This blog post originally appeared on RealMoney Silver on June 18 at 8:18 a.m. EDT.
," I argued that the world is interconnected, interlinked and increasingly complex. Risks of black swans, previously perceived to be small by corporations, investors, politicians and regulators, are now being reassessed, owing to (among other issues) globalization, tighter correlations, advancements in technology, the growing/excessive complexities of interlocking supply chains and derivatives, the acceptance of greater/extreme risk-taking ("the longer people make money by taking risk, the more imprudent they become," the Minsky moment), the greater connectivity of
(see Paul Ormerod and Rich Colbaugh) and so forth.
I went on to opine that, given the "newness" of these and other challenges as well as the greater frequency of black swan events, P/E multiples are being pressured and should continue to contract as a comparison between today's valuations to those of history can be expected to lose some of its significance and relevance.
There exists numerous price/earning multiple deflators and non traditional headwinds to growth. These factors don't necessarily prevent an extended bull market, but they will most certainly deflate price/earnings multiples and put a cap on the market's upside potential:
- rising taxes;
- fiscal imbalances in federal, state and local governments;
- the absence of drivers to replace the prior cycle's strength in residential and nonresidential construction;
- the long tail of the last credit cycle (Greece, Portugal, Spain, etc.); and
- inept and partisan politics.
The last point, inept and partisan politics, was prominent in my mind yesterday as I watched the House Energy and Commerce Committee grill
CEO Tony Hayward.
When I was growing up on Long Island in the 1950s and 1960s, there were three television stations (
); there was no
During this period (40 years ago), Americans had the deepest respect for politicians, and by the time President John F. Kennedy was elected, you could say politicians were idolized, viewed with awe (at times) and put on a pedestal.
Our politicians were not that visible in days of old. Interviews in
revealed their personal lives, but, like
The Wizard of Oz
, they remained very much behind a curtain of secrecy.
Of course, that was a half century ago.
In the interim interval, the three stations morphed into nearly 1,000, as cable television, satellite TV, the Internet and other influences changed the communication landscape. In the process, our politicians became much more visible. Congressional hearings were featured live on cable, and those politicians' strengths and weakness were slowly revealed.
In time -- just as the Tin Man, The Cowardly Lion, The Scarecrow and Dorothy found out -- we began to get a more complete picture of our politicians as the onion of reality was peeled more and more through that greater exposure, and what we have seen in this disclosure of our legislators has increasingly become (at best) disappointing and (at worst) downright scary.
The peeling of that onion has naturally revealed a group of politicians that are human (like all of us) but who, in many cases, seem to reside in a governmental ivory tower and appear to lack a complete understanding of business and economics. Unfortunately, what we have seen in these televised hearings over the past decade is governmental grandstanding and political partisanship, which was further demonstrated in yesterday's aggressive inquisition of Tony Hayward.
Let me make it clear, in many corners of our business community, some stupid, reckless, irresponsible and even fatal things have happened over the past few years, but the process of skewering cultural/business villains (such as bank managements a year and a half ago and BP yesterday) is nonproductive.
This is all of particular concern in 2010 as our government (in order to take us out of the Great Recession) has taken a greater hold on our lives than ever economically and financially. Our representatives have failed in a number of important long-term policy decisions and hardly ever take responsibility for their actions. Cutting out dependency on foreign oil came to my mind yesterday.
Going forward, it seems to this observer that it is too easy (and likely) for our representatives to make policy mistakes given their lack of collective business experiences and partisanship.
I am worried about a continued contraction in P/E multiples.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.
Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.