Dean Baker
Al Jazeera America, August 19, 2014

Dean Baker
Las Vegas Sun, August 17, 2014

Dean Baker
Truthout, August 18, 2014

Robert Shiller had a piece in the Sunday NYT noting that the S&P 500 was unusually high relative to his measure of trailing earnings. He calculated a ratio above 25, far above the historic average of 15. Shiller said that in the past, each time this ratio crossed 25 the market took a plunge shortly thereafter. He concludes his piece by seeing it as a mystery that the market remains as high as it does.

Brad DeLong picks up on Shiller's analysis and points out that in most cases in the past where Shiller's ratio had exceeded 25, people who held onto their stock over the next decade would still have seen a positive real return. He notes the examples in the 1960s when investors would have seen a negative ten-year return, even though Shiller's ratio was below the critical 25 level. He therefore concludes there is no issue.

I would argue there is an issue, although not quite as much as Shiller suggests. To get at the problem, we have to recognize that stock returns, at least over a long period, are not just random numbers. Both Shiller and DeLong treat this as a question of guessing whether an egg will turn into a lizard or chicken based on the distribution of past hatchings that we have witnessed.

That would be a reasonable strategy if that is the only information we have. But if we saw that one of the eggs was laid by a hen, then we may want to up our probability estimate that it will hatch into a chicken.

In the case of stock returns we can generate projections based on projections of GDP growth, profit growth, and future price to earnings ratios. For example, we may note that the ratio of stock prices to after-tax corporate profits for the economy as a whole was 22.3 at the end of 2013. (This takes the value of stock from the Financial Accounts of the United States, Table L.213, lines 2 plus 4 for market valuation. After-tax corporate profits are from the National Income and Product Accounts, Table 1.10, Line 17).

This means that earnings are roughly 4.5 percent of the share price. If companies pay out 70 percent of their earnings as dividends or share buybacks (roughly the average), this translates into a 3.1 percent real return in the current year.

A judge in Haiti has reportedly issued an arrest warrant for former president Jean-Bertrand Aristide, saying that Aristide failed to appear for questioning following a summons issued earlier in the week. While some outlets reported that Aristide is facing

Michael’s Stores was taken private in a leveraged buyout on October 31, 2006. At the time of LBO, Highfields Capital Partners, which owned shares in the specialty retailer, was allowed to retain its interest – worth about $200 million. Funds of two privat

Today is Social Security's 79th birthday, a good time to celebrate the nation's most effective anti-poverty program, which, especially after the housing crash and Great Recession, is crucial to the retirement security of middle- and working-class Americans.

But in about 20 years, Social Security will likely be able to pay only about 3/4 of promised benefits to retirees (if nothing's done to change the program). One way to make sure that this drop doesn't happen is to have our nation's wealthiest folks pay the same Social Security payroll tax rate as the rest of us.

The American Task Force Argentina (ATFA) is Elliott Management’s main public relations and lobbying arm supporting its long-running legal fight against Argentina in U.S. courts to collect on debt purchased in the aftermath of the country’s 2001 default. Although it markets itself as a coalition, ATFA has in the past had to remove several groups from its list of supporters after the Wall Street Journal found that they had never heard of the organization, much less supported it. Over the years, ATFA has gone to creative lengths both to lobby the hedge funds’ case and to generally defame Argentina, by alleging nefarious ties with Iran, for example.

One of ATFA’s main goals has been to divert attention away from the fact that the fight over Argentina’s debt fundamentally hinges on the heavy-handed tactics of large hedge fund owners, like Elliott’s Paul Singer, to collect a lot of money on distressed sovereign debt. These tactics are not pretty, and these hedge funds rightly earned the name “vulture funds” long before the Argentina case, as CEPR Co-Director Dean Baker has pointed out. So one of ATFA’s strategies has been to highlight how Argentina’s actions have supposedly hurt the “little guys” and how the vulture funds’ case somehow represents a fight for these underdogs.

ATFA has not been great at coalition building, however. To date, perhaps their most successful lobbying push was their attempt to portray Argentina as cheating retired educators. Before 2010’s bond restructuring, one of the holdout creditors was TIAA-CREF, which had a relatively small stake in the defaulted bonds. Jumping on this fact, ATFA alleged that Argentina seriously harmed the pensions of retired academics, hosting an event [PDF] on the default’s effect on teachers, coordinating [PDF] letters [PDF] to members of Congress, and launching an ad campaign  [PDF]. ATFA’s ad lists the members of the “American Task Force Argentina Educator Coalition” who support the vulture fund’s case: the Alabama, Georgia, and Colorado conferences of the American Association of University Professors (AAUP), the Nebraska Community College Association, and lastly, the Nebraska Retired Teacher Association. That’s it. There was no participation from the national AAUP or TIAA-CREF in this campaign; in the case of the Georgia conference of the AAUP, it’s unclear if the collaboration with ATFA involved the participation of anyone but the group’s then-executive secretary. When Congressman Eric Massa later pushed ATFA-backed legislation to punish Argentina over the debt issue, ATFA’s efforts may have helped the bill to garner some extra co-sponsors. But Massa’s ATFA legislation died, just like all of its later versions.

Dan Beeton
NACLA, August 14, 2014