Passages from PT Barnum’s The Art of Money Getting

I recently read “The Art of Money Getting,” which was written by PT Barnum in 1880.  Although 132 years old, many of its passages still ring true today.  Below were some highlights worth re-posting.  Overall the quotes paint a picture of a man who would argue that there is no such thing as overnight success.

  • “The safest plan, and the one most sure of success for the young man starting in life, is to select the vocation which is most congenial to his tastes.”
  • “No man has a right to expect to succeed in life unless he understands his business, an nobody can understand his business thoroughly unless he learns it by personal application and experience.  A man may be a manufacturer: he has got to learn the many details of his business personally; he will learn something every day and he will find he will make mistakes nearly every day.  And these very mistakes are helps to him in the way of experiences if he but heeds them.”
  • “Engage in one kind of business only and stick to it faithfully until you succeed, or until your experience shows that you should abandon it.  A constant hammering on one nail will generally drive it home at last, so that it can be clinched…Many a fortune has slipped through a man’s fingers because he was engaged in too many occupations at a  time.”
  • “So the young man starting in business; let him understand the value of money by earning it…Men who get money with too great facility cannot usually succeed.  You must get the first dollars by hard knocks, and at some sacrifice, in order to appreciate the value of those dollars.”
  • “The reader of a newspaper does not see the first mention of an ordinary advertisement; the second insertion he sees, but does not read; the third insertion he reads; the fourth insertion, he looks at the price; the fifth insertion, he speaks of it to his wife; the sixth insertion, he is ready to purchase, and the seventh insertion, he purchases.”
  • “He must of course have a really good [product], and one which will please his customers; anything spurious will not succeed permanently because the public is wiser than many imagine.”

PE Multiple Expansion of Largest S&P 500 Companies

The S&P 500 is up 15% year to date, but earnings are forecast to grow 3-5% this year, which mathematically means that we’ve experienced some multiple expansion during 2012.  Below is a chart highlighting the multiple expansion for the 10 largest S&P 500 companies so far this year.  Of the 10 largest companies in the S&P 500 (to start the year) only one, XOM, has seen multiple contraction on a TTM basis.

The average P/E multiple of these 10 companies has expanded from 14 to 16 during 2012.

PE Multiple Largest Companies

What Would September Look Like Without Draghi and Bernanke?

As September is coming to a close, the S&P 500 looks set to post another monthly gain.  However, most of that gain came completely on two trading days: September 6th and 13th when Mario Draghi and Ben Bernanke each announced infinite monetary action.  Without those two days the S&P 500 would be 52 points lower and the chart would look like it does below.

Of course, it’s not really possible to strip away two trading days or the effect of what that news did to prices.  However, the hypothetical chart below does highlight that there have been more down days than up days in September.

Jobless Claims, the VIX and High Yield Spreads

Initial jobless claims were reported today and fell back towards their lowest levels for this cycle at 359k.  The chart looks similar to two other important financial charts: the VIX and High Yield credit spreads.  All three charts show a similar spike in the recession and have gradually declined since (with some bumps along the way).  Now all three are settling at low levels, but slightly higher than their lowest points reached in 2006/2007.  If the S&P 500 is going to extend its rally from here, it would seem dependent on each of these indicators breaking through to lower levels.  Can we get there?

VIX Initial Jobless Claims High Yield Spreads

Long Term Durable Goods Orders Chart

Durable goods orders posted a terrible print this morning for August.  The Series showed a 13% m/m decline.  Much of this came from the transports component, which is notoriously volatile.  Still, the magnitude of the drop is certainly noteworthy.

The 13% decline is the 3rd largest drop in the history of the series which goes back to 1992.  There hasn’t ever been this large of a decline outside of a recession.

Before we declare the end of this expansion though, it is most likely that this is an anomaly rather than an indication of the state of the economy.  To some extent this datapoint was already reflected in the sub-50 ISM reading that was reported at the beginning of September.  For a more salient indicator, all eyes should be on how ISM measures this coming monday.

Durable Goods Orders Long Term

Intrade Daily Dollar Volume

While some in the blogosphere continue to try to push the idea that google trends could be a good election indicator, Intrade has become a popular supplement to traditional polling to help handicap each candidate’s odds of winning.  Recently, Obama’s odds have surged above 70%.

Many in financial markets are comfortable with Intrade as a prediction market presumably because of the pervasive belief that markets are efficient at predicting future events.  Most technicians will argue that you can’t trust prices without volume though, and in the volume department Intrade is still a developing marketplace.

Below is an evolution of the daily dollar volume that trades in Intrade’s most popular contract, the Obama presidency contract.  Volume has risen sharply as the election has gotten closer, but still only averages $1.2m per day in September, which is roughly equivalent to an illiquid microcap stock.

Obama Intrade Volume

Google Trends Election Check-in

A few weeks ago I posted a hypothesis that Google trends may be a good election indicator, because it is a measure of a candidate’s mindshare.  If that’s true, this election may be somewhat closer than many expect, because the most recent trend reading shows Romney with slightly more search volume than Obama.  The last two elections didn’t have this close of a race in late September.

They also didn’t show news references tick sharply lower.  Is that an indication that there is weak general interest in this election?

Google Trends Obama Romney

Amazon vs. Target

I’ve written a few times about what I think about Amazon’s market potential, but the growth that is priced into the stock never ceases to amaze me.  Below is a comparison of some fundamental metrics for Amazon vs. Target.  Amazon does 75% of Target’s revenue and only 58% of Target’s gross profit, but it has a market cap that is 2.7x larger than Target’s.  Amazon has to grow a lot to grow into that valuation.

TGT Revenue TTM Chart

TGT Market Cap Chart

Housing vs. Equities

Case Shiller was reported this morning up 1.2% y/y for July.  The datapoint serves as confirmation that housing prices are recovering.

Below is a chart of Case Shiller vs. the S&P 500 since 2000.  It shows that even though housing prices may be starting to turn, they still have quite a ways to climb.  Also it highlights that even despite the housing bubble burst, housing prices have still risen since the turn of the century and have thus outperformed equities.

Housing Outperforms Equities