just written a stark analysis of our present situation. As usual, his piece is packed with more historical references, insightful personal recollections, and straightforward distillations of ideas than you'll find anywhere else. Here's an excerpt from the column All Falling Down:
The difference between the 5th century BC and late 4th century BC at Athens is debt – and not caused just by military expenditures or war; the claims on Athenian entitlements grew by the 350s, even as forced liturgies on the productive classes increased, even as the treasury emptied. At Rome by the mid-3rd century AD the state was essentially bribing its own citizens to behave by expanding the bread and circuses dole, while tax avoidance became an art form, while the Roman state tried everything from price controls to inflating the coinage to meet services and pay public debts.
For those not familiar with the history, the 4th century BC and 3rd century AD happened to coincide with the end of independent Athens and the beginning of the end of the Roman Empire, respectively. Of course war usually accompanies the fall of great civilizations, and we may be no exception:

Remember, Jimmy Carter was loved up until about 1978, as he bragged of human rights, slashed defense to use the money for more entitlements, promised to get troops out of Korea, sold out the Shah, intrigued with the exiled Khomeini, pooh-poohed communists in Central America, sold warplanes without bomb racks to our allies, lectured on the inordinate fear of communism and sermonized how no one would die on his watch. ...

And then somewhere around 1979 the world finally sized him up — and the result was a bleeding American goat crossing the Amazon as the piranha swarmed. Radical Islam was on the rise. The Soviet army invaded Afghanistan. Nicaragua blew up. Iran took hostages. And in reaction Carter devised brilliant strategies like boycotting the Olympics and arming jihadists in Pakistan — and more lecturing us from the rose garden. He wanted a flashy hostage rescue mission — after slashing defense in 1977-8: but the two don’t mix, as he learned.

The message I get from all of this is "Brace for impact."

Friday, October 16, 2009

Dividend yield below 2%

Dividend payments from corporations continue to shrink. If one extrapolates all dividends over the past three months out to a full year, then the dividend yield of the S&P 500 index now stands at 1.97%.

Up until the mid 1990's, the normal range for the S&P yield was between 3% and 6%. In the late 1990's the yield made its first ever sustained dive below 3% as the dot-com bubble inflated prices. The yield finally rose back above 3% briefly in early 2009 as prices collapsed (yield = Dividends/Price) but since March it has been falling steeply as prices have risen and earnings have continued to dry up.

Assuming that earnings and dividends stabilize (an optimistic supposition) and that the yield returns to its historically familiar range, then the S&P 500 can be expected to fall eventually to between 720 and 360. However, if earnings and dividends continue to fall, then the "fair value" price range will be even lower.

Monday, October 12, 2009

Happy Columbus Day

Today I celebrate Christopher Columbus' first voyage of discovery because he was the ultimate trailblazer for the freedom-seeking English farmers who followed and founded the United States of America. The list of accomplishments of this relatively young nation with such humble beginnings is truly astonishing:
  • Started a worldwide democratic revolution that is still underway today.
  • Purged slavery from itself in its deadliest war to date.
  • Liberated hundreds of millions of people from Fascism, Nazism, Communism, and other forms of totalitarianism.
  • Saved and prolonged well over a billion lives around the globe by curing diseases and improving food production.
  • Invented most of the technology that you see around you, from the light bulb in your lamp to the airplanes overhead to the internet that sent you this text.
  • Westerns, stand up comedy, and Rock and Roll - need I say more?
More than anywhere else in the world, the adventurous spirit of Columbus lives on in America, which has landed men on the Moon and explored every planet in the Solar System.

God bless America, and happy Columbus Day to the billions of beneficiaries around the world.