Now that the Ministry of Truth or whatever it's called has revised economic growth lower during the reign of the president who has become an unperson as well as for 2009 which of course had an economy that stank due to the Party of the unperson, naturally whatever growth is claimed during the reign of the Party now in power will be compared to a lower base and will therefore look better. This is especially so because the administration appears to be asserting, more or less, that any jobs created or saved during its tenure are due to its policies, but all the difficulties are due to President Unperson.
So now that we know that official statistics are unusually uncertain, and the future as always is unknowable, what is an investor to do?
As Mark Twain cracked, every month in the stock market is risky. Historically, the two worst consecutive months are August-September. So a decent respect for history is wise, especially following a marvelous July for the averages.
Nonetheless, consider relative values of stocks vs. government bonds in the past ten years. Then, govvies yielded 6-6.5% per annum. The S&P 500 traded at 30X earnings, which is an implied earnings yield of 3.3%, with a dividend yield not much above 1%.
Now matters are partially to completely reversed. In addition, company after company is better financed than the Feds, with many fewer contingent liabilities.
A decade ago, "everyone" "knew" that the abstraction called "the economy" was unendingly strong. Now there is chronic depression upon the land, at least psychological if not in economic reality. But the corn remains as high as an elephant's eye and there are no shortages or almost anything except common sense out of Washington; so the basis of economic scene remains a real potential (if that phraseology makes any sense). And help may be on the way for those of us who oppose the statist trend of the past several years: legislative gridlock already appears to have hoved on the scene.
Another positive trend is that the practical failures of money printing have become more and more apparent to more and more people. The Dems should have known better: why should they embrace a creed (deficits stimulate the economy) that that loser Richard Nixon embraced four decades ago, when he announced that he was (and we allegedly were) all Keynesians now? After all, the only president of their party to have won re-election since FDR was Bill Clinton, whose big economic achievement was to raise taxes in the teeth of an allegedly jobless recovery.
What may happen is that just as in 1993, some degree of balance will be restored to the public and private accounts as the will of the people appears to dictate, the world will not end as this Federal government is not very good at stimulating productive enterprises with a very positive return on capital, and the country can get back to meeting the real needs of real people rather than the desires of the entrenched powers who have grown fat on the malinvestments of the past years.
So on one hand, there is reason to hope that the rapid growth of Federal involvement in the economy of the past 24 months has peaked; but on the other hand, the Party currently out of power has shown little evidence of new thinking.
The seasonality of markets and the unfortunate gigantic role that Leviathan now plays in the American economy suggest that the next couple of months are good ones for investors to prepare a game plan for the months ahead, as the weakening economy becomes more apparent to more people and the political landscape becomes, perhaps, clearer.
Future posts will report and theorize on this topic in more detail.
Copyright (C) Long Lake LLC 2010
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Sunday, August 1, 2010
Saturday, December 19, 2009
Article on the Census not Sensible
You know the Establishment is grasping at straws when a decennial, predictable event is touted as being able to "spark" the economy. In Economists See a Lift in 2010 Census, the New York Times leads off this national article (i.e., one not relegated to the business section) as follows:
Next year’s census will not only count people, it will also put money in millions of pockets and potentially create a well-timed economic spark.
I stopped reading shortly thereafter. Any "economist" who believes that people creating lots of carbon emissions by driving around town, then parking and knocking on people's doors to ask questions can provide vitality to the economy has an incomplete understanding of what a healthy economy comprises. One of many rejoinders to this point of view is that the article could just as easily have said that providing free money AKA welfare (as in corporate welfare to Big Finance or to retirees) can "spark" the economy. It's call money-printing and it DOES NOT WORK.
Copyright (C) Long Lake LLC 2009
Next year’s census will not only count people, it will also put money in millions of pockets and potentially create a well-timed economic spark.
I stopped reading shortly thereafter. Any "economist" who believes that people creating lots of carbon emissions by driving around town, then parking and knocking on people's doors to ask questions can provide vitality to the economy has an incomplete understanding of what a healthy economy comprises. One of many rejoinders to this point of view is that the article could just as easily have said that providing free money AKA welfare (as in corporate welfare to Big Finance or to retirees) can "spark" the economy. It's call money-printing and it DOES NOT WORK.
Copyright (C) Long Lake LLC 2009
Saturday, November 7, 2009
Government-Run Economy?
In Obama’s to Fix op-ed in today's NYT, Charles Blow says that the current President needs to fix the jobs problem.
This view is all over the media.
What I wonder is whether the American people really believe that the Federal Government really can, or more importantly, should "fix" the jobs problem.
The proximate cause of the miserable jobs market is that government and its allies in Big Finance and subsidiaries such as homebuilders did not respond to any market forces and instead created an unbalanced economy and speculative financial companies. The simple solution is for Government to fix this financial mess while at all levels of government helping to support the truly needy. Force banks to do only banking and let gamblers gamble and win or lose without any claim on the public purse. Unfortunately, the Obama administration appears to be proposing things that move in the other direction. For example, you and I are now on the hook for huge quantities of FHA loans to subprime borrowers. Why? There's nothing wrong with renting.
Even an administration that fought against Wall Street scams, FDR's, did not really make a dent in unemployment.
In this rich country, which produces more than enough food, clean water and the like for all residents, and which contains a housing stock that can already house far more than the current 300+ million residents, and where the great majority of consumer products have 90%+ gross profit margins (meaning that companies don't really need all their employees just to get the goods out the door), the question of the need for "growth" at the expense of risk and stability of the system, the external environment, fairness, etc., must be discussed. The faster you drive a car, the greater the chance of an accident AND the greater the harm from said accident.
That's exactly what happened last year when a garden-variety recession transformed almost overnight into a jobs depression. Growth is not always good.
Putting jobs in perspective, let us say that the latest jobs number show 1 in 5 workers are unemployed or underemployed. Let us also say that the average worker works 2000 hours per year, counting commuting time. Why couldn't we get to full employment and have the average worker work 1600 hours per year, have more time off, and thus enjoy life more?
Now, I'm not specifically advocating for or against this outcome, but the underlying point is that the country must think through how it wants to allocate its human and physical resources. Does government at all levels have a necessary role in this process? Obviously. In a capitalist democracy, is it government's responsibility to decide on how hard people should work, how many motor vehicles should be in existence, how many homes of what square footage there should be and whether they should be rentals or "owned"? No. Especially when nowadays "ownership" means having little or no equity in the home. Sounds like renting under another name to me.
Public-private partnership re the economy? Yes, that's the way America grew. But a cursory review of the Declaration of Independence shows that governments are instituted among men to secure individual benefits, and the Constitution begins with "We, the people". Power emanates from the people. Government should be the servant and not the master. Thus Mr. Blow's op-ed has it backwards. The Feds need to do a better job regulating and improving the mess they helped create. The private sector in conjunction with more local governmental entities will work as hard as it wants doing work that it wishes to do to serve the real needs and desires of the people.
Copyright (C) Long Lake LLC 2009
This view is all over the media.
What I wonder is whether the American people really believe that the Federal Government really can, or more importantly, should "fix" the jobs problem.
The proximate cause of the miserable jobs market is that government and its allies in Big Finance and subsidiaries such as homebuilders did not respond to any market forces and instead created an unbalanced economy and speculative financial companies. The simple solution is for Government to fix this financial mess while at all levels of government helping to support the truly needy. Force banks to do only banking and let gamblers gamble and win or lose without any claim on the public purse. Unfortunately, the Obama administration appears to be proposing things that move in the other direction. For example, you and I are now on the hook for huge quantities of FHA loans to subprime borrowers. Why? There's nothing wrong with renting.
Even an administration that fought against Wall Street scams, FDR's, did not really make a dent in unemployment.
In this rich country, which produces more than enough food, clean water and the like for all residents, and which contains a housing stock that can already house far more than the current 300+ million residents, and where the great majority of consumer products have 90%+ gross profit margins (meaning that companies don't really need all their employees just to get the goods out the door), the question of the need for "growth" at the expense of risk and stability of the system, the external environment, fairness, etc., must be discussed. The faster you drive a car, the greater the chance of an accident AND the greater the harm from said accident.
That's exactly what happened last year when a garden-variety recession transformed almost overnight into a jobs depression. Growth is not always good.
Putting jobs in perspective, let us say that the latest jobs number show 1 in 5 workers are unemployed or underemployed. Let us also say that the average worker works 2000 hours per year, counting commuting time. Why couldn't we get to full employment and have the average worker work 1600 hours per year, have more time off, and thus enjoy life more?
Now, I'm not specifically advocating for or against this outcome, but the underlying point is that the country must think through how it wants to allocate its human and physical resources. Does government at all levels have a necessary role in this process? Obviously. In a capitalist democracy, is it government's responsibility to decide on how hard people should work, how many motor vehicles should be in existence, how many homes of what square footage there should be and whether they should be rentals or "owned"? No. Especially when nowadays "ownership" means having little or no equity in the home. Sounds like renting under another name to me.
Public-private partnership re the economy? Yes, that's the way America grew. But a cursory review of the Declaration of Independence shows that governments are instituted among men to secure individual benefits, and the Constitution begins with "We, the people". Power emanates from the people. Government should be the servant and not the master. Thus Mr. Blow's op-ed has it backwards. The Feds need to do a better job regulating and improving the mess they helped create. The private sector in conjunction with more local governmental entities will work as hard as it wants doing work that it wishes to do to serve the real needs and desires of the people.
Copyright (C) Long Lake LLC 2009
Friday, July 31, 2009
The Dow-Gold Ratio and the Economy
From the Chart of the Day: a long-term perspective.
This chart is misleading in that it does not include dividend income from stocks. The outperformance of stocks vs. gold from 1980-2000 was greater than shown.
I would also quarrel with the downturn trendline. I believe that too much of the past year's ratio is shown outside the major downtrend.
Given the greater than usual lack of interest in policymakers in sound money these days, I would think that the general downtrend in the Dow/Gold ratio will tend to remain in force, though it would not be surprising to see the ratio move up a bit longer as the economy is tipped to be transitioning to the classic low-inflation, healing phase following a major econonic downturn.
Absent fundamental reform of the financial system, the primacy of the bankster-gamblers that was codified by the Clinton Administration with the effective repeal of Glass-Steagall a decade ago--which correlates with the peaking of the Dow/Gold rato--continues and therefore the existing trends are likely to remain in force.
A new silver ETF, symbol SIVR, is now available. Yours truly is an owner of it. The numbers of the silver bars it owns are published daily on the Net. And sophisticated gold buyers may want to own the Canadian version of GLD, symbol GTU. Perhaps it has a bit more certainty that the gold it says it physically owns is actually there than does GLD.
Note that the GDP number released today had worse than expected consumer numbers, but the overall number was less bad than predicted because of greater government spending. But remember that GDP was actually UP in Q2 2008.
The economy has been given the equivalent of blood count booster shots that dialysis patients, who suffer from chronic anemia, receive. Neither is a sign of good health. The economy remains in poor health, cyclical changes notwithstanding.
Copyright (C) Long Lake LLC 2009
Thursday, July 30, 2009
Presidental Popularity on the Economy Down as the Stock Market Parties as if a Boom was Booming
It used to be the case that the public's view of how the President was doing on the economy was a referendum on the economy.
With the economic activism of the Obama administration, perhaps to some degree the public is actually commenting on the policies of the government to a greater degree than usual, but I take the above data from a Pew Research poll to largely relate to the traditional view: this is a coincident indicator of the economy wrapped in the guise of a Presidential poll.
No green shoots are seen by the public as we enter the second half year of the 8 this President was elected to serve.
How long the stock market can rise as the public increasingly is upset with the President's handling of the economy is unclear. Certainly the more than tripling of the stock market in FDR's first term correlated quickly with improvement in the Depression.
For me, the above numbers are one more reason not to trust the stock rally; and to the extent that the public is concerned about the deficit despite massive underemployment, another prop to the bond market is strengthened.
Copyright (C) Long Lake LLC 2009
Tuesday, April 14, 2009
Of Pirates and Pakistanis
In life and in the (small) subset of life known as investing, it is important to pay attention to other matters than "they" want you to watch. Thus, the so-far successful diversion of the public's attention to some AIG executives to cover up AIG's disclosure of its (the Government's) payment of tens of billions of dollars to counterparties for unclear reasons. On a bigger picture, everyone knows about the economic banana and the difficult financial position of the large financial companies. One of the areas that has largely receded from the consciousness of investors is, however, geopolitics.
It is thus worth pointing out how strong a correlation geopolitics, and especially military (mis)adventures, has with the economy and investing.
Here's a brief summary.
In a "relief rally" after the end of hostilities after WW I, the U. S. boomed. Unfortunately, Germany had been subject to literally unending "reparations", monies the U. S. "lent" it so that gold could flow to England and France. As this crisis came to a head in the early 1930s, Germany began to remilitarize and the world's financial system fell into chaos due in part to massive indebtedness similar to what has happened recently.
After the U. S. dominated a suddenly peaceful world (Korea excepted), the geopolitics were great for America. Its population had real physical needs, money and resources were plentiful and cheap, and the economy and stock market boomed.
The Dow Jones peaked, adjusted for inflation, in 1965, more or less exactly as LBJ pushed through both the Great Society programs and a major escalation of war in Viet Nam. Alone, the Great Society was not especially inflationary, but the prolonged and very expensive war broke the camel's back. The other major geopolitical event that worked against the U. S. was another Cold War-related event, the 1973 war between the U. S. proxy Israel and the Soviet Union Arab proxies, led to the oil embargo and the sharp recession of 1973-75. The Soviet Union was on the march, and the U. S. economy managed to grow only with the help of massive money-printing.
No one could know it at the time, but by 1982, the geopolitics were beginning to go the way of the U. S., and the stock and bond markets embarked on sustained rallies along with the real economy. By the triumph of the West with the breakup of the Soviet Union and conversion of most of Eastern Europe to capitalism, the 1990s were fated to be a time of prosperity. When technology in general, and the formerly military technology of the Internet started booming in the mid-1990s, the stage was set for one of the greatest stock and investment bubbles in history.
With the 9/11 attacks and the twin wars in Afghanistan and Iraq, the geopolitics changed; all readers are familiar with recent political and market events.
Where are we now?
One the one hand, war against African pirates is a "Good War", and presumably a winnable one. Victory will increase corporate profits, increase national security, and certainly feel morally right. These sorts of wars cement American prestige and leadership, with the civilized world once again following our lead. USA! USA! (Obviously, execution of a successful plan is key to victory.)
On the other hand, there is a more important War going on in Pak-ghanistan (or, "Af-Pak" theater), which has the potential to be another Viet Nam. It is expensive enough to fight a war in a mountainous, almost roadless country of 25 million (Afghanistan); it is another to begin an aggressive drone war in a populous, nuclear-armed neighboring country.
If you want to understand Afghanistan, you should consider reading "Caravans", by James Michener. Great powers have quarreled over this tribal country for a long, long time. The people are far more conservative than Iraqis. The average American has no idea what life is like there, and really doesn't care.
EBR's investment advice: Watch what is going on in Pak-ghanistan closely to see how much it will or will not resemble another Viet Nam. Because "everyone" is watching the economic banana unfold, there is little your also watching it will do to provide you a competitive advantage in the investment front. Just as those who caught on early to the debt bubble (of which the housing bubble was the key part) were appropriately bearish on the economy and the markets, the smart money is going to be the money that correctly identifies trends that are not yet priced into the markets.
What goes on in North Korea is of little investment interest (absent war). If the stock market sells off allegedly due to some routine news item out of North Korea, that would tend to be a "buy" point.
On the other hand, America and its money were horribly harmed by a land war in Asia that Charles de Gaulle warned JFK against pursuing. One may have noticed little European enthusiasm at the recent London G20 meeting for the Obama ramp-up in Pak-ghanistan.
Victory by the U. S. against the Taliban/fundamentalists in the Af-Pak region will bring no great riches a la Arab oil or the productivity of the conquered Japan and Germany following WW II, but a draining war or a loss will be quite bad. Thus, EBR is concerned about the early risk-reward of the escalation from an investment standpoint, whether or not it is the "correct" strategy from a national security standpoint.
Copyright (C) Long Lake LLC 2009
Tuesday, March 17, 2009
Elaine Fitzgerald Knows What Her Places Are Worth!
Here's a virtually complete Florida-centric article, of special interest to those of us who call the Sunshine State home. It's a hard economic rain that's falling now from those sunny skies, sad to say.
Please recall that forward-looking economic indicators indicate that much worse such weather is coming our way.
One wonders if Ms. Elaine Fitzgerald, proprietress of rental units in Lauderdale, can hold to her pricing discipline as times get really bad. For inflationistas, please note a "mere" 20% pay cut for executives at an Amelia Island Resort. How far we are from the inflationary recessions of 1973-5 and 1980 and 1981-2!
From the online WSJ:
Austerity Tide Hits Florida Beaches
Tourism Industry Suffers as Businesses Cancel or Scale Back Events in the Sunshine State
By ALEX ROTH
AMELIA ISLAND, Fla. -- Luxury resorts are accustomed to unusual requests. But Amelia Island Plantation was surprised to get this one from a corporate event planner worried about a function appearing too extravagant: could the resort drop the word "island" from its address?
Only a scattering of people dotted the sand near the Ocean Drive strip in Miami Beach in late January. In the last quarter of 2008, the number of out-of-state visitors to Florida dropped 13.6% from a year earlier, the largest decline since the quarter following the Sept. 11, 2001, attacks.
Another potential client said it wouldn't consider any hotel with the words "spa" or "resort" in its title. A construction trade association canceled its 400-person annual convention at the resort scheduled for June, citing similar worries.
"I think they were concerned about the appearance that they were having the convention at a resort on a beach when companies were laying people off," said Mark Chesney, president of Travel Planners International Inc. of Marietta, Ga., who was organizing the event. Instead, the meeting will be held at a conference center in Atlanta.
For tourism officials in Florida, the drop-off at Amelia Island Plantation is an ominous sign that the tourism industry, the state's lifeblood, is in for a brutal year. Executives at the resort say they have lost about $750,000 in revenue since January, as businesses and trade groups shun the negative publicity associated with anything even remotely resembling a boondoggle.
In the final quarter of 2008, the number of out-of-state visitors to Florida dropped 13.6% from a year earlier, the largest quarterly decline since the quarter following the Sept. 11, 2001, terrorist attacks. Many tourism officials expect a double-digit-percentage drop in visitors in 2009, at a time when the state is reeling from other economic woes, including being among the hardest hit areas of the real-estate meltdown.
In Fort Lauderdale, owners of beachside rental properties that used to sell out months in advance still have vacancies as the spring-break season approaches.
A drop in tourist-related revenue hits especially hard in a state that has no personal-income tax and relies on tourism for a significant portion of its sales-tax revenue. In 2008, 82.5 million people visited Florida, according to state officials. Of the state's 18.8 million residents, nearly one million work in jobs linked to tourism.
Out-of-state visits are down at tourist destinations throughout the state, from the south Florida beaches popular with European travelers to the northern part of the state, which is especially popular with tourists from other parts of the Southeast. Many tourists who do visit the state are now making reservations at the last minute, "waiting for value," said Richard Goldman, chairman of the board of Visit Florida, a state-funded agency that promotes state tourism.
Nicki Grossman, president of the Greater Fort Lauderdale Convention and Visitors Bureau and past chair of Visit Florida, said every county in Florida has reported a drop in hotel-tax revenue. In January, Broward County's hotel occupancy rate was 71.3%, down from 90% in January 2008.
Elaine Fitzgerald, owner of five beach-area properties in Pompano Beach, said she has rented only 70% of her units for March. Usually, the month is sold out by the beginning of the year. She has reduced her minimum stay from a week to three days but is reluctant to discount rates, figuring it is important to "maintain the type of clientele that keeps our places attractive."
"Perception is reality," says Ms. Fitzgerald. "I know what my places are worth."
On Amelia Island, 30 miles northeast of Jacksonville, the impact of the tourism decline is particularly acute. Roughly 36% of the county's sales-tax revenue is generated by tourism.
More than half a million people annually visit the island, with its 13-mile coastline and historic downtown district. Nature lovers come to the island to witness loggerhead turtles nesting in the sand and whales swimming just off the coastline.
The island's two premier resorts -- Amelia Island Plantation and a Ritz-Carlton -- have lost a combined $6.2 million of convention and retreat business since the fall, according to Gil Langley, president of the Amelia Island Convention & Visitors Bureau.
Last month, BB&T Corp., a bank based in Winston Salem, N.C., that has received $3.1 billion in bailout money, canceled a March retreat at the Ritz for its top sales people. BB&T spokeswoman A.C. McGraw called the cancellation "a prudent business decision."
Amelia Island Plantation is an expansive resort with four golf courses, more than 20 tennis courts, a spa and condos that fetch up to $800 a night. Among the groups who recently canceled events there are a California food distributor, a Georgia construction trade association and an Ohio hardware manufacturer, according to the resort.
"We're hoping that eventually this hysteria goes away," said Visit Florida's Mr. Goldman, who is also the ocean resort's chief marketing officer. The resort's entire salaried staff recently took a 20% pay cut. The loss of business has rippled throughout the island's economy. Four restaurants on the island have closed in the past three months, Mr. Langley said. A designer-shoe retailer on the grounds of Amelia Island Plantation reports that business is down at least a quarter.
In past years, booking a room the week before the Concours d'Elegance -- an annual classic-car show that was held on the island over the weekend -- would have been next to impossible.
"I got three phone calls today from hotels saying they still have rooms available," Mr. Langley said three days before the event's scheduled start. "That's never happened before."
Please recall that forward-looking economic indicators indicate that much worse such weather is coming our way.
One wonders if Ms. Elaine Fitzgerald, proprietress of rental units in Lauderdale, can hold to her pricing discipline as times get really bad. For inflationistas, please note a "mere" 20% pay cut for executives at an Amelia Island Resort. How far we are from the inflationary recessions of 1973-5 and 1980 and 1981-2!
From the online WSJ:
Austerity Tide Hits Florida Beaches
Tourism Industry Suffers as Businesses Cancel or Scale Back Events in the Sunshine State
By ALEX ROTH
AMELIA ISLAND, Fla. -- Luxury resorts are accustomed to unusual requests. But Amelia Island Plantation was surprised to get this one from a corporate event planner worried about a function appearing too extravagant: could the resort drop the word "island" from its address?
Only a scattering of people dotted the sand near the Ocean Drive strip in Miami Beach in late January. In the last quarter of 2008, the number of out-of-state visitors to Florida dropped 13.6% from a year earlier, the largest decline since the quarter following the Sept. 11, 2001, attacks.
Another potential client said it wouldn't consider any hotel with the words "spa" or "resort" in its title. A construction trade association canceled its 400-person annual convention at the resort scheduled for June, citing similar worries.
"I think they were concerned about the appearance that they were having the convention at a resort on a beach when companies were laying people off," said Mark Chesney, president of Travel Planners International Inc. of Marietta, Ga., who was organizing the event. Instead, the meeting will be held at a conference center in Atlanta.
For tourism officials in Florida, the drop-off at Amelia Island Plantation is an ominous sign that the tourism industry, the state's lifeblood, is in for a brutal year. Executives at the resort say they have lost about $750,000 in revenue since January, as businesses and trade groups shun the negative publicity associated with anything even remotely resembling a boondoggle.
In the final quarter of 2008, the number of out-of-state visitors to Florida dropped 13.6% from a year earlier, the largest quarterly decline since the quarter following the Sept. 11, 2001, terrorist attacks. Many tourism officials expect a double-digit-percentage drop in visitors in 2009, at a time when the state is reeling from other economic woes, including being among the hardest hit areas of the real-estate meltdown.
In Fort Lauderdale, owners of beachside rental properties that used to sell out months in advance still have vacancies as the spring-break season approaches.
A drop in tourist-related revenue hits especially hard in a state that has no personal-income tax and relies on tourism for a significant portion of its sales-tax revenue. In 2008, 82.5 million people visited Florida, according to state officials. Of the state's 18.8 million residents, nearly one million work in jobs linked to tourism.
Out-of-state visits are down at tourist destinations throughout the state, from the south Florida beaches popular with European travelers to the northern part of the state, which is especially popular with tourists from other parts of the Southeast. Many tourists who do visit the state are now making reservations at the last minute, "waiting for value," said Richard Goldman, chairman of the board of Visit Florida, a state-funded agency that promotes state tourism.
Nicki Grossman, president of the Greater Fort Lauderdale Convention and Visitors Bureau and past chair of Visit Florida, said every county in Florida has reported a drop in hotel-tax revenue. In January, Broward County's hotel occupancy rate was 71.3%, down from 90% in January 2008.
Elaine Fitzgerald, owner of five beach-area properties in Pompano Beach, said she has rented only 70% of her units for March. Usually, the month is sold out by the beginning of the year. She has reduced her minimum stay from a week to three days but is reluctant to discount rates, figuring it is important to "maintain the type of clientele that keeps our places attractive."
"Perception is reality," says Ms. Fitzgerald. "I know what my places are worth."
On Amelia Island, 30 miles northeast of Jacksonville, the impact of the tourism decline is particularly acute. Roughly 36% of the county's sales-tax revenue is generated by tourism.
More than half a million people annually visit the island, with its 13-mile coastline and historic downtown district. Nature lovers come to the island to witness loggerhead turtles nesting in the sand and whales swimming just off the coastline.
The island's two premier resorts -- Amelia Island Plantation and a Ritz-Carlton -- have lost a combined $6.2 million of convention and retreat business since the fall, according to Gil Langley, president of the Amelia Island Convention & Visitors Bureau.
Last month, BB&T Corp., a bank based in Winston Salem, N.C., that has received $3.1 billion in bailout money, canceled a March retreat at the Ritz for its top sales people. BB&T spokeswoman A.C. McGraw called the cancellation "a prudent business decision."
Amelia Island Plantation is an expansive resort with four golf courses, more than 20 tennis courts, a spa and condos that fetch up to $800 a night. Among the groups who recently canceled events there are a California food distributor, a Georgia construction trade association and an Ohio hardware manufacturer, according to the resort.
"We're hoping that eventually this hysteria goes away," said Visit Florida's Mr. Goldman, who is also the ocean resort's chief marketing officer. The resort's entire salaried staff recently took a 20% pay cut. The loss of business has rippled throughout the island's economy. Four restaurants on the island have closed in the past three months, Mr. Langley said. A designer-shoe retailer on the grounds of Amelia Island Plantation reports that business is down at least a quarter.
In past years, booking a room the week before the Concours d'Elegance -- an annual classic-car show that was held on the island over the weekend -- would have been next to impossible.
"I got three phone calls today from hotels saying they still have rooms available," Mr. Langley said three days before the event's scheduled start. "That's never happened before."
Friday, March 6, 2009
To Dither or Not to Dither, that is the Question
Score another one for CR, who reports today that a Fed President has finally come around to the idea that the big banks are too big and sick to succeed, in "Fed's Hoenig: 'Too Big has Failed'" (this links to Calculated Risk's post on the topic).
Here is one small quote from the Hoenig speech itself, the link to which is here.
• Third, if institutions -- no matter what their size -- have lost market confidence and can’t survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses, and begin the process of restoring them to private ownership.
Meanwhile, if you are wondering why the stock market goes down almost every day and almost every week, Dr. Krugman opined in a New York Times op-ed yesterday as to why; the title gives his point away: "The Big Dither".
MSN Encarta defines "dither" as a noun meaning a state of nervous agitation or indecisiveness.
Clearly Krugman means the latter. From his op-ed:
Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”
Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic (emphasis added), over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.
While the Hoenig speech is lengthy, please read CR's post on it, and please read the Krugman editorial, which is concise.
As predicted in this blog since last year, the Obama administration early on made up its mind to continue the Bush-Paulson-Bernanke-Reid-Pelosi-Frank plan of doing nothing other than throwing money at the banksters who caused this mess and have been extorting money in unbelievable quantities, threatening to huff and puff and blow the house down if they didn't get the money. But they are bluffing. Their wealth is in the house, too.
At least there are hopeful signs that more than some bloggers and academics are realizing that dithering is no policy and that the public has an interest that is opposite from that of the banksters.
Everyone knows that the stock market is poised for a sharp move in one direction or the other.
The end of the first phase of the bear market is in sight if President Obama would find an excuse for Tim Geithner to resign and persuade Dr. Bernanke to go back to Princeton, and bring in some Swedes and Japanese who resolved their banking crises a decade or more ago to advise the President and the new heads of Treasury and the Fed.
In the meantime, the more the new president focuses on healthcare, green energy, and war in Afghanistan, the more he looks out of touch. The economy is the only paramount issue, and the major problem with the economy is the parlous state of the large complex financial institutions. Be not fooled by early polls. Mr. Obama is actually trailing one G W Bush in popularity at an equivalent time in each presidency.
Adjusted for inflation now vs. deflation in 1929-31, the stock market crash to date is the worst in the last century for the length of the bear market to date (about 17 months). Sooner rather than later, Barack Obama will own this economy in the minds of the public.
Dither no more, Mr. Obama. Tear down these banks.
Copyright (C) Long Lake LLC 2009
Here is one small quote from the Hoenig speech itself, the link to which is here.
• Third, if institutions -- no matter what their size -- have lost market confidence and can’t survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses, and begin the process of restoring them to private ownership.
Meanwhile, if you are wondering why the stock market goes down almost every day and almost every week, Dr. Krugman opined in a New York Times op-ed yesterday as to why; the title gives his point away: "The Big Dither".
MSN Encarta defines "dither" as a noun meaning a state of nervous agitation or indecisiveness.
Clearly Krugman means the latter. From his op-ed:
Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”
Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic (emphasis added), over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.
While the Hoenig speech is lengthy, please read CR's post on it, and please read the Krugman editorial, which is concise.
As predicted in this blog since last year, the Obama administration early on made up its mind to continue the Bush-Paulson-Bernanke-Reid-Pelosi-Frank plan of doing nothing other than throwing money at the banksters who caused this mess and have been extorting money in unbelievable quantities, threatening to huff and puff and blow the house down if they didn't get the money. But they are bluffing. Their wealth is in the house, too.
At least there are hopeful signs that more than some bloggers and academics are realizing that dithering is no policy and that the public has an interest that is opposite from that of the banksters.
Everyone knows that the stock market is poised for a sharp move in one direction or the other.
The end of the first phase of the bear market is in sight if President Obama would find an excuse for Tim Geithner to resign and persuade Dr. Bernanke to go back to Princeton, and bring in some Swedes and Japanese who resolved their banking crises a decade or more ago to advise the President and the new heads of Treasury and the Fed.
In the meantime, the more the new president focuses on healthcare, green energy, and war in Afghanistan, the more he looks out of touch. The economy is the only paramount issue, and the major problem with the economy is the parlous state of the large complex financial institutions. Be not fooled by early polls. Mr. Obama is actually trailing one G W Bush in popularity at an equivalent time in each presidency.
Adjusted for inflation now vs. deflation in 1929-31, the stock market crash to date is the worst in the last century for the length of the bear market to date (about 17 months). Sooner rather than later, Barack Obama will own this economy in the minds of the public.
Dither no more, Mr. Obama. Tear down these banks.
Copyright (C) Long Lake LLC 2009
Thursday, January 15, 2009
The Dow and the Economy
Let us look at the Dow Industrials that have reported earnings so far and what they indicate about the economy.
First, Alcoa reported. 'AA' lost money. Its working capital position is not strong. The stock continues to sell above tangible book value, and since it is a mature but money-losing company, with the economy definitely worse this quarter than last quarter, it is very possible if not likely for the stock to decline below tangible book, which is obviously declining due to the losses.
Next, J.P. Morgan Chase (+ Bear, Stearns Washington Mutual etc.) reported. Absent a one-time gain related to the WaMu acquisition, and other net gains such as $627 MM from dissolution of a joint venture (Paymentech) 'JPM' lost money. Tangible book value is about $18 per share, $8/share less than the stock price. Given the fragility of the financial system, the uncertainty of the value of Tier 3 assets, the certainty that this quarter will stink, the likelihood that the entire year will stink, it is easy to see the stock trading down to or below tangible book value. (The entire concept of a financial company having "tangible" assets is oxymoronic.)
Last, Intel announced virtually break-even earnings today. The stock has gone nowhere for over 12 years. Given prevailing risk-free interest rates in the late 1990s, it is clear that the stock was, with benefit of hindsight, drastically overpriced then. The Company trades at over two times sales per share. Sales growth has lagged nominal GDP for a decade or more. So, even the largest and most successful semiconductor company, which has destroyed its main competitor AMD, can't even grow sales as fast as nominal GDP. One can look for this stock to gradually trade down close to one times sales per share. The stock is $13-14 per share. The long-term chart shows 8-9 years of lower highs. The dividend was increased recently, just as operations were tanking. AIG did the same thing. That didn't reward shareholders well. This stock can go flat to down for years to come.
SUMMARY:
Here are 3 relatively well-run companies. All are large and highly cyclical. Alcoa and JP Morgan Chase are very old companies and Intel acts old and mature. None of them have any pizzazz. There is nothing new. These companies are reflective of the economy as a whole. It's creaky. They are at best marginally profitable going forward, smoothed over an "average" economic cycle.
Right now, things remind me most of the US economy in the early 1930s. There were 2 years, 1932 and 1933, when I believe that corporate America had no net profits. Could the same thing happen again? Oil companies are not going to make much at current oil prices and gasoline volumes; financials and GM are disasters; and Intel and Alcoa are collectively perhaps break-even going forward. Presumably IBM, HP and P&G will save the day, but Citi, BofA, and GM could lose many tens of billions of dollars.
The pattern is that unlike Intel's optimism that after the recession, there will be strong growth, I think that the U.S. is in a secular slow-growth phase. Corporate America can't keep promising growth year after year, not deliver it, and expect its stock price not to reflect the reality that this is a slow-growth economy at best. This is a Japan post-bubble flat-to-down stock price scenario if it is not a fast-crash 1929-32 scenario.
Copyright (C) Long Lake LLC
This could be Great Depression 2 from a profit standpoint.
First, Alcoa reported. 'AA' lost money. Its working capital position is not strong. The stock continues to sell above tangible book value, and since it is a mature but money-losing company, with the economy definitely worse this quarter than last quarter, it is very possible if not likely for the stock to decline below tangible book, which is obviously declining due to the losses.
Next, J.P. Morgan Chase (+ Bear, Stearns Washington Mutual etc.) reported. Absent a one-time gain related to the WaMu acquisition, and other net gains such as $627 MM from dissolution of a joint venture (Paymentech) 'JPM' lost money. Tangible book value is about $18 per share, $8/share less than the stock price. Given the fragility of the financial system, the uncertainty of the value of Tier 3 assets, the certainty that this quarter will stink, the likelihood that the entire year will stink, it is easy to see the stock trading down to or below tangible book value. (The entire concept of a financial company having "tangible" assets is oxymoronic.)
Last, Intel announced virtually break-even earnings today. The stock has gone nowhere for over 12 years. Given prevailing risk-free interest rates in the late 1990s, it is clear that the stock was, with benefit of hindsight, drastically overpriced then. The Company trades at over two times sales per share. Sales growth has lagged nominal GDP for a decade or more. So, even the largest and most successful semiconductor company, which has destroyed its main competitor AMD, can't even grow sales as fast as nominal GDP. One can look for this stock to gradually trade down close to one times sales per share. The stock is $13-14 per share. The long-term chart shows 8-9 years of lower highs. The dividend was increased recently, just as operations were tanking. AIG did the same thing. That didn't reward shareholders well. This stock can go flat to down for years to come.
SUMMARY:
Here are 3 relatively well-run companies. All are large and highly cyclical. Alcoa and JP Morgan Chase are very old companies and Intel acts old and mature. None of them have any pizzazz. There is nothing new. These companies are reflective of the economy as a whole. It's creaky. They are at best marginally profitable going forward, smoothed over an "average" economic cycle.
Right now, things remind me most of the US economy in the early 1930s. There were 2 years, 1932 and 1933, when I believe that corporate America had no net profits. Could the same thing happen again? Oil companies are not going to make much at current oil prices and gasoline volumes; financials and GM are disasters; and Intel and Alcoa are collectively perhaps break-even going forward. Presumably IBM, HP and P&G will save the day, but Citi, BofA, and GM could lose many tens of billions of dollars.
The pattern is that unlike Intel's optimism that after the recession, there will be strong growth, I think that the U.S. is in a secular slow-growth phase. Corporate America can't keep promising growth year after year, not deliver it, and expect its stock price not to reflect the reality that this is a slow-growth economy at best. This is a Japan post-bubble flat-to-down stock price scenario if it is not a fast-crash 1929-32 scenario.
Copyright (C) Long Lake LLC
This could be Great Depression 2 from a profit standpoint.
Saturday, January 3, 2009
"Stimulus" Plan Deconstructed
Multitudes are bidding up stocks and are, more broadly, expecting good things for the economy, because of America's second "stimulus" plan. The first one, hastily put together a year ago, did manage to prop up stock prices long enough to let all who saw matters clearly exit the market at attractive prices. This one has now been described today by the Pres-Elect. This blog would like to be an "Early Responder" on a hot Miami afternoon in winter.
What follows are Obama quotes in boldface and DoctoRx responses.
" . . . we risk falling into a deflationary spiral"
-Puh-leese! Ben knows how to pilot the Fed-i-copter. Since the Fed was created, money has lost about 97% of its value. Prior to creation of the Fed, prices were stable over centuries in this country. In any case, prices are up substantially over the last several years. A little settling back would help all consumers and savers.
"We'll put people back to work . . . building wind farms and solar panels; fuel-efficient cars . . ."
1. Wind farms and solar panels are highly cost-ineffective at anywhere near current energy prices. So, the cost per job will be gigantic. Welfare would likely be cheaper.
2. The Japanese, Koreans, and even Americans are already building fuel-efficient cars. Prius sales were down about 50% in November. Government should not direct production of one type of car or another. Tax incentives, gasoline taxes, etc. are perfectly adequate for those purposes.
"I will need and seek support from Republicans and Democrats . . ."
No, you don't need Republican support. What you are signaling is that Republican legislators, Governors and mayors can be sure that their constituents will share in the loot.
"What is not negotiable is the need for immediate action."
There were no significant Congressional hearings before the first stimulus package, the Bank of America-written housing bill in the summer, the TARP bill, etc. Congress has been lounging around all December and will continue to do so until they must show up in a cold D.C. this month. Where are the hearings and the research?
Translation: We let Bush and Paulson reward their friends with hundreds of billions of dollars. It's our turn now.
"Right now, there are millions of mothers and fathers who are lying awake at night wondering if next week's paycheck will cover next month's bills . . . These Americans need help, and they need it now."
This should argue for help to states for unemployment insurance, Medicaid, etc. Yet the plan is all about construction and a "down-payment" on something or other. The future, I think it is. Thus the invocation of people who are indeed hurting is irrelevant to the "stimulus".
Overall comment: Mr. Obama stated he intends to sign a bill promptly after taking office. One would think that for this alleged emergency, Congress would have been working non-stop to evaluate how best to spend the money, with safeguards against the inevitable waste and fraud that go into gigantic construction projects.
I conclude that the stimulus program is a fraud. Money will be borrowed from savers in the U.S. and worldwide, and/or printed out of thin air, for projects that will largely occur when the cyclical downturn has become a cyclical upturn. Many projects will never be completed. Some years from now, it will be reported on how large a percentage of this program was wasted.
Sen. Obama voted for the bogus "stimulus" package of a year ago, most of which helped out financial institutions, as most of it was saved. He voted for the alleged housing assistance bill this summer, which was reported to have been essentially written by Bank of America, and which was recently reported to have helped out almost no homeowners.
He voted with the rest of the Establishment for the corrupt bail-out "TARP" bill.
He was a gigantic recipient of Fannie/Freddie lobbying money in his short tenure as Senator.
There should be no doubt: This is a Government of continuity. The only real change is which branch of the Establishment is now ascendant. The ancien regime concluded that with the Bush/Republican brand in disrepute for the nonce, a biracial, well-spoken man would serve its interests better than a former President's wife. Help is on the way- for the entrenched powers in this country. But not for anyone you know- except "contractors". And not for investors- not yet.
What follows are Obama quotes in boldface and DoctoRx responses.
" . . . we risk falling into a deflationary spiral"
-Puh-leese! Ben knows how to pilot the Fed-i-copter. Since the Fed was created, money has lost about 97% of its value. Prior to creation of the Fed, prices were stable over centuries in this country. In any case, prices are up substantially over the last several years. A little settling back would help all consumers and savers.
"We'll put people back to work . . . building wind farms and solar panels; fuel-efficient cars . . ."
1. Wind farms and solar panels are highly cost-ineffective at anywhere near current energy prices. So, the cost per job will be gigantic. Welfare would likely be cheaper.
2. The Japanese, Koreans, and even Americans are already building fuel-efficient cars. Prius sales were down about 50% in November. Government should not direct production of one type of car or another. Tax incentives, gasoline taxes, etc. are perfectly adequate for those purposes.
"I will need and seek support from Republicans and Democrats . . ."
No, you don't need Republican support. What you are signaling is that Republican legislators, Governors and mayors can be sure that their constituents will share in the loot.
"What is not negotiable is the need for immediate action."
There were no significant Congressional hearings before the first stimulus package, the Bank of America-written housing bill in the summer, the TARP bill, etc. Congress has been lounging around all December and will continue to do so until they must show up in a cold D.C. this month. Where are the hearings and the research?
Translation: We let Bush and Paulson reward their friends with hundreds of billions of dollars. It's our turn now.
"Right now, there are millions of mothers and fathers who are lying awake at night wondering if next week's paycheck will cover next month's bills . . . These Americans need help, and they need it now."
This should argue for help to states for unemployment insurance, Medicaid, etc. Yet the plan is all about construction and a "down-payment" on something or other. The future, I think it is. Thus the invocation of people who are indeed hurting is irrelevant to the "stimulus".
Overall comment: Mr. Obama stated he intends to sign a bill promptly after taking office. One would think that for this alleged emergency, Congress would have been working non-stop to evaluate how best to spend the money, with safeguards against the inevitable waste and fraud that go into gigantic construction projects.
I conclude that the stimulus program is a fraud. Money will be borrowed from savers in the U.S. and worldwide, and/or printed out of thin air, for projects that will largely occur when the cyclical downturn has become a cyclical upturn. Many projects will never be completed. Some years from now, it will be reported on how large a percentage of this program was wasted.
Sen. Obama voted for the bogus "stimulus" package of a year ago, most of which helped out financial institutions, as most of it was saved. He voted for the alleged housing assistance bill this summer, which was reported to have been essentially written by Bank of America, and which was recently reported to have helped out almost no homeowners.
He voted with the rest of the Establishment for the corrupt bail-out "TARP" bill.
He was a gigantic recipient of Fannie/Freddie lobbying money in his short tenure as Senator.
There should be no doubt: This is a Government of continuity. The only real change is which branch of the Establishment is now ascendant. The ancien regime concluded that with the Bush/Republican brand in disrepute for the nonce, a biracial, well-spoken man would serve its interests better than a former President's wife. Help is on the way- for the entrenched powers in this country. But not for anyone you know- except "contractors". And not for investors- not yet.
Wednesday, December 31, 2008
Ring in the Old
With a sort of victory in Iraq (i.e., non-defeat) and a record collapse of oil prices, the New Year should be being greeted with optimism. Instead, the public mood is sour. Current and future economic conditions are adjudged terrible by consumers and business people alike. Why?
The problem is that there's nothing new and exciting. Record low Treasury borrowing costs are new, but not exciting. Neither is another refi wave, tonic though it may be for a while. Neither is, anymore, the digitalization of the world. The stock market is boring. Stocks are Old Economy, manipulated, and suffer from prices that are a decade old. Old institutions such as broker-dealers are despised, but nothing new is apparent to take their place. Large companies that own banks also own lots of their own bad loans and have sucked the life force out of the economy. The result is that an equally old industry, retail, has received no government largesse and is collapsing. An old but less old industry, automobile assembly, has maxed out and is in at best a no-growth state in the industrialized world. Margins have nowhere to go but down. The war in Afghan-land is old, boring and depressing. That there is steady progress in medical therapy is marvelous, but we take it for granted and so is no longer new or exciting on a big-picture basis. Even our very safe country, with the fear following 9/11 faded, is (happily) boring.
The newest new thing, a President with an African father, is proposing a very old solution to our economic problem: build and repair roads. One can imagine a Roman emperor prescribing the same remedy. To keep people off the streets, put them to work on the streets. The problem is that unlike in FDR's time, or even Jimmy Carter's, the US Gov is itself financially over-leveraged. It beggars common sense to believe that what is wrong with America's economy is insufficient well-paved roadway. It therefore beggars common sense to believe that borrowing and printing money to improve the quantity and quality of roadway will fix our problems. More likely, it will just lead to more traffic delays. Motorists will be treated on a larger scale to viewing lots of heavy equipment by roadways with no one working, or perhaps a road crew here or there. So this new President hasn't yet proposed an exciting solution.
And it is hardly worth mentioning that the current crew in DC hasn't come up with anything new or exciting. Even though an economically dysfunctional Executive Branch is leaving, a dysfunctional Congress remains, and a dysfunctional Fed continues to bail out no one you know. The three most important Cabinet posts in the Obama administration are going to: Clinton's last Treasury Sec'y, Clinton's wife, and the current President's Sec'y of Defense. This is not change anyone can believe is change. It's not new and it's not exciting. It is at best competency/experience and at worst evidence of the thinness of our "bench" and/or of Obama's real lack of zest for change.
We would love to put old bad things behind us. The problem is that there is no new new exciting big thing visible. And so we slouch toward the new year that feels like the old one.
The problem is that there's nothing new and exciting. Record low Treasury borrowing costs are new, but not exciting. Neither is another refi wave, tonic though it may be for a while. Neither is, anymore, the digitalization of the world. The stock market is boring. Stocks are Old Economy, manipulated, and suffer from prices that are a decade old. Old institutions such as broker-dealers are despised, but nothing new is apparent to take their place. Large companies that own banks also own lots of their own bad loans and have sucked the life force out of the economy. The result is that an equally old industry, retail, has received no government largesse and is collapsing. An old but less old industry, automobile assembly, has maxed out and is in at best a no-growth state in the industrialized world. Margins have nowhere to go but down. The war in Afghan-land is old, boring and depressing. That there is steady progress in medical therapy is marvelous, but we take it for granted and so is no longer new or exciting on a big-picture basis. Even our very safe country, with the fear following 9/11 faded, is (happily) boring.
The newest new thing, a President with an African father, is proposing a very old solution to our economic problem: build and repair roads. One can imagine a Roman emperor prescribing the same remedy. To keep people off the streets, put them to work on the streets. The problem is that unlike in FDR's time, or even Jimmy Carter's, the US Gov is itself financially over-leveraged. It beggars common sense to believe that what is wrong with America's economy is insufficient well-paved roadway. It therefore beggars common sense to believe that borrowing and printing money to improve the quantity and quality of roadway will fix our problems. More likely, it will just lead to more traffic delays. Motorists will be treated on a larger scale to viewing lots of heavy equipment by roadways with no one working, or perhaps a road crew here or there. So this new President hasn't yet proposed an exciting solution.
And it is hardly worth mentioning that the current crew in DC hasn't come up with anything new or exciting. Even though an economically dysfunctional Executive Branch is leaving, a dysfunctional Congress remains, and a dysfunctional Fed continues to bail out no one you know. The three most important Cabinet posts in the Obama administration are going to: Clinton's last Treasury Sec'y, Clinton's wife, and the current President's Sec'y of Defense. This is not change anyone can believe is change. It's not new and it's not exciting. It is at best competency/experience and at worst evidence of the thinness of our "bench" and/or of Obama's real lack of zest for change.
We would love to put old bad things behind us. The problem is that there is no new new exciting big thing visible. And so we slouch toward the new year that feels like the old one.
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