Wednesday, December 24, 2008
Please note that he wrote a book called Deflation, in 2001. He's been crying wolf for quite awhile but his prediction eventually came true. In the attached videos, he predicts S&P 500 at 600 ($40 in EPS for the combined companies and a 15 multiple). I think he might be too pessimistic .....My bearish scenario is 650 to 700 on the S&P500.
In this follow up video he says that China's middle class isn't large enough to absorb the decline in exports and, as a result, there might be social upheaval in China. I've already seen people flipping cars near police stations in China so I don't find this to be a big surprise.
A noted and notable bear, Shilling predicts the following will occur unless drastic action is taken:
Average U.S. home prices will fall another 20% from current levels, bringing the peak-to-trough decline to 37%. If prices ultimately do fall 37%, 25 million Americans — or about 50% of all U.S. homeowners with a mortgage — will be underwater, meaning their house will be worth less than their mortgage.
Millions of Americans won't be able to make mortgage payments, even if they're able to refi at today's low rates.
Shilling also indicates that there is too much supply vs. demand of homes. As a result, he proposes giving more H-1B visas to attract more highly skilled immigrants, who can then purchase homes, to absorb some of the inventory. My question is "Do H-1B visa people, who don't really have any sense of permanence here in the U.S., purchase homes?" I think I am qualified to ask this question as I gained my U.S. citizenship in July this year (long time procrastinator). On another note, my father worked 30 years + as a Sr. Exec for a major telecom equipment companies and was a HUGE user/supporter of H-1B visas over his years when they needed people with the right skillsets.
Monday, December 22, 2008
The issue I see with this technology is that (1) Google really drives search results so marketing probably won't benefit from this & (2) tons of your info. becomes publicly available that perhaps you didn't want your friends knowing before. I'd lean to the google solution if I was a developer trying to increase my rankings in search results :)
Sunday, December 21, 2008
Most batteries appear to be coming out of Japan/China for Lithium Ion Technology. They are ponying up the $$$ to build manufacturing TODAY and obviously R&D has occurred and will continue to occur.
Saturday, December 20, 2008
Friday, December 19, 2008
This story was broadcast on Sunday, December 14th, 2008.
Watch CBS Videos Online
Thursday, December 18, 2008
"I have a feeling that the hedge fund offices around the world are being inundated with phone calls from people with a need to get up and close with their money. The ramifications of this could mean we are in for that trade we all hoped would never come...........'the capitulation trade'. Would you be able to sleep at night knowing some shill in the Hamptons on a computer may be using some white out to manipulate your investment statement.
The hedge fund business is finished, and Bernie Madoff is sealing the deal. There's nothing like fraud and corruption to put the cherry on the sundae. I know techincally, Madoff didn't run a hedge fund. But is this going to help the unregulated hedge funds, when Madoff, who was regulated, can't be stopped."
My Take: We'll find out in January when the next redemption period occurs for hedge funds. That is what I have heard anyway. I still think the market heads lower in 2009 & the S&P, which is around 850 in recent weeks, heads to 700 with no problem at all.
Wednesday, December 17, 2008
Watch CBS Videos Online
Debt kills companies, some of the concepts are worn out and the consumer ain't spending their $$$ unless you differentiate. These retailers might be in hard times per TheStreet.com. Makes sense to me....
Tuesday, December 16, 2008
Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6am while his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA). After cooking his breakfast in his new
electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio(MADE IN INDIA) he got in his car (MADE IN GERMANY ) filled it with GAS (from Saudi Arabia) and continued his search for a good paying AMERICAN JOB. At the end of yet another discouraging and fruitless day checking his Computer (Made In Malaysia ), Joe decided to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE ) and turned on his TV (MADE IN INDONESIA), and then wondered why he can't find a good paying job in AMERICA .
My Counterargument: We don’t manufacture ANYTHING anymore. Nowhere above does it say that the alarm clock, tea pot, griddle, etc would be 2x-3x as expensive if it was made here. Heck, Joe wouldn’t be able to afford all those things if it weren’t for global manufacturing :)
We DESIGN/ENGINEER the new technology for the computers here (higher value-add). We design the “chic look” and then sell the computers (since relationships are key) but we don’t do items like MANUFACTURE or MAINTAIN SERVICE as those are outsourced to LOW cost centers. Why? Because the customer doesn’t give a crap where the computer was made as long as the quality of the product is comparable to what they were getting before. There isn’t much “proprietary” building/technology in a computer. Most of the components are made by someone else so it becomes a game of who can sell the most units (to leverage pricing with suppliers) and produce the product at the lowest price (to squeeze out low to medium sized competitors). Is the customer willing to pay a premium for a U.S. built computer? I don’t think so…
That is EXACTLY why everything got outsourced. So we could buy all this stuff that we might not need, on credit with borrowed money, to support workers overseas:)
Now customers are STARTING to care about where their customer service comes from as Dell recently brought customer service back from India after getting so many complaints.
I get personal responsibility & free will but this is one socially irresponsible business I wouldn't mind seeing going out of business. I would have ZERO problems with the IRS saying tax any food/meal combo with calories > 3000 calories (150% higher than daily allowance, let alone a meal.....) Am I getting liberal in my thoughts? YIKES!
With the economy slowing down are FAST food sales going up and thereby contributing to long-term health problems? People are looking for CHEAP food but the problem is that most of the cheap options are high in fat and very unhealthy. So are you taking on short-term cost savings that might be hurting your long-term health of your wallet? Something to chew on :)
Dec 7th, 2008 post
Great article that really highlights some of that industry's dynamics.
1) They re-sell the materials to steel producers and paper producers, etc.
2) We have a global glut of raw materials and not enough demand
So who buys the raw materials from re-cyclers when there is already enough raw materials that can be bought cheaply?
"Cardboard that sold for about $135 a ton in September is now going for $35 a ton. Plastic bottles have fallen from 25 cents to 2 cents a pound. Aluminum cans dropped nearly half to about 40 cents a pound, and scrap metal tumbled from $525 a gross ton to about $100."
"Last year, Americans generated about 254 million tons of trash, according to the U.S. Environmental Protection Agency. They recycled about 150 million tons of material -- roughly 80 million of that in iron and steel -- supporting an industry that employs about 85,000 with $70 billion in sales, said Bob Garino, director of commodities at the Institute of Scrap Recycling Industries Inc., a Washington, D.C.-based trade association that represents more than 1,600 companies worldwide.
Most recyclables are shipped to Asian countries that use the material to make products that are shipped backed to the United States to be sold."
Monday, December 15, 2008
"The U.S. Dollar ....its largest one week drop in percentage terms in at least 25 years."
"Historically, a falling dollar has generally not been positive for stocks. It will, however, provide some support for exporters and enhance demand for commodities that are quoted in dollars across the globe."
"Now with the mushrooming U.S. debt on top of an already severe economic crisis, the prospects for the U.S. economy relative to that of some of other global economies is being reevaluated from one of the strongest to perhaps only slightly better than average.
The dollar appreciated approximately 23% from July to November. This week the dollar moved below its 50 day moving average for the first time since the July bullish move again. "
My take: I've been commenting on this blog that we, as a country, can't print our way out of this problem without inflationary concerns creeping back into the economy. I didn't expect the U.S. dollar to begin collapsing this quickly. Then again, this is only a pullback, not a collapse :) But it does get me worried how quickly the dollar has fallen. I look for commodity prices to begin rebounding as most are denominated in U.S. dollars. Oil should start to creep back into the $50 price per barrel area and maybe even hit $60 if the trend continues. I expect cuts from OPEC to actually start happening at some point although, from what I have read, so far only 800k of the 2 million barrel cuts have actually started to happen. Countries continue to overproduce to pay for their committed government spending this year.....and likely next :) As a result, I think that market volatility for commodities and equity prices will be around for awhile :)
Oh, by the way, you see the 60 minutes show that had the head of Saudi Arabia's oil industry talking about the price of oil? Saudi Arabia is INCREASING their production capacity, giving them more control over the oil industry and volatility of prices (in theory.) Production will go from 10 million barrels per day to 12 million barrels per day once the project is done. By early 2009 their capacity will be up and oil prices will remain down. Talk about taking hybrid autos on. With oil in the sub 50s do hybrids ever get market acceptance? Will consumers, in an economic downturn, pay the premium price for a hybrid vs. a gas guzzling SUV? I think we are ADDICTED to oil and these guys are going to enable us to be that way for quite awhile. O, by the way, the Saudis publicly say that they would like oil to be at around $75 per barrel and their break-even price is $55 (where the country actually spends more $$$ than they make from oil sales, 75% of their economy.)
Watch CBS Videos Online
Here is Part 2 of that interview.
Watch CBS Videos Online
Sunday, December 14, 2008
This recession IS different and there are only two comparable declines to measure against (japan in the 90s and the U.S. in the 30s).
11 months of new house supply vs. 9 months in the early 90s (big recession). As a result, he sees another 15% decline in housing in 2009.
Consumer staple stocks is the way to go, in their opinion, for those that like big cap stocks with dividends. I think that is sound but tobacco, while not socially responsible, pays HIGH dividends and seems to be HIGHLY recommended by them.
I'll update later today/tomorrow in the comment section with some other thoughts from Merrill Lynch....
Another thought....I wonder if he still has a job after the research layoffs as Bank of America merges research with Merrill Lynch. I think he has been VERY right the year!
Friday, December 12, 2008
Thursday, December 11, 2008
A few comments that really rang a bell with me.
1) Robert Nardelli, CEO of Chrysler, said he could see unemployment at 10% +. Based on his record as a CEO I don't really know how valuable his information/thoughts are. The guy had a VERY unsuccessful tenure at Home Depot after leaving GE and now ran into one of the worst economic climates in modern day history. Chrysler is toast in my opinion, whether or not they get some bailout or not.....
2) Lewis Hay, FPL Group (utility business) said " Probably 25% of our customers are past due. Normally, it's more like 15%. Another issue is access to capital. We had plans to invest more than $7 billion this year, and we've already cut back to about $5 billion. With such a shortage of access to capital, how are we going to get all these alternative energy projects going?" <--bold for emphasis as it is rather intriguing....I think pure play businesses have a chance at getting financing more than diversified companies. It depends on whether it is debt or equity financing though. Debt financing would be more likely with diversified energy companies since there would be more collateral and equity investments would be more likely with "pure play" alternative energy companies because they would provide more upside in the long-term (higher risk/reward).
3) When asked "How long or severe do you think the recession will be?" most said mid 2010 and one CEO commented that, "The key is inflation. If inflation stays under control and confidence returns, we'll come back early. If inflation starts to roar in mid-2009 and thereafter, we have a problem. It might start to look like the mid-1970s."
I think that is one smart CEO re: concern about inflation. While we are experiencing deflation right now there is increasingly a higher probability that the U.S. dollar will fall vs. other currencies and spike inflation since the U.S. government is printing ALOT of them. If this happens we see higher commodity prices again.
Wednesday, December 10, 2008
Interesting thoughts. Frankly, the auto companies policies are more socialistic/European in nature but the rest of the country isn't that way and doesn't want to bail out U.S. auto companies so they can continue to offer such benefits to their workers since most don't get comparable treatment themselves.
Tuesday, December 9, 2008
Monday, December 8, 2008
He is basically saying the auto guys (shareholders/debtholders) are toast. I'd back his position because I agree with it.
There is simply significantly too much capacity and not enough demand. The auto companies would burn through $35 billion in NO TIME at all given the 35% Y-Y decline in auto sales. They need to shut down factories, DRASTICALLY reduce costs and eliminate brands/models that simply don't sell enough units to generate profits.
"Loss Leaders" for one model is one thing but an ENTIRE brand is another. I don't understand what most U.S. auto companies brands actually stand for in the first place! Chevy is value, Cadillac is supposed to be luxury (VERY expensive domestic luxury auto company).....what does Chrysler, buick, dodge, GMC (professional built?), Lincoln and Mercury Mean?
This is another reason for my "eternal pessimism" re: the markets of late....
Sunday, December 7, 2008
Folks, this guy has been right EVERY step of the way. He screamed "WOLF" 2 years ago and has been right all the way down.
I agree with Roubini re: too much global supply. Demand will fall, which should cause deflationary risks. That is how oil goes from $140 to $44 in 6 months :) Having said that, I think, at some point, that certain commodities will become INFLATIONARY again as supplies get cut off and the U.S. dollar falls. Oil is the most likely to experience a notable REBOUND. It might take until 2010 or 2011 for oil prices to increase at hockey stick prices again (back to $100 +) because all of the oil producing countries need the revenue to finance projects through 2010 at a minimum. Most countries won't cut their spending quick enough so they will need to continue pumping oil at low prices to finance their spending deficits.
Given Middle East deficits, who buys U.S. assets? The asian economies is the answer....which is why I think U.S. stock prices continue to languish for awhile.
"Worst recession in 50 years" per the video below.
Saturday, December 6, 2008
If the auto companies file bankruptcy banks face up to $300 BILLION in write-downs on their balance sheets. Essentially, auto industry woes then pour back into the banking system, causing their balance sheets to erode further and re-endangering some banks. Does this completely diminish the benefit of the TARP program?
Everything I see and hope seems to indicate that there is political will t0 protect GM and Ford but I don't see any desire to bail out private equity funds that made a bad investment in Chrysler......
Charlene Li, author of Groundswell, discusses the impact of Google's "Open Social" platform and its potential impact/competition with Facebook. It looks like we have another 2-3 years before integration and all the benefits of this platform really are seen to the average person.
She also discusses how to make $$$ in Web 2.0
Friday, December 5, 2008
I have to disagree with him though re: this downturn being done. Until I see the S&P 500 not get pummelled by the pending convergence of the moving averages in the weekly charts (bottom chart) I won't buy into it. We should have a pretty good idea re: support for the S&P 500 by the end of December when the 10 day moving average and the price levels get close to each other.
The daily charts seem to indicate that support is being formed and that we are establishing a base of support. I would tend to agree with Cramer re: market redemptions potentially being at a peak now but I am NOT sold re: future profit taking occurring. I think people are investing ALOT less in the market today and have re-adjusted their allocations into equities. I don't think the upside is there anymore and I think A TON of leverage has been removed by the investment banks / banks that should limit the upside in the short-term. Just my 2 cents.
I could see the market going lower as unemployment soars, spending STOPS altogether and consumers TRY to re-build their balance sheets.
Here is recent news that I've read:
Today alone 20k job layoffs were announced. AT&T was 12k of the 20k alone.
Auto sales are off 30% + in November.....I don't see these numbers improving ANYTIME soon....If the government approves a bailout the U.S. auto companies will CHEW through that $25 to $34 billion so fast you will be STUNNED. With sales off 30% + they need to go into Chapter 11 and re-structure FAST. Cut factories, cut lines of cars that aren't selling, layoff workers, re-negotiate contracts, etc. Did you know that there is more health care costs in a GM car than steel costs? True fact I recall from my days as a research analyst....
Abercrombie and Fitch's announced today that comp. store sales were down 28% year-over-year (Y-Y). Kohls was off 17%, JCPenney off 10%, Macys off 10%, etc. It is a bloodbath out there right now in retail land. Only DEEP discounts are getting customers to the counter. Profits will be HORENDOUS this year and I expect malls to start seeing vacancy rates RISE big time early next year as some retailers close down unprofitable locations or go belly up altogether. Oh, and I hate saying this but I expect alot of retail layoffs in early 2009. Retailers will get through the Christmas selling season and then trim, trim, trim.....
The ONLY company that was up in retail sales year-over-year was WALMART (up 8% from what I recall) as buyers looked for deep discounts at the stores. Heck, Target and Costco, who compete against Walmart and Sams Club, were both off nearly 10% in their comp. store sales.
Interesting view of Aeropostale in the video below. Abercrombie and Fitch isn't discounting this season and their comp. store sales were off 28% Y-Y!
Enough depressing news for now....
Monday, December 1, 2008
2) Create Evangelists
3) Know your numbers
Sunday, November 30, 2008
Taking Action in 2009...How to Make This Nation Great Again (cause we have DEFINITELY fallen off our perch.)
"The only thing we have to fear is fear itself." Some speeches live forever, and Franklin D. Roosevelt's 1933 inaugural address, carried to tens of millions of Americans by radio at the lowest depths of the Great Depression, remains among them. Eight days later, FDR delivered his first "fireside chat." When a special session of Congress adjourned after exactly 100 days, major programs for economic regulation, relief, reform and recovery were in place. Hope and optimism had been restored.
Take Action in 2009
The Now Famous Words of Barack Obama "Yes We Can"
The Authors of Every Monday Matters at Google's Headquarters
Saturday, November 29, 2008
Were you a Republican, Democrat or Independent voter?
Did the person you voted for end up winning the presidential race?
Does that even matter?
These are a few questions I pose because I've thought about them quite a bit both BEFORE and AFTER the election.
At the end of the day, the person that won the nomination has to bring the country back together and then get the country to take ACTION to try and improve the country and our future.
Here are a few great books/videos that I've come across that I'll be reflecting upon, and acting on, in 2009.
FDR and Obama's first 100 days
Friday, November 28, 2008
Now they are trying to stimulate their local economy by encouraging more lending. People will be paid less to save so they will need to invest their $$$ (both banks and individuals). As I have pointed out, China's economy is 50% export based so their economy gets beaten up pretty good when Americans stop buying stuff due to the credit crunch and concerns about their economy. Will it spark increased spending amongst the Chinese consumers? Time will tell....I am not holding my breath though :)
Thursday, November 27, 2008
Wednesday, November 26, 2008
Last week the MBS market for commercial real estate took a beating and really took a toll on a few funds.
From the WSJ:
Last week's record plunge of the commercial real-estate securities market has claimed its first major casualty: a $1.5 billion fund with investors including Texas billionaire H. Ross Perot and members of his family, said people familiar with the matter.
Other hedge funds and money-management firms that invested in real-estate debt face the potential for more margin calls. These include a $2 billion fund managed by Petra Capital Management LLC, a firm founded by Andy Stone, one of the founders of the commercial-mortgage securities business. Guggenheim Partners LLC is someone being watched closely as well.
Of interest to Dallas residents, "Parkcentral Global Hub Ltd., the fund overseen by Parkcentral Capital Management LP, a Plano, Texas, firm controlled by the Perot family, peaked this year at $2.5 billion in assets. It used borrowed money to amplify its bets, said people familiar with the matter, and began dumping assets last week.
"That leverage helped hasten the fund's meltdown as the commercial mortgage-backed securities, or CMBS, market cratered last week, and the borrowings also could leave lenders with tens of millions of dollars in losses, the people said."
"A Parkcentral spokesman Tuesday confirmed that the fund has been forced to liquidate to pay off creditors, but he declined to elaborate. He blamed the "unprecedented upheaval of the capital markets in general and the freezing of credit markets in particular."
Tuesday, November 25, 2008
NEW YORK – The Federal Deposit Insurance Corp. says its list of problem banks, those considered to be in trouble, shot up to 171 during the third quarter. That's up nearly 50 percent from 117 in the second quarter, and the highest number since late 1995.
The FDIC also says commercial banks and savings institutions suffered a 94 percent drop in third-quarter profits to $1.7 billion from $27 billion in the same period last year. Except for the fourth quarter of 2007, it was the lowest quarterly profit since the fourth quarter of 1990.
The report is yet another sign of growing troubles in the U.S. banking industry. Late Sunday, Citigroup Inc. got a government backstop for $306 billion worth of mortgages and other assets. On Tuesday, the Federal Reserve agreed to buy up to $600 billion in mortgage-backed assets.
I propose the governement tell companies getting financial assistance to STOP stupid spending as in.....
STOP AIG spending $25 million a year for their name on Manchester United's shirts.
STOP Citigroup spending $20 million for naming rights to the Mets new stadium.
Just STOP STUPID behavior. Look, I am NOT saying stop spending altogether or get "all up in their business."
Lets make sure this is 100% absolutely, positively clear. I think myself, like most Americans and people throughout the world, would simply like our government and business LEADERS to act RESPONSIBLY and don't ACT LIKE LEADERS. BE LEADERS.
In my opinion, that is what ticks off the average American working family. When they work hard each day to get educated, get a good job, send their kids to college, etc. and watch DUMB decisions made by guys making a BOATLOAD of $$$ (who get paid MILLIONS when they screw up and get golden parachutes) it really disenfranches people. It KILLS momentum and the American Spirit.
Then, to top it off, the U.S. citizen watches our elected politicians going to jail left and right for corruption, giving pardons to RICH THIEVES like Mark Richt, probably Koslowski (Bush in 50 days?), etc.
EVERY decision.....and I mean EVERY decision, needs to be done INTELLIGENTLY and rationally and be in our citizens bests interests. If we (government, U.S citizens and business) could spend 10% of our $$$ towards MORE INTELLIGENT actions that would give the economy a bigger boost over the LONG-TERM then lets do it. BE SMART. BE CALCULATED. BE LEADERS..
History shows us, time and time again, that high debt loads and a troubled economy can lead to potentially RAMPANT forms of inflation. We've seen that happen in TONS of places in the last 20 years. If the U.S. dollar collapses it will begin to erode the standard of living in the U.S. like nothing that we have seen since the late 1970s. I believe inflation WILL happen but, in the interim, we have deflation occurring like never before seen (except in the 1930s). Even Nouriel Roubini's comments on http://rgemonitor.com/ support that view.
The real question is the TIMING of the dollar collapse. When will it happen? How soon? Will we be at 10% unemployment when ANOTHER "shoe drops?"
If and when it does collapse, where will oil prices go and will hybrid auto production be enough to come to the rescue for U.S. citizens? Unfortunately we don't eat oil because the price of groceries will also go up AGAIN, thereby pinching the American lifestyle. The standard of living for the average American citizen is at risk here folks and we need to start fixing problems INTELLIGENTLY quickly.
The final point I want to make, before everyone clicks on the video below, is that today's bailout of Citigroup, in my opinion, is VERY dangerous. We need to STOP THE STUPID behaviors that are getting us in trouble.
1) Did you know that the Beatles played at Strip Clubs for 8 hour sets (yes, 8 hours) for months before they came to America? By the time they came to America they were EXPERTs on stage. These guys knew EXACTLY how to play together. They were willing to throw their heart into it......
2) Did you know Bill Gates snuck out of bed and the HOUSE to go program at University of Washington from 2 a.m. to 6 a.m. in 11th grade?
Hope you enjoyed this clip I discovered!
Update: Here is another interview of Gladwell I found on http://www.thestreet.com/
Monday, November 24, 2008
Sunday, November 23, 2008
Everyone knew Citigroup was in trouble. Now it looks like the government is stepping in to do something.
What is VERY unique about Citigroup (NYSE: C) is that they are 60%-70% international revenue vs. JPM at roughly 30% or so and Bank of America at 5%-10% max. This basically means that there is more COUNTERPARTY risk associated with Citigroup going under than other institutions since they play a much larger role in foreign capital markets. If Citigroup goes under than the global financial markets could really unravel quickly....That is the concern that the government is trying to address before the markets open tomorrow.
But, focusing on this weeks movement I think the following:
1) S&P 660-700 was a price range I was starting to hear a few weeks ago but I was hearing too much "fair value" when the S&P 500 price levels hit 800, which told me that we had ALOT of downside risk remaining. Given that S&P500 EPS estimates are 15%-20% too high, in my opinion, shaving 15%-20% off of S&P500 price levels gets us to 640-680 on the S&P 500. That is my target range for when the market MIGHT get near a bottom. Frankly, at this point it is a guesstimate but one I'd put ALOT more credence in then most Wall Street Pundits these days.
2) Anyone see the way the financials performed this week? I commented about it but, after that, it just got WORSE and WORSE and WORSE....
Here is a two week chart of the 2 largest banks in the U.S. and Citigroup. You can see how we had some major declines in major financial stocks this past week. Given that the financials have LED this decline they gets me a bit spooked re: the near-term future.
3) I had to book a trip to Vegas for January of 2009 (bachelor party so, twist my arm, I had to go :) ). I'll update everyone re: what I see when I get back but this is what I noticed from afar.
- Airfares are TOO EXPENSIVE. Gas has come down NOTABLY but airlines continue to charge LUDICROUS fares and their times STINK. I am going American one way and Southwest another to drop the cost to $300 from Dallas. Oh, and my free miles couldn't find a flight worth a crap to use them on
- I got a room for $70 a night vs. $150 published on major websites. This is Thurs/Fri/Sat. The longer I waited the more the rooms in Vegas kept coming down.....
4) Any financial review/post not commenting on the auto companies would be crazy. Without MAJOR re-structuring the U.S. auto industry doesn't deserve any $$$. It would be throwing good $$$ after bad $$$.
A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing prices and a sharp decline in market liquidity. Anyone thinking subprime mortgages/CDOs/ABS as well? (collateral debt obligations and asset backed securities = CDO & ABS). The Minsky moment comes after a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money.
A Minsky moment is a phenomenon named after economist Hyman Minsky, which describes what happens when an economy simply can't afford its debt anymore.
To put this into current, economic terms:
Lower home and stock prices leads to less consumer spending.
Less consumer spending leads to smaller trade deficits.
Smaller trade deficits lead to less foreign capital inflows.
Less foreign capital inflows lead to higher interest rates. Japan didn't need foreign capital in the 1990s.
Higher interest rates cause property and stock values to plunge.
Plunging values leads to less consumer spending.
Less consumer spending ... haven't we been here before?
Repeat cycle until broke.
Friday, November 21, 2008
From yahoo Tech Ticker
Heading into Friday's session, in which an early rally effort quickly faded, the S&P was down 49% year-to-date and on track for its worst year ever. Down 43% year to date, the Dow is heading for its second worst year in history, the WSJ reports, trailing only the 53% decline in 1931.
Heading into Friday's session:
- 115 S&P stocks were trading under $10
- 41 were trading under $5
- 204 were trading with a market cap of less than $4 billion
These are not the only criteria in the index, but S&P 500 companies typically have market caps above $4 billion and stock prices above $5. Furthermore, many institutional fund managers are prohibited from owning stocks that trade below $10 or $5, depending on the firm.
Thursday, November 20, 2008
Wednesday, November 19, 2008
So my question here is "Why is JPM outperforming BAC so much, ESPECIALLY in the last few weeks. Their stock is only off 15% but BAC is off nearly 25%. Is the market saying something?" Why does the analyst at Institutional Risk Analytics think JPM and Citigroup need to go back to the Feds and not BAC? The charts/market seem to indicate a different scenario.
So I have posted earlier on my blog re: Citigroup and my thoughts that they were in dire straights. The reason that The government gave four banks $25 billion was so that no one would shoot Citigroup after they were the only ones getting $$$. They would stand out from everyone else.
Now this guy from Institutional Risk Analytics is saying JPM will need more $$$?
Both $$$ mentioned are very scary. Guess I'll keep on building cash for awhile! My Jan-09 target for cash building is now moving to March-09.
Apparently they indicated in their meeting on Monday with employees that losses will be $4.9 billion in Q3 with losses going up $1 to $2 billion each quarter. That means next June the company could lose up to $10 billion.
Anyone else need a stiff drink after reading that?
Wow. Where was the board during all of this? I mean, these guys lost an INSANE amount of money and no one seems to be losing their shirt except the U.S. taxpayers (for the time being). I sure as heck feel now that Robert Reubin shouldn't be the Treasury Secretary in Barack Obama's Cabinet as the guy has been paid $15 million per year as a board member and investment banker at Citigroup since leaving the Clinton presidency. What was his role in this?
Friday, November 14, 2008
1) Roubin was an advisor/banker at Citigroup and Board Member. He is an an economic advisor to Barack Obama and possible Treasury Secretary. He had that role with Bill Clinton. Should a guy that clearly was asleep at the wheel re: risk management and enriched himself the entire time get such a role? I don't think so.....
2) Citigroup is really the reason that the banks got $25 billion each (Citigroup, Wells, JPM, Bank of America) in loans from Paulson via their "closed door" meeting that was highlighted in a 60 minutes video link I posted about a month ago. Ken Lewis of Bank of America is interviewed.
Citigroup is 60%-70% international. If they go under the "counter party" risks (ie. exposure of other worldwide banks/nations) would go THROUGH the roof and take down the entire global financial system.
If you look at their losses they have some of the highest amongst all banks in writedowns associated with mortgages - I am sure they will eventually be passed by Wachovia.
Additionally, look at their exposure to consumer credit. Henry Blodget estimated it at $500 billion in exposure. A 10% writeoff is $50 billion!
Just something to keep an eye on.
If you are a growing economy you need more power. You get it from coal, nuclear, wind, solar, etc. Coal drives something like 70% of U.S. power. The Chinese have done this as well but their pollution controls haven't been as strong as ours. They have been focused TOO MUCH on low cost stuff up until now. With the growth of their manufacturing sector, their environment is in SHAMBLES.
So they are increasingly turning to solar power and wind power, which they hope to export to the rest of the world later one. One way to play the "green revolution" with a strong China focus is APWR (A-Power Energy). Something to look into....Due your DD.
The weekly trends still appear downward for now but the short-term charts are pretty flat. You can see from the MACD curves that there is potential for a HUGE breakout at some point. The 10 week moving average is still coming down but it is at $9.00. An 80% bounce could happen and then get SLAMMED by the market quickly. I think I'll keep on building my cash balances and put some $$$ to work with APWR early in 2009. Same goes for Gulf Resources, which is now consolidating but the weekly trends are still coming down. That stock appears further along in its consolidation pattern and next week should indicate a crash of the stock or a potential run as the stock is now trading RIGHT AT the 10 week moving average. It is Overbought on the daily charts but NOT on the weekly charts :) We'll see which trend is more powerful....
I am not an economic forecaster but here is why, despite NO comparable datapoints since 1929, this will NOT be another great depression.
* The level of government intervention in the current financial crisis is completely unprecedented. Last time this happened the government INCREASED taxes, the Federal Reserve did nothing and banks were ALREADY belly up. Oversight of the stock market was NON-EXISTENT.
* There is a coordinated multinational approach to this economic history like none in modern or prior history that I can find. At least not on this scale, in value terms or percentage terms. Please let me know if you find anything comparable.
So, there you have it folks. I don't have solutions but I do have some observations. I'll post some interesting, "pick me upper" quotes for everyone this weekend. How about that? Hopefully by then everyone hasn't put a shotgun to their head due to depression about reading this blog ;)
2) Her synopsis for Brian Williams (she is a CNBC correspondent) is SPOT on. We are now over $1 TRILLION in government committments now. Staggering!
3) Nearly 20,000 job reductions were announced today from major corporations. This is getting ugly. I am shaking my head in disbelief. The unfortunate thing is that most people are just now getting scared. I've been that way for 4-6 weeks now!
Thursday, November 13, 2008
So here are a few articles I have come across in recent days as well as observations
1) Nortel, JCPenney & Pizza Hut all had layoffs here in Dallas.
2) American Express became a bank. They now get access to the gov'ts coffers via discount window and can sell their securitized credit card balances to the government. They get liquidity. WOW!
3) There is more push to get these auto manufacturers part of the bailout package. Did you know that GM, less than a decade ago, paid out dividends & bought back stock worth $20 BILLION? If you knew that, how would you feel about bailing out the auto manufacturers, investors and unions? If they didn't pay out the cash the unions would have taken it via DEMANDING higher wages for an "honest day" of work.
Which then brings me to this CNBC/LinkedIn.com poll. Looks like most American's, by state or career path, don't agree with the auto manufacturers getting one penny....
Cosmetic sales were up 25% during the great depression. One of the few categories to experience sales growth during that time frame.
Sales of lipstick were up 100% after September 11, 2001. Apparently lipstick sales are up 40%
in recent months.
Now think about the impact on a MUCH bigger scale. All of a sudden tons of Fortune 500 companies will have underfunded pensions as well. This will drag down earnings growth, hinder job growth or exacerbate the downturn/need for cost savings.
Wednesday, November 12, 2008
1) Don't mess with the toilet paper
2) Double digit growth in store brands vs. name brands
3) Store brands are an average of 46% cheaper
4) Many people are beginning to feel that name brands are "overpriced or overrated." In a declining economy and one where there is abundance of options vs. before have brand margins gotten out of whack with reality?
The authors of recently published book "Brand Bubble" seem to think that tough times are ahead for major brand labels. These folks work for Young & Rubicam, part of the largest ad agency holding company in the world, WPP Group.
Will we go back to gas guzzlers?
Will innovation stop in green technologies?
Will we STOP implementing them due to economics that don't appear favorable, especially during these tough economic times?
If you are looking for a "green" revolution than today's economy is like the "perfect storm" for that segment of the economy. Lithium Ion battery powered vehicles will get pushed out, etc. I hate to say it but there is a direct correlation with gas prices.
Now, in a few years I think we'll be back at $100 oil but, until then, it makes me sick......
FYI, look for the Chinese to lead in the "green revolution." They have TONS of engineers, a HUGE national focus on this (they have polluted their environment big time) and they still have another 700 million people to bring out of poverty in the next century :) This part of the economy will be a HUGE export for them, in my opinion. Solar already is.....but wind and cheap CLEAN COAL solutions will be coming soon! APWR is the stock ticker symbol of a chinese wind turbine company for anyone looking into that sector of the company. Keep your eyes on it!
Tuesday, November 11, 2008
The Fed refusing to reveal who received almost $2 trillion in non-TARP loans, or what collateral it has accepted from "emergency" loans made to struggling firms, as Bloomberg reports.
The Treasury Department providing a tax break to banks involved in acquisitions that could amount to $140 billion. <--I, for one, don't have that much of an issue with this one. The reality is it will re-build balance sheets for banks and hopefully keep interest rates low as they won't have to charge crazy rates to generate decent EPS. There are two sides to every story here....
Bottom of message
"Apple, he says, is going to start selling iPhones via Costco at $149 starting in January. "
Dell & Starbucks are two notable examples I can come up with that are utilizing social media to re-connect with their customers and look for ways to improve their operations. When it doubt ASK THE CUSTOMER!
It wouldn't surprise me to see Chinese stocks down notably tomorrow. After the bell, an industry stalwart (Focus Media) and big chinese holding of many mutual funds/hedge funds announced they are missing guidance slightly this quarter but guiding down EPS estimates SIGNIFICANTLY for next quarter.
Which begs the question.....How much is the Chinese economy slowing down? Will even 5% growth happen next year? Is their stimulus package enough? How much will Google's stock price fall since their EPS is based on advertising as well. Yes, this is China vs. the U.S. but people have been hearing rumors about a slowdown in online advertising spending and an "informal, unofficial" hiring policy per the video below.
Do what you know
No surprise here. Cash is king, ESPECIALLY in today's environment
Management Strategies & Overhead <--key for today's environment.
Differentiate Your Product (key for branding/marketing). Don't be a "me too" company
Monday, November 10, 2008
This is no suprise to us, right? I've posted about Circuit City and their woes going back to April 15th, when Blockbuster said they would buy them. At the time of the anouncement I believed it was one of the dumbest acquisition announcements I have EVER seen in my life (or read about from older times). Blockbuster, a struggling retailer in their own right and one without a spectacular balance sheet thought they would buy Circuit City on April 15th (tax day as well).
By July, Blockbuster woke up (management probably was tired of being told they were the biggest idiots in the room) and backed out of the deal. I know this is bold language but it seemed like a complete "NO BRAINER" type of deal NOT TO DO.
So lets take a look at some interesting facts about Circuit City and their industry.
1) Their stores are DEAD when it comes to foot traffic vs. Best Buy.
2) I find it interesting that Ultimate Electronics, Tweeter and Circuit City have all died a painful death in the last few years.
3) Linens N Things went into Chapter 11 earlier this year. Recently they went Chapter 7 and began liquidating assets (ie. completely shutting down.) Circuit City announced a 20% store closure last week, big cuts in management LATE last week, Chapter 11 this week and likely, in my opinion, Chapter 7 eventually.
Seriously, these guys have been HEMORHAGING cash for some time, they have NO differentiation vs. Best Buy (me too concept) and people have STOPPED shopping there altogether (at least people I know.) Who will buy a $2000 TV from a bankrupt retailer? We'll see how it plays out in the stores but I am NOT optimistic re: their future.
Here are some time management tips for budding entrepreneurs and corporate workers as well.
I have been getting VERY serious about this due a few reasons:
1) I want to read more - I find my mind really gets "WIRED" differently when I am reading. My creative juices get going and I find myself thinking more "outside the box" while at work.
2) I want to lose weight - therefore I need to get cardio in.
3) I want to keep this Blog full of new, fresh content. It takes time to write articles / thoughts, cruise the net, create posts, etc
4) I am getting back into investing in a big way right now. I am actively, as everyone can tell, researching a TON of chinese small to mid cap stocks, energy plays, etc. I hope to make some nice $$$$ in 2009 by making some purchases in the first quarter. Until then I am waiting for the market to consolidate.
As my market update yesterday indicated, I think the market is heading lower so I am not in a rush to buy stocks right now.