Browsing All Posts published on »August, 2010«

Gold, Inflation, Deflation

August 31, 2010

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When reading an article today on Bloomberg, entitled “Gold Rallying to $1,500 as Soros’s Bubble Inflates“, I couldn’t help but notice the following quote from Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt: “Either a swift economic recovery or further dismal economic performance should bring new buyers into the market.  A stronger economy would […]

The Failings of the P/E Ratio

August 31, 2010

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Arguably the simplest of all the equity valuation methodologies, the P/E ratio is also a metric with a large number of shortcomings. In the basic sense, the P/E ratio is attractive to investors because it is easy to apply (no detailed cash flow forecasts or estimates of the cost of capital are required) and is […]

Problems with the Debt-to-GDP Ratio

August 26, 2010

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My post earlier today described new research from the European Central Bank which showed that GDP growth becomes seriously impaired when government debt-to-GDP reaches 90-100% and that some GDP components become affected at the 70-80% level.  While this is useful, it is also worth considering some issues that can make comparing debt-to-GDP ratios across countries […]

How High Government Debt Destroys GDP Growth

August 26, 2010

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Cristina Checherita and Philipp Rother of the ECB have recently published an empirical study looking at the effect of high government debt on GDP growth, snappily entitled “The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area“, in which they find that: “This means that, on average […]

Beware the Bullish CEO

August 23, 2010

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Ever noticed how some of the most bullish, confident and charismatic chief executives have later been discovered to have perpetrated frauds on their stockholders or have ruined their companies via their own bad management? For example, Lehman Brothers Chairman and Chief Executive Dick Fuld rejected an offer from Korea Development Bank to purchase Lehman Brothers […]

Ben Graham’s Value Stock Screen

August 20, 2010

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As previously mentioned on this blog, one of the purposes of this site is to build and run stock screens, before discussing their outputs in order to generate some potential investment ideas. This value-driven screen that we will use today is based upon the work of pioneering investor Benjamin Graham, who earned an annual return […]

Why Short-selling is a Force For Good.

August 13, 2010

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No activity within finance appears to generate more negative press than short-selling, the practice of borrowing securities and selling them (ie. in order to benefit from an anticipated price decline). A recent Guardian commentary described short-sellers as “amoral speculators”, “wreak[ing] their own havoc by magnifying and accelerating events, inflicting more pain on innocent citizens in […]