Unemployment + More job losses in 2009

Great article re: the state of the economy and job losses.

http://money.cnn.com/2009/03/06/news/economy/jobs_february/index.htm


Despite a rising stock market this week (+10% - a suckers rally, in my opinion), the below pictures, from the article above, really highlight how quickly the economy has deteriorated. I am now convinced that 10% unemployment is in the cards here in 2009.

Dan Ross

http://www.DanRoss.info

Pending Pain for the Economy and Stock Market?

Boy, this kind of reporting gets old (negative news AGAIN) but I do NOT find it being reported enough by the general business media (CNBC, Fox Business News). The people they bring on, in general, have views/opinions are TOO optimistic and keep luring people into leaving their $$$ in the stock market right now.

1) Apparently there is a TON more pain that is going to hit European banks here soon as Eastern Europe pains negatively impacts their banks. Most North American/Japanese banks aren't big players in these countries.


2) John Mauldin, president of Millennium Wave Advisors, thinks the markets will hit a new low this summer, and then potentially flip/flop a bunch for years to follow. I agree with his thoughts re: "another leg down" as I think the markets should be trading around 665-680 based on multiples to forecasted S&P500 EPS and historical pricing behavior during bear markets. If this happens, can you imagine the impact to 401k plans, pension funds (that will be SUBSTANTIALLY underfunded), etc.

Hope everyone finds this info. valuable.

Dan Ross
http://www.DanRoss.info

Retail to the Rescue?

Retail to the rescue?

I wouldn't believe this opinion for a split second. Markets don't go straight down. They go down down further than they rebound. They go down more than up due to information being slow to come out. Markets don't go straight down because people see signs of a positive rebound and get greedy.

Well, I am playing the trend and this trend is down.

The economy has weakened, consumers and businesses aren't spending (remember, they are trying to PAY BACK their debts from previous years) and besides, the free credit of yesteryears is no longer available. I think 4-5% in some guaranteed investment works for me. Heck, I think the best investment is people investing in themselves to develop some new skills that enable them to add value in their organization or on their own. That way, if anything happens, people have something to fall back on or perhaps a new career path.



Dan Ross

Coming Retail Iceburg (More Commercial Real Estate Problems)

I've been mentioning this for quite awhile folks......Everyone reading the blog and looking at my "commercial real estate" tags can view prior comments.

Basically retail consultant Howard Davidowitz,of Davidowitz & Associates, is saying that as Americans save and spend less, due to the financial crisis, it's clear there's too much retail space. Just visit Web site deadmalls.com and track retail's growing body count. Most concerning to Davidowitz are Luxury Retailers and "private equity retailers" (formerly publicly traded and then taken private via use of debt by private equity companies).

Among the brandname stores Davidowitz says are in trouble:

Nordstrom
Neiman Marcus
Tiffany
Jeweler Zale Corp.
Saks
J.C. Penney
Sears


Until I can get some revised blogs up I thought I would keep people abreast of my thoughts so I'll keep the content coming here! I see it taking about a month for things to get done.

I hope everyone enjoys the video below. Boy, this guy is PESSIMISTIC!



Dan Ross

Jim Cramer on Nationalizing Companies - His Take

I like his take. I think he puts things into proper perspective...



Dan Ross

Continued Mortgage Mess in 2009?

60 minutes continues to point out that the mortgage unwinding is about 50% through. They are saying more pain is going to occur in the economy for sometime.

This story was broadcast on Sunday, December 14th, 2008.


Watch CBS Videos Online

Dan Ross

Are Hedge Funds Dead?

Interesting article on SeekingAlpha.com

http://seekingalpha.com/article/110563-the-hedge-fund-business-is-finished-and-bernie-madoff-is-sealing-the-deal?source=email

"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.

Dan Ross

From an E-mail I received re: U.S. manufacturing and its importance to the U.S. Economy

Have you ever received this e-mail? It goes like this....

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.

Dan

The U.S. Dollar has biggest One Week Decline in 25 years - Did you know that?

Here is an interesting article I read on SeekingAlpha.com this weekend

"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

Dan Ross

Great Follow Up Interview on Commercial Real Estate

KB Toys bit the dust this week, filing for bankruptcy. Big Box tenants (anchor tenants) that have declared bankruptcy as well include Circuit City & Linens N Things, which causes problems for commercial real estate developers. Then, lets not forget Starbucks and their recent problems. While Starbucks isn't an "anchor tenant" from a space perspective they do drive traffic to market centers. I've seen them pull out or close 3 different projects within 3-4 miles of my house. At some point, other coffee retailers are going to go on the offense as I think Starbucks is finally getting TOO defensive and missing out on some great opportunities/traffic. Developers won't forget what they have done....



Dan Ross

Merrill Lynch's Outlook for 2009 (Pessimistic)

I think this guy is ABSOLUTELY correct.

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!



Dan Ross

A few CEOs and their thoughts on the recession

Interesting article posted at:

http://finance.yahoo.com/career-work/article/106252/The-Recession:-What-Top-CEOs-Are-Thinking

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.

Dan Ross

Goldman Sachs to Bid on Sanyo?

Given that they have borrowed BILLIONS from the U.S. Government they just need to lick their wounds. If they buy more equity here the U.S. taxpayers will scream MURDER! I don't think this is what the average U.S. taxpayer was thinking when they gave the Fed powers to inject capital, loan $$$ to banks, allow investment banks to become banks, etc.....

http://www.reuters.com/article/innovationNews/idUSTRE4B288M20081204?feedType=RSS&feedName=innovationNews

Dan Ross

Severe Market Recession in 2009?

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.

Dan Ross

Dow Jones bottom in? Cramer seems to think so....

I've quoted and tended to agree with Jim Cramer from MadMoney (CNBC show) for quite some time now re: this market downturn.

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.

http://link.brightcove.com/services/link/bcpid1243645856/bctid3908038001







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.
http://biz.yahoo.com/ap/081205/financial_meltdown.html



http://news.yahoo.com/s/nm/20081201/bs_nm/us_finance_research_oppenheimer

http://www.cfo.com/article.cfm/12668072/4/c_12671474?f=MagazineMonthly120108

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....

http://news.yahoo.com/s/ap/20081202/ap_on_bi_ge/auto_sales;_ylt=AmmzGDW65LZvc0aLKh.yF_OyBhIF
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.

http://news.yahoo.com/s/ap/20081204/ap_on_bi_ge/retail_sales;_ylt=Aju4RfuKxJlz0bDSrQpMHgCs0NUE

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....

Dan Ross
http://www.betterbizbooks.com/

China Cuts Rates by 1% - Most in 10 years!

So the Chinese are stimulating their economy by spending nearly $600 billion by the government (announced last week and posted here on the blog).
http://betterbizbooks.blogspot.com/2008/11/chinese-economy-slowing-down-quickly.html


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 :)



Dan Ross
http://www.betterbizbooks.com/

Commercial Real Estate FINALLY tanking...

In March I knew that problems in the residential real estate market would, at some point, pour into the commercial real estate market. Yet some brighter folks continued to "LEVERAGE UP" and appear to be getting burned. It took longer than I thought to be honest. I am going to look for some CMBS statistics during that period.

Last week the MBS market for commercial real estate took a beating and really took a toll on a few funds.

http://betterbizbooks.blogspot.com/2008/03/commercial-real-estate-is-now-slowing.html

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."

Dan Ross
http://www.BetterBizBooks.com

"Troubled Bank" soar from 117 to 171 says FDIC

http://news.yahoo.com/s/ap/20081125/ap_on_bi_ge/problem_banks;_ylt=AkNjrGxzkLUaZzJaKgEk9u.s0NUE

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.

Dan Ross
http://www.betterbizbooks.com/

Recommendations for U.S. Politicians

I don't like it when people point out negatives / problems without trying to FIX anything so I am going to try and propose some solutions here to our economic problems.

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..

Dan Ross
http://www.BetterBizBooks.com/

Peter Schiff was RIGHT! I agree with him.....

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.

Dan Ross
http://www.BetterBizBooks.com