Oct

23

street There are four reports on my desk. We have Montier talking about the futility of blaming the short sellers and another report in which he attacks analysts for consistently being behind the curve, saying 'Despite the earnings declines priced into markets, I am still concerned that investors may not have fully appreciated the degree of cyclical risk that still exists.' The other two reports are on European Portfolio Strategy by Oppenheimer of GS, which are focused on the idea of a bounce in the market. Oppenheimer gives us ten reasons why the markets could bounce, with some nice charts along the way, and has this to say regarding dividend yield and the cheap valuation of Europe:

'The dividend yield on the market now is higher than at any point for the past 20 years, even assuming that dividends fall back to trend. In the early 1990s recession, when dividends were cut just as they are likely to be today, the dividend yield rose to 4.3%, and bond yields were much higher then. Based on trend dividends, this is pretty much exactly where the market is pricing today. However, there is the possibility that the dividend cuts will be larger this cycle, particularly in the Banks sector, as some European governments prohibit those companies that require capital from paying dividends to common shareholders. All else being equal, if all banks cut their dividends to zero (an arguably overly-conservative scenario), the dividend yield of the index would fall from 5.2% to 4.0%.


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