Can Turtles Fly?

Corporate Profit Margins Surpass Pre-Crisis Levels (Data Source: Bureau of Economic Analysis; Chart: The Mays Report, July 31, 2011. Downloaded from SeekingAlpha on July 31 2011. ) There a quite a few corporate profit metrics—pre-tax margin, after-tax, S&P500 companies vs total market, etc—so the results can vary somewhat. According to the data produced by Mays Report, it appears that corporate profit margins have surpassed even the 2007 peak. This is one reason some bears, like me, are really cautious. The valuation looks reasonable—neither overvalued nor undervalued—but the question is whether profits are sustainable. The P/E ratio looks reasonable (for a low-inflation period) because earnings are high but are they sustainable? Recall that some, in hindsight, admit that the 2007 profit margins were unsustainable. A big chunk of the profits around that period were due to fictitious financial profits yet the current profit margins have surpassed that point (without the assista...

Shipping Investors Head for the Exits (source: stockcharts.com ) This is an example of the ugly problem of over-capacity, although weak demand and pricing doesn't help matters either. There were way too many ships built, or contracted to be built, during the commodities/world-trade bubble. Barring a huge boom in trade or increases in pricing, particularly for dry bulk shipping and crude oil shipping, some of these companies may not make it. The Philadelphia Marine Shipping Index (SHX) tracks the share prices of publicly-traded companies in America. Many shares are trading at around half of book value; however, they may still not be cheap enough since some may liquidate and not get much for their ships.

Equity, Bond, and Money Market Fund Flows versus Returns (click for full-size image) source: 2011 Investment Company Fact Book , 51 st Edition. Investment Company Institute. Some people use charts like these, where funds tend to flow in during peaks and flow out during troughs, to suggest that retail investors are dumb. However, I believe it is not what it seems. As George Soros has suggested under his reflexivity theory , which I support to a large degree, prices may influence investors but investors may also influence prices. The "dumb money" looks dumb because they themselves cause the outcome. In other words, fund flows will almost always be high at peaks and low at troughs.

Some articles I either read or am planning to read in the near future... (Highly Recommended) "A Dirty Business" (The New Yorker): In this excellent article, George Packer gives us a detailed look at the prosecution of the hedge fund manager, Raj Rajaratnam, who ran a large hedge fund called Galleon. If appeals aren't successful, this case will likely go down as the biggest insider trading conviction of a fund manager in American stock market history. Conversations with Charlie Munger - the final edition (Ben Claremon for GuruFocus): This is likely one of the very last detailed conversations with Charlie Munger. He is ending the annual Wesco conversations now that the company was taken private and is too old. Nothing earth-shattering in the material covered in during this meeting. (Recommended for contrarians) Howard Marks & distressed debt investing (Bloomberg Markets magazine): The article chronicles Howard Marks' journey in the distressed investing worl...

The Cost of Cocaine & Incidence of Use (source: " The cost of coke ," The Economist Daily Chart. June 23, 2011) I wonder why the usage varies quite a bit between countries. Why do 2.6% of the population (16-64 yrs old) use it in Spain but only 0.6% in France? Is there another drug that is a substitute or is there something more to it?

Happy Canada Day to fellow Canadians... and Happy Fourth of July to my neighbours down south. Here are some articles that have been on my list that I have read or plan to read. As usual, unlike other blogs, I don't necessarily link to recent articles so do keep the timeline in mind when reading my posts. (Recommended) Bitcoins - a novel, virtual, currency (Bloomberg Businessweek): Interesting story of a virtual online currency. I don't know if the US government, and others, will start cracking down on this—it's a threat to the existing currency scheme—but it remains to be seen. It's also interesting to see how the value of fiat currencies—bitcoin is purely virtual but limited by an algorithm—is set. Bitcoin's value appears to fluctuate wildly but that is likely due to the small number of users. "Reinsurance explained" (Liarspoker for Gurufocus): A basic introduction to reinsurance companies. (Recommended) Retained earnings for net-net stocks (Geo...