Okay, tomorrow I'll get to my Paulson, Geithner and bail-out bashing. For now, I've got to take on the lighter side of the news.
First, we learn that Ashlee Simpson - Homer's daughter? - name her kid "Bronx Mowgli." What??? Do these people think they can insulate these kids from the real world forever? Or are they just setting them up for a reality TV spot 20 years from now? Or are they really savvy, and banking on the likelihood that, by the time their kids are grown, the world as we know it will have ceased to exist, due to the coming global financial meltdown?
My guess is that they're just clueless. Keanu Reeves said it best in "Parenthood" (and I'm paraphrasing): "You need a license to buy a gun, or drive a car. But any idiot can be a parent."
Next, Madonna has divorced her ex, Guy Ritchie. Why? Ritchie's "unreasonable behavior." Let's see, Madonna's done a porn book, converted to the whole Kabbalah thing, and, of course, released many songs that are just plain painful to listen to. But Ritchie's "unreasonable?" The only unreasonable thing I can find about the guy is that, after years of putting up with her general freakiness, he said he didn't want any of her money. Dude, this is the bail-out era - get what you can, while you can. Lord knows you paid your dues.
Okay, my PSU Gorillas got jobbed Saturday, losing by three points to the detestable Bearcats of Northwest Mizzourah State U. by a total of three points, after coughing up three turnovers and suffering a pathetically bad late-hit-out-of-bounds call that gave the 'Cats a field goal that would provide the deciding margin of victory.
No matter. The 'Cats travel to Abilene, Texas to take on the Wildcats of Abilene Christian U. - which whupped the 'Cats in their own house in the season opener. More significantly, the offensive juggernaut that is ACU won their Saturday playoff game against cross-state rival West Texas A&M by the score of 93-68 - that's football, folks, not basketball. ACU scored their 93 points in just 23 minutes of possession. The NW D was totally befuddled by Pitt in the second half Saturday. With ACU's no-huddle offense, plus their trifecta of the best QB, RB and WR in Division II football, NW is toast on D. They'd better come up with a way to score 95 points on ACU - which may not be all that hard, come to think of it.
Monday, November 24, 2008
Friday, November 21, 2008
Still No Bottom
It's been a while since I've posted. I was traveling last week with my lovely wife, driving around the Midwest with stops in St. Charles, MO (quaint), Louisville (for meetings), Memphis (for blues, a tour of the Gibson guitar factory and good, unhealthy Southern food), Springdale, AR (for some great fried chicken at AQ Chicken House, also quite unhealthy), and winding up in Pittsburg, KS to watch my beloved Gorillas smack down the University of Nebraska-Omaha for the second time this season, this time in a first-round NCAA Division II playoff game.
UNO's mascot is the Mavericks. It's been a tough year for Mavericks.
Okay, on to the topic at hand. I've been meaning to do some serious Paulson-bashing, but I'll try and get to that this weekend. The past two days in the market, while wildly profitable for contrarians like me, have been stunning enough that I need to take pause and address the question that Bubblevision asks every day:
Are we at the bottom?
Short answer: nope.
Yes, yesterday we breached the 2002 low on the S&P, which is now roughly half its level when I first predicted back in '01 that it would trade sideways for a decade or so. And we came close to the '02 low on the NASDAQ. But we ain't there yet.
A few simple answers to the question, "why?"
First, I saw a video interview with a technical analyst yesterday, and he was asked what he thought of the notion that stocks are cheap and we all should be buying. (Remember how the Oracle from Omaha told us all to buy stocks back in October? Brilliant dude, that Mr. Buffett. You'd have been better off taking your investment advice from Jimmy Buffett than Warren.) Anyway, the techie gave a very simple but sage answer:
"If stocks are cheap, why are they going down?"
Indeed. If stocks are cheap, there should be more buyers than sellers, which is the classic trader's answer to the question, "Why are we rallying?" Prices are going down, meaning there are more sellers than buyers. If stocks were cheap at these levels, the converse would be true.
Second, there are some fundamental things that I doubt anybody but me looks at, that tell me there's pain and suffering ahead that has not been priced into the market. To wit:
1. The NAHB Housing Market Index fell to a fresh all-time low of 9 this month. To put that in perspective, it was at 20 in April, above 30 a year before that, above 50 a year before that, and above 70 in mid-2005. And, as I've noted before, it correlates very well with the S&P 500, lagged about 18 months. Well, a year and a half ago, it augured for a low on the S&P of 600-ish. Before this month's new record low, it foretold a bottom in the S&P about 18 months out, at even less than that. And now, it's lower still.
I'm not using that as the basis for an argument that the S&P will fall to, oh, say 200. But it will certainly fall further. You have to dance with the one that brung ya, and housing brought us to this dance. The worst is not over yet for housing, so the worst is not over yet for the broader economy and the stock market. And the bottom for stocks could be a year or more away, though I'll probably turn cautious in about six months or so. Probably.
2. On a similar note, housing starts in October were the lowest ever. Let me repeat that: we started construction on fewer new homes in October than we ever have. Oh, okay, technically it's only since the data was first recorded - in 1959. A few scant months before I first graced this planet with my presence. But still - consider population growth since then. Yeah, you can go back further in time and find a date when we were building fewer homes. But they might just have been made out of lodgepoles and buffalo hides. Like I said, the worst is not over for housing, and as housing goes, so goes the economy.
(Oh, building permit issuance hit a record low, too, and they lead housing starts. So don't look for any improvement in starts soon, lest you think they're at a bottom too.)
3. Not only did the Empire Manufacturing Index - a survey-based index of manufacturers in the New York Fed region - fall to a new low in November, some of its components tell stories that are not yet priced into the market, but will affect it when the birds come home to roost.
a. Prices paid fell from an index level of 31.71 to 20.48. That's welcome news, as it means manufacturers' costs went down. Given that the component was as high as 77.89 in July, when oil prices peaked, that's a real positive.
However, prices received collapsed, falling from 20.73 to just 6.02. They had been generally tracking well with prices paid, but the sharp drop shows that, with the consumer in hibernation, companies have very suddenly lost all pricing power. They can't get financing, and now they can't sell product without just slashing prices. That will crush profits, beyond what current earnings expectations have factored in.
b. The number of employees component fell from -3.66 to -28.92, in a single month. And the average workweek fell from -9.76 to -25.30 (zero is neutral for these numbers, so negative readings signal contraction). This tells us two things. First, factories in the region cut payrolls sharply in November. We have yet to see the actual payroll numbers for the overall economy for the month, but they're likely to be shocking, below what's priced in. And second, for workers that remain, factories have slashed overtime. That's usually the last thing to go. And it means that those workers' purchasing power is eroding sharply.
Then there were a couple of things that seemingly might be priced into the market, but really aren't yet.
First is Citigroup's announcement that it will lay off 53,000 workers. Yeah, Citi's stock tanked, and dragged the markets with it, though the decline was broad-based. But Citi may yet fail or have to be sold or rescued. And, we have yet to price in the effect of those massive job cuts on spending, which has already fallen out of bed. Indeed, if the forecast for next week's personal spending release comes to realization, we'll see the weakest year-over-year pace of spending growth - barring the post-9/11 anomaly - since 1961. Weaker spending is expected, but not that weak.
Second, the possible bankruptcy of the automakers is not yet fully reflected, I don't think. Again, the impact on spending will be devastating, though I believe that allowing them to file Chapter 11 is still preferable to a bailout.
To digress briefly, let me explain why. The Detroit Three want $25 billion. The likely split is about $11 billion for GM and about $7 billion each for Chrysler and Ford. That's about two quarters' worth of cash at the current burn rate. So they'll either fail next year anyway, or need more cash. Lawmakers seem to be getting that, hence their reluctance to add more to the bulging bailout debt burden.
Back to the broader issue. Goldman Sachs released a report today forecast a whopping 5% decline in GDP growth this quarter, and unemployment hitting 9% at the end of 2009, and rising further into 2010. That is not priced into the markets. Even the Chicago Fed Bank President warned today that this recession will probably last through all of next year, when most earlier estimates called for weakness to subside around mid-year. Again, current equity valuations factor in those earlier estimates, not the new reality. (Well, it's not a new reality to me, but it is to Goldman and the Chicago Fed chief.) And a University of Michigan survey found that consumers expect the jobless rate to exceed 8.5% next year, so they apparently concur with Goldman.
Some of those consumers buy equities, at least through mutual funds. So, back to the techie's point - more sellers than buyers means stocks aren't cheap, and prices will fall further.
The simple fact that, after a massive two-day rout, we couldn't produce the usual euphoric dead-cat bounce today, is evidence that the tone is finally going full-bore bearish. So the bottom is yet to come.
UNO's mascot is the Mavericks. It's been a tough year for Mavericks.
Okay, on to the topic at hand. I've been meaning to do some serious Paulson-bashing, but I'll try and get to that this weekend. The past two days in the market, while wildly profitable for contrarians like me, have been stunning enough that I need to take pause and address the question that Bubblevision asks every day:
Are we at the bottom?
Short answer: nope.
Yes, yesterday we breached the 2002 low on the S&P, which is now roughly half its level when I first predicted back in '01 that it would trade sideways for a decade or so. And we came close to the '02 low on the NASDAQ. But we ain't there yet.
A few simple answers to the question, "why?"
First, I saw a video interview with a technical analyst yesterday, and he was asked what he thought of the notion that stocks are cheap and we all should be buying. (Remember how the Oracle from Omaha told us all to buy stocks back in October? Brilliant dude, that Mr. Buffett. You'd have been better off taking your investment advice from Jimmy Buffett than Warren.) Anyway, the techie gave a very simple but sage answer:
"If stocks are cheap, why are they going down?"
Indeed. If stocks are cheap, there should be more buyers than sellers, which is the classic trader's answer to the question, "Why are we rallying?" Prices are going down, meaning there are more sellers than buyers. If stocks were cheap at these levels, the converse would be true.
Second, there are some fundamental things that I doubt anybody but me looks at, that tell me there's pain and suffering ahead that has not been priced into the market. To wit:
1. The NAHB Housing Market Index fell to a fresh all-time low of 9 this month. To put that in perspective, it was at 20 in April, above 30 a year before that, above 50 a year before that, and above 70 in mid-2005. And, as I've noted before, it correlates very well with the S&P 500, lagged about 18 months. Well, a year and a half ago, it augured for a low on the S&P of 600-ish. Before this month's new record low, it foretold a bottom in the S&P about 18 months out, at even less than that. And now, it's lower still.
I'm not using that as the basis for an argument that the S&P will fall to, oh, say 200. But it will certainly fall further. You have to dance with the one that brung ya, and housing brought us to this dance. The worst is not over yet for housing, so the worst is not over yet for the broader economy and the stock market. And the bottom for stocks could be a year or more away, though I'll probably turn cautious in about six months or so. Probably.
2. On a similar note, housing starts in October were the lowest ever. Let me repeat that: we started construction on fewer new homes in October than we ever have. Oh, okay, technically it's only since the data was first recorded - in 1959. A few scant months before I first graced this planet with my presence. But still - consider population growth since then. Yeah, you can go back further in time and find a date when we were building fewer homes. But they might just have been made out of lodgepoles and buffalo hides. Like I said, the worst is not over for housing, and as housing goes, so goes the economy.
(Oh, building permit issuance hit a record low, too, and they lead housing starts. So don't look for any improvement in starts soon, lest you think they're at a bottom too.)
3. Not only did the Empire Manufacturing Index - a survey-based index of manufacturers in the New York Fed region - fall to a new low in November, some of its components tell stories that are not yet priced into the market, but will affect it when the birds come home to roost.
a. Prices paid fell from an index level of 31.71 to 20.48. That's welcome news, as it means manufacturers' costs went down. Given that the component was as high as 77.89 in July, when oil prices peaked, that's a real positive.
However, prices received collapsed, falling from 20.73 to just 6.02. They had been generally tracking well with prices paid, but the sharp drop shows that, with the consumer in hibernation, companies have very suddenly lost all pricing power. They can't get financing, and now they can't sell product without just slashing prices. That will crush profits, beyond what current earnings expectations have factored in.
b. The number of employees component fell from -3.66 to -28.92, in a single month. And the average workweek fell from -9.76 to -25.30 (zero is neutral for these numbers, so negative readings signal contraction). This tells us two things. First, factories in the region cut payrolls sharply in November. We have yet to see the actual payroll numbers for the overall economy for the month, but they're likely to be shocking, below what's priced in. And second, for workers that remain, factories have slashed overtime. That's usually the last thing to go. And it means that those workers' purchasing power is eroding sharply.
Then there were a couple of things that seemingly might be priced into the market, but really aren't yet.
First is Citigroup's announcement that it will lay off 53,000 workers. Yeah, Citi's stock tanked, and dragged the markets with it, though the decline was broad-based. But Citi may yet fail or have to be sold or rescued. And, we have yet to price in the effect of those massive job cuts on spending, which has already fallen out of bed. Indeed, if the forecast for next week's personal spending release comes to realization, we'll see the weakest year-over-year pace of spending growth - barring the post-9/11 anomaly - since 1961. Weaker spending is expected, but not that weak.
Second, the possible bankruptcy of the automakers is not yet fully reflected, I don't think. Again, the impact on spending will be devastating, though I believe that allowing them to file Chapter 11 is still preferable to a bailout.
To digress briefly, let me explain why. The Detroit Three want $25 billion. The likely split is about $11 billion for GM and about $7 billion each for Chrysler and Ford. That's about two quarters' worth of cash at the current burn rate. So they'll either fail next year anyway, or need more cash. Lawmakers seem to be getting that, hence their reluctance to add more to the bulging bailout debt burden.
Back to the broader issue. Goldman Sachs released a report today forecast a whopping 5% decline in GDP growth this quarter, and unemployment hitting 9% at the end of 2009, and rising further into 2010. That is not priced into the markets. Even the Chicago Fed Bank President warned today that this recession will probably last through all of next year, when most earlier estimates called for weakness to subside around mid-year. Again, current equity valuations factor in those earlier estimates, not the new reality. (Well, it's not a new reality to me, but it is to Goldman and the Chicago Fed chief.) And a University of Michigan survey found that consumers expect the jobless rate to exceed 8.5% next year, so they apparently concur with Goldman.
Some of those consumers buy equities, at least through mutual funds. So, back to the techie's point - more sellers than buyers means stocks aren't cheap, and prices will fall further.
The simple fact that, after a massive two-day rout, we couldn't produce the usual euphoric dead-cat bounce today, is evidence that the tone is finally going full-bore bearish. So the bottom is yet to come.
Friday, November 7, 2008
Give Me a Break!
I could be talking about today's curiously bi-polar stock market rally. (I will, momentarily.)
Or, I could be next in line to ask the government for a bailout of my own. (Heck, I may even do that.)
But no, I'm talking about all the global slurping over Obama's election as the next US president.
Yeah, it's an historically significant event. But, come on:
France's junior minister for human rights said, "This is the fall of the Berlin Wall times ten."
Are you kidding me? France, of all countries, whom we rescued from German occupation, says that the end of Communism in Germany was one-tenth as important as electing an African-American president - one that we don't even know yet will make a good one? (The guy went on to say, "on this morning, we all want to be American, so we can take a bite of this dream unfolding before our eyes." Dude - you don't have the intestinal fortitude to be American.)
An Israeli man said, "This may be the beginning of a new world. It marks the end of old elites." Yeah, and opens the door to new elites. But seriously, a new world? He's going to be the next POTUS, for crying out loud. Being African-American makes it a historical watershed. But it doesn't necessary mean he'll usher in revolutionary new ways to govern. Heck, you could argue that he doesn't even know HOW to govern, and will be learning on the job. Just ask his number two guy.
Some are even calling him president of the world, which, I guess, is only appropriate, since he himself called himself a "citizen of the world" on his recent world tour.
But the worst offender was a US foreign policy fellow, who said this:
"If you look at Jesus Christ, he walked on water and fed the 5,000 and he ended up getting crucified, so I think it's not unlikely that President-elect Obama is gonna disappoint some people too."
Wow. Maybe he really is "The One." Or maybe this guy's just another loose-lipped nut.
************
On to the rally. Let's see: unemployment is the worst in 14 years, the US economy has shed a half-million jobs in the last two months, Ford and GM are each burning through $7B a quarter and will soon run out of cash, and ... we get a 250-point rally.
The job situation's just going to get worse. At least one US automaker will fail next year, unless we outright nationalize them. Yeah, I know, Obama promised more bailout money. Which will come from ... where? Treasury got to be running out of ink. Also, Obama wants the money to be restricted to use in developing more fuel-efficient cars (you know, ones with fully-inflated tires).
That's not Detroit's problem, see - nobody's buying cars, not even hybrids. (And gas is cheap again.) Why not? Because they're all scared they're going to join the ranks of the unemployed soon. And the banks aren't lending to anybody who isn't uber-prime. And interest rates are going up, not down, in spite of the Fed giving away money (more on that in a minute).
Detroit's problem is a burn rate that is threatening its solvency. So, give 'em another $25B - about $8B apiece for GM, Ford and Chrysler, if you divvy it up equally, though it would probably be based on market cap or assets or ... hey, I know, how about "to each according to his need?" - and they've got another quarter's worth of cash to burn through. They just want to buy time, hoping this recession will end soon.
It won't. And even with more bailout money, one or more will eventually run out of cash and fail.
And that'll just exacerbate things. Washington's talking about the "hundreds of thousands" of jobs that would be lost if GM went down.
Try a couple million or more.
That's the estimate when you factor in the feeder plants, like glass companies and battery makers and seat belt manufacturers. Add in the third-order effects like the cafe next to the battery plant or the bar down the street from the glass company - which will go belly up from being empty at lunch or after work, respectively - and it gets even uglier.
I saw this in Anderson and Muncie, Indiana when I was an S&L examiner during the rust belt slump of the late '80s. Both were big GM feeder towns. Anderson had five financial institutions. Of those, four were given a "5" rating by their regulators, and one a "4." A "5" means, "We're going to find you a merger partner." A "4" typically means, "Next time we visit, we're going to give you a '5'."
You think "jingle mail" - the practice of dropping the keys in the mailbox and abandoning the house to the lender - is a new practice? Wrong. It was rampant throughout the rust belt in the late '80s. They all lit out for Texas, drawn by the oil boom.
Which also went bust, and they did it again in Texas, and headed to California. Then they did it again in the California real estate bust of the mid-90s, and moved to Vegas and Phoenix.
And guess what?
Each of these exoduses (exodi? I don't know) contributed to the S&L crisis, at least the first two. So things are going to also get worse for the banks if a GM fails.
All of this augurs for something other than a simple free-market response. But you know me, I just have this funny aversion from bankrupting the future to make the present less painful.
And that brings me to interest rates. Bond markets are scared of all this bailout money. Treasury issuance is getting huge. Ugly huge. Next week will bring a record deficit for the month of October, the first month in the US fiscal year. And it's going to get worse. We just can't keep adding to it.
Bond guys get this. So rates are going up. Foreign investors are going to demand the same. Heck, we'll probably see our Treasury debt downgraded. And credit's tightening again.
This is all just a mess. And stocks are rallying.
But I'm still short, confident that we have not seen the bottom yet.
************
A final note: AIG has already begun paying down its government loan, sooner than it anticipated.
How, you ask?
By floating commercial paper under the Fed's new funding facility that buys commercial paper. In other words, they're borrowing from the Fed via CP to pay back the outright loan they got from the Fed.
Isn't government intervention wonderful?
Or, I could be next in line to ask the government for a bailout of my own. (Heck, I may even do that.)
But no, I'm talking about all the global slurping over Obama's election as the next US president.
Yeah, it's an historically significant event. But, come on:
France's junior minister for human rights said, "This is the fall of the Berlin Wall times ten."
Are you kidding me? France, of all countries, whom we rescued from German occupation, says that the end of Communism in Germany was one-tenth as important as electing an African-American president - one that we don't even know yet will make a good one? (The guy went on to say, "on this morning, we all want to be American, so we can take a bite of this dream unfolding before our eyes." Dude - you don't have the intestinal fortitude to be American.)
An Israeli man said, "This may be the beginning of a new world. It marks the end of old elites." Yeah, and opens the door to new elites. But seriously, a new world? He's going to be the next POTUS, for crying out loud. Being African-American makes it a historical watershed. But it doesn't necessary mean he'll usher in revolutionary new ways to govern. Heck, you could argue that he doesn't even know HOW to govern, and will be learning on the job. Just ask his number two guy.
Some are even calling him president of the world, which, I guess, is only appropriate, since he himself called himself a "citizen of the world" on his recent world tour.
But the worst offender was a US foreign policy fellow, who said this:
"If you look at Jesus Christ, he walked on water and fed the 5,000 and he ended up getting crucified, so I think it's not unlikely that President-elect Obama is gonna disappoint some people too."
Wow. Maybe he really is "The One." Or maybe this guy's just another loose-lipped nut.
************
On to the rally. Let's see: unemployment is the worst in 14 years, the US economy has shed a half-million jobs in the last two months, Ford and GM are each burning through $7B a quarter and will soon run out of cash, and ... we get a 250-point rally.
The job situation's just going to get worse. At least one US automaker will fail next year, unless we outright nationalize them. Yeah, I know, Obama promised more bailout money. Which will come from ... where? Treasury got to be running out of ink. Also, Obama wants the money to be restricted to use in developing more fuel-efficient cars (you know, ones with fully-inflated tires).
That's not Detroit's problem, see - nobody's buying cars, not even hybrids. (And gas is cheap again.) Why not? Because they're all scared they're going to join the ranks of the unemployed soon. And the banks aren't lending to anybody who isn't uber-prime. And interest rates are going up, not down, in spite of the Fed giving away money (more on that in a minute).
Detroit's problem is a burn rate that is threatening its solvency. So, give 'em another $25B - about $8B apiece for GM, Ford and Chrysler, if you divvy it up equally, though it would probably be based on market cap or assets or ... hey, I know, how about "to each according to his need?" - and they've got another quarter's worth of cash to burn through. They just want to buy time, hoping this recession will end soon.
It won't. And even with more bailout money, one or more will eventually run out of cash and fail.
And that'll just exacerbate things. Washington's talking about the "hundreds of thousands" of jobs that would be lost if GM went down.
Try a couple million or more.
That's the estimate when you factor in the feeder plants, like glass companies and battery makers and seat belt manufacturers. Add in the third-order effects like the cafe next to the battery plant or the bar down the street from the glass company - which will go belly up from being empty at lunch or after work, respectively - and it gets even uglier.
I saw this in Anderson and Muncie, Indiana when I was an S&L examiner during the rust belt slump of the late '80s. Both were big GM feeder towns. Anderson had five financial institutions. Of those, four were given a "5" rating by their regulators, and one a "4." A "5" means, "We're going to find you a merger partner." A "4" typically means, "Next time we visit, we're going to give you a '5'."
You think "jingle mail" - the practice of dropping the keys in the mailbox and abandoning the house to the lender - is a new practice? Wrong. It was rampant throughout the rust belt in the late '80s. They all lit out for Texas, drawn by the oil boom.
Which also went bust, and they did it again in Texas, and headed to California. Then they did it again in the California real estate bust of the mid-90s, and moved to Vegas and Phoenix.
And guess what?
Each of these exoduses (exodi? I don't know) contributed to the S&L crisis, at least the first two. So things are going to also get worse for the banks if a GM fails.
All of this augurs for something other than a simple free-market response. But you know me, I just have this funny aversion from bankrupting the future to make the present less painful.
And that brings me to interest rates. Bond markets are scared of all this bailout money. Treasury issuance is getting huge. Ugly huge. Next week will bring a record deficit for the month of October, the first month in the US fiscal year. And it's going to get worse. We just can't keep adding to it.
Bond guys get this. So rates are going up. Foreign investors are going to demand the same. Heck, we'll probably see our Treasury debt downgraded. And credit's tightening again.
This is all just a mess. And stocks are rallying.
But I'm still short, confident that we have not seen the bottom yet.
************
A final note: AIG has already begun paying down its government loan, sooner than it anticipated.
How, you ask?
By floating commercial paper under the Fed's new funding facility that buys commercial paper. In other words, they're borrowing from the Fed via CP to pay back the outright loan they got from the Fed.
Isn't government intervention wonderful?
Wednesday, November 5, 2008
Now What?
Okay, as widely expected, an Obama win is in the bag. What does this mean?
It means I can watch TV again.
Seriously, I'll throw out my two cents' worth on the Obama victory from a political standpoint, then I'll talk about the economy and the markets, both from the perspective of the impact of an Obama presidency, and then in a broader sense.
As far as the political stuff, I believe strongly that it's time for healing. So I won't talk about my worst-case concerns with the guy. We'll just let the chips fall where they may, and if those concerns are realized, I'll have to refrain from saying "I told you so," I suppose. I'm okay with that.
Meanwhile, President-elect Barack Obama is my president, and as an American, I will, as I always have, do everything in my power to make America a better place for all of its citizens - unselfishly.
My general take is pretty simple. I was listening to some talking heads this morning, and they were talking about how many Obama voters, in the exit polls, said they were voting FOR Obama, not AGAINST McCain or Bush or the GOP. One guy said he thought the reason for that is that Obama's supporters genuinely like the guy.
I say poo.
How can you "genuinely like" a guy you've never met? We don't even know who he is. Every candidate has a campaign face, and he's certainly no exception. I think it's two things: one, as my doc pointed out this am when I was having my annual physical (which seems ironically appropriate the day after this election), he's so charismatic that he makes people think they know him. And two, his supporters were generally so desperate for change that they wanted to like him, they needed to like him.
I guess a third factor is that, in the internet age, everybody who reads a blog or a message board post or an e-mail or a PM or a text message thinks they know the other person. But there are screen personas, as we all know, just as there campaign faces.
Heck, I've never even actually taken an economics class in my life, and I'm actually a spearfisherman by trade. (Just kidding.)
Obama doesn't bring us a track record. He doesn't bring much experience. He's been campaigning for president virtually since he hit the Senate floor, and he hasn't served in a meaningful committee role, or authored any meaningful legislation, or even voted "yea" or "nay" on very many meaningful pieces of legislation.
His plans aren't really very detailed or well-defined. When he does provide details, he's prone to change them (maybe that was the "change" he kept promising). He uses a lot of keywords, like "hope," "change," and so on. That resonates with people more than actual plans do, because most people wouldn't know a good plan from a bad one, but they like happy talk.
So why did so many who don't actually know him, want so much to "like" him that they hoodwinked themselves into thinking they did?
Simple: they like the idea of him.
So the bottom line, to me, is that we elected an idea. I just hope it turns out to be a good one.
************
On to the economy. I think we saw today just what the markets think of an Obama presidency, now that they've had time to digest it.
Simply put, he'll be bad for business. On Wall Street and Main Street. Oh, some isolated pockets will do well, like stem cell research biotech firms. But by and large, increasing corporate and capital gains taxes hurts businesses. So does dramatically increasing regulation. So, at least initially, the markets will react unfavorably.
And if he does all the stuff he wants to do, he'll be bad for the overall economy. Of course, he won't be able to, given the sheer magnitude of the cowpie he's inherited. But if he had his druthers, he'd tax the bejeebers out of most of us, re-distribute the wealth, and double foreign aid (not his own, that wouldn't be a meaningful number - I mean taxpayer aid).
The key is with whom he surrounds himself, and no post is more important than Treasury chief. Several names have been mentioned. My take:
Larry Summers. Former Undersecretary. Smart guy. Unfortunately, you don't know what these guys are going to turn into when they hit Washington and have the Pelosis of the world demanding that they print more money to give away.
Warren Buffett. Would be an unmitigated disaster. This is "special interests" in all caps, the same guy who wrote a Wall Street Journal op-ed piece exhorting us all to buy stocks - a few days after he bought stakes in GE and Goldman, and a few days before the market tanked.
Paul Volcker. Not a Treasury guy, but he'd be my pick for Fed chief. Bernanke's chairmanship is up February 1, 2010, but I'm sure he could be persuaded to step down. If not, just lock him in a room with Volcker. I give Paul about ten minutes to bring him around.
My personal pick would be Bill Seidman, the former FDIC head.
On to the markets themselves.
From the bottom on October 27 until today, the Dow had risen by triple-digits four of those six days, and fell by just 5 points and 74 points on the other two. That produced a 17.7% gain over those six days. As a former colleague used to say, "Now if ya annualize that ..." Pretty remarkable.
Know what's even more remarkable? That stock traders produced that kind of rally in the face of this economic news over those six days:
1. A new record drop in home prices. (Housing is what brought us into this mess, and it's still getting worse. But at least that has been expected for a while.)
2. A record low in consumer confidence, dating back to 1967, when the data was first recorded. (Do stock traders not get that this means that even worse consumer spending than was previously expected is in store, which could not possibly have been priced into the market?)
3. The lowest reading on the Richmond Fed factory survey since at least 1993, when that data was first kept.
4. We did get a Fed rate cut, but that was entirely priced in by the futures markets - arguably, since the futures pits bet 50-50 on a 75 basis point cut, the market should have tanked at only 50 basis points. (It did sell off 74 points that day.)
5. A decline in GDP - not as big as expected, but a drop in personal consumption that was three times as bad as forecast. Again, this should tell us the consumer's totally out of the game, and is likely to remain so.
6. A paltry increase in personal income, and the biggest one-month drop in personal spending since 2005 - the worst year-over-year reading since 2003.
7. Continued above-target inflation.
8. The worst reading on the Chicago Purchasing Managers' Index since 2001.
9. The weakest domestic auto sales since 1983.
10. The worst reading on the broadest, national factory survey since 1982.
11. A decline in factory orders more than three times what was expected.
12. A 20% drop in mortgage applications, to the lowest level since 2000.
13. A huge spike in planned layoffs - up 80% vs. the same month last year.
14. A similarly huge spike in the number of private-sector jobs lost - about 50% more than forecast, and the biggest number since 2001.
15. A record decline in service sector sentiment.
Are you depressed yet? I sure am. This basically tells us things:
A. The consumer outlook is bleak. No amount of stimulus will help that.
B. Job losses are mounting, and will get worse, exacerbating A.
C. The factory sector is doing a rapid death-spiral into the economic crapper, which will exacerbate B, which will exacerbate A.
D. Home prices continue to fall unabated, and after B and C kick in, will fall further, exacerbating the foreclosure issue and causing more bank failures.
None of this was priced into the market. Don't let the talking heads on Bubblevision fool you. The market's steep October decline was all about the credit markets. Before, the panic was due to big banks and insurers and brokerage firms and mortgage guarantors failing. That's what the market reacted to through October.
Folks, now, we're talking about countries failing. Entire nations. Argentina, Ukraine, Pakistan, Iceland, Hungary and Belarus are all on the bubble. The IMF is running out of dough. China won't pony up to help them.
We are not yet at a market bottom. And today is an indication that the dead cat is coming back down.
Just wait 'til Friday's jobs report hits.
It means I can watch TV again.
Seriously, I'll throw out my two cents' worth on the Obama victory from a political standpoint, then I'll talk about the economy and the markets, both from the perspective of the impact of an Obama presidency, and then in a broader sense.
As far as the political stuff, I believe strongly that it's time for healing. So I won't talk about my worst-case concerns with the guy. We'll just let the chips fall where they may, and if those concerns are realized, I'll have to refrain from saying "I told you so," I suppose. I'm okay with that.
Meanwhile, President-elect Barack Obama is my president, and as an American, I will, as I always have, do everything in my power to make America a better place for all of its citizens - unselfishly.
My general take is pretty simple. I was listening to some talking heads this morning, and they were talking about how many Obama voters, in the exit polls, said they were voting FOR Obama, not AGAINST McCain or Bush or the GOP. One guy said he thought the reason for that is that Obama's supporters genuinely like the guy.
I say poo.
How can you "genuinely like" a guy you've never met? We don't even know who he is. Every candidate has a campaign face, and he's certainly no exception. I think it's two things: one, as my doc pointed out this am when I was having my annual physical (which seems ironically appropriate the day after this election), he's so charismatic that he makes people think they know him. And two, his supporters were generally so desperate for change that they wanted to like him, they needed to like him.
I guess a third factor is that, in the internet age, everybody who reads a blog or a message board post or an e-mail or a PM or a text message thinks they know the other person. But there are screen personas, as we all know, just as there campaign faces.
Heck, I've never even actually taken an economics class in my life, and I'm actually a spearfisherman by trade. (Just kidding.)
Obama doesn't bring us a track record. He doesn't bring much experience. He's been campaigning for president virtually since he hit the Senate floor, and he hasn't served in a meaningful committee role, or authored any meaningful legislation, or even voted "yea" or "nay" on very many meaningful pieces of legislation.
His plans aren't really very detailed or well-defined. When he does provide details, he's prone to change them (maybe that was the "change" he kept promising). He uses a lot of keywords, like "hope," "change," and so on. That resonates with people more than actual plans do, because most people wouldn't know a good plan from a bad one, but they like happy talk.
So why did so many who don't actually know him, want so much to "like" him that they hoodwinked themselves into thinking they did?
Simple: they like the idea of him.
So the bottom line, to me, is that we elected an idea. I just hope it turns out to be a good one.
************
On to the economy. I think we saw today just what the markets think of an Obama presidency, now that they've had time to digest it.
Simply put, he'll be bad for business. On Wall Street and Main Street. Oh, some isolated pockets will do well, like stem cell research biotech firms. But by and large, increasing corporate and capital gains taxes hurts businesses. So does dramatically increasing regulation. So, at least initially, the markets will react unfavorably.
And if he does all the stuff he wants to do, he'll be bad for the overall economy. Of course, he won't be able to, given the sheer magnitude of the cowpie he's inherited. But if he had his druthers, he'd tax the bejeebers out of most of us, re-distribute the wealth, and double foreign aid (not his own, that wouldn't be a meaningful number - I mean taxpayer aid).
The key is with whom he surrounds himself, and no post is more important than Treasury chief. Several names have been mentioned. My take:
Larry Summers. Former Undersecretary. Smart guy. Unfortunately, you don't know what these guys are going to turn into when they hit Washington and have the Pelosis of the world demanding that they print more money to give away.
Warren Buffett. Would be an unmitigated disaster. This is "special interests" in all caps, the same guy who wrote a Wall Street Journal op-ed piece exhorting us all to buy stocks - a few days after he bought stakes in GE and Goldman, and a few days before the market tanked.
Paul Volcker. Not a Treasury guy, but he'd be my pick for Fed chief. Bernanke's chairmanship is up February 1, 2010, but I'm sure he could be persuaded to step down. If not, just lock him in a room with Volcker. I give Paul about ten minutes to bring him around.
My personal pick would be Bill Seidman, the former FDIC head.
On to the markets themselves.
From the bottom on October 27 until today, the Dow had risen by triple-digits four of those six days, and fell by just 5 points and 74 points on the other two. That produced a 17.7% gain over those six days. As a former colleague used to say, "Now if ya annualize that ..." Pretty remarkable.
Know what's even more remarkable? That stock traders produced that kind of rally in the face of this economic news over those six days:
1. A new record drop in home prices. (Housing is what brought us into this mess, and it's still getting worse. But at least that has been expected for a while.)
2. A record low in consumer confidence, dating back to 1967, when the data was first recorded. (Do stock traders not get that this means that even worse consumer spending than was previously expected is in store, which could not possibly have been priced into the market?)
3. The lowest reading on the Richmond Fed factory survey since at least 1993, when that data was first kept.
4. We did get a Fed rate cut, but that was entirely priced in by the futures markets - arguably, since the futures pits bet 50-50 on a 75 basis point cut, the market should have tanked at only 50 basis points. (It did sell off 74 points that day.)
5. A decline in GDP - not as big as expected, but a drop in personal consumption that was three times as bad as forecast. Again, this should tell us the consumer's totally out of the game, and is likely to remain so.
6. A paltry increase in personal income, and the biggest one-month drop in personal spending since 2005 - the worst year-over-year reading since 2003.
7. Continued above-target inflation.
8. The worst reading on the Chicago Purchasing Managers' Index since 2001.
9. The weakest domestic auto sales since 1983.
10. The worst reading on the broadest, national factory survey since 1982.
11. A decline in factory orders more than three times what was expected.
12. A 20% drop in mortgage applications, to the lowest level since 2000.
13. A huge spike in planned layoffs - up 80% vs. the same month last year.
14. A similarly huge spike in the number of private-sector jobs lost - about 50% more than forecast, and the biggest number since 2001.
15. A record decline in service sector sentiment.
Are you depressed yet? I sure am. This basically tells us things:
A. The consumer outlook is bleak. No amount of stimulus will help that.
B. Job losses are mounting, and will get worse, exacerbating A.
C. The factory sector is doing a rapid death-spiral into the economic crapper, which will exacerbate B, which will exacerbate A.
D. Home prices continue to fall unabated, and after B and C kick in, will fall further, exacerbating the foreclosure issue and causing more bank failures.
None of this was priced into the market. Don't let the talking heads on Bubblevision fool you. The market's steep October decline was all about the credit markets. Before, the panic was due to big banks and insurers and brokerage firms and mortgage guarantors failing. That's what the market reacted to through October.
Folks, now, we're talking about countries failing. Entire nations. Argentina, Ukraine, Pakistan, Iceland, Hungary and Belarus are all on the bubble. The IMF is running out of dough. China won't pony up to help them.
We are not yet at a market bottom. And today is an indication that the dead cat is coming back down.
Just wait 'til Friday's jobs report hits.
Sunday, November 2, 2008
"Dear Senator Obama ..."
No, I'm not going to write the Senator a letter. I don't want him to have my e-mail address. But if I were going to write him one, this is what it would say:
"Thank you for finally saying something substantive, something more than just platitudinous references to 'Hope' and 'Change.' In doing so, you have caused me to re-think my decision regarding my vote in Tuesday's presidential election.
You see, before your statement, it had been my intent to write in Ron Paul's name. You, Sen. McCain, and Sen. Biden all voted for the ill-conceived bailout plan, demonstrating to me your total ignorance regarding all things economic. But with a few simple words, you swayed me.
You called me selfish, because I believe that I pay enough in taxes as it is.
I don't know about hope, but talk about audacity.
Let's examine just how selfish I am. Yes, I make a very comfortable living - above your threshold of 'rich,' depending on the day, since your definition seemingly changes by the day. But I'm comfortably above the lowest threshold you threw out, at least. What do I do to redistribute my wealth, besides paying taxes?
Well, for starters, I give a considerable amount to charity - more than you, in fact, even though you're a multi-millionaire and I'm not. The money I voluntarily give helps repair and improve schools in the local community - schools the government refuses to take care of with its tax dollars. It helps feed and clothe the homeless in Kansas City as well. It helps hurricane victims in the Gulf region, tornado victims in Greensburg, KS, and flood victims in Iowa and Missouri. It helps bring medical care to the poor in Mexico, helps house and educate displaced flood victims in Honduras, helps build churches in Russia and the Ukraine, and helps fight the spread of AIDS and malaria in sub-Saharan Africa.
I also take care of my own. When my Mom's furnace shot craps a couple of years ago, during the winter, and she called me in tears, not having the money to replace it, I bought her a furnace. When my elderly aunt and her daughter didn't have enough money to fly from Texas to North Carolina earlier this year to attend the funeral of my cousin, who had died quite suddenly, I used my frequent flyer miles to buy their tickets.
Why am I reluctant to pay more in taxes, given that I'm such a charitable soul?
Simple: I'm a better steward of money than you and your ilk. I think I can do a little better job of redistributing wealth than giving it to makers of wooden arrows for toy bow-and-arrow sets. You obviously can't.
Neither can McCain, and neither can Biden. Hence my conclusion that I should vote my conscience and write in Ron Paul, who can, even though I knew that would be a throw-away vote that would benefit you. Much as my vote for Ross Perot in 1992 was a de facto vote for Bill Clinton.
But, as I said, you've swayed me.
Let's talk about you now. You have a grandmother in Kenya, who, according to you, lives on a buck-fifty a day. You're a multi-millionaire. Ever send her a check? Nope. But you saw fit to use her story in your best-selling book, the one that netted you millions. When you spent taxpayer money for a trip to Kenya to further your campaign for president, you stopped in on granny for a photo op. Then you told her you didn't have any more time to spend with her, because, hey, you're a busy guy.
Don't worry, Barack. Granny loves you anyway.
You also have a half-brother in Kenya who lives in poverty, and whom you also don't help.
Then there's Auntie Zeituni, your "favorite aunt," according to your memoir. (Even more audacity: a 47-year-old guy who has yet to accomplish anything of substance in his life writes a memoir? When the original assignment was to write a book on race relations? Apparently you think your life story is more important than the global issue of race relations.)
Auntie Z. lives in a slum in Boston. You used her in your book. But have you given her a dime? No. Now, we learn that she's here illegally. When asked about it, you basically suggest she should be deported: "all appropriate laws should be followed."
Oh, but she broke yet another law: she contributed $260 to your campaign. Yes, even though you never gave her so much as a dime of the riches you reaped from the book you used her in, she - who lives in public housing - gave you $260. Since she's not a citizen, that's an illegal contribution. Bet you're not advocating that all appropriate laws be followed on that one, huh?
You also said of Auntie Z., "I never really knew her." So what did she do to gain "favorite aunt" status - promise you that if you ever ran for president she'd give you money?
Then there's Uncle Omar, who also lives in poverty in Boston - or he did, until thieves broke into his place and beat and robbed him, then he was evicted.
And about your charitable giving: it's a woefully pitiful fraction of your income. And you never gave a dime until you declared your candidacy.
So, I'm selfish? Dude, given your net worth, your income, your treatment of your family, and your giving, you're the poster child for selfishness.
Oh, don't get me wrong. I know many people like you - people who brag incessantly about how much money they make or how well their investments are doing, but don't do a thing to help their families, don't show any interest in how their kids or grandkids or aged parents are doing, don't give a dime to charity, and don't lift a finger to help those less fortunate than them. And to a person, these aren't the stereotypical GOP fat-cats, at least not the ones I know. They're the self-described 'centrists' who've never voted for somebody without a 'D' behind their name in their lives, who get their jollies ridiculing people of faith, and want government to regulate everything. Obama supporters, all.
And, like you, empty buckets.
Well, I have no use for the lot of you. And for you to have the audacity to call me selfish, because I don't want to put yet more money into the hands of a socialistic wealth-redistributing pork-barrel spendthrift like you, is just the last straw.
Sorry, Barack. But I can't throw away a vote on principle for Ron Paul, even though I - unlike you - am a principled guy.
I'm voting on the best chance to ensure that Barack Obama is never POTUS.
Thanks to you, I'm voting for John McCain."
"Thank you for finally saying something substantive, something more than just platitudinous references to 'Hope' and 'Change.' In doing so, you have caused me to re-think my decision regarding my vote in Tuesday's presidential election.
You see, before your statement, it had been my intent to write in Ron Paul's name. You, Sen. McCain, and Sen. Biden all voted for the ill-conceived bailout plan, demonstrating to me your total ignorance regarding all things economic. But with a few simple words, you swayed me.
You called me selfish, because I believe that I pay enough in taxes as it is.
I don't know about hope, but talk about audacity.
Let's examine just how selfish I am. Yes, I make a very comfortable living - above your threshold of 'rich,' depending on the day, since your definition seemingly changes by the day. But I'm comfortably above the lowest threshold you threw out, at least. What do I do to redistribute my wealth, besides paying taxes?
Well, for starters, I give a considerable amount to charity - more than you, in fact, even though you're a multi-millionaire and I'm not. The money I voluntarily give helps repair and improve schools in the local community - schools the government refuses to take care of with its tax dollars. It helps feed and clothe the homeless in Kansas City as well. It helps hurricane victims in the Gulf region, tornado victims in Greensburg, KS, and flood victims in Iowa and Missouri. It helps bring medical care to the poor in Mexico, helps house and educate displaced flood victims in Honduras, helps build churches in Russia and the Ukraine, and helps fight the spread of AIDS and malaria in sub-Saharan Africa.
I also take care of my own. When my Mom's furnace shot craps a couple of years ago, during the winter, and she called me in tears, not having the money to replace it, I bought her a furnace. When my elderly aunt and her daughter didn't have enough money to fly from Texas to North Carolina earlier this year to attend the funeral of my cousin, who had died quite suddenly, I used my frequent flyer miles to buy their tickets.
Why am I reluctant to pay more in taxes, given that I'm such a charitable soul?
Simple: I'm a better steward of money than you and your ilk. I think I can do a little better job of redistributing wealth than giving it to makers of wooden arrows for toy bow-and-arrow sets. You obviously can't.
Neither can McCain, and neither can Biden. Hence my conclusion that I should vote my conscience and write in Ron Paul, who can, even though I knew that would be a throw-away vote that would benefit you. Much as my vote for Ross Perot in 1992 was a de facto vote for Bill Clinton.
But, as I said, you've swayed me.
Let's talk about you now. You have a grandmother in Kenya, who, according to you, lives on a buck-fifty a day. You're a multi-millionaire. Ever send her a check? Nope. But you saw fit to use her story in your best-selling book, the one that netted you millions. When you spent taxpayer money for a trip to Kenya to further your campaign for president, you stopped in on granny for a photo op. Then you told her you didn't have any more time to spend with her, because, hey, you're a busy guy.
Don't worry, Barack. Granny loves you anyway.
You also have a half-brother in Kenya who lives in poverty, and whom you also don't help.
Then there's Auntie Zeituni, your "favorite aunt," according to your memoir. (Even more audacity: a 47-year-old guy who has yet to accomplish anything of substance in his life writes a memoir? When the original assignment was to write a book on race relations? Apparently you think your life story is more important than the global issue of race relations.)
Auntie Z. lives in a slum in Boston. You used her in your book. But have you given her a dime? No. Now, we learn that she's here illegally. When asked about it, you basically suggest she should be deported: "all appropriate laws should be followed."
Oh, but she broke yet another law: she contributed $260 to your campaign. Yes, even though you never gave her so much as a dime of the riches you reaped from the book you used her in, she - who lives in public housing - gave you $260. Since she's not a citizen, that's an illegal contribution. Bet you're not advocating that all appropriate laws be followed on that one, huh?
You also said of Auntie Z., "I never really knew her." So what did she do to gain "favorite aunt" status - promise you that if you ever ran for president she'd give you money?
Then there's Uncle Omar, who also lives in poverty in Boston - or he did, until thieves broke into his place and beat and robbed him, then he was evicted.
And about your charitable giving: it's a woefully pitiful fraction of your income. And you never gave a dime until you declared your candidacy.
So, I'm selfish? Dude, given your net worth, your income, your treatment of your family, and your giving, you're the poster child for selfishness.
Oh, don't get me wrong. I know many people like you - people who brag incessantly about how much money they make or how well their investments are doing, but don't do a thing to help their families, don't show any interest in how their kids or grandkids or aged parents are doing, don't give a dime to charity, and don't lift a finger to help those less fortunate than them. And to a person, these aren't the stereotypical GOP fat-cats, at least not the ones I know. They're the self-described 'centrists' who've never voted for somebody without a 'D' behind their name in their lives, who get their jollies ridiculing people of faith, and want government to regulate everything. Obama supporters, all.
And, like you, empty buckets.
Well, I have no use for the lot of you. And for you to have the audacity to call me selfish, because I don't want to put yet more money into the hands of a socialistic wealth-redistributing pork-barrel spendthrift like you, is just the last straw.
Sorry, Barack. But I can't throw away a vote on principle for Ron Paul, even though I - unlike you - am a principled guy.
I'm voting on the best chance to ensure that Barack Obama is never POTUS.
Thanks to you, I'm voting for John McCain."
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