(20 Feb) In spite of an economically clueless administration, I continue to have faith in the markets and the long-term viability of our economy. If we got through what passed for a Federal government in the late 70s, we can deal with anything.
I'm pretty worn out by all this market melt down baloney the financial press is selling. I'm not saying the markets are good or that the past year has been any fun for anyone. What neither they nor the administration seems to understand is the cyclicality of these things.
Down first - then up.
How can I say the factors are in place?
Easy. I just do. Then, I present you with some facts and you see the light...QED.
The pundits and talking heads didn't see the market drop coming - they're highly unlikely to see the turn coming either. The economic news is probably going to continue to be negative through the first half of this year. Okay. So? You make money investing by looking ahead - not behind.
Here are some of the facts
The Leading Economic Indicators will be the scouts for the move. These give an indication of what will be going on in the economy in three to six months. Already, over the past two months, they have been up - slightly, to be sure. Here are the facts in question. The announcement each time had "better than expected" with it. The pundits had anticipated more of the same. After multiple months of them being down, I'll take slightly.
The TARP money - remember that? - that was put into the economy is starting to work its way into, and through, the nation's money supply. Since the time that happened last fall, our total money supply has continued to grow. It normally takes anywhere from six to twelve months for the benefits of these increases in cash to make its way through the system. Doing the math says the trickle is starting to be noticed.
Both the Producer Price Index (PPI) and Consumer Price Index (CPI) have turned higher over the past couple months. To my mind, this suggests that the velocity of money - the rate at which dollars change hands day-to-day - which has been very low and caused the economy to slow as a result is either not falling anymore or - even better - starting to pick up. This is likely tied to the increased amount of money coming from TARP and now, adding to that flow, the spending package.
Speaking of the spending package with its "time release" financing, $170 Billion is scheduled to be spent in this fiscal year - starts in July - with $356 Billion scheduled in FY 2010. The sheer size alone should prove to have some economic ripple effect. Studies form the St. Louis branch of the Federal Reserve demonstrate that increased Federal spending does, in fact, result in an increase in real economic activity in the short run.
Lower tax rates will - and should - be maintained and not phased out as was "suggested" in the campaign. In addition, year-to-year CPI comparisons should go negative soon and will stay that way for most of this year.
Finally, interest rates will remain around zero to 0.25 for some time. They'll remain in effect until the Feds think the recovery is under way so we should be good for a while with that.
Potential for a market melt up
In addition to this monetary tsunami coming along, there are already about $9 billion sitting in the low/no return bank, checking and various savings accounts.
The prevailing sentiment/conventional wisdom is terrible. Any slight improvement in that will have a huge impact upward.
It'll be slow-going until the administration can figure out something definitive for the banks but, once they do, we could finally be on our way back to the light...
Friday, February 20, 2009
Thursday, February 19, 2009
You can't push a rope
(18 Feb) Among other leadership gems that were crammed into our little shaven heads in Marine Corps Officer Candidate School was the one in the title. It suggests that a leader can't push from behind - s/he must pull from in front.
For the record - I'm proud to say I vote as an Independent, having been able to actually enroll as one while living in Alaska and registering to vote. It's an actual option there. My disclaimer, of course is that I've been working/living in the world of investing and raw capitalism for much more than half my life, so I do have certain truths I hold to be self-evident. And those revolve around the markets, economy and like that.
Those truths include the ones that, many times - when it comes to the markets - perceptions, not facts, are reality. Right now, the perceptions among many in the country are that we're at the edge of the abyss and the world will never be the same again. "Millions" are at risk, only 14 people will own homes in another couple years and everyone will be out of work - just ask that math whiz who is the Speaker of the House. Why do people have these perceptions that are so far away from the facts? Has to do with that rope statement above.
The fact is that the tone for this is primarily the fault of the national leadership. They - not just he - are saying, "worst since the Depression", "dangerous times" and other assorted scary movie dialogue. Don't these people read history? Don't they have anyone on their huge staffs who understands the markets and how they work? Have they never heard of market cycles?
Most people - regardless of education, job, gender, age, income level - don't understand these things. Shoot, even many who hold themselves out as "experts" or pundits don't understand them. So, what are they to do or think or feel when the national "leadership" is crying wolf. Not wait around to get bit, I don't believe.
Let's look at some examples of what I mean.
The spending bill, aka, stimulus, is a great place to start. Hard to get passed right away. Can't waste time debating it. Got to get it into law right away. So, it happens - it's law. Oh, says the national "leader", it's going to take some time to start to see the benefit of any of this and, in the meantime, things are sure to get worse. Oh yeah, I feel much better about the future now - not. Markets agreed - they tanked, working toward lows not seen since last November. I guess that big $13 a week didn't impress everyone after all.
The secretary of the Treasury has been working on the financial problem even when he was at the NY Fed. You'd think he would know that when you've promised a bill to deal with the biggest economic problem we have - that's actually real - you would bring some substance to the announcement. Nope. It was the equivalent of "trust me". Sorry, dude - nobody did and the markets tanked big time.
Wednesday, let's all feel good and help all those fine people who didn't really qualify for loans in the first place to make their payments for them and give $200 billion to the fine team of Freddie and Fannie to help them to do so. Why, well, the potential foreclosures could be up 81% if we don't! Oh no, not 81%!!! (As an aside - I hate to bring up facts - IF all the homes they said would actually go into foreclosure, the TOTAL of homes foreclosed, as a percentage of all the owner-occupied homes, would be 3%...I didn't forget a zero either.) That 81% referred to by the great two letter named news "service", refers to the potential increase - not even actual. So, today, the markets didn't tank - they just went into antipathy mode.
What are these people thinking or drinking? The markets are a big boys game and not one that lends itself to consensus and focus groups and group think. You need facts, You need plans. You need decisiveness.
You need actual leadership.
For the record - I'm proud to say I vote as an Independent, having been able to actually enroll as one while living in Alaska and registering to vote. It's an actual option there. My disclaimer, of course is that I've been working/living in the world of investing and raw capitalism for much more than half my life, so I do have certain truths I hold to be self-evident. And those revolve around the markets, economy and like that.
Those truths include the ones that, many times - when it comes to the markets - perceptions, not facts, are reality. Right now, the perceptions among many in the country are that we're at the edge of the abyss and the world will never be the same again. "Millions" are at risk, only 14 people will own homes in another couple years and everyone will be out of work - just ask that math whiz who is the Speaker of the House. Why do people have these perceptions that are so far away from the facts? Has to do with that rope statement above.
The fact is that the tone for this is primarily the fault of the national leadership. They - not just he - are saying, "worst since the Depression", "dangerous times" and other assorted scary movie dialogue. Don't these people read history? Don't they have anyone on their huge staffs who understands the markets and how they work? Have they never heard of market cycles?
Most people - regardless of education, job, gender, age, income level - don't understand these things. Shoot, even many who hold themselves out as "experts" or pundits don't understand them. So, what are they to do or think or feel when the national "leadership" is crying wolf. Not wait around to get bit, I don't believe.
Let's look at some examples of what I mean.
The spending bill, aka, stimulus, is a great place to start. Hard to get passed right away. Can't waste time debating it. Got to get it into law right away. So, it happens - it's law. Oh, says the national "leader", it's going to take some time to start to see the benefit of any of this and, in the meantime, things are sure to get worse. Oh yeah, I feel much better about the future now - not. Markets agreed - they tanked, working toward lows not seen since last November. I guess that big $13 a week didn't impress everyone after all.
The secretary of the Treasury has been working on the financial problem even when he was at the NY Fed. You'd think he would know that when you've promised a bill to deal with the biggest economic problem we have - that's actually real - you would bring some substance to the announcement. Nope. It was the equivalent of "trust me". Sorry, dude - nobody did and the markets tanked big time.
Wednesday, let's all feel good and help all those fine people who didn't really qualify for loans in the first place to make their payments for them and give $200 billion to the fine team of Freddie and Fannie to help them to do so. Why, well, the potential foreclosures could be up 81% if we don't! Oh no, not 81%!!! (As an aside - I hate to bring up facts - IF all the homes they said would actually go into foreclosure, the TOTAL of homes foreclosed, as a percentage of all the owner-occupied homes, would be 3%...I didn't forget a zero either.) That 81% referred to by the great two letter named news "service", refers to the potential increase - not even actual. So, today, the markets didn't tank - they just went into antipathy mode.
What are these people thinking or drinking? The markets are a big boys game and not one that lends itself to consensus and focus groups and group think. You need facts, You need plans. You need decisiveness.
You need actual leadership.
Tuesday, February 17, 2009
Let's see - how can I spend this $13?
(17 Feb) I'm not sure who really believes that this amount per person is going to stimulate anything but that's actually what the big personal benefit in the spending bill/law comes down to. I really don't get it. I guess I don't drink the right flavor of Kool-Aid.
So, many ask, why the amazing lack of positive response to this "must have" ill-named "stimulus" package? Let me count the ways.
Why the spending plan/law doesn't solve our current challenges
There are three major reasons, in my not usually humble opinion.
First, most of what are categorized as being benefits are not going to have any real impact for more than a year. Next, most of the so-called benefits are for transfer payments and programs of indeterminate benefit to anyone but the administrators of same. Finally - and, by any measure, most important - there still has been nothing done about the problem of the bad assets in banks.
Until the latter is addressed to the satisfaction of the professional investment community, nothing else matters much.
Cars, houses, energy and banks
Today, GM and Chrysler are going to come to the market with their plan to (a) get more money and (b) not have to go into bankruptcy. The unions continue to blame the economy, as opposed to looking in the mirror. The stock of GM and Ford are both down today as, to be polite, these shares have become nothing more than lottery tickets. Seems to me that, unless they go into bankruptcy and can reorganize into more effective systems, all it will be is good money after bad.
Tomorrow, we'll hear about how the administration is proposing to attempt to reduce mortgage payments for some in a "public-private partnership." The problem is that the private isn't going to go along unless they see some benefit to doing so...feeling good not being perceived as a big benefit. If there is a viable solution, that may help shore up housing values in the hard pressed areas like the sand states.
The shares of the energy companies are a big drag on the indexes as low demand is keeping the price for crude down. Worse news is that it is also holding back any new drilling and development of any sort as it's not cost effective in this market. Given the long lead times, that can prove to be a real problem when demand increases.
The banks continue to see their share prices erode as no help of significance is forthcoming. This, too, is a major drag on the indexes. The latest word is that a bank plan is coming "within weeks." The ignorant people in DC just don't seem to get the importance of this. Everything else is a band-aid at best. A viable, definite plan that eliminates this foolish mark-to-market stuff and allows for accounting for these bad loans in a way that frees up capital is what's required to really stimulate our economy - and that of the rest of the world.
Until - and unless - that happens, don't look for much positive out of the markets.
Speaking of the markets...
As is the case with most recessions/bear markets, it appears that we're going to be testing the lows we set last November 20th. This too is a usual and normal process.
We're at relative value levels not seen since the last real recessions of the mid-70s and early 80s. But until people feel that there is some stability in the markets as a result of having a dependable financial system, it's a continued sideways shuffle.
As Warren Buffet said, "Five years from now, 10 years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now."
I'm with him.
So, many ask, why the amazing lack of positive response to this "must have" ill-named "stimulus" package? Let me count the ways.
Why the spending plan/law doesn't solve our current challenges
There are three major reasons, in my not usually humble opinion.
First, most of what are categorized as being benefits are not going to have any real impact for more than a year. Next, most of the so-called benefits are for transfer payments and programs of indeterminate benefit to anyone but the administrators of same. Finally - and, by any measure, most important - there still has been nothing done about the problem of the bad assets in banks.
Until the latter is addressed to the satisfaction of the professional investment community, nothing else matters much.
Cars, houses, energy and banks
Today, GM and Chrysler are going to come to the market with their plan to (a) get more money and (b) not have to go into bankruptcy. The unions continue to blame the economy, as opposed to looking in the mirror. The stock of GM and Ford are both down today as, to be polite, these shares have become nothing more than lottery tickets. Seems to me that, unless they go into bankruptcy and can reorganize into more effective systems, all it will be is good money after bad.
Tomorrow, we'll hear about how the administration is proposing to attempt to reduce mortgage payments for some in a "public-private partnership." The problem is that the private isn't going to go along unless they see some benefit to doing so...feeling good not being perceived as a big benefit. If there is a viable solution, that may help shore up housing values in the hard pressed areas like the sand states.
The shares of the energy companies are a big drag on the indexes as low demand is keeping the price for crude down. Worse news is that it is also holding back any new drilling and development of any sort as it's not cost effective in this market. Given the long lead times, that can prove to be a real problem when demand increases.
The banks continue to see their share prices erode as no help of significance is forthcoming. This, too, is a major drag on the indexes. The latest word is that a bank plan is coming "within weeks." The ignorant people in DC just don't seem to get the importance of this. Everything else is a band-aid at best. A viable, definite plan that eliminates this foolish mark-to-market stuff and allows for accounting for these bad loans in a way that frees up capital is what's required to really stimulate our economy - and that of the rest of the world.
Until - and unless - that happens, don't look for much positive out of the markets.
Speaking of the markets...
As is the case with most recessions/bear markets, it appears that we're going to be testing the lows we set last November 20th. This too is a usual and normal process.
We're at relative value levels not seen since the last real recessions of the mid-70s and early 80s. But until people feel that there is some stability in the markets as a result of having a dependable financial system, it's a continued sideways shuffle.
As Warren Buffet said, "Five years from now, 10 years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now."
I'm with him.
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