(6 Feb) The markets ended the week putting together a couple of up days such as we haven't seen for a while. Friday was the prime example of the markets being forward-focused and not using the rearview as the reason for investing.
"The highest levels since..."
This is the current phrase the media uses to set you up for not such good economic news - and today was no different. The US Department of Labor reported that unemployment was now at, guess where, the highest levels since 1974. For most current investors and their advisors, the date may have well as been 1874. There is little understanding of those kinds of market environments in the collective consciousness of the investing public.
As luck would have it though, I was there. That's shortly after I started in this business and self-congratulations were not part of my self-talk at the time, I assure you. My point is that, contrary to popular belief, we have been in such tough times before. So, while it's near-term painful, it's also typical of how our economy functions.
The ever expanding stimulus "package"
I have little positive to say about this thing other than the collective national mentality is now such that something has to be done to help instill the perception that somebody is actually in charge. Perceptions become reality and the perception now is that this pork fest will provide what's needed to "get us going again." Without it, we'll have the stock market equivalent of Punxatawney Phil and have who knows how much more bad market conditions.
It's axiomatic that a successful investor is one with a strong faith in the future. So, if this great huge band-aid, filled with all kinds of checks in the mail type benefits is what's needed to get things started and rekindle the faith of many, then bring it on. Unfortunately, the politicians who are all over themselves saying how much they need this "right now" will, likely, be gone when the inflation piper comes back to town...
The net result
The markets are overlooking the old news of the unemployment and focusing on how these bank and economic bailout bills will improve things. I'm thrilled that the markets are starting to get some positive traction inhere. They should - just based on valuation.
Stocks are the cheapest they have been on that basis in 20 years. Even the guy everyone seems to love to quote, Warren Buffett, has said that when the total stock market value is at 70% to 80% of the national GDP, it's time to back up the truck and load up. I editorialized just a bit on the last part but he did quote those numbers. For reference, in late 2001, the markets were still at 133% of GDP.
I'd say that we're seeing the first real stirrings of a move back to positive market land. This is the time to be stepping back into the high quality companies and funds.
Summary
We'll hear Monday what kind of jury-rigged deal they've put together for the banks and learn how the stimulus bill - now projected at $937 billion, up from the $700 billion it was when it got to the Senate - got through the Senate.
While the news may be perceived as positive initially, two things to keep in mind. One, whatever the Senate gives birth to will still have to go back to a joint House-Senate committee for the polishing. Who knows how long that will take? The other is that there is a very longstanding bit of advice regarding market trading that says to sell on the news. In other words, speaking as if it's Monday, now that we know the details, we'll start analyzing it and the thrill of anticipation is gone.
Don't be surprised if, due to that and the recent run-up in share prices across the board, we get some selling on Monday.
This show is a long way from being over...
Friday, February 6, 2009
Thursday, February 5, 2009
Some "stimulating" thoughts
(5 Feb) Before I get too carried away, I'd like to state - for the record - that I'm an independent voter. I'd also like to state that, inasmuch as I've been in the business of helping people make smart decisions about their money for well more than half my life, I am definitely a drinker of the free-market Kool-Aid.
So, about this "stimulus" bill.
What's the big deal about it getting passed so dang fast...other than to reward political cronies - IMHO. Right now, the Democrats in the Senate have said that, due to the increasing hue and cry from all around the country against this piggy in a blanket, they don't have the votes to pass the bill, as is. No surprise that the Republicans are voting against it - though highly unusual to see all of them in the Senate doing so. There are also a bunch of, I'll call them, moderate Democrats not wanting their names on this thing either.
There is NO historic proof that governmental spending will take our economy out of a recession. That doesn't mean it won't get passed. After all, most of the media has decided it's essential - and we know how unbiased those folks are. However, there may still be some hope that there will actually be something that can stimulate the economy in the final bill and I believe most would vote for that.
The catch is some of what I'll polish up for this post to call the "you must be kidding me" provisions. Hopefully, many will be much reduced, if not eliminated. Going back to reflecting on records, I'm sure that there are some well-intentioned folks who actually do believe that some of these things are essential. Nonetheless, as a person with no ax to grind on any of these issues, let's consider a few for fun.
You want my money for what?
Again, before the hate mail starts, understand that I'm looking at this as an economic stimulus bill only - with a minimum of add-ons, earmarks, oh by the ways, whatever you call them.
In no particular order, how does doubling the Federal subsidies for child care stimulate the economy? We also have $4 billion for Federal job-training programs which, theoretically, should be beneficial but, in fact, have a really well-documented record of non-performance.
Apparently, I guess so everyone can watch C-SPAN, we need $650 million for stuff about the switch from analog to digital TV. I guess all the money that's already been spent on this over the past few years just wasn't quite enough. Just where are the jobs from this?
We also have $4.5 billion for the U.S. Army Corps of Engineers budget. Here's the problem. In addition to doubling their budget, this would be in addition to an existing $3.2 billion that has been appropriated - but that the Corps has not yet figured out how to spend! And these guys are already often criticized for wasting taxpayers’ money.
Tax relief?
While I'm all about reducing personal and corporate income taxes to stimulate the economy, what's in this bill may stimulate votes from the uninformed but not the economy. The rebate checks for the low and middle-income folks - based on last spring's results - don't do much of anything. What seems to be in the bill is a lot of foregone revs with little to show for that loss.
The continuing saga of income transfers
One of the things that really sets my choppers on edge is the concept of "wealth redistribution" where non-productive entities are supported by productive ones. The bill, as is, contains $89 billion in Medicaid extensions and another $36 billion in expanded unemployment benefits.
The Medicaid extension is structured as a temporary increase in the federal match. Hold that thought. When was any increase in government spending really temporary??? Seems to me that many of these "programs" have a more than better chance of becoming permanent.
Extending unemployment benefits might be a good idea for other reasons, but it sure won't stimulate economic growth. IMHO, all it does is to provide an incentive for job-seekers to delay re-entry into the workforce.
Oh yes, a personal fave - green energy
There have been BILLIONS of dollars poured down this rat hole through government support over decades. Contrary to what that chunky former senator from a southern state says, your government has been wasting money here for some time. Even this mandating of ethanol - you know, that stuff it costs more to make than you can sell it for, engine rotting fuel additive - has done nothing.
The folly is that, presumably, some rational and intelligent folks, think that another $20 billion will transform everything is simply the idealists ongoing triumph of hope over experience.
Fiscally conservative states having to bail out those who create programs with no fiscal prudence
The State Fiscal Stabilization Fund comprises $79 billion of the bill. Interestingly, among other provisions, the bill states that school budgets are not to be reduced below 2006 levels. Okay.
Here's the rub. The largest, fastest growing segment of the expenses for public schools is...administrator's pay. We certainly wouldn't want those voters put at risk. I guess that's stimulus for them and their votes. No direct spending on what is the basis for any quality education - teachers and books.
Most of this bill looks like a straight handout for strong supporters of the current administration and no more. Kind of like how they do things in my old home town of Chicago.
Wonder how they got the idea???
So, about this "stimulus" bill.
What's the big deal about it getting passed so dang fast...other than to reward political cronies - IMHO. Right now, the Democrats in the Senate have said that, due to the increasing hue and cry from all around the country against this piggy in a blanket, they don't have the votes to pass the bill, as is. No surprise that the Republicans are voting against it - though highly unusual to see all of them in the Senate doing so. There are also a bunch of, I'll call them, moderate Democrats not wanting their names on this thing either.
There is NO historic proof that governmental spending will take our economy out of a recession. That doesn't mean it won't get passed. After all, most of the media has decided it's essential - and we know how unbiased those folks are. However, there may still be some hope that there will actually be something that can stimulate the economy in the final bill and I believe most would vote for that.
The catch is some of what I'll polish up for this post to call the "you must be kidding me" provisions. Hopefully, many will be much reduced, if not eliminated. Going back to reflecting on records, I'm sure that there are some well-intentioned folks who actually do believe that some of these things are essential. Nonetheless, as a person with no ax to grind on any of these issues, let's consider a few for fun.
You want my money for what?
Again, before the hate mail starts, understand that I'm looking at this as an economic stimulus bill only - with a minimum of add-ons, earmarks, oh by the ways, whatever you call them.
In no particular order, how does doubling the Federal subsidies for child care stimulate the economy? We also have $4 billion for Federal job-training programs which, theoretically, should be beneficial but, in fact, have a really well-documented record of non-performance.
Apparently, I guess so everyone can watch C-SPAN, we need $650 million for stuff about the switch from analog to digital TV. I guess all the money that's already been spent on this over the past few years just wasn't quite enough. Just where are the jobs from this?
We also have $4.5 billion for the U.S. Army Corps of Engineers budget. Here's the problem. In addition to doubling their budget, this would be in addition to an existing $3.2 billion that has been appropriated - but that the Corps has not yet figured out how to spend! And these guys are already often criticized for wasting taxpayers’ money.
Tax relief?
While I'm all about reducing personal and corporate income taxes to stimulate the economy, what's in this bill may stimulate votes from the uninformed but not the economy. The rebate checks for the low and middle-income folks - based on last spring's results - don't do much of anything. What seems to be in the bill is a lot of foregone revs with little to show for that loss.
The continuing saga of income transfers
One of the things that really sets my choppers on edge is the concept of "wealth redistribution" where non-productive entities are supported by productive ones. The bill, as is, contains $89 billion in Medicaid extensions and another $36 billion in expanded unemployment benefits.
The Medicaid extension is structured as a temporary increase in the federal match. Hold that thought. When was any increase in government spending really temporary??? Seems to me that many of these "programs" have a more than better chance of becoming permanent.
Extending unemployment benefits might be a good idea for other reasons, but it sure won't stimulate economic growth. IMHO, all it does is to provide an incentive for job-seekers to delay re-entry into the workforce.
Oh yes, a personal fave - green energy
There have been BILLIONS of dollars poured down this rat hole through government support over decades. Contrary to what that chunky former senator from a southern state says, your government has been wasting money here for some time. Even this mandating of ethanol - you know, that stuff it costs more to make than you can sell it for, engine rotting fuel additive - has done nothing.
The folly is that, presumably, some rational and intelligent folks, think that another $20 billion will transform everything is simply the idealists ongoing triumph of hope over experience.
Fiscally conservative states having to bail out those who create programs with no fiscal prudence
The State Fiscal Stabilization Fund comprises $79 billion of the bill. Interestingly, among other provisions, the bill states that school budgets are not to be reduced below 2006 levels. Okay.
Here's the rub. The largest, fastest growing segment of the expenses for public schools is...administrator's pay. We certainly wouldn't want those voters put at risk. I guess that's stimulus for them and their votes. No direct spending on what is the basis for any quality education - teachers and books.
Most of this bill looks like a straight handout for strong supporters of the current administration and no more. Kind of like how they do things in my old home town of Chicago.
Wonder how they got the idea???
Wednesday, February 4, 2009
Let's get ready to rumble
(4 Feb) Earnings reports on stocks in the Dow Jones Index have been pretty underwhelming. Disney and Kraft Foods were two of the major culprits on Wednesday. Also, weakness in GE and Bank of America continuing to set new lows all dragged the numbers lower. The NASDAQ fared better due to the performance of the tech issues.
The ISM non-manufacturing index data for January were released Wednesday morning. It showed an increase for the second straight month, beating the consensus which had expected a drop. Although there is still plenty of negative data on the economy reflecting the events of 2008, today’s report adds to a number of releases coming in better than expected.
These include the ISM manufacturing index for January - that was up to 35.6 versus the expected 32.5 - and the pending existing home sales in December - a big jump up of 6.3% versus an expected 0.0%. These indicators, along with rising yields on Treasury certificates, show that the investor fear experienced during the last few months of 2008 is finally dialing down.
The US car companies announced Tuesday that total cars and light trucks were sold at a 9.6 million annual rate in January. That's 38% below a year ago and the slowest pace since 1982 - and we only had about 1/3 as many cars on the road at that time. The replacement rate for cars - that's how long it would take to replace all the cars now on the road at this current pace of sales - is now at 25 years. This compares with the long-term average of about 13 years. It was 16.3 years at the worst of the 1981-82 recession.
In American, that means that a 25 year replacement rate is not really representative of what it should be. So, car sales should improve in the months ahead - even without the tax scam the Michigan politicians are trying to add to the "stimulus" bill.
As more and more reports such as these are coming out, it says to me that all it's going to take is just some positive spark and this market is going to be off and running. I'm not the only believer, either.
The market strategist at Deutsche Bank today said that with valuations in the market as they are, he estimates that the Dow should be at 10,300 by year-end. It's about 8000 now. That would be about a 30% jump.
I'm with him.
The ISM non-manufacturing index data for January were released Wednesday morning. It showed an increase for the second straight month, beating the consensus which had expected a drop. Although there is still plenty of negative data on the economy reflecting the events of 2008, today’s report adds to a number of releases coming in better than expected.
These include the ISM manufacturing index for January - that was up to 35.6 versus the expected 32.5 - and the pending existing home sales in December - a big jump up of 6.3% versus an expected 0.0%. These indicators, along with rising yields on Treasury certificates, show that the investor fear experienced during the last few months of 2008 is finally dialing down.
The US car companies announced Tuesday that total cars and light trucks were sold at a 9.6 million annual rate in January. That's 38% below a year ago and the slowest pace since 1982 - and we only had about 1/3 as many cars on the road at that time. The replacement rate for cars - that's how long it would take to replace all the cars now on the road at this current pace of sales - is now at 25 years. This compares with the long-term average of about 13 years. It was 16.3 years at the worst of the 1981-82 recession.
In American, that means that a 25 year replacement rate is not really representative of what it should be. So, car sales should improve in the months ahead - even without the tax scam the Michigan politicians are trying to add to the "stimulus" bill.
As more and more reports such as these are coming out, it says to me that all it's going to take is just some positive spark and this market is going to be off and running. I'm not the only believer, either.
The market strategist at Deutsche Bank today said that with valuations in the market as they are, he estimates that the Dow should be at 10,300 by year-end. It's about 8000 now. That would be about a 30% jump.
I'm with him.
Tuesday, February 3, 2009
Give me a sign, why don't ya?
(3 Feb) While doing my wrap-up report on the radio last night, the gentleman who is the host commented that what most people are asking is "when will we know the market is recovering?" I tried to answer in the few seconds I had but didn't do as good a job as I would have preferred. So, I'll expand on it now.
As I talked about previously, the Q4 GDP was down but not as much as many had expected. It was a good news bad news thing since the reason it didn't fall as much was due only to the fact that there were unused inventories. This suggests that our Q1 data won't be so hot.
Add to that the really bad weather we had all across the country in December and it becomes pretty hard to say that the biz activity then is representative of what's to come this year.
So, if that's not a good indicator, then what is?
The US monetary policy is the key to the deal going forward. The historically low interest rates and the first dribblings into the economy of the TARP money are good indicators that the current policy is quite relaxed, shall we say.
We definitely are continuing with challenges in the financial markets but there are other early indications that we're getting ready to rumble. So, let's look at those so you can track them.
After peaking in July, commodity prices went down faster than they had appreciated. This was showing that the economy was definitely slowing at the time. Metals, such as copper, aluminum and gold have all stabilized now. (Some say the big run up in gold is a flight to safety thing but US Treasury bond yields having appreciated a bunch of late say no.) If there was this depression that the media has decided to try and talk us into, the prices would not have settled in here.
This time, it's different
That's what gets said in every up or down market. It's never true - really. Sure, the details of how we got here and things change, but the underlying "stuff" remains the same.
About every 5 years, in the normal scheme of things going back to, at least, 1805 in this country, we have a recession/bear market. If you do the quick math, our last bad market was 2003, so it looks as if we're tracking fairly closely. Since the bad recession of the early 80s, it seems to have been the typical response of investors that the monetary policy of the time wouldn't work and that the world was ending, etc.
It's my firm belief and conviction that this time is not different and that the policies being put into play will have the intended positive effect. (This has nothing to do with this so-called "stimulus" plan.") Like all things governmental, the time between implementation and action lags. The impact of these low rates and easy money will begin to lift us before too long.
In the current scheme of things, we'll probably see tangible proof by mid-year and, since the markets anticipate things, an improvement in the market numbers ahead of that...
As I talked about previously, the Q4 GDP was down but not as much as many had expected. It was a good news bad news thing since the reason it didn't fall as much was due only to the fact that there were unused inventories. This suggests that our Q1 data won't be so hot.
Add to that the really bad weather we had all across the country in December and it becomes pretty hard to say that the biz activity then is representative of what's to come this year.
So, if that's not a good indicator, then what is?
The US monetary policy is the key to the deal going forward. The historically low interest rates and the first dribblings into the economy of the TARP money are good indicators that the current policy is quite relaxed, shall we say.
We definitely are continuing with challenges in the financial markets but there are other early indications that we're getting ready to rumble. So, let's look at those so you can track them.
After peaking in July, commodity prices went down faster than they had appreciated. This was showing that the economy was definitely slowing at the time. Metals, such as copper, aluminum and gold have all stabilized now. (Some say the big run up in gold is a flight to safety thing but US Treasury bond yields having appreciated a bunch of late say no.) If there was this depression that the media has decided to try and talk us into, the prices would not have settled in here.
This time, it's different
That's what gets said in every up or down market. It's never true - really. Sure, the details of how we got here and things change, but the underlying "stuff" remains the same.
About every 5 years, in the normal scheme of things going back to, at least, 1805 in this country, we have a recession/bear market. If you do the quick math, our last bad market was 2003, so it looks as if we're tracking fairly closely. Since the bad recession of the early 80s, it seems to have been the typical response of investors that the monetary policy of the time wouldn't work and that the world was ending, etc.
It's my firm belief and conviction that this time is not different and that the policies being put into play will have the intended positive effect. (This has nothing to do with this so-called "stimulus" plan.") Like all things governmental, the time between implementation and action lags. The impact of these low rates and easy money will begin to lift us before too long.
In the current scheme of things, we'll probably see tangible proof by mid-year and, since the markets anticipate things, an improvement in the market numbers ahead of that...
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