With Jeremy Grantham's valuation models suggesting that the average large cap and the average small cap US stock will underperform an A-rated 7-year non-callable tax-exempt bond, it strikes yours truly as the sign of a top or at least topping process when even the bears are bullish. Here is a compendium:
Carter Worth of Oppenheimer is insistent that a correction is due-- but he expects it's onward and upward after that. If so, how can he be sure that a correction is coming, and why should a client take the risk of missing the up-move just to catch what may be as little as a brief 6% decline that could be reversed in less than one bullish week? (LINK)
More pertinent, Zero Hedge quotes Bob Janjuah- a well-known bear- as predicting new highs-- then the usual call for a crash. But-- new highs! So- stay in is the message, or at least buy the dip. (LINK)
Perhaps most dramatic is the turnaround from the economic bears ECRI. They have been talking recession since September 2011. In their public commentary introducing their recession call back then, they referenced a dire state of affairs. Something to the effect that if you thought the Great Recession was bad, just wait until you see how bad things will get soon. Now they have changed their tune. They allege that the US is still in a recession, but it's mild, and they point out that in 1945 and 1980, recessions were associated with bull markets in stocks. But what the emphasize is the other modern recession with a bull, not bear stock market- 1927. That's the one they highlight. The message is clear: buy stocks, a massive bull market may await (LINK).
The well-known bear Gary Shilling, who I believe was predicting a recession both in 2011 and definitely was predicting one for 2012, is out with a series of articles in BBG predicting deflation-- but now it's the "good" deflation. It's the sunniest article, of many, I've ever seen out of him (LINK). It's called The Benefits of Chronic Deflation. But it's good deflation!
Richard Russell, who 1-3 years ago was calling our times a depression, worrying about his grandchildren, etc., and who a year-and-a-half ago was espying "gold fever" as gold got to its 2011 peak, is now-- what else-- bullish. Why is he bullish? Silly question. Stocks are going up! Gasp - the industrials are going up and- mirabile dictu- so are the trannies. Thus, res ipsa loquitur- buy, baby, buy. Did you evah-- they printed money, speculators speculated, they speculated in both industrials and transportation stocks-- so, many Dow points higher than when he was bearish, he is now bullish.
These are just some examples. Rosie turned bullish a while ago. So did Tyler of ZH.
The fly in the ointment is that the latest crutch to GDP, the newest potential bubble, is not housing and it is certainly not tech (that was so 20th century)-- it is Federalizing education by calling aid to students "loans". The problem is that many of them can't pay the loans back. This is turning into a decent-sized problem. Then there is the issue that it was recently casually reported at the end of a (what else?) bullish BBG or Reuters article on the wonderful recovery in auto sales that something like 42% of new auto loans were subprime.
If interest rates were really too low, the ubiquitous "they" wouldn't have to resort to this sort of stuff to keep appearances up. Students would get loans to go to school, then they would get jobs, and pay back or their loans. Many of them would not want to waste time in school, because they would prefer just to be working and earning money rather than being bored in school at great expense. But from the standpoint of the current crop of politicians, getting these people in school means they are not counted as unemployed.
So it goes.
There are a few boring stocks I like, such as LNC, which trades way under book value with record and rising earnings and a low P/E. But overall, there's lot of hopium. The US economy- remember that- continues in its prescribed Reinhart-Rogoff pattern of moseying along with several more years of working through the horrible and spectacular collapse of the 2008 period; said collapse made a mockery of many years of financial statements and underlying assumptions about the economy. Thus ZIRP and more ZIRP.
But overall, as Jim Rogers said very recently, those of us of a certain age just watch the bulls running. We can't run fast enough anymore to run with them, and if you short a bull run, you're liable to get trampled, so you just go about your life and let the speculators go about theirs.
Showing posts with label bears. Show all posts
Showing posts with label bears. Show all posts
Tuesday, March 26, 2013
Friday, April 24, 2009
Ford-tastic?
Ford Motor Co. had an earnings "beat" (surprise!). In Bloomberg's Ford Loss Is Smaller Than Estimates as Cash Use Drops (Update2), the following quote is presented:
Excluding items the second-largest U.S. automaker considers one-time costs, the loss of $1.8 billion, or 75 cents a share, beat the $1.24 average of 11 analyst estimates compiled by Bloomberg.
“This is a fantastic performance,” John Wolkonowicz, an IHS Global Insight analyst in Lexington, Massachusetts, said today. “They’re burning cash at a much lower rate. They’re going to come out of this OK. I now believe they won’t need a government handout.”
What Bloomberg goes on to report (below-the-fold, as it were) is:
Ford’s U.S. vehicle sales fell 43 percent, contributing to its largest first-quarter loss since 1992.
The net loss was $1.4 billion, or 60 cents a share, compared with net income of $70 million, or 3 cents, a year earlier, the company said.
Revenue fell to $24.8 billion from $39.2 billion, excluding special items, as Ford slashed North American production by half. The average analyst estimate was for $23.2 billion.
The automaker has been able to forgo U.S. aid because it borrowed $23 billion in 2006 before credit markets froze. As collateral for that financing, which Mulally called “the world’s largest home equity loan,” Ford put up all major assets, including its headquarters and blue oval logo.
Ford lost a record $14.7 billion in 2008, and analysts expect the company to be unprofitable this year and next. Mulally has said he expects to break even by 2011.
Here are some of Ford's financials as of 12/31/08 as reported to the SEC (per Yahoo's Finance section):
Net tangible assets: Negative $19 B
Net working capital: Negative $31 B
Ford is going to continue to lose money year after year. Some "performance".
On second thought, it is a performance: the stock market is now more of an act than usual. Much of it is a bad act. Perhaps Mr. Mulally is a better actor than Cerberus and the unending stream of guys whose names all kind of sound the same who have run GM into the ground decade after decade.
Re the stock market as a whole, Louise Yamada continues to hold to her bearish technical view as she recently has been pointing out that the averages are continuing the trend of finding resistance at progressively lower levels. Resistance now is around Dow 8000, down from 10,000 and then 9000.
Unfortunately supporting this bearish view is the alacrity with which insiders have jumped to the sell side, as Bloomberg reports in Insider Selling Jumps to Highest Level Since ‘07 as Stocks Gain":
Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market. . .
Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 mostly institutional clients.
That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992 . . .
Excluding items the second-largest U.S. automaker considers one-time costs, the loss of $1.8 billion, or 75 cents a share, beat the $1.24 average of 11 analyst estimates compiled by Bloomberg.
“This is a fantastic performance,” John Wolkonowicz, an IHS Global Insight analyst in Lexington, Massachusetts, said today. “They’re burning cash at a much lower rate. They’re going to come out of this OK. I now believe they won’t need a government handout.”
What Bloomberg goes on to report (below-the-fold, as it were) is:
Ford’s U.S. vehicle sales fell 43 percent, contributing to its largest first-quarter loss since 1992.
The net loss was $1.4 billion, or 60 cents a share, compared with net income of $70 million, or 3 cents, a year earlier, the company said.
Revenue fell to $24.8 billion from $39.2 billion, excluding special items, as Ford slashed North American production by half. The average analyst estimate was for $23.2 billion.
The automaker has been able to forgo U.S. aid because it borrowed $23 billion in 2006 before credit markets froze. As collateral for that financing, which Mulally called “the world’s largest home equity loan,” Ford put up all major assets, including its headquarters and blue oval logo.
Ford lost a record $14.7 billion in 2008, and analysts expect the company to be unprofitable this year and next. Mulally has said he expects to break even by 2011.
Here are some of Ford's financials as of 12/31/08 as reported to the SEC (per Yahoo's Finance section):
Net tangible assets: Negative $19 B
Net working capital: Negative $31 B
Ford is going to continue to lose money year after year. Some "performance".
On second thought, it is a performance: the stock market is now more of an act than usual. Much of it is a bad act. Perhaps Mr. Mulally is a better actor than Cerberus and the unending stream of guys whose names all kind of sound the same who have run GM into the ground decade after decade.
Re the stock market as a whole, Louise Yamada continues to hold to her bearish technical view as she recently has been pointing out that the averages are continuing the trend of finding resistance at progressively lower levels. Resistance now is around Dow 8000, down from 10,000 and then 9000.
Unfortunately supporting this bearish view is the alacrity with which insiders have jumped to the sell side, as Bloomberg reports in Insider Selling Jumps to Highest Level Since ‘07 as Stocks Gain":
Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market. . .
Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 mostly institutional clients.
That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992 . . .
Obviously the data only covers 2/3 of April, but considering that the Dow has almost tripled since the 1992 comparison month, we are looking at a huge diminution in insider buying over time.
As Nassim Taleb keeps reminding us, the past is a very imperfect predictor of the future, but I for one find the unchanging emphasis and dubious enthusiasm about beating (managed, lowered and poor) analysts' estimates; government-created bank "earnings"; and the refusal of many of the most eminent pre-bear market bears such as Louise Yamada, Nouriel Roubini and Meredith Whitney to change their tune to be important considerations. The Great Depression had shoots of green as well, with ECRI's long leading indicators showing largely positive year on year comparisons for about an entire year between 1930 and 1931.
Finally for now, please consider Mish's Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis. This blog has used/reported on the term "looting" for what has happened to the use of taxpayer funds to support stockholders and bondholders of financial companies.
EBR continues to believe that there are elements of both the Great Crash of 1929-32 and Watergate/S&L looting crisis extant. Anyone perhaps outside of Barack Obama and other insiders of the highest levels who believes he or she has a good read on how the future will unfold, including pricing of almost any asset, is in my humble opinion overly confident.
Copyritght (C) Long Lake LLC 2009
Saturday, April 11, 2009
The 2% Solution of Gold
From a strategic standpoint, probably the worst current news involves confirmation that Paul Volcker has indeed been marginalized, as reported in Volcker Assumes Smaller-Than-Expected Role With Obama in the WSJ. Bottom line is that he's out of the loop.
Regarding growth in the economy, it remains to be seen if A) Bernanke's green shoots are nothing but a false "Prague spring" or even if it is springtime in America's economy, B) will we then suffer T. S. Eliot's "unimaginable zero summer".
Unfortunately, the bears on the large financial companies such as Michael Mayo, Meredith Whitney and Nouriel Roubini give no ground. The Wells Fargo pre-announcement means little given such factors as the low level of loan losses. The Fed's TALF securitization program has not demonstrated any pent-up demand. The bulls argue that unemployment has peaked, which as a coincident indicator indicates that the economy is turning. Is the economy at a bottom? Doubtful . . .
The Economic Cycle Research Indicator's Weekly Leading Index, which historically has about an 8-month lag time before the economy turns, is still below the level of 3 months ago, consistent with Nouriel Roubini's prediction that growth in Q4 will remain negative; and it is far below the level of 6-8 months ago, suggesting the potential for a lot of economic shrinkage before the bottom is hit.
How bad can things get based on extrapolations from the data, not assuming new unknowable adverse events?
Researchers at Boston University report in Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets that the degree of disruption of corporate bond spreads seen over the past half-year predicts, with a strong degree of statistical correlation
that mid-high grade credit spreads over Treasuries predicts 12-24 months forward industrial production and employment and adds significant new predictive ability over prior forward-lookings. Figure 2 on page 18 suggests employment and industrial production dropping much further, bottoming at year-end 2009, with a wide confidence interval, the best of which is "bad".
To quote the article, their models forecast:
"that over the 12 months ending in December 2009, U. S. non-farm payrolls will fall about 7.5%, while industrial production is projected to drop around 20%, declines that are four times greater than those experienced during the 2001 recession." (page 19)
Please note that this is for a further drop from a starting point one year into the "recession". Consistent with the this, the ECRI noted this week that its coincident indicators of economic activity were poor, per ECRI's managing director Dr. Laksman Achuthan:
" . . .growth in the Weekly Coincident Index fell to a record low...in the week ending April 3. This follows the earlier plunge in WLI growth and confirms that we are in the worst recession since World War II."
After the close Thursday, both Boeing and Chevron pre-announced earnings disappointments. Boeing has been accruing negative sales gains, which is to say that cancellations have been exceeding new orders. Chevron said that both upstream and downstream business is poor. Dow often do you see that from an integrated oil?
Earnings are poor and dropping, dividends are being cut, personal and corporate income taxes to the Federal Government are down, the FOMC recently lowered its assessment of the economic prognosis (not many green shoots of spring seen in that report), and the housing market is only being kept alive by massive Government intervention. Fannie and Freddie are reportedly back to making 105-110% loans to value, but bankers actually have no idea what "value" is. The trustees of the Social Security Trust (hah!) Fund very recently drastically lowered their positive cash flow projections.
With the economy in continued decline and various accounting games being played with earnings of Big Finance, the bottom line is that the true lack of profitability of the economy absent substantial leverage is being revealed. This is not the end of the world, but likely indicates more disappointment for the bulls ahead. Given that the ECRI's largely-unnoticed U. S. Future Inflation Gauge is at 1958 levels, one can do worse than purchasing a one-year C. D. from a solid bank backed by FDIC insurance yielding 2%.
Longer term, all these deficits and promises to all sorts of constituents by the Federal Government will largely be fulfilled as necessary by printing money. No matter if or when the Oil Age will end, gold will continue to remain a store of value that will be accepted by most of the population all over the world for as far the eye can see.
Copyright (C) Long Lake LLC 2009
Regarding growth in the economy, it remains to be seen if A) Bernanke's green shoots are nothing but a false "Prague spring" or even if it is springtime in America's economy, B) will we then suffer T. S. Eliot's "unimaginable zero summer".
Unfortunately, the bears on the large financial companies such as Michael Mayo, Meredith Whitney and Nouriel Roubini give no ground. The Wells Fargo pre-announcement means little given such factors as the low level of loan losses. The Fed's TALF securitization program has not demonstrated any pent-up demand. The bulls argue that unemployment has peaked, which as a coincident indicator indicates that the economy is turning. Is the economy at a bottom? Doubtful . . .
The Economic Cycle Research Indicator's Weekly Leading Index, which historically has about an 8-month lag time before the economy turns, is still below the level of 3 months ago, consistent with Nouriel Roubini's prediction that growth in Q4 will remain negative; and it is far below the level of 6-8 months ago, suggesting the potential for a lot of economic shrinkage before the bottom is hit.
How bad can things get based on extrapolations from the data, not assuming new unknowable adverse events?
Researchers at Boston University report in Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets that the degree of disruption of corporate bond spreads seen over the past half-year predicts, with a strong degree of statistical correlation
that mid-high grade credit spreads over Treasuries predicts 12-24 months forward industrial production and employment and adds significant new predictive ability over prior forward-lookings. Figure 2 on page 18 suggests employment and industrial production dropping much further, bottoming at year-end 2009, with a wide confidence interval, the best of which is "bad".
To quote the article, their models forecast:
"that over the 12 months ending in December 2009, U. S. non-farm payrolls will fall about 7.5%, while industrial production is projected to drop around 20%, declines that are four times greater than those experienced during the 2001 recession." (page 19)
Please note that this is for a further drop from a starting point one year into the "recession". Consistent with the this, the ECRI noted this week that its coincident indicators of economic activity were poor, per ECRI's managing director Dr. Laksman Achuthan:
" . . .growth in the Weekly Coincident Index fell to a record low...in the week ending April 3. This follows the earlier plunge in WLI growth and confirms that we are in the worst recession since World War II."
After the close Thursday, both Boeing and Chevron pre-announced earnings disappointments. Boeing has been accruing negative sales gains, which is to say that cancellations have been exceeding new orders. Chevron said that both upstream and downstream business is poor. Dow often do you see that from an integrated oil?
Earnings are poor and dropping, dividends are being cut, personal and corporate income taxes to the Federal Government are down, the FOMC recently lowered its assessment of the economic prognosis (not many green shoots of spring seen in that report), and the housing market is only being kept alive by massive Government intervention. Fannie and Freddie are reportedly back to making 105-110% loans to value, but bankers actually have no idea what "value" is. The trustees of the Social Security Trust (hah!) Fund very recently drastically lowered their positive cash flow projections.
With the economy in continued decline and various accounting games being played with earnings of Big Finance, the bottom line is that the true lack of profitability of the economy absent substantial leverage is being revealed. This is not the end of the world, but likely indicates more disappointment for the bulls ahead. Given that the ECRI's largely-unnoticed U. S. Future Inflation Gauge is at 1958 levels, one can do worse than purchasing a one-year C. D. from a solid bank backed by FDIC insurance yielding 2%.
Longer term, all these deficits and promises to all sorts of constituents by the Federal Government will largely be fulfilled as necessary by printing money. No matter if or when the Oil Age will end, gold will continue to remain a store of value that will be accepted by most of the population all over the world for as far the eye can see.
Copyright (C) Long Lake LLC 2009
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