The bond market remains the only game in town when it comes to stimulating the U.S. economy.
-David Rosenberg, Breakfast with Dave today
Yes, interest rates on Treasuries have fallen. So what does this mean? The next time I or a bank buys a newly issued Treasury, we will receive less income each year on our purchase, and that same principal has been transferred from my pocket or the bank to be spent not by me and not loaned by the bank, but rather to be spent by the government. The only certainty is my or the bank's lower income from said bond purchase. How is that stimulatory?
Yes, lower interest rates make home purchases more affordable to the buyer, but those same lower rates are reflected in higher selling prices, so that's more or less a wash; and it is the sated housing market and resultant sluggish new home sales and resale pace that itself allows the current multi-decade low mortgage rates to even exist.
So, granted that Dr. Rosenberg is at the top of his profession and I am not an economist at all, I would question this statement.
Right now, on the Japa-Grecian scale, the U. S. is trending Japanese. There is no debt rollover problem this week. But this is a duality. The U. S. is rolling over massive amounts of Treasury securities. The conventional wisdom is that the bond/CDS vigilantes will move pokily along from Spain currently to Portugal and maybe the U. K., and eventually make their way to the U. S. should current budgetary and economic trends continue.
Thus I have been lightening up on a bond-heavy portfolio which was put in place beginning in summer 2007. The powers that be are going to stimulate if necessary. You can count on it, just as you can count on a doctor to do everything he/she knows to keep a patient alive and healthy absent a "do not resuscitate" order. So either the pace of economic activity picks up sooner rather than later, or the authorities will do something that in their view prevents another Depression/brings growth back.
As stated here, there was growth in the spring, but the latest statistics show it waning.
Treasuries are for traders or very long-term holders now; stocks remain for gamblers and the stock market is probably truly a stock-picker's market for the long haul specifically given that wheat and chaff are tending to move together on a day-to-day basis; cash is trash; and precious metals are having their typical seasonal summer weakness. I expect that unless and until the Federal Government gets serious about fiscal discipline, the ballooning debt obligations will induce more and more Americans to hedge their bets with ownership of precious metals, just as they did in the 1970's.
Copyright (C) Long Lake LLC 2010
Showing posts with label David Rosenberg. Show all posts
Showing posts with label David Rosenberg. Show all posts
Thursday, July 8, 2010
Friday, January 8, 2010
Jobs Friday: More Establishment Cheerleading as Hard Times Continue
The BLS has reported on December jobs, and an ugly sight it is. The household survey of individuals data was that employment dropped 589,000 last month (see Table A to review these and related statistics). The labor force dropped 661,000. "Not in labor force" rose by a massive 843,000.
Yikes and then some!
It is hard to see that the "Great Recession" (a polite term for what is a non-great depression) is definitively over. Yes, jobs are actually one of the factors that goes into recession dating, much as the MSM would like to divert attention to production (itself pumped up by Federal/Fed exertions).
On the "establishment" survey, the data came out the same as ADP, down 85,000. This of course was boosted by the unmeasured "birth-death" adjustment, which as usual was estimated as up (59,000 jobs) supposedly stemming from the vitality of small businesses that are not part of the "establishment" survey. Ha! Try a loss of 59,000 more likely. Or 159,000. Or 500,000 to come close to the household survey numbers. Those of us who live in the real world are aware that small businesses are mostly shrinking or closing or happy that they can simply stand pat and survive, that there is little appetite from those with savings to risk them on a new venture, and that the birth-death adjustment almost certainly should be negative rather than positive.
When you are part of the quiet coup that keeps its jackboot on the throat of the public at large, you will say anything you can to provide hope for the masses (that is, that part of the masses that reads Bloomberg.com). Here is the ridiculous statement from the article and a member of Big Finance about how things are going to get better, from Bloomberg's article at http://www.bloomberg.com/apps/news?pid=20601087&sid=aP0v0wdCG_YQ&pos=1:
In another government boost, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. (Ed.: 700,000 is less than the number estimated to have left the labor force in December alone per above.)
“They’re going to hire an army of people,” said Julia Coronado, a senior economist at BNP Paribas in New York. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.”
Timely? You mean hiring a bunch of people for a few months is a timely stimulus? Wasn't there stimulus in 2008 under Bush? What about ARRA (Obama's stimulus of almost a year ago)? Gimme a break . . . And is this really "stimulus"? Then that perforce also means that there will be an anti-stimulus governmental effort timed to end in June when the census is completed. Oh, I forgot: the boom will be on by then. As if in 2003-7, the boom was not entirely artificial, fueled by mortgage and securities fraud, wildly unsound lending practices, dancing financiers, etc. The idea of a self-sustaining economic growth cycle is unproven of late in the U. S.
Brazil, it appears is in that zone of self-sustaining growth; but in parts of the world run by quiet coupsters doing God's work, the jury is out and we may be lucky if it is a hung jury.
When Big Finance is reduced to touting a Constitutional requirement to enumerate the population as a stimulus to the economy, things are bad. Real bad.
Hard times continue. The Economic Cycle Research Institute, which has been predicting good employment growth soon, will have an opportunity to comment. For now December goes to the bearish Dr. David Rosenberg in his ongoing debate with ECRI.
Copyright (C) Long Lake LLC 2010
Yikes and then some!
It is hard to see that the "Great Recession" (a polite term for what is a non-great depression) is definitively over. Yes, jobs are actually one of the factors that goes into recession dating, much as the MSM would like to divert attention to production (itself pumped up by Federal/Fed exertions).
On the "establishment" survey, the data came out the same as ADP, down 85,000. This of course was boosted by the unmeasured "birth-death" adjustment, which as usual was estimated as up (59,000 jobs) supposedly stemming from the vitality of small businesses that are not part of the "establishment" survey. Ha! Try a loss of 59,000 more likely. Or 159,000. Or 500,000 to come close to the household survey numbers. Those of us who live in the real world are aware that small businesses are mostly shrinking or closing or happy that they can simply stand pat and survive, that there is little appetite from those with savings to risk them on a new venture, and that the birth-death adjustment almost certainly should be negative rather than positive.
When you are part of the quiet coup that keeps its jackboot on the throat of the public at large, you will say anything you can to provide hope for the masses (that is, that part of the masses that reads Bloomberg.com). Here is the ridiculous statement from the article and a member of Big Finance about how things are going to get better, from Bloomberg's article at http://www.bloomberg.com/apps/news?pid=20601087&sid=aP0v0wdCG_YQ&pos=1:
In another government boost, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. (Ed.: 700,000 is less than the number estimated to have left the labor force in December alone per above.)
“They’re going to hire an army of people,” said Julia Coronado, a senior economist at BNP Paribas in New York. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.”
Timely? You mean hiring a bunch of people for a few months is a timely stimulus? Wasn't there stimulus in 2008 under Bush? What about ARRA (Obama's stimulus of almost a year ago)? Gimme a break . . . And is this really "stimulus"? Then that perforce also means that there will be an anti-stimulus governmental effort timed to end in June when the census is completed. Oh, I forgot: the boom will be on by then. As if in 2003-7, the boom was not entirely artificial, fueled by mortgage and securities fraud, wildly unsound lending practices, dancing financiers, etc. The idea of a self-sustaining economic growth cycle is unproven of late in the U. S.
Brazil, it appears is in that zone of self-sustaining growth; but in parts of the world run by quiet coupsters doing God's work, the jury is out and we may be lucky if it is a hung jury.
When Big Finance is reduced to touting a Constitutional requirement to enumerate the population as a stimulus to the economy, things are bad. Real bad.
Hard times continue. The Economic Cycle Research Institute, which has been predicting good employment growth soon, will have an opportunity to comment. For now December goes to the bearish Dr. David Rosenberg in his ongoing debate with ECRI.
Copyright (C) Long Lake LLC 2010
Thursday, September 17, 2009
Bonds Versus Silver
Please see the chart of the ETF 'TLT', a proxy for the long T-bond, versus the ETF 'SLV', which tracks the price of silver. SLV began trading early in 2006. Bonds were in a bear market into Q3 the next year, and have been in a bear market the past 9 months; commodities were in a long-run bull market well into 2008 and again for almost a year.
Surprise! Bonds outperformed SLV simply on price. Add in a starting yield on TLT of (say) 4.5%, multiply by 3.5 years, and voila, you have massive bond outperformance of the bond over the commodity. This of course was achieved as well with less volatility.
It is GLD that clobbered the long bond, I would say because gold is a true monetary metal, whereas silver is at best a quasi-monetary metal.
Technically, SLV is about 30% above its 200-day moving average. It went higher than that in 2008, but this is a warning sign. TLT is "trying" to break through its downsloping 150-day moving average on the "strength" of a rising 50-day ma.
Fundamentally, employment continues to lag production; to the extent that transfer payments have been supporting the unemployed, so will a turn in the employment cycle not induce as much additional spending as would have occurred absent these transfer payments.
As the data show a clearly strengthening economy, with David Rosenberg admitting he has been too bearish on the economy this year, the yield gap between the 2-year and the 10-year Treasury issues has been narrowing. This is a negative for economic growth. The markets giveth, and one day they will taketh away.
Copyright (C) Long Lake LLC 2009
Saturday, September 5, 2009
Unemployment, the Fed, and the Markets
On August 24, following comments from Fed officials, I blogged in The Fed Is Blowing It Again:
My take from what the Fed is saying is: buy gold; buy gold; also don't forget oil, silver, copper, etc., et al., ad infinitum.
In the two weeks through the close of trading Fri. Sept. 4, gold is up over 5% in price. Treasuries sold off Friday despite a truly dismal household survey of (un)employment. How dismal? See Mish's quote from Dave Rosenberg's Friday note. Another analysis of the data can be found at Dr. Ed Harrison's Credit Writedowns.
The index of average weekly hours worked for most workers dropped from 99.2 to 98.9 from July to August, where 2002 represents 100. This is despite an approximate 7% increase in population. Adjusted for population growth, this is about an 8% decrease. Here is a link to the BLS report itself; click HERE.
In the meantime, the Economic Cycle Research Institute is more and more bullish:
A weekly measure of future U.S. economic growth rose in the latest week, while its yearly growth rate surged to a 38-year high that suggests the recovery is on track. . .
The index's annualized growth rate rose to 20.8 percent from 19.6 percent a week earlier. The latest reading was the index's highest yearly growth rate since the week to May 21, 1971, when it stood at 21.3 percent.
Perhaps as part of the dispute between ECRI and Drs. Rosenberg and Roubini, the Reuters report on the ECRI data also included the following:
"With WLI growth rising to a new 38-year high, U.S. economic growth is poised for a stronger snap-back than most expect," said ECRI Managing Director Lakshman Achuthan.
Last week, Achuthan said a double-dip recession in the fourth quarter is "out of the question."
I went back to the data. Six6 months after the above-mentioned date of May 21, 1971, the Dow Jones Industrial Average had fallen about 10%, and the ten-year Treasury had fallen about half a point in yield despite the Viet Nam War and the secular bear market in Treasuries that began around 1965 and continued until 1982. Past may be prologue.
The DoctoRx thinking is that since the government is borrowing at minimal interest cost for now and has been financing immense amounts of transfer payments to people and businesses, there has to be a technical recovery. Yet I have no reason to doubt Dr. Rosenberg's analysis that the Q2 GDP would have been down at an annualized rate of 6% without stimulus, and that Q3 would be down at a mild 1% annual rate without stimulus.
So from an economic basis, it would appear that the bears who were bearish last December and this past January were correct. Now, if government were doing innovative things such as Eisenhower's new system of interstate highways, or the successful handoff from the Dept. of Defense to the private sector of the Internet, I would say that taxpayer funds were being well used.
As in Japan in its post-bubble phase, there were two trends.
One was debasement of the currency vs. the dollar. Recently, of course, as the U. S. has led the Western world in economic mismanagement, of course the yen has been forced to strengthen against the dollar. Thus, the parallel here is that the dollar has fallen against gold every year since, and including, 2001. This year is looking like no exception. How high could gold go if the stock market and financial markets stayed stable? Based on average ratios of the price of gold following
its manic run-up of the late 1970s that led to aggressive high-interest rate policies of the Fed, gold could very easily go to 2-3X the S&P price, or let us say 2500/ounce. The future is of course wildly unpredictable, but the Fed and stock market appear to be following the 2001-3 and beyond pattern, so why should not gold continue to go from strength to strength? After all, a $700 gold price in 1980 would translate in buying power to over $2000/ounce today.
The other trend, unpopular though it is to say, is toward lower long-term Treasury rates.
It is felt here that so long as one is willing to buy and hold a certain number of Treasuries, they can play a valuable role both for income and possible capital gains as part of a diversified portfolio. Tactically, it is easy to see that the Fed would want sustained low market rates a la Japan for it to make money off of its purchases of Treasuries and mortgage-backed securities. Remember that the economic recovery that is either beginning or will come at some point (if for no other reason than the law of averages and random fluctuations) and that may be a "fake" recovery could well be followed by the totally surprising events of 2008, meaning yet lower lows in Treasury rates. Similar things happened after the economic recovery of FDR's first term, after which long-term Treasury rates did not bottom till at least 1940.
Stocks are churning, in general offer insufficient income to be an attractive asset class and are manipulated or greatly affected in price by Big Finance according to self-serving metrics. Stocks that are liked here are some individual names, including Teva, McDonald's, Bristol-Myers, and National Presto (which is primarily a defense company now, though it is best known for crock pots and the like).
Currently the most interesting momentum and "fundamental" plays appear to include gold either via "GLD" or "GTU" or bullion; and TEVA and NPK in the stock market. Even if ECRI is correct about a very strong period of growth, as occurred in 1972, the general stock market could well be due for a rest.
Copyright (C) Long Lake LLC 2009
My take from what the Fed is saying is: buy gold; buy gold; also don't forget oil, silver, copper, etc., et al., ad infinitum.
In the two weeks through the close of trading Fri. Sept. 4, gold is up over 5% in price. Treasuries sold off Friday despite a truly dismal household survey of (un)employment. How dismal? See Mish's quote from Dave Rosenberg's Friday note. Another analysis of the data can be found at Dr. Ed Harrison's Credit Writedowns.
The index of average weekly hours worked for most workers dropped from 99.2 to 98.9 from July to August, where 2002 represents 100. This is despite an approximate 7% increase in population. Adjusted for population growth, this is about an 8% decrease. Here is a link to the BLS report itself; click HERE.
In the meantime, the Economic Cycle Research Institute is more and more bullish:
A weekly measure of future U.S. economic growth rose in the latest week, while its yearly growth rate surged to a 38-year high that suggests the recovery is on track. . .
The index's annualized growth rate rose to 20.8 percent from 19.6 percent a week earlier. The latest reading was the index's highest yearly growth rate since the week to May 21, 1971, when it stood at 21.3 percent.
Perhaps as part of the dispute between ECRI and Drs. Rosenberg and Roubini, the Reuters report on the ECRI data also included the following:
"With WLI growth rising to a new 38-year high, U.S. economic growth is poised for a stronger snap-back than most expect," said ECRI Managing Director Lakshman Achuthan.
Last week, Achuthan said a double-dip recession in the fourth quarter is "out of the question."
I went back to the data. Six6 months after the above-mentioned date of May 21, 1971, the Dow Jones Industrial Average had fallen about 10%, and the ten-year Treasury had fallen about half a point in yield despite the Viet Nam War and the secular bear market in Treasuries that began around 1965 and continued until 1982. Past may be prologue.
The DoctoRx thinking is that since the government is borrowing at minimal interest cost for now and has been financing immense amounts of transfer payments to people and businesses, there has to be a technical recovery. Yet I have no reason to doubt Dr. Rosenberg's analysis that the Q2 GDP would have been down at an annualized rate of 6% without stimulus, and that Q3 would be down at a mild 1% annual rate without stimulus.
So from an economic basis, it would appear that the bears who were bearish last December and this past January were correct. Now, if government were doing innovative things such as Eisenhower's new system of interstate highways, or the successful handoff from the Dept. of Defense to the private sector of the Internet, I would say that taxpayer funds were being well used.
As in Japan in its post-bubble phase, there were two trends.
One was debasement of the currency vs. the dollar. Recently, of course, as the U. S. has led the Western world in economic mismanagement, of course the yen has been forced to strengthen against the dollar. Thus, the parallel here is that the dollar has fallen against gold every year since, and including, 2001. This year is looking like no exception. How high could gold go if the stock market and financial markets stayed stable? Based on average ratios of the price of gold following
its manic run-up of the late 1970s that led to aggressive high-interest rate policies of the Fed, gold could very easily go to 2-3X the S&P price, or let us say 2500/ounce. The future is of course wildly unpredictable, but the Fed and stock market appear to be following the 2001-3 and beyond pattern, so why should not gold continue to go from strength to strength? After all, a $700 gold price in 1980 would translate in buying power to over $2000/ounce today.
The other trend, unpopular though it is to say, is toward lower long-term Treasury rates.
It is felt here that so long as one is willing to buy and hold a certain number of Treasuries, they can play a valuable role both for income and possible capital gains as part of a diversified portfolio. Tactically, it is easy to see that the Fed would want sustained low market rates a la Japan for it to make money off of its purchases of Treasuries and mortgage-backed securities. Remember that the economic recovery that is either beginning or will come at some point (if for no other reason than the law of averages and random fluctuations) and that may be a "fake" recovery could well be followed by the totally surprising events of 2008, meaning yet lower lows in Treasury rates. Similar things happened after the economic recovery of FDR's first term, after which long-term Treasury rates did not bottom till at least 1940.
Stocks are churning, in general offer insufficient income to be an attractive asset class and are manipulated or greatly affected in price by Big Finance according to self-serving metrics. Stocks that are liked here are some individual names, including Teva, McDonald's, Bristol-Myers, and National Presto (which is primarily a defense company now, though it is best known for crock pots and the like).
Currently the most interesting momentum and "fundamental" plays appear to include gold either via "GLD" or "GTU" or bullion; and TEVA and NPK in the stock market. Even if ECRI is correct about a very strong period of growth, as occurred in 1972, the general stock market could well be due for a rest.
Copyright (C) Long Lake LLC 2009
Thursday, August 27, 2009
25% Already Regret Turning in Their "Clunker"
In line with the Roubini-related post below this one, here's a highly interesting excerpt from David Rosenberg's "Toast With Dave" (courtesy Gluskin Sheff) today about the cash-for-clunkers program that this blog has panned more than once. The big picture implications are serious and feed my skepticism that Dr. Roubini et al. are correct in advocating large-scale, long-term "stimulation" of the economy. As a physician, I have had many alcoholics and other substance-abusers under my care. Including nicotine addicts, that was a very large number. There's no time to stop the addiction like the present.
Enough of me; here's Dr. Rosenberg:
Indeed, just have a look-see at what is about to happen now that the government's Cash-for-Clunkers blowout is finally over; the USA Today cites an Edmunds.com study which shows that half as many people are researching a new car purchase on its website compared to the peak levels during the cash-for-clunkers survey. Apparently, traffic is off 10% from depressed June levels, when the subsidy program was barely a concept. Will the government reinstate the program when auto sales collapse in the fourth quarter? Can it possibly justify more than the $3 billion in taxpayer money that has already been committed to supporting auto consumption? This is what Mr. Market may not see just yet — a 2002Q4 style of GDP growth relapse in the final three months of the year.
What is interesting is that a CNW Research poll found that nearly 1 in 4 Cash-for-Clunkers beneficiaries now regret making the decision to buy a new car they had no intention of purchasing just yet — because now they are faced with a huge financial bill to pay. Think about it, nearly 700,000 sales with an average amount to finance of nearly $16,000 means that the government induced the household sector to take on more than $11 billion of new debt. It was an overextended consumer that got us into this financial mess to begin with, and now Uncle Sam just induced the household sector to expand its balance sheet by $11 billion instead of doing the prudent thing, even if at the expense of auto consumption over the near-term, and providing lessons on how to live within our means. This is all rather unbelievable, and the price we will now pay for an illusory positive print on third quarter GDP will be stagnation over the next several quarters.
Remember that it is the stock that is in essence a perpetual option, and a bond that is limited in duration and therefore allows a "do-over", trading stocks without believing in long-term ownership being a negative-sum game. Elsewhere in the "Toast With Dave", he reiterates that the risk-reward for exposure to businesses is better with corporate debt than equity.
Lots to think about in the waning dog days of August . . .
Enough of me; here's Dr. Rosenberg:
Indeed, just have a look-see at what is about to happen now that the government's Cash-for-Clunkers blowout is finally over; the USA Today cites an Edmunds.com study which shows that half as many people are researching a new car purchase on its website compared to the peak levels during the cash-for-clunkers survey. Apparently, traffic is off 10% from depressed June levels, when the subsidy program was barely a concept. Will the government reinstate the program when auto sales collapse in the fourth quarter? Can it possibly justify more than the $3 billion in taxpayer money that has already been committed to supporting auto consumption? This is what Mr. Market may not see just yet — a 2002Q4 style of GDP growth relapse in the final three months of the year.
What is interesting is that a CNW Research poll found that nearly 1 in 4 Cash-for-Clunkers beneficiaries now regret making the decision to buy a new car they had no intention of purchasing just yet — because now they are faced with a huge financial bill to pay. Think about it, nearly 700,000 sales with an average amount to finance of nearly $16,000 means that the government induced the household sector to take on more than $11 billion of new debt. It was an overextended consumer that got us into this financial mess to begin with, and now Uncle Sam just induced the household sector to expand its balance sheet by $11 billion instead of doing the prudent thing, even if at the expense of auto consumption over the near-term, and providing lessons on how to live within our means. This is all rather unbelievable, and the price we will now pay for an illusory positive print on third quarter GDP will be stagnation over the next several quarters.
Remember that it is the stock that is in essence a perpetual option, and a bond that is limited in duration and therefore allows a "do-over", trading stocks without believing in long-term ownership being a negative-sum game. Elsewhere in the "Toast With Dave", he reiterates that the risk-reward for exposure to businesses is better with corporate debt than equity.
Lots to think about in the waning dog days of August . . .
Wednesday, August 19, 2009
Bears Still Bearish
From Nouriel Roubini's non-subscription Email, just in case you're wondering what he's emphasizing:
H2 2009 Pick-Up in GDP Growth a Temporary Phenomenon
Auto Sector Impact Overstated
A Smaller-than-Expected Boost from Inventories
Residential Investment to Disappoint
W-Shaped Impact of Fiscal Stimulus
No Signs of Consumption Revival
Weak Outlook for Private Investment
Consumer Retreat Will Be Structural
Higher Structural Unemployment
Less Credit in the Economy
Corporate Restructuring Will Hit Productive Investment
Public Sector Will Be a Drag on Growth
Rebalancing Growth
He forgot to put on his happy face yet another day!
And over at Breakfast with Dave today, Dr. Rosenberg continues to emphasize the deflationary current trends, though he's both short-term optimistic on Treasuries--thinking that a break below 3.40% on the 10-year could quickly bring on a move to 3%-- and bullish long-term on gold.
So the bears continue to stick to their guns as most of the world emphasizes growth.
Roubini has not really been proven incorrect yet in his economic forecast, though he erred in forecasting the current stock move as just another brief fake-out.
Meanwhile, amongst the defensive stocks, the yield-minded and the technically-minded may want to look at Bristol-Myers Squibb, BMY. Unlike most of the other big guys in its field, it bottomed in the fall, not March, and a quick look at the chart suggests upside to 24 (where I would take profits). Note this stock usually moves very sluggishly, and definitely has downside risk in a general sell-off. Not to mention political considerations as always.
Interesting times, with a sense that more pros are exiting this stock market.
Copyright (C) Long Lake LLC 2009
H2 2009 Pick-Up in GDP Growth a Temporary Phenomenon
Auto Sector Impact Overstated
A Smaller-than-Expected Boost from Inventories
Residential Investment to Disappoint
W-Shaped Impact of Fiscal Stimulus
No Signs of Consumption Revival
Weak Outlook for Private Investment
Consumer Retreat Will Be Structural
Higher Structural Unemployment
Less Credit in the Economy
Corporate Restructuring Will Hit Productive Investment
Public Sector Will Be a Drag on Growth
Rebalancing Growth
He forgot to put on his happy face yet another day!
And over at Breakfast with Dave today, Dr. Rosenberg continues to emphasize the deflationary current trends, though he's both short-term optimistic on Treasuries--thinking that a break below 3.40% on the 10-year could quickly bring on a move to 3%-- and bullish long-term on gold.
So the bears continue to stick to their guns as most of the world emphasizes growth.
Roubini has not really been proven incorrect yet in his economic forecast, though he erred in forecasting the current stock move as just another brief fake-out.
Meanwhile, amongst the defensive stocks, the yield-minded and the technically-minded may want to look at Bristol-Myers Squibb, BMY. Unlike most of the other big guys in its field, it bottomed in the fall, not March, and a quick look at the chart suggests upside to 24 (where I would take profits). Note this stock usually moves very sluggishly, and definitely has downside risk in a general sell-off. Not to mention political considerations as always.
Interesting times, with a sense that more pros are exiting this stock market.
Copyright (C) Long Lake LLC 2009
Tuesday, August 18, 2009
Expert Opinions on Upcoming Boom Diverging Sharply
David Rosenberg, chief economist and strategist for Canada's Gluskin Sheff takes on the Economic Cycle Research Institute and other mainstream economists full frontal today in Breakfast with Dave:
In the next economic recovery, whenever it comes — and it will not be determined by a one-quarter adjustment in auto assemblies, by the way — we are most likely going to be dealing with the idea that household credit ratios will undergo a secular, intentional and steep downtrend and that is where conventional interpretation on the business cycle is most likely to go awry. Just because the conventional economists are drinking the Kool-Aid doesn’t mean you have to.
We can understand that "leading" financial indicators seem to be pointing towards a recovery, but remember, they also priced in a "depression scenario" late last year and early in 2009 and that never came to fruition, so investors should be aware that we could be seeing a similar head-fake. Relying on the ECRI index, for example, could be folly since the index has done little more than a bungee jump from levels we had never seen before. So keep in mind that even with the bounce, the equity market is still just back to levels prevailing when the U.S. economy was "only" a year into recession. Corporate bonds spreads may have narrowed sharply, but are still at levels that represented peaks during several prior economic downturns. The fact that practically everyone is declaring the recession to be over, from a purely contrary standpoint, should be cause for pause as well because the herd mentality rarely proves to be the correct course.
Rosenberg and Roubini were both far more accurate in early August 2008 than was ECRI, which was still saying that the U. S. was in a mild recession and rang no warning bells about depression. Roubini and Rosenberg remain unswayed in their consistent prognosis for economic weakness.
For stock investors, you can go to http://www.indexarb.com/dividendYieldSortedsp.html to view dividend yields on all S&P 500 stocks. The average yield of all 500 stocks is about 2%. The average yield of all stocks not paying dividends is about 2.7%. Weighting by capitalization may or may not change matters for dividend yielders, given that XOM yields 2.5%, GE yields 2.9%, and JPM yields 0.5%.
What made me more fundamentally "down" on ECRI was an interview that Dr. Achuthan gave a couple of months ago in which he was so excited about the latest upturn in his indicators that he ended the interview by saying: "Buy stocks". Wrong comment. Let him buy stocks privately. Last fall, ECRI was pointing out that their indicators were the worst since ECRI was formed about 60 years ago, but not as bad as they would have been had they been applied to the Great Depression. If 8 months from now, his indicators have rolled out of bed, will he issue another stock call?
ECRI's stance and strength had been their independence. The moment they became just another media shill for the stock market, they lost something that, like virginity, they cannot regain. And thus they became even fairer game for pros such as Dr. Rosenberg. This continues to be an important and entertaining debate.
Copyright (C) Long Lake LLC 2009
In the next economic recovery, whenever it comes — and it will not be determined by a one-quarter adjustment in auto assemblies, by the way — we are most likely going to be dealing with the idea that household credit ratios will undergo a secular, intentional and steep downtrend and that is where conventional interpretation on the business cycle is most likely to go awry. Just because the conventional economists are drinking the Kool-Aid doesn’t mean you have to.
We can understand that "leading" financial indicators seem to be pointing towards a recovery, but remember, they also priced in a "depression scenario" late last year and early in 2009 and that never came to fruition, so investors should be aware that we could be seeing a similar head-fake. Relying on the ECRI index, for example, could be folly since the index has done little more than a bungee jump from levels we had never seen before. So keep in mind that even with the bounce, the equity market is still just back to levels prevailing when the U.S. economy was "only" a year into recession. Corporate bonds spreads may have narrowed sharply, but are still at levels that represented peaks during several prior economic downturns. The fact that practically everyone is declaring the recession to be over, from a purely contrary standpoint, should be cause for pause as well because the herd mentality rarely proves to be the correct course.
Rosenberg and Roubini were both far more accurate in early August 2008 than was ECRI, which was still saying that the U. S. was in a mild recession and rang no warning bells about depression. Roubini and Rosenberg remain unswayed in their consistent prognosis for economic weakness.
For stock investors, you can go to http://www.indexarb.com/dividendYieldSortedsp.html to view dividend yields on all S&P 500 stocks. The average yield of all 500 stocks is about 2%. The average yield of all stocks not paying dividends is about 2.7%. Weighting by capitalization may or may not change matters for dividend yielders, given that XOM yields 2.5%, GE yields 2.9%, and JPM yields 0.5%.
What made me more fundamentally "down" on ECRI was an interview that Dr. Achuthan gave a couple of months ago in which he was so excited about the latest upturn in his indicators that he ended the interview by saying: "Buy stocks". Wrong comment. Let him buy stocks privately. Last fall, ECRI was pointing out that their indicators were the worst since ECRI was formed about 60 years ago, but not as bad as they would have been had they been applied to the Great Depression. If 8 months from now, his indicators have rolled out of bed, will he issue another stock call?
ECRI's stance and strength had been their independence. The moment they became just another media shill for the stock market, they lost something that, like virginity, they cannot regain. And thus they became even fairer game for pros such as Dr. Rosenberg. This continues to be an important and entertaining debate.
Copyright (C) Long Lake LLC 2009
Friday, August 14, 2009
Is There Pent-Up Demand for Housing?
Former Fed governor Laurence Meyer is quoted in a Bloomberg.com article as saying something ridiculous:
Meyer expects GDP to jump by 3.6 percent in 2010 and 3.9 percent in 2011. Annual growth surpassed 3 percent only once so far this decade, in 2004, and has averaged just 2.2 percent.
“The big driver of that is home prices,” said Meyer, referring to his recovery forecast. “If home prices stabilize, that is a tremendous boost to housing that dominates every other variable in our equation. There is a lot of pent-up demand in that particular area.”
Here is an example of what's ridiculous in the above quote, from Calculated Risk's First-time Home Buyer Frenzy, itself quoting a Reuters article:
"I am willing to settle for something" to finish buying quickly, said 20-year old (Samantha) Kielar, who works at the Denver County Jail, and is a part-time student. The tax credit carrot "is speeding up the process," she said, adding that "$8,000 could help remodel the house, redo carpets and cabinets."
The Federal Government is wasting your tax money subsidizing home purchases by 20-year women who have not even finished school. This is hardly the pent-up demand that FDR meant when he referred to 1/3 of a nation being ill-housed.
Laurence Meyer is a better economist than yours truly, who has never been one, but anyone who can say with a straight face that there is pent-up demand for housing in the U. S. when every homebuilder around is shuttering communities despite the Fed purchasing unthinkable amounts of mortgage bonds to keep rates affordable is likely saying what he is saying because he is being paid a lot of money to say it.
In a more mature fashion, David Rosenberg points out that 1 in every 7 homes in the U. S. is . . . unoccupied.
Sounds just like the 1950s, when a growing population settled down to raising a lot of children in a country with a limited supply of small homes? Not quite . . .
There is no legitimate pent-up demand for housing. It was all satisfied, and then some, with the bull market of the past decade plus. There is lunacy and sadness. Like puppy dogs sitting forlornly by their dead masters waiting for them to come alive, "investors" always want to revisit the prior bubble land. Even now, a decade after the worst pump and dump stock bubble of which I am aware, the NASDAQ tech etc. bubble of the late 1990s, speculators want to play in NASDAQ stocks that will never pay a dividend until, as with Microsoft, they are so big that their growth prospects are gone.
Now, the Federal Government is very, very powerful. If it wills housing prices to rise for such reasons as to salvage the banks, then it can do so. What it has been doing is bailing out both banks and homeowners/homebuilders by subsidizing purchase of homes. The more it does so, the more it prevents prices and the ownership/rental choice from seeking a natural level, and the less it has to spend on other things such as health care reform, national defense, delivering the mail, and the infinite number of other arguably good causes that it could support.
Copyright (C) Long Lake LLC 2009
Meyer expects GDP to jump by 3.6 percent in 2010 and 3.9 percent in 2011. Annual growth surpassed 3 percent only once so far this decade, in 2004, and has averaged just 2.2 percent.
“The big driver of that is home prices,” said Meyer, referring to his recovery forecast. “If home prices stabilize, that is a tremendous boost to housing that dominates every other variable in our equation. There is a lot of pent-up demand in that particular area.”
Here is an example of what's ridiculous in the above quote, from Calculated Risk's First-time Home Buyer Frenzy, itself quoting a Reuters article:
"I am willing to settle for something" to finish buying quickly, said 20-year old (Samantha) Kielar, who works at the Denver County Jail, and is a part-time student. The tax credit carrot "is speeding up the process," she said, adding that "$8,000 could help remodel the house, redo carpets and cabinets."
The Federal Government is wasting your tax money subsidizing home purchases by 20-year women who have not even finished school. This is hardly the pent-up demand that FDR meant when he referred to 1/3 of a nation being ill-housed.
Laurence Meyer is a better economist than yours truly, who has never been one, but anyone who can say with a straight face that there is pent-up demand for housing in the U. S. when every homebuilder around is shuttering communities despite the Fed purchasing unthinkable amounts of mortgage bonds to keep rates affordable is likely saying what he is saying because he is being paid a lot of money to say it.
In a more mature fashion, David Rosenberg points out that 1 in every 7 homes in the U. S. is . . . unoccupied.
Sounds just like the 1950s, when a growing population settled down to raising a lot of children in a country with a limited supply of small homes? Not quite . . .
There is no legitimate pent-up demand for housing. It was all satisfied, and then some, with the bull market of the past decade plus. There is lunacy and sadness. Like puppy dogs sitting forlornly by their dead masters waiting for them to come alive, "investors" always want to revisit the prior bubble land. Even now, a decade after the worst pump and dump stock bubble of which I am aware, the NASDAQ tech etc. bubble of the late 1990s, speculators want to play in NASDAQ stocks that will never pay a dividend until, as with Microsoft, they are so big that their growth prospects are gone.
Now, the Federal Government is very, very powerful. If it wills housing prices to rise for such reasons as to salvage the banks, then it can do so. What it has been doing is bailing out both banks and homeowners/homebuilders by subsidizing purchase of homes. The more it does so, the more it prevents prices and the ownership/rental choice from seeking a natural level, and the less it has to spend on other things such as health care reform, national defense, delivering the mail, and the infinite number of other arguably good causes that it could support.
Copyright (C) Long Lake LLC 2009
Monday, August 10, 2009
Rosie Cautions on the Rosy Scenario
David Rosenberg today on the economic "banana" and this past Friday's non-farm payrolls data:
From our lens, it is still too early to declare that the recession ended based on the data that matter most; and it is not clear to us that the 3Q snapback in growth is going to have legs either. There is a lot of noise right now over the fact that the unemployment rate fell to 9.4% from 9.5% in the first decline since April 2008, but if truth be told, the only reason for the decline was because of the 422,000 slide in the labour force — the second falloff in a row. Without that bizarre development (if things are really that good, people would be coming back into the fold to look for work) the jobless rate would have ticked up to 9.6%.
This goes along with other data that while perhaps the downturn is ending or has ended, times are not good.
Except for a brief period around the time of the combination of the S&L mess and the spike in oil prices in 1990 when Iraq invaded Kuwait, there was steady job growth from 1993-2000. Look what the equity markets did. In other words, the strength and durability of any economic expansion absent government make-work programs such as repaving roads has yet to be determined. The economy can go anywhere; up and then down, up forever, down forever . . . investors need to be careful about projecting a cyclical rebound indefinitely forward.
Copyright (C) Long Lake LLC 2009
From our lens, it is still too early to declare that the recession ended based on the data that matter most; and it is not clear to us that the 3Q snapback in growth is going to have legs either. There is a lot of noise right now over the fact that the unemployment rate fell to 9.4% from 9.5% in the first decline since April 2008, but if truth be told, the only reason for the decline was because of the 422,000 slide in the labour force — the second falloff in a row. Without that bizarre development (if things are really that good, people would be coming back into the fold to look for work) the jobless rate would have ticked up to 9.6%.
This goes along with other data that while perhaps the downturn is ending or has ended, times are not good.
Except for a brief period around the time of the combination of the S&L mess and the spike in oil prices in 1990 when Iraq invaded Kuwait, there was steady job growth from 1993-2000. Look what the equity markets did. In other words, the strength and durability of any economic expansion absent government make-work programs such as repaving roads has yet to be determined. The economy can go anywhere; up and then down, up forever, down forever . . . investors need to be careful about projecting a cyclical rebound indefinitely forward.
Copyright (C) Long Lake LLC 2009
Friday, June 12, 2009
Are Things Getting Better or Worse in the Economy? Probably Yes
The Economic Cycle Research Institute (ECRI; http://www.businesscycle.com/) is out today reporting another gain in its weekly leading indicators. Here is the associated Reuters press release:
WLI Growth at 18 Month High:
A gauge of future U.S. economic growth rose along with its yearly growth rate, reaffirming hope that yearly growth will turn positive in the summer months, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to a 34-week high of 115.4 for the week ending June 5, from 113.5 the previous week.
In recent weeks, the group has forecast that the U.S. recession will end sometime during this summer, as its yearly economic growth reading rebounds from late-2008 lows.
The index's annualized growth rate spiked to a one and a half year high of minus 4.7 percent from the prior week's rate of minus 7.1 percent.
It was ECRI's highest yearly growth reading since the week ended December 7, 2007, when it stood at minus 3.9 percent.
"With WLI growth rising to its best reading in a year and a half -- namely, since the recession began -- economic recovery prospects are brightening rapidly," said Lakshman Achuthan, managing director at ECRI.
The weekly index rose in the latest week due to higher commodity prices and stronger housing activity, Achuthan said.
The ECRI is top-drawer. Its publicly-disclosed data's use as a stock market forecasting instrument is, however, questionable. Dr. Achuthan has forecast an end to the economic downturn by around Labor Day. ECRI has been making bullish noises for some months, already, and one wonders how much of the expected turnaround is embodied in today's stock and bond prices.
On the negative side, here are some of the negatives as summarized by David Rosenberg, Chief Economist and Strategist for Gluskin Sheff in Canada, in today's Email:
The U.S. consumer is yet again, for the first time in two years, benefiting from huge fiscal stimulus (tax relief and extra social security receipts) and yet the ‘core’ retail sales index that feeds directly into GDP was flat as a pancake in May and down at a 4.0% annual rate over the last three months. We have no idea how that gets translated into a ‘green shoot’ unless we want to compare that to the -10.0% trend at the end of 2008 when the post-Lehman collapse economy went into free-fall.
Much like the tax rebates last year, the stimulus is having very little effect on consumer spending. The message from the retail sales report is that while spending is not collapsing, it is still very soft and there is still a clear trend away from discretionary towards essentials.
Furniture sales fell 0.4% MoM in May and are down in each of the last three months — a 14.0% annualized collapse.
Electronics/appliance stores are also under downward pressure after a brief January-February countertrend bounce — down 0.5% MoM in May, also down three months running, and sliding at a 33.6% annual rate over that time frame.
Clothing sales did hook up 0.4% in May but that followed two months of big declines and left the trend since March running at a -9.0% annual rate.
General merchandise stores (ie, department stores) posted a 0.2% drop, the third decline in a row (sound familiar?) and running at a -4.8% annual rate over the last three months.
Sporting goods/music/books sales fell 0.8% in May and off at a 3.3% annual rate over the last three months.
Nonstore retail sales (online sales) fell for the fourth month in a row — down 0.4% in May and the three-month trend is at a -5.6% annual rate.
Restaurants did turn in a 0.2% gain in May but sales here are on a -2.5% trend over the last three months.
The positives: Food/beverage stores saw retail sales rise 0.4% in May and have advanced at a 2.7% annual rate over the last three months. Pharma stores jumped 0.7% MoM and up at a ripping 8.0% annual rate over the last three months.
And here is Dr. Rosenberg in the same missive on trends in global trade:
Global Trade Flows Reversing Course: After a couple of ‘green shoots’ after global trade finance was revived in the opening months of the year, it seems as though everyone’s exports are taking it on the chin again. The latest data on China’s outbound shipments showed renewed hints of slowing. Same for Korea. German exports plunged 4.8% in April and are off 28.7% from a year ago. Canadian export volumes sank 5.1% in April — and this transcended the problems in the auto sector — on top of 2.3% slide in March, taking Canada into a deficit position of $178 million in what is a vivid sign of a hugely overvalued loonie. U.S. export volumes also dropped 4.3% in April after a 0.5% decline in March, taking the YoY trend down to a new all-time low of -20.4% from -13.8% in March.
Conclusion: Current trends have remained bad; money-printing has provided some short-term fix; a turn in the economy of some strength and durability is priced into the markets. Going back to the ECRI, the leading indicators can move up or down in the future, and thus assuming they are correctly forecasting the end of this economic banana in 3 months, stocks and bonds may well move independently of the economy. The reason the stock market surged from 1947 to 1962 (and beyond) despite 4 recessions in 12 years was that stocks were the cheapest asset class based on net asset value, cash return to investors, etc.; the reason that stocks have plunged in the past 9 years despite only 2 economic downturns (one of them mild) was that stocks were expensive and high-quality bonds relatively cheap.
At this point, it is unclear whether any major asset classes remain cheap or expensive relative to one another.
Individual securities analysis and individual-specific portfolio diversification may be more important now than ever relative to glomming on to broad themes that worked in the 1980s such as "buy and hold financial assets". Keeping an open mind in this time of ferment and numerous unprecedented situations is especially important, as well.
Copyright (C) Long Lake LLC 2009
WLI Growth at 18 Month High:
A gauge of future U.S. economic growth rose along with its yearly growth rate, reaffirming hope that yearly growth will turn positive in the summer months, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to a 34-week high of 115.4 for the week ending June 5, from 113.5 the previous week.
In recent weeks, the group has forecast that the U.S. recession will end sometime during this summer, as its yearly economic growth reading rebounds from late-2008 lows.
The index's annualized growth rate spiked to a one and a half year high of minus 4.7 percent from the prior week's rate of minus 7.1 percent.
It was ECRI's highest yearly growth reading since the week ended December 7, 2007, when it stood at minus 3.9 percent.
"With WLI growth rising to its best reading in a year and a half -- namely, since the recession began -- economic recovery prospects are brightening rapidly," said Lakshman Achuthan, managing director at ECRI.
The weekly index rose in the latest week due to higher commodity prices and stronger housing activity, Achuthan said.
The ECRI is top-drawer. Its publicly-disclosed data's use as a stock market forecasting instrument is, however, questionable. Dr. Achuthan has forecast an end to the economic downturn by around Labor Day. ECRI has been making bullish noises for some months, already, and one wonders how much of the expected turnaround is embodied in today's stock and bond prices.
On the negative side, here are some of the negatives as summarized by David Rosenberg, Chief Economist and Strategist for Gluskin Sheff in Canada, in today's Email:
The U.S. consumer is yet again, for the first time in two years, benefiting from huge fiscal stimulus (tax relief and extra social security receipts) and yet the ‘core’ retail sales index that feeds directly into GDP was flat as a pancake in May and down at a 4.0% annual rate over the last three months. We have no idea how that gets translated into a ‘green shoot’ unless we want to compare that to the -10.0% trend at the end of 2008 when the post-Lehman collapse economy went into free-fall.
Much like the tax rebates last year, the stimulus is having very little effect on consumer spending. The message from the retail sales report is that while spending is not collapsing, it is still very soft and there is still a clear trend away from discretionary towards essentials.
Furniture sales fell 0.4% MoM in May and are down in each of the last three months — a 14.0% annualized collapse.
Electronics/appliance stores are also under downward pressure after a brief January-February countertrend bounce — down 0.5% MoM in May, also down three months running, and sliding at a 33.6% annual rate over that time frame.
Clothing sales did hook up 0.4% in May but that followed two months of big declines and left the trend since March running at a -9.0% annual rate.
General merchandise stores (ie, department stores) posted a 0.2% drop, the third decline in a row (sound familiar?) and running at a -4.8% annual rate over the last three months.
Sporting goods/music/books sales fell 0.8% in May and off at a 3.3% annual rate over the last three months.
Nonstore retail sales (online sales) fell for the fourth month in a row — down 0.4% in May and the three-month trend is at a -5.6% annual rate.
Restaurants did turn in a 0.2% gain in May but sales here are on a -2.5% trend over the last three months.
The positives: Food/beverage stores saw retail sales rise 0.4% in May and have advanced at a 2.7% annual rate over the last three months. Pharma stores jumped 0.7% MoM and up at a ripping 8.0% annual rate over the last three months.
And here is Dr. Rosenberg in the same missive on trends in global trade:
Global Trade Flows Reversing Course: After a couple of ‘green shoots’ after global trade finance was revived in the opening months of the year, it seems as though everyone’s exports are taking it on the chin again. The latest data on China’s outbound shipments showed renewed hints of slowing. Same for Korea. German exports plunged 4.8% in April and are off 28.7% from a year ago. Canadian export volumes sank 5.1% in April — and this transcended the problems in the auto sector — on top of 2.3% slide in March, taking Canada into a deficit position of $178 million in what is a vivid sign of a hugely overvalued loonie. U.S. export volumes also dropped 4.3% in April after a 0.5% decline in March, taking the YoY trend down to a new all-time low of -20.4% from -13.8% in March.
Conclusion: Current trends have remained bad; money-printing has provided some short-term fix; a turn in the economy of some strength and durability is priced into the markets. Going back to the ECRI, the leading indicators can move up or down in the future, and thus assuming they are correctly forecasting the end of this economic banana in 3 months, stocks and bonds may well move independently of the economy. The reason the stock market surged from 1947 to 1962 (and beyond) despite 4 recessions in 12 years was that stocks were the cheapest asset class based on net asset value, cash return to investors, etc.; the reason that stocks have plunged in the past 9 years despite only 2 economic downturns (one of them mild) was that stocks were expensive and high-quality bonds relatively cheap.
At this point, it is unclear whether any major asset classes remain cheap or expensive relative to one another.
Individual securities analysis and individual-specific portfolio diversification may be more important now than ever relative to glomming on to broad themes that worked in the 1980s such as "buy and hold financial assets". Keeping an open mind in this time of ferment and numerous unprecedented situations is especially important, as well.
Copyright (C) Long Lake LLC 2009
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