Monday, April 26, 2010

Bloomberg Having no Trouble Finding Bulls. What a Difference a Year Makes!

In a piece of financial pornography masquerading as news rather than opinion, "reports" U.S. Stocks Cheapest Since 1990 on Analyst Estimates. It begins:

Even after the biggest rally since the 1930s, U.S. stocks remain the cheapest in two decades as the economy improves.

It ends:

“The earnings story is very supportive of the market even after the rally over the last year,” said Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., which oversees $1.4 trillion in client assets from San Francisco. “The recovery is real, it’s V-shaped and it’s got legs.”

(But what happens when the record combined monetary/fiscal stimuli end or merely diminish?)

In between one gets amazing sections as follows:

Concerns Are Past

“We’re in a time period where the concerns we had in 2007 and 2008 have been taken care of or are past,” Kenneth Fisher, who oversees about $40 billion as chairman of Fisher Investments in Woodside, California, said in a April 20 Bloomberg Television interview. “If you’re waiting for a market pullback or individual stock pullbacks, you could be waiting a long time.”

Or you get this straw man argument:

“The stock market is incredibly inexpensive,” said Kevin Rendino, who manages $11 billion in Plainsboro, New Jersey, for BlackRock, the world’s largest asset manager. “I don’t know how the bears can argue against how well corporations are doing.”

Obviously if Mr. Rendino manages the same assets and their market price simply rises 20%, his pay will rise even though the main driver is the traditional one - - price inflation.

There is a brief nod or two to what the reader is supposed to recognize as a blind bear, with no quote nearly as bearish as the rip-snortingly bullish comments scattered throughout. A reductio ad absurdum of the bullish tone is that it implies that anyone who is decreasing allocation stocks who does not need cash is obviously misquided.

I may have missed it in the article, which is not worth many rereads, but it emphasizes rapid earning gains. The fact that accounting changes for Big Finance plus multi-trillion dollar Fed and governmental support for said banks is responsible for most of said profit change is not mentioned. That Dr. Bernanke and a number of other Fed officials are less bullish than "V" advocate Ms. Sonders may be worth considering. Also not mentioned are the repeated findings from otherwise upbeat reports such as are emanating from the Empire State Manufacturing Survey that businesses are seeing input costs rise a good deal more noticeably than are selling prices; thus profit margins are being squeezed as oil and the like rise in price.

In another piece cut from the same cloth, Bloomberg announces the obvious in Big Banks Are Back as JPMorgan, Citigroup Turn Corner on Crisis. An example of the cheerleading and general idiocy of the piece comes in the third paragraph:

“This quarter is confirmation that credit has turned a corner,” said Charles Peabody, an analyst at New York-based Portales Partners LLC who assigns “buy” ratings to Bank of America and JPMorgan, and a “hold” to Citigroup. Peabody doesn’t cover Wells Fargo. “You’ve heard every CEO say credit has turned, and there is nothing to be gained for them by being overly optimistic.”

Well, no. There is much to be gained by CEOs gaming the system. What about rising stock prices as something to be gained? What about the strategy to have tapped-out consumers draw down savings once again? Etc.

The very title is laughable. There is a survivorship bias here. The banks that are "back" are not "back". They never left. They have been the recipients of unbelievable gifts from the authorities at the expense of massive money-printing, unfairly low rates paid to savers (who have issued no stocks to be pumped up by the Street), immense governmental deficits, etc.

Instead the article ascribes the business cycle to this success and minimizes the ongoing crisis in banks that didn't receive this sort of help and in fact were penalized by FDIC assessments:

While smaller U.S. lenders keep failing, pushing the Federal Deposit Insurance Corp.’s list of “problem” banks to a 17-year high, the largest are getting a lift from economic growth that’s helping consumers and businesses stay current on loan payments.

Whoop-de-doo! They are staying current. Well, sort of. Actually the numbers defaulting have stopped growing. Defaults are still plentiful. But you already see companies such as Wells and Goldman Sachs trading well above book value despite having unknown amounts of dodgy assets on their books as Level 3 assets.

The article ends with the same rah-rah quote with which the other article ends:

“A year ago we were in the middle of a financial panic, but these banks are looking forward,” said Gary Townsend, president of Hill-Townsend Capital, a Chevy Chase, Maryland- based investment firm with $50 million of holdings in financial companies. “The improvement is becoming quite pronounced.”

The powers that be should be discussing openly how the epidemic of mortgage and other fraud in the 1980s that brought down the S&L's worsened after a healing phase in the 1990s. By 2001 the FBI was already investigating this epidemic, but its priorities changed after 9/11. It probably was much more the alt-A ("liar's loans) modality that fueled the real estate boom, which became self-sustaining after a while and then needed the explosion of subprime lending to push the boom into the bubble phase.

As small investors see theis sort of headlines, it will be time for the smart money that has been accumulating or holding stocks while the individual investor has been gobbling up bond funds to start the distribution process.

Right now all financial instruments are expensive.

I continue to believe that a winning contrarian view is a healthy skepticism about the cheerleading while being in alignment with the Fed or the tape.

Two asset classes that remain in unbroken well-defined uptrends over the intermediate term are gold (and almost silver and platinum) and Treasuries. The latter looks extended and has massive supply; but as per Japan, who knows?

Gold's chart remains impeccable, and the more the Establishment flogs stocks and how wonderful and resilient the U. S. economy is even though there was a stock "panic", the more we are farther from all the Depression-era food line pictures of late 2008 and into a go-go time.

Caveat (and holder) emptor. They are feeding the quacking ducks with thin gruel. As the business cycle moves along toward the next peak, companies and industries with real assets and real staying power that have not been the recipients of extraordinary aid may be the best. Chubb (CB) is on the verge of a technical breakout, has 20% or so upside per conservative valuators of stocks, and yields almost 3% while retiring lots of stock and reporting rising book value; other insurers and reinsurers suffered no more than collateral damage during the downturn and represent some of the little reamaining fundamentally inexpensive stock groups remaining in this market that according to Andrew Smithers' version of q trades at a near-record high valuation.

Copyright (C) Long Lake LLC 2010

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