http://www.businessinsider.com/quantitative-easing-cartoon-2010-11
In hilarious fashion, this must see video trashes QE, Ben Bernake, the Fed, the Treasury and the Primary Dealers ...
Friday, November 12, 2010
Friday, November 5, 2010
October's Jobs Report
some comments:
October Jobs Report a Mixed Bag
This morning’s jobs report is confusing because the two different surveys are saying two different things. The payroll survey shows an increase of 151,000 workers and revises upwards by 100,000 the number of jobs created in the last two months. However, the household survey, which determines the unemployment rate, shows a decline in jobs and the number of workers in the labor force. Diverging reports like this are not uncommon during changes in the business cycle.
If you’re a glass-half-full person, the payroll survey is welcome news. The private sector increased hiring by 159,000 jobs and government hiring fell by 8,000, almost all at the local level. The federal government increased hiring if the 5,000 temporary census jobs are excluded. Most of the private sector hiring was in the service sector as temporary hiring continued to increase as well in the health-care industry. While manufacturing fell slightly, the construction industry added jobs for the second time in three months. Hours and pay both ticked up in October.
Overall, the payroll survey shows the steady growth that we need for a real recovery. It paints a much better picture of the labor market than the reports during “recovery summer.”
Glass-half-empty folks will look at the household survey and be concerned. The unemployment rate stayed flat at 9.6 percent only because of a sharp drop in the labor force participation rate to 64.5 percent, the lowest since 1984. Most of the workers who exited were adult males, while teenagers were the only group that increased their presence in the workforce. Adult males reached the lowest labor force participation rate of the modern, post-World War II era.
The unemployment rate for adult women and teenagers increased, but this was offset by a slight decline in the adult male unemployment rate. This drop in the rate was not due to found jobs, but rather to the fact that so many men are no longer in the labor market.
So October has a trick and a treat from the two different labor reports. The household survey is the more volatile of the two, which gives a bit more weight to the optimistic story from the payroll survey. The labor market may no longer be in its summer stall, but it is still growing far too slowly to help many Americans. Congress’s failure so far to prevent the impending tax hikes is one of the many reasons the recovery is sluggish. Hopefully, that factor will change for the better soon.
– Rea Hederman is assistant director of the Center for Data Analysis and senior policy analyst at the Heritage Foundation.
The October jobs numbers are very troubling and a sign that the economy has a long way to go before it begins to see a meaningful turnaround. While the recession technically bottomed out in June 2009, according to the National Bureau of Economic Research, anemic private-sector job growth shows that private investors and employers are still skittish about bringing employees back on board full time. The next 12 months will be crucial for determining whether the U.S. economy remains on a sluggish growth path — an ongoing march through a “lost decade” of income and growth — or picks up steam toward a real recovery. I see three keys to unlocking the nation’s growth potential: a move back toward predictable, rules-based monetary policy, a retrenchment in federal spending and entitlement reform to thwart even a hint of future tax increases, and regulatory policy that lets the private sector sort out the investment complexities embedded in recovering from the financial-services meltdown and stabilizing commercial and real-estate markets.
– Samuel R. Staley is Robert W. Galvin Fellow and Director of Urban & Land Use Policy at the Reason Foundation.
Wednesday, November 3, 2010
Inflation ? What Inflation ?
What is the Fed & the US Gov't smoking when it comes to lying about inflation ?
Monday, October 25, 2010
AMZN today (10-25-2010)
1st of all, earnings were not so hot, nor were margins or guidance & AMZN has had a massive run.
2nd, buried in AMZN earnings was "disclosure" 2 months late about a huge tax bill from the State of Texas http://www.dailyfinance.com/story/taxes/texas-bills-amazon-269-million-sales-taxes/19687338/
Finally, here is today's price action so far:
Monday, June 28, 2010
Saturday, May 8, 2010
EMIS - Daily Chart - Emisphere Technologies
Interesting support level at 2.75 ?
(btw, only 1,000 shares traded at that level to paint the close).
Fundamentally, some are expecting big things out of Emisphere - B12, Novatis, and more.
Thursday, February 4, 2010
Questioning China's Economy
Short China? [John Derbyshire]
For those still following the echoes from Tom Friedman's January 12 "Is China the Next Enron?" column (Tom answered No, because China is a spiffy MODERN nation under ENLIGHTENED LEADERSHIP with a DISCIPLINED population), here is China-finance expert Michael Pettis firing a broadside at Friedman.
"First," [Friedman] warned, "a simple rule of investing that has always served me well: Never short a country with US$2 trillion in foreign currency reserves."
But [these reserves] are not unprecedented. Twice before in history a country has, under similar circumstances, run up foreign reserves of the same magnitude.
The first time occurred in the late 1920s when, after a decade of record-beating trade and capital account surpluses, the United States had accumulated what John Maynard Keynes worriedly described as "all the bullion in the world." . . . The second time occurred in the late 1980s, when it was Japan’s turn to combine huge trade surpluses, along with more moderate surpluses on the capital account, to accumulate a stockpile of foreign reserves only a little less than the equivalent of 5-6% of global GDP …
Notice, by the way, how Pettis describes himself there at top right, brazenly refusing to do the Onomastic Cringe:
Michael Pettis is a professor at Peking University’s Guanghua School of Management . . .
Re: Short China [Stephen Spruiell]
John, there's a video of investor Jim Chanos, mentioned by name in Friedman's column, that's making the rounds, in which Chanos lays out his case for why China's economy is due for a reversal. It's 57 minutes long but worth watching.
Since there's a lot of chatter about it, I thought I'd cough up this old column of mine from late 2008.
Ask yourself this: Why are we in this financial crisis?Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.
Does anyone honestly think China doesn’t have these problems ten times over? It has no free press, no democratic accountability, and no truly independent regulators.After every Chinese earthquake, we discover that safety inspectors couldn’t be trusted to oversee the construction of schools and hospitals. And we’re supposed to believe that China’s corrupt model produces toxic baby formula but spic-and-span finances? There’s an honest debate about how much blame institutions like Fannie Mae and laws like the Community Reinvestment Act deserve for the financial crisis, but few honest observers dispute that they played some kind of deleterious role. Well, China’s entire economy is one big Fannie Mae, its laws one big Community Reinvestment Act.I’m willing to bet that the bill for that comes due long, long, long before China catches up with the United States of America.
A reader reminds me of the realities behind the development boom in Friedmanistan, and wonders: "Does Friedman even read his own newspaper?"
For those still following the echoes from Tom Friedman's January 12 "Is China the Next Enron?" column (Tom answered No, because China is a spiffy MODERN nation under ENLIGHTENED LEADERSHIP with a DISCIPLINED population), here is China-finance expert Michael Pettis firing a broadside at Friedman.
"First," [Friedman] warned, "a simple rule of investing that has always served me well: Never short a country with US$2 trillion in foreign currency reserves."
Really? Friedman proposed the rule sarcastically — as both untestable and too obvious to need testing. It is so obvious that no country has ever had such high levels of reserves, so you can’t really test the hypothesis, but it’s also pretty obvious that a country with $2 trillion in reserves is in great shape. Anyone who wanted to short it must be pretty stupid right ?
But [these reserves] are not unprecedented. Twice before in history a country has, under similar circumstances, run up foreign reserves of the same magnitude.
The first time occurred in the late 1920s when, after a decade of record-beating trade and capital account surpluses, the United States had accumulated what John Maynard Keynes worriedly described as "all the bullion in the world." . . . The second time occurred in the late 1980s, when it was Japan’s turn to combine huge trade surpluses, along with more moderate surpluses on the capital account, to accumulate a stockpile of foreign reserves only a little less than the equivalent of 5-6% of global GDP …
Notice, by the way, how Pettis describes himself there at top right, brazenly refusing to do the Onomastic Cringe:
Michael Pettis is a professor at Peking University’s Guanghua School of Management . . .
Re: Short China [Stephen Spruiell]
John, there's a video of investor Jim Chanos, mentioned by name in Friedman's column, that's making the rounds, in which Chanos lays out his case for why China's economy is due for a reversal. It's 57 minutes long but worth watching.
Shorting China [Jonah Goldberg]
Since there's a lot of chatter about it, I thought I'd cough up this old column of mine from late 2008.
An excerpt:
Ask yourself this: Why are we in this financial crisis?Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.
Does anyone honestly think China doesn’t have these problems ten times over? It has no free press, no democratic accountability, and no truly independent regulators.After every Chinese earthquake, we discover that safety inspectors couldn’t be trusted to oversee the construction of schools and hospitals. And we’re supposed to believe that China’s corrupt model produces toxic baby formula but spic-and-span finances? There’s an honest debate about how much blame institutions like Fannie Mae and laws like the Community Reinvestment Act deserve for the financial crisis, but few honest observers dispute that they played some kind of deleterious role. Well, China’s entire economy is one big Fannie Mae, its laws one big Community Reinvestment Act.I’m willing to bet that the bill for that comes due long, long, long before China catches up with the United States of America.
China's Property Boom [John Derbyshire]
A reader reminds me of the realities behind the development boom in Friedmanistan, and wonders: "Does Friedman even read his own newspaper?"
UPDATE:
Simon Property CEO David Simon on Feb 5 earnings conference call:
At year end we also sold our joint venture interest in the development and operations of our shopping centers in China. The interests were sold to affiliates of our Chinese partner for approximately $29 million, resulting in a loss of approximately $20 million. We built a good product there but the middle class consumer is just beginning to spend discretionary income. It will take a long time for them to fully emerge to shop and spend at moderate to better stores. Remaining in these joint ventures in China would have required additional SPG time and resources, as well as the need to fund operating losses. We believe that we have better opportunities to deploy that capital elsewhere.
Sunday, January 31, 2010
Market Break Down - follow up & commentary
Last week my post was headlined "Has the Market Changed Character ? More Downside Ahead ?" and linked to some interesting reads on the topic.
Well, it looks like the market has indeed changed character vs. the relentless up move since the March 2009 lows. It seems to have broken down (Dow below 10250, S&P below 1100 & 1080, Naz below 2200).
Where from here ? Who knows, it could be a bounce up; it could be more downside; but its probably not back to the races.
Here are some links to some really good commentary and webinars:
http://stockguy22.com/2010/01/30/saturday-charts-chat-with-stockguy22/
https://www.hamzeianalytics.com/Educational_Webinars.asp (download the Jan 28 and Jan 20 webinars)
http://blog.afraidtotrade.com/apple-aapl-update-daily-support-but-monthly-bearish-engulfing/
http://www.madhedgefundtrader.com/January_25__2010.html
from the mad hedge fund trader:
1) At the Friday (Jan 22) close, technical analyst to the hedge fund stars, Charles Nenner, put out his long awaited sell signal on the S&P 500, with the market’s definitive break of the crucial 1,125 support level. From here you sell into the rallies. The SPX is going to plunge 10-20%, Treasury bond interest rates are going to soar (TBT), and gold (GLD) has peaked out. There are tradable shorts setting up in all three of these markets that will run for the first half of 2010.
These calls are the product of Nenner’s proprietary Cycle Analysis System, which he has spent three decades developing, and generates calls of tops and bottoms for every major market in the world. I have diligently analyzed Nenner’s approach for a couple of years now. It appears to consist of multiple overlays’ of traditional technical analysis, some mathematically derived time and momentum indicators, and a dash of Elliot Wave for good measure. The result is reliable enough to make a living, as long as you learn how to read him and don’t bet the ranch (or the windmill?) on any single trade. Nenner sees a trading rally in the dollar setting up which could deliver a strong greenback until May, when we should then re-establish shorts, especially in his favorite, the Australian dollar (FXA). The scientist turned technical analyst argues that major bull markets in wheat, corn, and soybeans will begin this year, sectors for which I am also hugely bullish long term. He sees natural gas (UNG) retesting the old lows at $2.40.
Farther out, Nenner sees a new major bear market beginning in 2013 that will take both stocks and bonds to new lows. Nenner has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and ten years as a technical analyst at the noted vampire squid, Goldman Sachs. To learn more about the approach of his firm, the Charles Nenner Research Center in Amsterdam, please visit his site at www.charlesnenner.com. To hear my in depth, extended interview with Nenner where he outlines all of his views for 2010, please go to my website by clicking here .
Same guy on Jan 29:
News Flash: As I write, the S&P 500 has broken the 50 day moving average, an event that usually presages larger falls to come. Of course, you already knew this was going to happen when Charles Nenner warned you in his December 12 interview with me on Hedge Fund Radio, when he gave an exact date of January 7 for the market peak. He predicted that the market would fall 10%-20% from there. I reminded you again in my December 16 summary of the radio interview (click here ).
I gave you a heads up one more time with my January 4 Annual Asset Allocation Review with my piece entitled I’d Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities. As it turned out, the S&P 500 peaked on January 11, which is close enough for government work. The Euro has also broken through to the $1.39 handle, and the dollar surrogates of crude, gold, and copper are also weak, as they should be in the face of a carry trade unwind. Commentators are blaming Obama’s State of the Union speech. The reality is that stocks were just too damn expensive, can’t be justified by the economy’s weak fundamentals, and only got this high because of the free money given speculators by the Fed. Since everything else Charles forecast is coming true, you better listen to his interview on Hedge Fund Radio one more time by clicking here
-------------
I am posting these links b/c I think they contain good, thoughtful analysis of market conditions and possible near term scenario's. Keep in mind that they can be wrong; however, these are the views of some very successful traders and technicians, each of whom has a different approach, yet a similar macro view (but are open minded enough to not be wedded to their most likely outcomes).
Food for thought for the active trader / investor.
Good luck in your trading.
Well, it looks like the market has indeed changed character vs. the relentless up move since the March 2009 lows. It seems to have broken down (Dow below 10250, S&P below 1100 & 1080, Naz below 2200).
Where from here ? Who knows, it could be a bounce up; it could be more downside; but its probably not back to the races.
Here are some links to some really good commentary and webinars:
http://stockguy22.com/2010/01/30/saturday-charts-chat-with-stockguy22/
https://www.hamzeianalytics.com/Educational_Webinars.asp (download the Jan 28 and Jan 20 webinars)
http://blog.afraidtotrade.com/apple-aapl-update-daily-support-but-monthly-bearish-engulfing/
http://www.madhedgefundtrader.com/January_25__2010.html
from the mad hedge fund trader:
1) At the Friday (Jan 22) close, technical analyst to the hedge fund stars, Charles Nenner, put out his long awaited sell signal on the S&P 500, with the market’s definitive break of the crucial 1,125 support level. From here you sell into the rallies. The SPX is going to plunge 10-20%, Treasury bond interest rates are going to soar (TBT), and gold (GLD) has peaked out. There are tradable shorts setting up in all three of these markets that will run for the first half of 2010.
These calls are the product of Nenner’s proprietary Cycle Analysis System, which he has spent three decades developing, and generates calls of tops and bottoms for every major market in the world. I have diligently analyzed Nenner’s approach for a couple of years now. It appears to consist of multiple overlays’ of traditional technical analysis, some mathematically derived time and momentum indicators, and a dash of Elliot Wave for good measure. The result is reliable enough to make a living, as long as you learn how to read him and don’t bet the ranch (or the windmill?) on any single trade. Nenner sees a trading rally in the dollar setting up which could deliver a strong greenback until May, when we should then re-establish shorts, especially in his favorite, the Australian dollar (FXA). The scientist turned technical analyst argues that major bull markets in wheat, corn, and soybeans will begin this year, sectors for which I am also hugely bullish long term. He sees natural gas (UNG) retesting the old lows at $2.40.
Farther out, Nenner sees a new major bear market beginning in 2013 that will take both stocks and bonds to new lows. Nenner has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and ten years as a technical analyst at the noted vampire squid, Goldman Sachs. To learn more about the approach of his firm, the Charles Nenner Research Center in Amsterdam, please visit his site at www.charlesnenner.com. To hear my in depth, extended interview with Nenner where he outlines all of his views for 2010, please go to my website by clicking here .
Same guy on Jan 29:
News Flash: As I write, the S&P 500 has broken the 50 day moving average, an event that usually presages larger falls to come. Of course, you already knew this was going to happen when Charles Nenner warned you in his December 12 interview with me on Hedge Fund Radio, when he gave an exact date of January 7 for the market peak. He predicted that the market would fall 10%-20% from there. I reminded you again in my December 16 summary of the radio interview (click here ).
I gave you a heads up one more time with my January 4 Annual Asset Allocation Review with my piece entitled I’d Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities. As it turned out, the S&P 500 peaked on January 11, which is close enough for government work. The Euro has also broken through to the $1.39 handle, and the dollar surrogates of crude, gold, and copper are also weak, as they should be in the face of a carry trade unwind. Commentators are blaming Obama’s State of the Union speech. The reality is that stocks were just too damn expensive, can’t be justified by the economy’s weak fundamentals, and only got this high because of the free money given speculators by the Fed. Since everything else Charles forecast is coming true, you better listen to his interview on Hedge Fund Radio one more time by clicking here
-------------
I am posting these links b/c I think they contain good, thoughtful analysis of market conditions and possible near term scenario's. Keep in mind that they can be wrong; however, these are the views of some very successful traders and technicians, each of whom has a different approach, yet a similar macro view (but are open minded enough to not be wedded to their most likely outcomes).
Food for thought for the active trader / investor.
Good luck in your trading.
Sunday, January 24, 2010
Has the Market Changed Character ? More Downside Ahead ?
Some good reads and analysis here:
http://decisionpoint.com/ChartSpotliteFiles/100122_cspot.html
http://www.hamzeianalytics.net/2010/01/significant-inflection-point-may-be-at.html
http://blog.chart.ly/2010/01/24/if-you-are-looking-for-a-bounce/
http://twitpic.com/z99q8
http://www.twitlonger.com/show/4q85g
http://decisionpoint.com/ChartSpotliteFiles/100122_cspot.html
http://www.hamzeianalytics.net/2010/01/significant-inflection-point-may-be-at.html
http://blog.chart.ly/2010/01/24/if-you-are-looking-for-a-bounce/
http://twitpic.com/z99q8
http://www.twitlonger.com/show/4q85g
Sunday, January 10, 2010
Forecasts for 2010
Some good links here if you wanted to research various market forecasts for 2010...
http://www.zerohedge.com/article/more-predictions-2010
http://www.zerohedge.com/article/more-predictions-2010
Tuesday, January 5, 2010
2010 is here: Will the Fed Come Clean ?
Zero Hedge Asks:
http://www.zerohedge.com/article/marketwatch-calls-out-fed-disprove-it-manipulating-index-futures
Also:
http://www.zerohedge.com/article/rosenberg-points-out-stock-market-now-lagging-indicator-discusses-byron-wiens-beliefs-tooth-
Here are David's thoughts:
No doubt that the global economy appears to be on a firm footing, but much of this has reflected dramatic fiscal stimulus, overbuilding and credit extension in China. Only the future knows how sustainable this is.
We do know that just about all the growth in the U.S.A. in Q4 is coming from inventory restocking; and that every basis point of growth in Q3 came from government stimulus, directly and indirectly. The same stock market that couldn’t see a recession coming in late 2007 even though it was two months away, doesn’t see how low-quality this “recovery” is since there is nothing organic about it. The market is relying continuously on government support, so much so that nearly 20% — by far a record — of U.S. personal income is now coming from Uncle Sam’s generosity in the form of transfers. This deserves a lower-than-normal price-earnings multiple, but it may take time for Mr. Market to figure this out, just as it took several quarters for it to see the effects of a housing recession and credit collapse two years ago. The stock market, in other words, has managed to become a classic lagging indicator.
This is obviously a bold claim, as it means that the traditional phrase "The market is always right" is now completely wrong. With no volume, and various predatory algos determining daily market direction, it was only a matter of time.
Rosenberg, proceeds to destroy the optimistic groupthink:
We ran some simulations back to 1955 and found that historically, what is normal is that every basis point of nominal GDP growth typically generates 2.5 percentage points of corporate earnings growth. The consensus sees $76 of operating EPS for the S&P 500 next year, which compares to a likely $56 stream in 2009. In other words, that would imply an expected 36% profits boost this year. That in turn would require a 14% increase in nominal GDP, which is basically impossible. Okay — a spurt that strong was last posted in 1951, so let’s be fair. It’s a 1-in-58 event. In the past 75 years, there were a grand total of six when profit growth topped 30%, and guess what? That pace of profits required, on average, 10% growth in nominal GDP. And that last happened 25 years ago. Either way you slice it or dice it, achieving the consensus profit forecast is an extremely low-odds scenario.
The consensus sees $76 operating EPS for the S&P 500 in 2010, which would be a 36% increase from 2009
Meanwhile, the consensus basically sees 4% nominal GDP growth for 2010, which would suggest a 10% profit rise in 2010, which would imply a solid but somewhat less exuberant $62 EPS call for the year. Remember that this time last year the consensus was at $77 operating EPS for 2009 and we got $56 — what saved the market was the Geithner & Bernanke show. What do they do for an encore this year?
Keep that last point in the back of your mind. At the end of 2008, the consensus was at $77 for S&P 500 operating EPS for 2009. Even by the end of January, when it was so obvious that the bear market and recession were far from over, the bottom-up consensus was calling for operating earnings to come in at just under $70 per share. What did we end up with for 2009 when all was said and done? Try $56 EPS or 27% below what “market participants” were predicting when the year began.
Forget all the calculations off the “artificial” March lows. Forget the 25% slide in the first 10 weeks of the year to that awful trough. Here is the reality. The S&P 500, from point to point, rallied 23% in 2009 even though earnings for the year as whole came in a whopping $22 a share or 27% below what was being priced in at the start of the year. Now that is remarkable. It almost wants to make you believe in the tooth fairy.
What does this mean? A 22% overvaluation.
We are sure that if we told you on December 31, 2008, that the market was looking for $77 on operating EPS for 2009, but $56 is all we would muster, you wouldn’t have told us that your price forecast for year-end would be 1,115. And here we are today, and the same consensus crew is calling for just about the same level of earnings again — this time for 2010. If the consensus is correct, then the market is sitting very close to fair-value with a 15x forward P/E multiple. If we are right on earnings, then we are looking at over an 18x forward multiple or a market that is overvalued by 22%.
Yet this whole valuation aberration is the product of an overbullish groupthink crowd, headed by none other than Byron Wien, for whom Rosie shares the following kind words:
We’ve known Byron Wien for a long time — he was a formidable competitor while we were both on the sell side and in later years, a valued client and friend while he was on the buy side. He had a pretty good year in 2009, of that there is little doubt. But his just-released list again totally epitomized the consensus view — and it is useful to know this because as Bob Farrell told us in his Ten Commandments of investing, “When all the experts and forecasts agree, something else is going to happen” (the 9th commandment).
We won’t reprint Byron’s list here, though we were inundated with our views on it yesterday, but all the ‘surprises’ are on the upside as far as the economy, profits and interest rates are concerned. His whole piece involves world peace, a huge equity rally, massive bond selloff, Fed tightening, a dollar bull market, successful policy action on energy and financial sector reform. Nothing on double dip, deflation, renewed equity slide, Israeli military strike, 10% home price decline, sovereign default risk, Euro-area discord, or a Chinese relapse. These don’t seem to worry Byron — but then again, with the VIX index at 20 … the market seems unperturbed about downside risks as well.
And some simply hilarious observations from Rosie on the New Normal:
In the post-bubble credit collapse economy, what was previously unthinkable suddenly becomes the “new normal”. From March 1983 (when the Reagan-led economic expansion took hold) through to September 2008 (when Lehman collapsed) we never once had a month where U.S. vehicle sales came in as low as 11 million units at an annual rate. That is a span of 25 years.
In yesterday’s WSJ, page B1, there is a huge article titled Late Surge in Car Sales Raises Hopes for 2009. This “surge” seems to have taken sales up to 11 million units in December (data out later today), which would be up from 10.9 million in November. So here we are today, and it is apparently good news that we had virtually no growth in sales towards the end of the year even with dramatic incentives (according to the article, GM gave its dealers $7,000 for some of its models) and that we had 11 million units when the ‘old normal’ was 16 million units (not to mention that 12 million is the cutoff for replacement demand — autos are still being taken off the highways and driveways of America).
http://www.zerohedge.com/article/marketwatch-calls-out-fed-disprove-it-manipulating-index-futures
Also:
http://www.zerohedge.com/article/rosenberg-points-out-stock-market-now-lagging-indicator-discusses-byron-wiens-beliefs-tooth-
Here are David's thoughts:
No doubt that the global economy appears to be on a firm footing, but much of this has reflected dramatic fiscal stimulus, overbuilding and credit extension in China. Only the future knows how sustainable this is.
We do know that just about all the growth in the U.S.A. in Q4 is coming from inventory restocking; and that every basis point of growth in Q3 came from government stimulus, directly and indirectly. The same stock market that couldn’t see a recession coming in late 2007 even though it was two months away, doesn’t see how low-quality this “recovery” is since there is nothing organic about it. The market is relying continuously on government support, so much so that nearly 20% — by far a record — of U.S. personal income is now coming from Uncle Sam’s generosity in the form of transfers. This deserves a lower-than-normal price-earnings multiple, but it may take time for Mr. Market to figure this out, just as it took several quarters for it to see the effects of a housing recession and credit collapse two years ago. The stock market, in other words, has managed to become a classic lagging indicator.
This is obviously a bold claim, as it means that the traditional phrase "The market is always right" is now completely wrong. With no volume, and various predatory algos determining daily market direction, it was only a matter of time.
Rosenberg, proceeds to destroy the optimistic groupthink:
We ran some simulations back to 1955 and found that historically, what is normal is that every basis point of nominal GDP growth typically generates 2.5 percentage points of corporate earnings growth. The consensus sees $76 of operating EPS for the S&P 500 next year, which compares to a likely $56 stream in 2009. In other words, that would imply an expected 36% profits boost this year. That in turn would require a 14% increase in nominal GDP, which is basically impossible. Okay — a spurt that strong was last posted in 1951, so let’s be fair. It’s a 1-in-58 event. In the past 75 years, there were a grand total of six when profit growth topped 30%, and guess what? That pace of profits required, on average, 10% growth in nominal GDP. And that last happened 25 years ago. Either way you slice it or dice it, achieving the consensus profit forecast is an extremely low-odds scenario.
The consensus sees $76 operating EPS for the S&P 500 in 2010, which would be a 36% increase from 2009
Meanwhile, the consensus basically sees 4% nominal GDP growth for 2010, which would suggest a 10% profit rise in 2010, which would imply a solid but somewhat less exuberant $62 EPS call for the year. Remember that this time last year the consensus was at $77 operating EPS for 2009 and we got $56 — what saved the market was the Geithner & Bernanke show. What do they do for an encore this year?
Keep that last point in the back of your mind. At the end of 2008, the consensus was at $77 for S&P 500 operating EPS for 2009. Even by the end of January, when it was so obvious that the bear market and recession were far from over, the bottom-up consensus was calling for operating earnings to come in at just under $70 per share. What did we end up with for 2009 when all was said and done? Try $56 EPS or 27% below what “market participants” were predicting when the year began.
Forget all the calculations off the “artificial” March lows. Forget the 25% slide in the first 10 weeks of the year to that awful trough. Here is the reality. The S&P 500, from point to point, rallied 23% in 2009 even though earnings for the year as whole came in a whopping $22 a share or 27% below what was being priced in at the start of the year. Now that is remarkable. It almost wants to make you believe in the tooth fairy.
What does this mean? A 22% overvaluation.
We are sure that if we told you on December 31, 2008, that the market was looking for $77 on operating EPS for 2009, but $56 is all we would muster, you wouldn’t have told us that your price forecast for year-end would be 1,115. And here we are today, and the same consensus crew is calling for just about the same level of earnings again — this time for 2010. If the consensus is correct, then the market is sitting very close to fair-value with a 15x forward P/E multiple. If we are right on earnings, then we are looking at over an 18x forward multiple or a market that is overvalued by 22%.
Yet this whole valuation aberration is the product of an overbullish groupthink crowd, headed by none other than Byron Wien, for whom Rosie shares the following kind words:
We’ve known Byron Wien for a long time — he was a formidable competitor while we were both on the sell side and in later years, a valued client and friend while he was on the buy side. He had a pretty good year in 2009, of that there is little doubt. But his just-released list again totally epitomized the consensus view — and it is useful to know this because as Bob Farrell told us in his Ten Commandments of investing, “When all the experts and forecasts agree, something else is going to happen” (the 9th commandment).
We won’t reprint Byron’s list here, though we were inundated with our views on it yesterday, but all the ‘surprises’ are on the upside as far as the economy, profits and interest rates are concerned. His whole piece involves world peace, a huge equity rally, massive bond selloff, Fed tightening, a dollar bull market, successful policy action on energy and financial sector reform. Nothing on double dip, deflation, renewed equity slide, Israeli military strike, 10% home price decline, sovereign default risk, Euro-area discord, or a Chinese relapse. These don’t seem to worry Byron — but then again, with the VIX index at 20 … the market seems unperturbed about downside risks as well.
And some simply hilarious observations from Rosie on the New Normal:
In the post-bubble credit collapse economy, what was previously unthinkable suddenly becomes the “new normal”. From March 1983 (when the Reagan-led economic expansion took hold) through to September 2008 (when Lehman collapsed) we never once had a month where U.S. vehicle sales came in as low as 11 million units at an annual rate. That is a span of 25 years.
In yesterday’s WSJ, page B1, there is a huge article titled Late Surge in Car Sales Raises Hopes for 2009. This “surge” seems to have taken sales up to 11 million units in December (data out later today), which would be up from 10.9 million in November. So here we are today, and it is apparently good news that we had virtually no growth in sales towards the end of the year even with dramatic incentives (according to the article, GM gave its dealers $7,000 for some of its models) and that we had 11 million units when the ‘old normal’ was 16 million units (not to mention that 12 million is the cutoff for replacement demand — autos are still being taken off the highways and driveways of America).
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