So markets were off around 3% today and folks are scratching their heads, their ass and anything else they can scratch to figure out what the hell happened. And all I can say is "duh." I hope I am spelling this right.
Now the leading candidate for markets falling today - other than options expiring - is consumer sentiment. It seems to have fallen off a cliff.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=atiU89eI_SqA&pos=2
Indeed the results were well - and I mean WELL - below even the most pessimistic expectations of 62 economists surveyed by Bloomberg. So what gives? Well, what gives first is that economists being surveyed by Bloomberg seem to be largely out of touch with the man or woman on the street. Now I was not surveyed and I made no estimate but I find a big drop off in confidence to be well expected.
So let's explore the very secret reasons that economists cannot find out why folks would be a bit economically depressed. Please do not tell the economists about these as it will spoil the surprise. Let's begin with a survey of this weeks economic data. Fortunately for me and you, the kind folks at Calculated Risk have once again done a dandy job of putting it together for us:
http://www.calculatedriskblog.com/2010/07/quick-summary-of-week.html
Unless I counted wrong, of the 14 major data points out this week none were evenly mildly positive and many were down right ugly. And this summary does not even include the fact that the FDIC closed six more banks yesterday, bringing us up to 96 year-to-date.
This week's data aside, let's consider the failure to extend unemployment benefits. This immediately cut off funds to roughly 1.3 million folks and in relatively short order will cut off around three million, with more to come in months ahead. Now I assume this three million impacts the spending ways of around 10 million folks since the average family size is just over three, so you have roughly ten million people, approaching 3% of our population, that are curtailing spending. Given that consumer spending is 70% of our GDP, knocking out 3% of that group cannot be a good thing for GDP. I am no economist but the math seems relatively easy to me. At a minimum, one can see how this might just put a bit of a damper on consumer sentiment.
Okay, let's forget for a moment the millions being cut off from benefits. There are still tens of millions in the unemployed ranks, we are not creating jobs fast enough to even support population growth, two thirds of a a million folks last month alone gave up even looking for a job and for those still trying to find a job, good luck. Even those with jobs are increasingly part time or seeing their work hours shortened. Yep, there are plenty of big confidence builders here. I keep scratching.
Let's talk about credit issues. One of the drivers for today's market problems was the results from financial companies showing quite clearly that credit continues to be frozen and lending by big boys is quite selective. It also seems the big banks are having to repurchase a bit of the junk they previously off-loaded on us taxpayers, and this is not helping results either.
http://www.calculatedriskblog.com/2010/07/mortgage-repurchase-growing-writedown.html
Now it is not a surprise that lending is down as a full 25% of folks these days have credit scores that will not get them a credit card, and with so many under water on their mortgages, they are not coming up for credit air any time soon. And these are not all irresponsible idiots. I know one couple, where both work, he served at least two terms in Iraq, they have four kids, they are both college graduates (she has a Masters), they have a modest house and do not waste money. Yet they can barely pay the mortgage, have a poor credit score and are struggling. I know this situation is repeated all over the country. Yes, there are the usuals that folks like to point to as losers we should not support, but there are plenty of folks doing what society has told them to do and it is still not working. Perhaps this is affecting consumer confidence scores?
In my book, most economists are ignoring fundamentals and out of touch with the regular guy on the street. Only time will tell but, unfortunately, time is running out for a lot of people in this economy. No surprises to me with the confidence numbers. The surprise is that economists did not see it coming. Then again, perhaps I just need to scratch something else and forget about economists.
Disclosures: none.
Friday, July 16, 2010
Wednesday, July 14, 2010
Craig for President!
I am tired of complaining about our presidents so, damn it, why not put my hat in the ring. So, I have to come clean on a few items. First, I have been known to view porn on line and otherwise (don't tell my wife about the stash in the basement). I have been to strip clubs - though none in the last year. I have embarked upon the enhancements of marijuana, though probably less than ten times in my life. I smoked cigarettes (a closet smoker) for 5-7 years, at most a half a pack a day. I party hard and drink too much on a regular basis. And I sometimes go two days without changing my underwear. I am, I fear, a regular American male.
So why am I throwing my hat in the ring? Because I am disgusted with what we have had to date in the past few decades. While I liked Bill while he was there I have since understood his failings so I am not partisan in my disgust. Bill does not have disgust from me, he just is not in my book to emulate. And for the last two idiots, well I do not need to comment - I hope.
On the current Administration, I seriously regret my vote for Obama but I am not really sure I would be any better off with voting for McCain. There were certainly other candidates that in hindsight should have made it, but they did not. And so, my hat is in the ring.
What do I offer? I am a life long Democrat who no longer likes pretty much anything Democrats are pushing. Make no mistake, I am not favoring Republican fodder either. Both seem to be at extremes and I am all about balance.
My take is that we made some major mistakes - both under W and Obama - supporting the financial bastards that got us here. Many should have been dismantled. Instead, we saved them and are continuing to support them with virtually no interest loans. They are now stockpiling money, making record profits and flipping the bird at taxpayers.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a2jo3RK2_Aps
So my platform is simple. Right now I have no platform other than a basic economic platform, but I have two years to work on broadening my horizons before the next Presidential election, so let's run with my basic platform.
First, we investigate and take down financial companies that brought us to where we are. They are not bastions of free enterprise - they are corrupters of it. They need to be investigaed and talken out if they stepped over the line. Otherwise, crime, fraud and other related issues have moral support.
Second, we need a balance between austerity and stimulus. If you need more details, read my blog.
Third, we need to, as a society, realize that the future will not be like the past. We are reverting to mean, to a new normal that is the real normnal, and this will be painful.
Fourth, cutting off unemployment extended benefits is a bad move on many fronts.
Okay, Given this picture who would want to be the Pres., go figure!
So why am I throwing my hat in the ring? Because I am disgusted with what we have had to date in the past few decades. While I liked Bill while he was there I have since understood his failings so I am not partisan in my disgust. Bill does not have disgust from me, he just is not in my book to emulate. And for the last two idiots, well I do not need to comment - I hope.
On the current Administration, I seriously regret my vote for Obama but I am not really sure I would be any better off with voting for McCain. There were certainly other candidates that in hindsight should have made it, but they did not. And so, my hat is in the ring.
What do I offer? I am a life long Democrat who no longer likes pretty much anything Democrats are pushing. Make no mistake, I am not favoring Republican fodder either. Both seem to be at extremes and I am all about balance.
My take is that we made some major mistakes - both under W and Obama - supporting the financial bastards that got us here. Many should have been dismantled. Instead, we saved them and are continuing to support them with virtually no interest loans. They are now stockpiling money, making record profits and flipping the bird at taxpayers.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a2jo3RK2_Aps
So my platform is simple. Right now I have no platform other than a basic economic platform, but I have two years to work on broadening my horizons before the next Presidential election, so let's run with my basic platform.
First, we investigate and take down financial companies that brought us to where we are. They are not bastions of free enterprise - they are corrupters of it. They need to be investigaed and talken out if they stepped over the line. Otherwise, crime, fraud and other related issues have moral support.
Second, we need a balance between austerity and stimulus. If you need more details, read my blog.
Third, we need to, as a society, realize that the future will not be like the past. We are reverting to mean, to a new normal that is the real normnal, and this will be painful.
Fourth, cutting off unemployment extended benefits is a bad move on many fronts.
Okay, Given this picture who would want to be the Pres., go figure!
Survey Question of the Day
So what does it mean when mortgage interest rates are at an all time low but purchase mortgage applications are nonetheless at their lowest in 14 years? I could make this multiple-choice but I don't think that is necessary.
http://www.calculatedriskblog.com/2010/07/mba-mortgage-purchase-applications_14.html
I initially left the post at what is said above but cannot resist adding a couple of other tidbits. First, retail sales are continuing to stuggle.
http://seekingalpha.com/article/214439-forward-economic-outlook-rapidly-deteriorating?source=dashboard_macro-view
This should not be at all surprising, given the following:
- unemployment is not showing any significant improvement (even with the baked numbers the government puts out) and with unemployment benefits ending for millions of Americans there are a lot fewer pockets to be spending;
- home piggy banks are still not there and will likely not be for some time;
- over 25% of folks have terrible credit scores (up from 15% a few years ago), 599 or under, and that prevents them from even getting a credit card or increasing limits, so they have no choice but to curtail spending; and
- people have actually started saving again and paying down debt, which is inconsistent with retail sales increasing.
On the last point, I find this rather promising. It will take many years to get individual debt levels back to normal (and I will not even talk about government debt here), but it looks like normal spending levels - i.e. us living within our means - is getting there pretty quickly. We spent the better part of the past two decades living beyond our means and I view us presently as simply reverting to mean. Accordingly, those economists with rather rosy growth projections do not appeal to me. Even if they are correct, the growth will be built on debt (private or government) and it is not a wise thing to do. We cannot afford to go back there. I truly think individuals in this country, by choice or otherwise, realize our spending ways need to be behind us despite the government doing what it can to spur us on to more spending. So for an economy that is about 70% consumer spending, I suspect we will not see any major increases in GDP for a few years (and I hope we do not).
Disclosures: None.
http://www.calculatedriskblog.com/2010/07/mba-mortgage-purchase-applications_14.html
I initially left the post at what is said above but cannot resist adding a couple of other tidbits. First, retail sales are continuing to stuggle.
http://seekingalpha.com/article/214439-forward-economic-outlook-rapidly-deteriorating?source=dashboard_macro-view
This should not be at all surprising, given the following:
- unemployment is not showing any significant improvement (even with the baked numbers the government puts out) and with unemployment benefits ending for millions of Americans there are a lot fewer pockets to be spending;
- home piggy banks are still not there and will likely not be for some time;
- over 25% of folks have terrible credit scores (up from 15% a few years ago), 599 or under, and that prevents them from even getting a credit card or increasing limits, so they have no choice but to curtail spending; and
- people have actually started saving again and paying down debt, which is inconsistent with retail sales increasing.
On the last point, I find this rather promising. It will take many years to get individual debt levels back to normal (and I will not even talk about government debt here), but it looks like normal spending levels - i.e. us living within our means - is getting there pretty quickly. We spent the better part of the past two decades living beyond our means and I view us presently as simply reverting to mean. Accordingly, those economists with rather rosy growth projections do not appeal to me. Even if they are correct, the growth will be built on debt (private or government) and it is not a wise thing to do. We cannot afford to go back there. I truly think individuals in this country, by choice or otherwise, realize our spending ways need to be behind us despite the government doing what it can to spur us on to more spending. So for an economy that is about 70% consumer spending, I suspect we will not see any major increases in GDP for a few years (and I hope we do not).
Disclosures: None.
Tuesday, July 13, 2010
Brief Note
I have seen the Intel results and must admit they are quite impressive - a record qauarter in this economy. I am not sure what to make of it. I suspect companies are updating computers to be more efficient and productive, i.e. to do more with less employees. And companies have the money. Do not make any mistake, companies in the U.S. and elsewhere, by-and-large, are absolutely flush with cash. They have been hoarding it in part as they do not see many better uses for it than to stash it for better times. I suspect that they are spending a bit of this hoard to improve efficiency/productivity. As I noted, efficiencies from computers can free up companies to let some employees go. I have no proof of this - it is just my best guess of what is happening. Either way, the Intel results are impressive and I suspect they will spill over to some other computer related companies. The real question is whether they apply to the broader economy.
Now yesterday Alcoa came out with results that beat expectations. The stock was up 1.2% today, which, curiously, was less than the overall market was up. So you beat market expectations and Bloomberg attributes the market bounce to you in large part, yet your stock does poorer than the overall market. What gives? I suspect what gives is that the expectations for Alcoa in terms of quarterly profit per share has shifted a good bit the past 90 days. 90 days ago the average earnings expectation was 23 cents a share (compared to over 60 cents a share in actual results before the economic troubles). In the last 90 days, however, the expectations have come down rather significantly. 60 days ago the average expectation shrank to 19 cents a share, 30 days ago it shrank to 17 cents a share, and more recently went to 12 cents a share. Alcoa reported 13 cents a share and low and behold, beat expectations.
Let me begin by noting that Alcoa has for several months been one of my biggest short holdings, and it has done quite well for me as it was a big loser in the DOW this year to date, so I have a financial interest in Alcoa. Nonetheless, it is not a big dollar position for me so I will not lose sleep over it. Still, it was curious to see the market bouce on the Alcoa results without Alcoa itself not bouncing so much - go figure.
Disclosures: As noted above, I have short postions on Alcoa.
Now yesterday Alcoa came out with results that beat expectations. The stock was up 1.2% today, which, curiously, was less than the overall market was up. So you beat market expectations and Bloomberg attributes the market bounce to you in large part, yet your stock does poorer than the overall market. What gives? I suspect what gives is that the expectations for Alcoa in terms of quarterly profit per share has shifted a good bit the past 90 days. 90 days ago the average earnings expectation was 23 cents a share (compared to over 60 cents a share in actual results before the economic troubles). In the last 90 days, however, the expectations have come down rather significantly. 60 days ago the average expectation shrank to 19 cents a share, 30 days ago it shrank to 17 cents a share, and more recently went to 12 cents a share. Alcoa reported 13 cents a share and low and behold, beat expectations.
Let me begin by noting that Alcoa has for several months been one of my biggest short holdings, and it has done quite well for me as it was a big loser in the DOW this year to date, so I have a financial interest in Alcoa. Nonetheless, it is not a big dollar position for me so I will not lose sleep over it. Still, it was curious to see the market bouce on the Alcoa results without Alcoa itself not bouncing so much - go figure.
Disclosures: As noted above, I have short postions on Alcoa.
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