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portefeuille (98.37)




June 02, 2009 – Comments (11)

are all editors on vacation? dead?

feel free to post here what errors are produced out there ...


GOOG's Android to Break Windows?

    * Mark Vickery
    * On Tuesday June 2, 2009, 10:58 am EDT

Bloomberg reports this morning that Google's (NasdaqGS: GOOG - News) successful smartphone operating system known as Android will be featured on new-model laptops about to be released by Asia-focused Acer, Inc. and Asustek Computer Inc., two global, lower-cost personal computer (PC) sellers.

This strategy takes a big swipe at Microsoft (NasdaqGS: MSFT - News) Windows' operating system dominance. It also occurs at a time when the Windows line is fairly rife with customer concerns regarding products like Vista, as well as the expected higher cost of the yet-to-be-released Windows 7.

Consider that Microsoft also has Apple, Inc.'s (NasdaqGS: AAPL - News) successful Mac OS X Leopard (the upgrade from Safari) operating system to contend with. From one angle, it appears as if Windows is at least a half-step off the pace off its serious competition.

This is not to say Windows cannot maintain its PC operating system dominance, but Google's Android just made the task more difficult. This is especially considering Acer and Asustek have a firm foot in high-growth Asian markets, and price their laptops as if the world's consumer is tight on disposable income, which of course s/he is.

Google hopes Andoid becomes 'The Terminator' for Windows, and has now begun its assault. Pass the popcorn.

Zacks Investment Research


(from here)

(they have fixed the error: see here)

11 Comments – Post Your Own

#1) On June 02, 2009 at 1:58 PM, portefeuille (98.37) wrote:

Exploding debt threatens America

John Taylor

Published: May 26 2009 20:48 | Last updated: May 26 2009 20:48

Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up.

Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.
S&P warns UK over high debt level - May-22
Chill wind blows for triple A nations - May-24

“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.


(from here

also see: 1,2

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#2) On June 02, 2009 at 2:08 PM, portefeuille (98.37) wrote:

Paul Krugman

December 4, 2008, 9:00 am

Real balance effects (wonkish)

I’m continuing to indulge myself over Depression economics. So here’s a reply to people wondering why I dismissed the real balance effect — the fact that a fall in the price level raises the real value of the money supply (or more strictly the monetary base) and hence makes people wealthier, possibly raising aggregate demand even if interest rates are stuck at zero.

The answer is, think about the numbers.

Since I’m rushing off to class, let me do this from memory. Before the world went crazy, the US monetary base was about $800 billion. Suppose that the price level fell 20 percent. This would raise the real value of that base by $160 billion. Right there you can see the problem — the housing bust has wiped out something like $6 trillion of wealth; compare that with the effects of even a drastic fall in the aggregate price level.


(from here)

1 / (1 - 0.2) = 1.25 not equal to 1.2 = 1 + 0.2

also see comment #22 to Krugman's post

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#3) On June 02, 2009 at 2:13 PM, Tastylunch (28.76) wrote:

I wish Caps had an edit fuction. I'm a typo machine, I might just be  the worst typist in CAPS.

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#4) On June 02, 2009 at 2:27 PM, portefeuille (98.37) wrote:

I wish Caps had an edit fuction. I'm a typo machine, I might just be  the worst typist in CAPS.

I am doing my best to force them into having one by correcting all errors I can find in my posts/comments in a new comment ...

(okay OCD is part of that as well, I guess ...)

(found your typo)

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#5) On June 02, 2009 at 2:59 PM, portefeuille (98.37) wrote:

The S&P Gets Its Earnings Wrong
Stocks are cheaper than they look.


Standard & Poor's recently shocked investors with an announcement that reported earnings for its S&P 500 Index for the fourth quarter of 2008 are forecast to be negative for the first time since such data were calculated in 1936. S&P further reports that for all of 2008, earnings are expected to be less than $40 per share, indicating that the market now has a price/earnings ratio over 20, well above its historical average of 15.

What this dismal news actually reflects is the bizarre way in which S&P (and most other index providers) calculate "aggregate" earnings and P/E ratios for their indexes. Unlike their calculation of returns, S&P adds together, dollar for dollar, the large losses of a few firms to the profits of healthy firms without any regard to the market weight of the firm in the S&P 500. If they instead weight each firm's earnings by its relative market weight, identical to how they calculate returns on the S&P 500, the earnings picture becomes far brighter.
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A simple example can illustrate S&P's error. Suppose on a given day the only price changes in the S&P 500 are that the largest stock, Exxon-Mobil, rose 10% in price and the smallest stock, Jones Apparel Group, fell 10%. Would S&P report that the S&P 500 was unchanged that day? Of course not. Exxon-Mobil has a market weight of over 5% in the S&P 500, while the weight of Jones Apparel is less than .04%, so that the return on Exxon-Mobil is weighted 1,381 times the return on Jones Apparel. In fact, a 10% rise in Exxon-Mobil's price would boost the S&P 500 by 4.64 index points, while the same fall in Jones Apparel would have no impact since the change is far less than the one-hundredth of one point to which the index is routinely rounded.

Yet when S&P calculates earnings, these market weights are ignored. If, for example, Exxon-Mobil earned $10 billion while Jones Apparel lost $10 billion, S&P would simply add these earnings together to compute the aggregate earnings of its index, ignoring the vast discrepancy in the relative weights on these firms. Although the average investor holds 1,381 times as much stock in Exxon-Mobil as in Jones Apparel, S&P would say that that portfolio has no earnings and hence an "infinite" P/E ratio. These incorrect calculations are producing an extraordinarily low reported level of earnings, high P/E ratios, and the reported fourth-quarter "loss."

As the fourth-quarter earnings season draws to a close, there are an estimated 80 companies in the S&P 500 with 2008 losses totaling about $240 billion. Under S&P's methodology, these firms are subtracting more than $27 per share from index earnings although they represent only 6.4% of weight in the index. S&P's unweighted methodology produces a dismal estimate of $39.73 for aggregate earnings last year.

If one applies market weights to each firm's earnings using the same procedure that S&P employs to compute returns, the results yield a more accurate view of the current profit picture. Market weights produce a reported earnings estimate of $71.10 for 2008 -- nearly 80% higher than the unweighted procedure. The reason for this stark difference is that the firms with huge losses generally have extremely low market values and hence have a much smaller impact on the total earnings in the index.

Similarly, operating earnings (essentially, earnings before write-offs), of the S&P 500 are boosted to $81.94 per share when earnings are weighted by market value, yielding a P/E ratio of about 9.4 for the market, instead of S&P's $61.80, which yields a P/E ratio of 12.5 when firm profits are simply added. Even the negative earnings for the fourth quarter disappear when market weights are accounted for, as fourth-quarter GAAP earnings on the S&P 500 Index total $7.44 per share and operating earnings reach $14.40.

No one can deny that the recent economic downturn has badly hurt corporate earnings. But let's not fool ourselves into thinking that this is an expensive market. When computed accurately, P/E ratios show that this market is much cheaper than is currently being reported by the S&P. Those who venture into today's stock market are indeed buying good values.

Mr. Siegel is professor of finance at the University of Pennsylvania's Wharton School.



You can set almost the entire article in bold face because the main idea (that S&P is wrong and there they need to artificially apply market weights) is flawed. The market weights are applied by definition.

have a look at some comments:



Comment #3 of comment section to that article for example reads:


With all due respect to the good professor, I think he has it wrong on this one:

Adding the earnings “dollar for dollar” is perfectly appropriate in that they are, by definition, already weighted according to the size of the enterprise. What would be wrong would be adding the individual per share earnings to come up with an aggregate figure for the index.

Using dollar earnings is analogous to measuring price changes as the change in the dollar value of the entire enterprise rather than price per share. This would yield the same result as weighting the per share figures by capitalization.

A $10 billion loss should affect the index equally whether it comes from a small company or large. 


He got the idea.

For some Siegel article bashing see the first comment to this article:

ed said... 

Oh man, is this embarrassing.

Siegel is just wrong. This is a freshman mistake. I'm very embarrassed for Wharton's finance department. I'm even a little concerned about Siegel's did he make such an error? And what were the editors thinking?

2/25/2009 2:48 PM 


or comments #3,4 to this article:

BenE  · 11 weeks ago
Wow elementary math FAIL. The reason the percentage share price is multiplied by cap in the example he gives is to make it an absolute value instead of a relative percentage. If the earnings were stated in relative terms then it would make sense to multiply them by previous earnings to obtain the absolute value before adding them to the index. For example, if it was stated that earning were down 20% from last year for a company it would make sense to multiply by last years earnings to figure out the absolute decline. What he is doing makes absolutely no sense.


Namazu · 11 weeks ago
He's out of his effing mind--you're just too polite to say it. The P/E on the S&P500 should be the same for an index fund as for a hypothetical (rich) owner of 100% of all the components. Period. The earnings are ALREADY cap weighted. I thought the whole point of Siegel's nutty mutual funds was that cap weighting was bad. You can stare at the Pareto curve all you want, and it doesn't mean you can predict anything. Back-testing doesn't count. I'd love to see Nassim Taleb tear this guy a new one.



also have a look at comment #53 here ...

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#6) On June 02, 2009 at 3:22 PM, nottheSEC (81.31) wrote:

IMHO its about time they receive a wake up call.This in my belief is the most overrated company in US historyIf they properly used their resources wouldn't they be at a APPL's 140 by now even split adjusted? This company Its a one trick pony namely an operating sytem and that more due to an illegal monopoly in my belief. They failed search,travel,isp,music,cable beaten by google, travelocity,aol,etc.This with a huge talented team and the cash for organic or inorganic. Don't they have a mountain of cash and they are borrowing?  MY opinion all..J

To say something nice.. It is nice that Gates is giving away a good portion of his money through philanthropy. 

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#7) On June 02, 2009 at 3:23 PM, nottheSEC (81.31) wrote:

er typo .."This with a huge talented team and the cash for organic or inorganic GROWTH"

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#8) On June 02, 2009 at 3:29 PM, portefeuille (98.37) wrote:

and APPL -> AAPL

and operating sytem -> operating system

and some spaces ...

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#9) On June 02, 2009 at 3:37 PM, nottheSEC (81.31) wrote:

LOL yes several errors.Good copy content though

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#10) On June 23, 2009 at 9:19 PM, portefeuille (98.37) wrote:

Krugman and (or vs. (?)) mathematics again.

See the comment section to one of his articles. Comment #81 gets it right (at last ...).

For a(t) := industrial production at time t (a(0) = 8.8670 for 7/1/1929 ... a(14) = 6.6427 8/1/1930 (Krugman's graph only goes to a(13) for 8/1/1930)) and x := (a(t) - a(0)) / a(0) you get the following differences between x (which when multiplied by 100 gives you the percentage change from the peak at t = 0) and log(x) (which is shown in Krugman's graph)  in % ((x-log(x))/x*100) are as stated in that comment (except for the minus signs):




(log is, as it is usually, exp^(-1).)

So Krugman was ("basically") indeed right when he said


Those are natural logs — sorry, economists use them so frequently I forgot to explain. So basically multiply by 100 to get the percent change.



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#11) On July 18, 2009 at 10:57 AM, portefeuille (98.37) wrote:

a guide to my blog posts can be found in the comment section to this post
(should be or should be close to the last comment)                                                               

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