Play Like A Champion
Welcome back from the holiday season! Well actually there's one event left of it. Tonight the Irish play for the national championship against the Crimson Tide of Alabama. Alabama is a ten point favorite as this is being written and not many of the college football world gives Notre Dame much of a chance to win. The outcome however will be written on the field and as they say out in the world "That's why they play the games" so we'll see.
The Irish have been written off all year. This was especially true given the performance of the team in the last years of the Charlie Weis era and the overall record during Brian Kelly's first two campaigns. The nadir of Kelly's tenure may have been the 31-17 beat down that USC administered to the Irish on October 22 of last year. Certainly nobody expected the Irish to be where they are today back on September 1st when they throttled Navy 50-10 in Dublin. Michigan State, Michigan, Stanford, Oklahoma and USC were all supposed to be better than the Irish. In the cases of the final three opponents, more ink was spilled on how badly Notre Dame would lose than whether they had a shot at winning. While I don't know how the sports books in Las Vegas figured Notre Dame's odds, my guess is that a ten dollar bet laid down on ND to win the whole thing back in late summer stands the chance of a pretty good payout should they prevail tonight.
The performance of the Irish this year in many ways mirrors the disdain and low expectations many have had of stocks over the past half decade. In March 2009 stocks completed a nearly 60% decline in value during the worst economic calamity that has hit the global industrial world since the Great Depression. Stocks have advanced almost 120% since those bear market lows. Today markets as measured by the S&P 500 are only 7% off their late 2007 highs. Market experts have fought this rally all the way up. We have been told among other things since then that many more banks would fail, a massive round of municipal bankruptcies would occur, Europe was to fracture into itty bitty pieces under the weight of it's debt, the downgrade of the US credit ratings was the beginning of the end of the financial stability of the dollar and President Obama was bent on socializing everything! Finally we spent almost two months dealing with the nonsense of the "Fiscal Cliff". Through it all stocks have trudged higher. It is true that there have been points along the way where the ride has been wild and the volatility sickening. Stocks suffered a mini-crash back in the spring of 2010 and another big move down in the summer of 2011 during the debt ceiling crisis. Yet each of those events proved to be pretty good longer term entry points for investors. Markets each time went on to make another leg higher as the fears that drove investors into cash during those times proved to be unfounded. These past few years have been a perfect example of stocks climbing that proverbial wall of worry.
Yet investors have been net sellers of stocks and huge purchasers of bonds during much of this period. Almost every month since March of 2009 has seen individual investors cashing in their chips. Their expectations of future returns must be so dismal that the prospect of receiving something under 2% in US ten year treasuries, a prospect that is almost guaranteed to lose money in the coming years, is preferable to the uncertainties that comes from investing in equities.
Brian Kelly was hired in December of 2009 to be the 31st head football coach at Notre Dame. Not only did Kelly take over a program reeling from the final years of Charlie Weis' chaotic administration, he was also ushered in after the University's first choice, George O'Leary, was fired five days after his hiring when it was discovered that he had misrepresented his academic credentials. Slowly and with several setbacks along the way, Kelly has turned Notre Dame's football program around. Win or lose tonight the Irish are likely to be a force again in major college football. The upcoming bowl playoff system and Notre Dame's closer football association with the ACC should help keep the program high in the national system barring an unexpected event. In short things for Notre Dame football are getting better. Their star is on the rise.
Similarly we need to ask what if things are getting better in the economy? In spite of last year's double digit market returns stocks are still trading around a 14 PE and with an earnings yield in excess of 7%. This is still lower than their historical trading ranges. Economic statistics seems to be consistent with growth somewhere between 2-2.5% this year. Job growth has continued to improve albeit at unacceptably slow rates. Our economic and national problems are too numerous to mention here and most have not been resolved to anybody's satisfaction, but few can argue that in general as a country we are not better off today than we were a few years ago. Few also entertain the possibility that things might improve even more in the coming years, that we might be at the beginning of our own Brian Kelly era regarding an economic rebound. If that should prove to be the case, should we get our act together and should things continue to improve then we must ourselves entertain what that could mean. One of the things it could lead to is stock prices appreciably higher in the coming years than they are today. Expect to hear more about this soon as we discuss our economic and market views for 2013.
And now about those Irish......Because I often mention Notre Dame during the football season, readers may think I am a graduate of that institution. I am not. I am a proud alumni of DePauw University in Greencastle, Indiana. At first glance that would make me no different than any of the thousands of "subway alumni " who regularly root for Notre Dame in football. I though inherited my allegiance to the Irish through family. My dad's family were some of the first settlers in the South Bend/Mishawaka area, coming there several years before Fr. Sorin founded the University in 1842. Many still live there. Before Notre Dame was this large nationally recognized institution it was this little Catholic school in South Bend. Back then my ancestors worshiped, worked and were buried at the University. Several including my great-great grandfather are buried in Cedar Grove cemetery on campus. My father grew up only a few miles from the campus and worked football games as an usher when he was in high school. He had some unflattering stories about Frank Leahy from first hand observation during those years. My Grandmother Marie worked there full time in the old bookstore from the early 1960's until the early 1990's. After that she worked part time on big event days like football weekends. I spent much time visiting my grandparents when I was younger and that meant I spent time wandering the campus with them. It was close to where they lived and they often needed something to do with me so it was logical that we'd go over to school and let me run around. I saw my first football game at Notre Dame Stadium with my grandparents in the mid 1960's and have been going strong since.
My grandmother Marie loved football. She knew many of the players and coaches from her work on campus. She was especially fond of Lou Holtz. Marie never lost faith even in the lean years after the 1988 championship. She always believed in her heart they would return to the big time. Marie died in 2004. In 2005 it looked like she might be right and was perhaps pulling some strings upstairs as the Irish in Charlie Weis' first season as head coach roared out of the gate. A controversial mid-season loss to USC ended that dream and the years rolled on. My dad joined her in heaven in 2008. I'd like to think that come game time tomorrow night the two of them, my grandfather, my uncle Bob and my aunt Georgia will be seated in front of whatever passes for a TV upstairs on a cloud somewhere watching the game. I'm sure I'll be able to hear the laughter and joy all the way down here if the Irish win.....
....and if they do, I'm going to take a big "Play Like A Champion" poster and glue it to Marie's grave! She'd love that. God Bless!
Yet investors have been net sellers of stocks and huge purchasers of bonds during much of this period. Almost every month since March of 2009 has seen individual investors cashing in their chips. Their expectations of future returns must be so dismal that the prospect of receiving something under 2% in US ten year treasuries, a prospect that is almost guaranteed to lose money in the coming years, is preferable to the uncertainties that comes from investing in equities.
Brian Kelly was hired in December of 2009 to be the 31st head football coach at Notre Dame. Not only did Kelly take over a program reeling from the final years of Charlie Weis' chaotic administration, he was also ushered in after the University's first choice, George O'Leary, was fired five days after his hiring when it was discovered that he had misrepresented his academic credentials. Slowly and with several setbacks along the way, Kelly has turned Notre Dame's football program around. Win or lose tonight the Irish are likely to be a force again in major college football. The upcoming bowl playoff system and Notre Dame's closer football association with the ACC should help keep the program high in the national system barring an unexpected event. In short things for Notre Dame football are getting better. Their star is on the rise.
Similarly we need to ask what if things are getting better in the economy? In spite of last year's double digit market returns stocks are still trading around a 14 PE and with an earnings yield in excess of 7%. This is still lower than their historical trading ranges. Economic statistics seems to be consistent with growth somewhere between 2-2.5% this year. Job growth has continued to improve albeit at unacceptably slow rates. Our economic and national problems are too numerous to mention here and most have not been resolved to anybody's satisfaction, but few can argue that in general as a country we are not better off today than we were a few years ago. Few also entertain the possibility that things might improve even more in the coming years, that we might be at the beginning of our own Brian Kelly era regarding an economic rebound. If that should prove to be the case, should we get our act together and should things continue to improve then we must ourselves entertain what that could mean. One of the things it could lead to is stock prices appreciably higher in the coming years than they are today. Expect to hear more about this soon as we discuss our economic and market views for 2013.
And now about those Irish......Because I often mention Notre Dame during the football season, readers may think I am a graduate of that institution. I am not. I am a proud alumni of DePauw University in Greencastle, Indiana. At first glance that would make me no different than any of the thousands of "subway alumni " who regularly root for Notre Dame in football. I though inherited my allegiance to the Irish through family. My dad's family were some of the first settlers in the South Bend/Mishawaka area, coming there several years before Fr. Sorin founded the University in 1842. Many still live there. Before Notre Dame was this large nationally recognized institution it was this little Catholic school in South Bend. Back then my ancestors worshiped, worked and were buried at the University. Several including my great-great grandfather are buried in Cedar Grove cemetery on campus. My father grew up only a few miles from the campus and worked football games as an usher when he was in high school. He had some unflattering stories about Frank Leahy from first hand observation during those years. My Grandmother Marie worked there full time in the old bookstore from the early 1960's until the early 1990's. After that she worked part time on big event days like football weekends. I spent much time visiting my grandparents when I was younger and that meant I spent time wandering the campus with them. It was close to where they lived and they often needed something to do with me so it was logical that we'd go over to school and let me run around. I saw my first football game at Notre Dame Stadium with my grandparents in the mid 1960's and have been going strong since.
My grandmother Marie loved football. She knew many of the players and coaches from her work on campus. She was especially fond of Lou Holtz. Marie never lost faith even in the lean years after the 1988 championship. She always believed in her heart they would return to the big time. Marie died in 2004. In 2005 it looked like she might be right and was perhaps pulling some strings upstairs as the Irish in Charlie Weis' first season as head coach roared out of the gate. A controversial mid-season loss to USC ended that dream and the years rolled on. My dad joined her in heaven in 2008. I'd like to think that come game time tomorrow night the two of them, my grandfather, my uncle Bob and my aunt Georgia will be seated in front of whatever passes for a TV upstairs on a cloud somewhere watching the game. I'm sure I'll be able to hear the laughter and joy all the way down here if the Irish win.....
....and if they do, I'm going to take a big "Play Like A Champion" poster and glue it to Marie's grave! She'd love that. God Bless!
na heireannaigh a bhantiarna na Notre Dame!
*Long ETFs related to the S&P 500 in client and personal accounts. I will post again Wednesday.
PS. Here's an article from yesterday's Indianapolis Star on how Notre Dame went from being that little Catholic school in South Bend to where it is today.
posted by CR English at 5:00 AM
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