Discover Financial sponsors a large poll of consumers. The upbeat title of its August survey is unfortunately misleading. Discover® U.S. Spending MonitorSM Rebounds in August, Rising 3.5 Points as More Consumers Gain Confidence in the Economy is the title, but the rise is all in the expectations. Here are some of the facts:
For the third straight month, over 50 percent of consumers plan on cutting discretionary personal spending in the month ahead. In August, 52 percent planned on spending less on going out to dinner, movies, or sporting events. Other than May 2009, this number has stayed at or above 50 percent for the last 18 months.
Despite the recent improvements in the housing market, more consumers, 53 percent, plan on cutting home improvement expenses in the month ahead, a 3-point increase from July. Nearly half, 48 percent, are also planning to cut major personal purchases, like vacations, out of their budgets.
The following is telling:
Improved economic and financial confidence did not lead to more consumers having money left over after paying the monthly bills. Only 46 percent reported money left over in August, a Monitor-low and 5 points lower than a year ago. Furthermore, of those who did have money left over, 22 percent reported having less money left over than the previous month, a 3-point rise from July and the highest this number has been since December 2008.
Here's the only real "sort-of" good news:
Only 46 percent of consumers feel economic conditions are getting worse, a Monitor low and 6 points less than July. In August 2008, 65 percent of consumers felt economic conditions were deteriorating.
An improved economic outlook also correlates with less consumers feeling their finances are getting worse. In August, 46 percent of consumers felt their finances were headed in the wrong direction, a 5-point improvement from July and the lowest this number has been since December 2007.
Regarding the above two paragraphs, the first can be discounted because most people have only a vague grasp of the general economy. Even "experts" don't know much! Re the second paragraph, it's not clear how to square that with the personal data showing only 46% of respondents having money left over after paying their bills, a Monitor-low number.
Overall, this poll of 8200 people polled nightly throughout August is consistent with the Gallup data that shows that people are more optimistic about the future than they are actually seeing improvement in the here and now. I would posit that this explains the stock market rise and that there has been a positive feedback loop therein. A falling stock market and some downbeat talk out of "authorities" could similarly feed on itself, given the reality of year on year aggregate loss of wages and therefore buying power.
Further unfortunately, many profitable companies such as IBM and P&G have no or negative tangible net worth, so if stock prices start falling, they are in the same boat as consumers: lacking reserves to cushion bad times. No one can know where the bottom is if their business prospects turn down because they have become so leveraged.
Copyright (C) Long Lake LLC 2009
Showing posts with label Procter and Gamble. Show all posts
Showing posts with label Procter and Gamble. Show all posts
Wednesday, September 2, 2009
Wednesday, February 11, 2009
Not Lovin' It Cause They're Still Doin' It
STOCKS
The only Dow 30 stock to be up year on year is McDonald's. This blog has highlighted MCD several times this year as one to watch. Unfortunately, it has begun to break down on the charts. It declined a bit today as the Dow rallied a bit and has broken to a more than one-month price low despite a recent positive earnings surprise and rising earnings estimates for both 2009 and 2010. When the leader starts rolling over despite good news, beware. Perhaps the downmarket move from Starbucks discussed here yesterday, and related competition, is behind the growing weakness in the stock.
Meanwhile, the head of the International Monetary Fund has said that the U.S. and most of the rich countries are in a depression, not recession. What is the natural trend of stock prices in a depression? Down indeed. Trying to pick a bottom remains a job for gamblers.
For example, Procter & Gamble stock has fallen almost by 1/3 in 1/2 year, to about a 5-year low. Poof! Five years worth of stock gains vanished. And that's with earnings having exceeded expectations most of that time. Let's see what happens with continued earnings estimate reductions. If this stock continues falling, then at some point analysts will point out what this blog has already detailed, which is that P&G has a large negative tangible book value. So, what is the company worth on a fundamental basis? The answer is that no one has any idea. Your guess is probably better than that of an analyst, who talks to management and therefore is continuously spoon-fed garbage.
BONDS
In other markets, this blogger put his money where his mouth was and indeed purchased 10-year Treasury bonds two days ago at what for now is the peak of the large correction/bear market in yields. The theory is that Treasuries are seriously hated and we may be at a peak in that hatred. Also, barring true Weimar Republic/Zimbabwean hyperinflation or out-and-out default, there is no such thing as a bubble in Treasuries the way there was a bubble in Internet stocks in 1999. Hold to maturity if you must and you will get the stated yield. In the meantime, I purchased a zero-coupon security, which both has a higher yield than a par bond and has greater price appreciation for every up-move in bond prices. We'll see. Not that that anyone has forgotten around these parts that going back to FDR, a Democratic President combined with a Democratic Congress have generally been bad news for bond prices. Yet the feeling remains that this is more like 1931, with more Great Recession/Minor Depression action yet to unfold, and that at some unpredictable point this year, investors and speculators will get scared again big-time and rush back to Treasuries, temporarily ignoring the tsunami of debt issuance. In that scenario, they will dump corporates and munis, just as they did last year. It should be interesting.
GOLD
Gold has gone to a six-month high. For the first time in some time, the 12-month return on gold as judged by the GLD stock is positive. Despite the positive price action and all the reasons to fear inflation, the fact is that deflation is the order of the day. Furthermore, there is so much current slack in the U.S. and global economy that even if we are at the bottom of the economic cycle, historically inflation diminishes as recovery begins. Extra production can come on at very low marginal cost, so the per-unit cost of production drops as demand increases.
(That includes labor costs.) So re gold, there is little conviction here about its next major move, but the suspicion remains that deflationary fundamentals could push it a lot lower. That would surprise the greatest number of people, it would appear, and markets love to do that, don't they?
OTHER
The Japanese stock market would look like a screaming buy if its chart were turned upside down and if the economic data had positive instead of negative signs. Japan's stocks are a disaster and represent a cautionary example for the U.S. The Japanese stock market is roughly 20 years from its peak. It is down about 80% nominally. Japanese Government bonds yield less than the dividend yield on stocks, but that was also the case months ago, when stocks were much higher. The Nikkei 225 has broken below its declining 50 day moving average and is down 2% in the morning session in Tokyo. There is no obvious bottom for the Japanese stock market.
The recent established order, the nouveau ancien regime, is crumbling. This order is/was based at its core on financialization of anything and everything that could be financialized. Enron did it. So did and do IBM, P&G, AT&T, and especially GE. Even hawkers of precious metals, God forbid, did it. Caveat emptor and caveat "holder".
For me, it's enough to recall Cole Porter: "Birds do it; bees do it; even educated fleas do it; let's do it, let's fall in love".
But don't fall in love with any financial product. For now, purchases should be with a renter's mindset.
Copyright (C) Long Lake LLC 2009
The only Dow 30 stock to be up year on year is McDonald's. This blog has highlighted MCD several times this year as one to watch. Unfortunately, it has begun to break down on the charts. It declined a bit today as the Dow rallied a bit and has broken to a more than one-month price low despite a recent positive earnings surprise and rising earnings estimates for both 2009 and 2010. When the leader starts rolling over despite good news, beware. Perhaps the downmarket move from Starbucks discussed here yesterday, and related competition, is behind the growing weakness in the stock.
Meanwhile, the head of the International Monetary Fund has said that the U.S. and most of the rich countries are in a depression, not recession. What is the natural trend of stock prices in a depression? Down indeed. Trying to pick a bottom remains a job for gamblers.
For example, Procter & Gamble stock has fallen almost by 1/3 in 1/2 year, to about a 5-year low. Poof! Five years worth of stock gains vanished. And that's with earnings having exceeded expectations most of that time. Let's see what happens with continued earnings estimate reductions. If this stock continues falling, then at some point analysts will point out what this blog has already detailed, which is that P&G has a large negative tangible book value. So, what is the company worth on a fundamental basis? The answer is that no one has any idea. Your guess is probably better than that of an analyst, who talks to management and therefore is continuously spoon-fed garbage.
BONDS
In other markets, this blogger put his money where his mouth was and indeed purchased 10-year Treasury bonds two days ago at what for now is the peak of the large correction/bear market in yields. The theory is that Treasuries are seriously hated and we may be at a peak in that hatred. Also, barring true Weimar Republic/Zimbabwean hyperinflation or out-and-out default, there is no such thing as a bubble in Treasuries the way there was a bubble in Internet stocks in 1999. Hold to maturity if you must and you will get the stated yield. In the meantime, I purchased a zero-coupon security, which both has a higher yield than a par bond and has greater price appreciation for every up-move in bond prices. We'll see. Not that that anyone has forgotten around these parts that going back to FDR, a Democratic President combined with a Democratic Congress have generally been bad news for bond prices. Yet the feeling remains that this is more like 1931, with more Great Recession/Minor Depression action yet to unfold, and that at some unpredictable point this year, investors and speculators will get scared again big-time and rush back to Treasuries, temporarily ignoring the tsunami of debt issuance. In that scenario, they will dump corporates and munis, just as they did last year. It should be interesting.
GOLD
Gold has gone to a six-month high. For the first time in some time, the 12-month return on gold as judged by the GLD stock is positive. Despite the positive price action and all the reasons to fear inflation, the fact is that deflation is the order of the day. Furthermore, there is so much current slack in the U.S. and global economy that even if we are at the bottom of the economic cycle, historically inflation diminishes as recovery begins. Extra production can come on at very low marginal cost, so the per-unit cost of production drops as demand increases.
(That includes labor costs.) So re gold, there is little conviction here about its next major move, but the suspicion remains that deflationary fundamentals could push it a lot lower. That would surprise the greatest number of people, it would appear, and markets love to do that, don't they?
OTHER
The Japanese stock market would look like a screaming buy if its chart were turned upside down and if the economic data had positive instead of negative signs. Japan's stocks are a disaster and represent a cautionary example for the U.S. The Japanese stock market is roughly 20 years from its peak. It is down about 80% nominally. Japanese Government bonds yield less than the dividend yield on stocks, but that was also the case months ago, when stocks were much higher. The Nikkei 225 has broken below its declining 50 day moving average and is down 2% in the morning session in Tokyo. There is no obvious bottom for the Japanese stock market.
The recent established order, the nouveau ancien regime, is crumbling. This order is/was based at its core on financialization of anything and everything that could be financialized. Enron did it. So did and do IBM, P&G, AT&T, and especially GE. Even hawkers of precious metals, God forbid, did it. Caveat emptor and caveat "holder".
For me, it's enough to recall Cole Porter: "Birds do it; bees do it; even educated fleas do it; let's do it, let's fall in love".
But don't fall in love with any financial product. For now, purchases should be with a renter's mindset.
Copyright (C) Long Lake LLC 2009
Monday, January 19, 2009
Procter & Gambling
This blog is devoted to matters of equity, in both the moral and financial senses of the word. We are not interested in providing stock analysis, except where such is relevant to broader economic, financial and related policy considerations. That said, we live in a world where stocks are major actors in our economic system, one which is unbalanced. It is no longer news that our large financial companies are troubled. It is also not news that General Electric is at least half a financial company, and that that half is troubled. What may be news is the extent to which a prototypical consumer non-durable company is an emperor that also has no clothes.
Consider Procter & Gamble. The company has been around longer than you or me. It seems as secure as the Royal Bank of Scotland seemed not long ago. It raises its dividend yearly. Yet what we have learned in the past year and a half is to ignore dividends (yes, they can lie) and restrain our enthusiam for the value of profit and loss statements. What we need to really focus on is a company's balance sheet. It will surprise many that Procter & Gamble basically reports that it is in a sense running on fumes. This writeup relies on P&G's SEC filing of its September 2008 quarter, as reported on Yahoo's Finance site.
Consider:
Total current assets: $25 B
Total current liabilities: $38 B
Therefore net working capital is negative $13 B. (Ed.: This is real money, even for a bank!)
Worse, cash plus receivables are $4 B less than payables.
Surely, a rich old company such as P&G must have lots of long-term assets. Well, not exactly.
Property, plant and equipment plus "other assets" are $24 B.
Long-term liabilities are $38 B.
Excluding intangible and good-will assets, the Company has a long-term asset balance sheet that is valued at negative $14 B.
The tangible net worth of "PG" is negative 26.7 billion dollars.
Now, what are its business prospects? I have no idea, neither do you, and really neither does the company. The U.S. and the other parts of the world where P&G makes the bulk of its profits are slow-growth/no-growth sectors at best, but are currently experiencing a new era of frugality. In the current environment, people will buy store brands like crazy. I hear that local dentists are laying off receptionists and struggling to pay their bills, people are deferring getting their teeth cleaned, etc. In that environment, people will definitely save a buck or two buying cheaper toothpaste (which doesn't do much for you other than lubricating a toothbrush when it removes stuff from your teeth, anyway, I am told by my dentist), cheaper toothbrushes, cheaper household goods . . . and thus P&G is, you can be certain, either experiencing margin pressure and/or sales volume pressure.
I have no idea whether the stock market has discounted all this and for purposes of this blog I have no interest in whether PG is a good investment or not. The point here is that there is really less "there" there in the company beyond its current turnover than one would think. PG is yet another example of financial engineering; it has a stock market value of $172 B against its -$27 B of tangible net worth. If economic times stay bad and business goes downhill, there is little obvious asset base behind this company. Contrast that with Apple Computer, which in a down-cycle for its business prospects several years ago was a financial fortress, with massive amounts of cash and no debt.
As long as Apple got a mention and some praise (and it remains debt-free), consider also the venerable AT&T, which markets Apple's IPhone. "T" is a twin to P&G financially: negative $23 B in tangible net worth (much of which may be overstated due to technologic innovation) against a stock market value of $149 B.
When we look hard at these behemoths, there's less "there" there than we think. That's a trend that goes on and on, in differing degrees, to IBM, GE, the Dow Transports, most NASDAQ stocks (check out Oracle's $4 B negative tangible net worth), etc. We all want to hope for the best, but Dr. Taleb of the Black Swan keeps pointing out that we have to look out below.
To change metaphors, we may be in a sort of eye of the storm. We know we've been battered, but we see stability and help from low money rates and other central bank maneuvers, and know (or think) we can repair the damage to date. As a Floridian, I know to fear the winds that come from the other direction after the eye passes at least as much as the first blow. And I fear that the next blow will be from an unexpected direction. It may be that the P&G's and AT&T's of the world will blow up next.
Not a prediction, certainly not a hope, but definitely a caution.
Copyright (C) Long Lake LLC
Consider Procter & Gamble. The company has been around longer than you or me. It seems as secure as the Royal Bank of Scotland seemed not long ago. It raises its dividend yearly. Yet what we have learned in the past year and a half is to ignore dividends (yes, they can lie) and restrain our enthusiam for the value of profit and loss statements. What we need to really focus on is a company's balance sheet. It will surprise many that Procter & Gamble basically reports that it is in a sense running on fumes. This writeup relies on P&G's SEC filing of its September 2008 quarter, as reported on Yahoo's Finance site.
Consider:
Total current assets: $25 B
Total current liabilities: $38 B
Therefore net working capital is negative $13 B. (Ed.: This is real money, even for a bank!)
Worse, cash plus receivables are $4 B less than payables.
Surely, a rich old company such as P&G must have lots of long-term assets. Well, not exactly.
Property, plant and equipment plus "other assets" are $24 B.
Long-term liabilities are $38 B.
Excluding intangible and good-will assets, the Company has a long-term asset balance sheet that is valued at negative $14 B.
The tangible net worth of "PG" is negative 26.7 billion dollars.
Now, what are its business prospects? I have no idea, neither do you, and really neither does the company. The U.S. and the other parts of the world where P&G makes the bulk of its profits are slow-growth/no-growth sectors at best, but are currently experiencing a new era of frugality. In the current environment, people will buy store brands like crazy. I hear that local dentists are laying off receptionists and struggling to pay their bills, people are deferring getting their teeth cleaned, etc. In that environment, people will definitely save a buck or two buying cheaper toothpaste (which doesn't do much for you other than lubricating a toothbrush when it removes stuff from your teeth, anyway, I am told by my dentist), cheaper toothbrushes, cheaper household goods . . . and thus P&G is, you can be certain, either experiencing margin pressure and/or sales volume pressure.
I have no idea whether the stock market has discounted all this and for purposes of this blog I have no interest in whether PG is a good investment or not. The point here is that there is really less "there" there in the company beyond its current turnover than one would think. PG is yet another example of financial engineering; it has a stock market value of $172 B against its -$27 B of tangible net worth. If economic times stay bad and business goes downhill, there is little obvious asset base behind this company. Contrast that with Apple Computer, which in a down-cycle for its business prospects several years ago was a financial fortress, with massive amounts of cash and no debt.
As long as Apple got a mention and some praise (and it remains debt-free), consider also the venerable AT&T, which markets Apple's IPhone. "T" is a twin to P&G financially: negative $23 B in tangible net worth (much of which may be overstated due to technologic innovation) against a stock market value of $149 B.
When we look hard at these behemoths, there's less "there" there than we think. That's a trend that goes on and on, in differing degrees, to IBM, GE, the Dow Transports, most NASDAQ stocks (check out Oracle's $4 B negative tangible net worth), etc. We all want to hope for the best, but Dr. Taleb of the Black Swan keeps pointing out that we have to look out below.
To change metaphors, we may be in a sort of eye of the storm. We know we've been battered, but we see stability and help from low money rates and other central bank maneuvers, and know (or think) we can repair the damage to date. As a Floridian, I know to fear the winds that come from the other direction after the eye passes at least as much as the first blow. And I fear that the next blow will be from an unexpected direction. It may be that the P&G's and AT&T's of the world will blow up next.
Not a prediction, certainly not a hope, but definitely a caution.
Copyright (C) Long Lake LLC
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