bizzXceleration: Performance, Value and Profit

Well in case you hadn't noticed today was a bit bad in the markets, led down by the financials as the realities of the dreaded credighetti monster re-surfacing, with more bad news from LEH, FNM and FRE. The latter were down 22% and 25% respectively. As were Financials (-3.6%) and Consumer Discretionary (-1.7%) in general. Not surprising in light of our thinking but the really interesting headlines were on Lowe's, which closed up slightly (.16%) on better than expected earnings. Consider the following headlines (from Marketwatch, AP) and especially the emphasized line:

Housing malaise eats into Lowe's net Lowe's Cos. said Monday that its second-quarter profit fell 7.9%, hurt by the housing market downturn, which cut into demand for cabinets, countertops and other big-ticket purchases.  Results, however, exceeded analysts' estimates, thanks to strength in seasonal sales as homeowners restored lawns and outdoor landscaping after last year's drought in much of the country. The No. 2 home-improvement retailer also benefited from the U.S. government's stimulus checks, which aided its comparable sales by as much as 1.5 percentage points, more than it projected. It also gained unit market share at its fastest pace in eight quarters as many independent operators closed shops, Chief Executive Robert Niblock said on a conference call with analysts.Despite better-than-expected results, Lowe's third-quarter profit forecast missed analysts' estimates as the retailer expected a continued challenging housing market into 2009, especially in regions such as California, Florida and the Gulf Coast. It also said it is evaluating the number of stores it plans to open for next year in light of the current sales environment. It said it will announce the final number next month. Sales rose 2.4% to $14.5 billion as the company opened in more locations. Same-store sales, or sales at stores open at least a year, dropped 5.3%.

• Lowe's beats 2Q estimates, despite profit drop

 Along with a lowered outlook you'd think that would hardly be a reason to bid up the stock. As usual what we think is going on is that the lack of grasp on the nature, timing, structure and lags in the business cycle completely escape everyone in general. For example the new meme is that while the world is headed in the tank the US is potentially headed back up. BtW - that differential explains the dollar bounce along with interest rate gaps...watch out. But other than that one line nobody gave the most important retail statistic much attention.

Let us offer up another stat that will be completely ignored - no coverage whatsoever. Real weekly wages were updated by the BLS after the CPI release. Guess what...they were down -3.1%. In fact for the last six months the figures are: -1.4, -.8, -.9, -.7, -1.1,-2.5 and -3.1% ! Remember our "Tipping Point" discussion - well it certainly looks like it's here IOHO. We're going to spend the rest of this post digging thru some big picture economic data to try and read ourselves into a more realistic, data-grounded context. Hopefully in such a way that you can reach your own conclusions. 

GDP vs Consumption

Let's start with a comparison of GDP and Consumption (PCE) back to 1980. Take a gander at this little chart which shows the YOY% change in the two. If there's any doubt about this being cyclic speak now. We'll draw your attention to the teeny little tail where both, but especially consumption, have dropped below the trendline. Now ask yourselves - what recent data you've seen, or read here, would indicate that's going to turn around ? We think the more relevant question is what will the downturn look like - '01, '91 or earlier ?

Recession vs Growth Recession

You might recall that the Fed's current published forecast calls for growth thru 2010 of less than 2% - in fact they're counting on it to reduce inflationary pressures. When the economy grows at less than its' full employment potential think of that as a "growth recession". More importantly translate that out of geekspeak and into pain indicators. That means lost jobs, lowered spending, bad earnings pressures, you name it. Just to put that in context we ran back to 1960 or so and ranked downturns as Recessions (<0%), Week Growth Recessions (0-1%) and Growth Recessions (1-2%). And ended up with this fascinating chart. Note: if you believe our measures we almost experienced a growth recession at the end of '06 but were saved by the oil price drop and saw one again this last couple of quarters. But we are, in fact, now in a growth recession !!

If you'd really like to dig a little more into what's going on we put together some more economic cycle charts running back to 1960 where possible so you can see how the economy (GDP), Consumption and Investment relate and what links to what in the lag structure. We also - and this is especially important - look at the key drivers of future consumption demand. Which are growth in employment and real wages. Like we said at the start that news is getting worse fast. See what it means and keep reading (and of course click to enlarge the charts). 

BtW - the most interesting and potentially useful chart on Wages, Employment and future demand is the last one :) ! 

Continue reading "LT Business Cycle De-construction: Time to Pay the Piper" »

Posted by dblwyo at 03:23 PM | Permalink | Comments (0)

Fascinatingly the markets are up today, led by Financials of all things. Will wonders and delusions never cease ? This despite the fact that, other than WMT earnings, all the economic news was unremittingly bad: foreclosures are up 55%, new house prices dropped -7.3%, continuing jobless claims accelerated and new claims were unexpectedly high and consumer inflation jumped 0.8% MtM, a 17-year high ! None of that sounds like the outlook is sanguine in the sense of good. Anyway, as threatened, we're going to revisit the outlook and consequences for corporate earnings and what it means for the market. Tracking which posts get the most attention, equally strangely if not more so, the diagnosis of a schizoid market attracted more attention then the careful dissection of the profits outlook (Talkin Profits: Economic Outlook, Earnings, Business Performance ?) and what the rapidly deteriorating economic outlook means. To put a point on it if we are indeed crossing a tipping point and starting into a consumer-driven downturn, as is now being widely recognized, ignoring profits and the current market valuations is dangerous to your financial health. On the grounds that perhaps we haven't made it entirely clear why you really care we're going to build a longish post walking thru various aspects of profits, earnings, PE's and the outlook. Just as one example most of the downturn so far in the S&P is due to Financials. If the economy turns over, as we expect, none of that is priced in.

Economy vs Markets

Just to set the stage let's start by considering the long-run relationship between the economy and the Markets. The meme is that markets are forward-looking though the WSJ noted that hasn't been true recently - as in the last decade ! Actually it's never been true. This multi-part chart shows the YoY% changes in GDP and the SP500 on top and the % growth in both since 1951. To our eyes the markets are still far ahead of where the state of the economy would justify their current levels.

Earnings Outlooks

Hopefully the prior post put enough evidence on the table about the structural relationships between the economy and profits that we can take it as given. And the translation between Profits and Earnings will also be taken as understood. That being the case the fundamental valuation equation we like is Graham-Dodd's: PE = (8.5 + 2*Growth)* 4.4/AAA-Yield. We'll dig into that a little later but taking it as a starting point the question becomes what are earnings expectations. And, much more importantly, do they make sense in view of our economic outlook. Take a look at the following chart which reproduces S&P's bottoms-up collection of analysts earnings prognostications and take a careful look at a) the revisions by sector and b) whether or not you believe the outlooks. And to put another point on it the two sectors that are up today and driving the market are Financials and Consumer Discretionary - with the big debate about a bottom in Financials raging onward (Riding the Storm - NOT: Breakdowns, Culture & Malfeasance in Finance).

 Now if you're readers of this blog and these two sets of earnings estimates hang together for you you can probably stop reading. But if thinking that the Financials (in read) and the Discretionary and Technology outlooks (in yellow) have some questions that should be asked below we walk thru some valuable issues of PE and valuation that should be reflected. And aren't IOHO.

Continue reading "Profits, Earnings, PEs and Outlooks: Why You Should Reall....lly Care" »

Posted by dblwyo at 10:54 AM | Permalink | Comments (0)

We interrupt our regularly scheduled posting to warn you that our early storm warning system has detected more early signs of bad credit weather. Over the weekend our alert news monitors found a new wave of back-on-balance sheet adjustments, Fannie Mae issued worse than expected news, both GSE's (FNM, FRE) announced that they would be restricting new mortgage loans and guarantees. And (H/T CalculatedRisk) Fannie's conference call tells us that the books closed in June but there were significant deteriorations in July MORE THAN THEY ANTICIPATED when putting together their books. As you can see from the early warning reserve dashboard Fannie has both upped its' reserves and doesn't begin to cover its' risks. Making a huge Treasury equity investment increasingly likely, indeed mandatory to keep them from sliding into major default (dare one say the BK-word ?) and at least threatening to follow Merrill in throwing existing stockholders to the wolves of insolvency.

What's It All Mean: the Vicious Circle Grinds On 

 

Continue reading "News Alert: Vicious Credit, Economy, Market Cycle Spotted" »

Posted by dblwyo at 11:28 AM | Permalink | Comments (0)

We've crossed the one-year anniversary of Cramer's famous "rant that shook the world" and despite the amusement factor we need to ask how it played out ? More importantly how is it going to play out ? Aside from watching Mr. Cool loose it completely a deeper amusement can had by contemplating the gap between the catastrophe created by the financial community and their willingness to blame everyone but themselves and look for rescue from the Fed and the government. A rescue necessitated by the catastrophic risks of the complete collapse of the markets and seizing up of the world economy. While Cramer's Rant first brought these "technical" issue to broader awareness the problems escalated from their and are on-going. The saving grace is that the Fed was finally able to find a set of innovative instruments that got the machinery working again - obviously not something they did overnight but had been thinking about for years. As was the Treasury under Paulson. Hats off to both those institutions and their leadership. Nonetheless they've "only" averted collapse - not done away with the need to rework and manage the credit crisis. For your listening pleasure and a look back check out the vidclip.

The point remains that we are barely thru the early part of this re-pricing of risks, de-leveraging and the resulting destruction of specious financial business models and dealing with the vicious feedback cycle between a slowing economy, loan losses, tight credit and more writeoffs. After the break you'll find a short selection of excerpts that reinforce these points - the most important of which is that months after many of us have been shouting out about it and years after the truly knowledgeable began warning the tsunami is beginning...beginning we say...to be apparent more broadly. Here we're going to walk thru several of the elements you need to keep in mind graphically. We do recommend reviewing Red Sky Mornings, Investor Take Warning: More Finance Industry for a discussion of the Finance Industry and its' broken business models.

Loan Situation 

The place to start is with the level of activity in loans. The chart below shows the most recent Fed banking activity statistics for several loan types. You might want to read it clockwise starting in the UL where total Loans & Leases plus Loans & Investments are shown on the left with the YoY% change in Loans on the right since 1980, giving you a good view of the cyclic relationships. The UR shows Commercial loans just lipping over, Consumer loans not doing badly and Real Estate loans nose-diving. As we'd expect for the latter. The next two charts show all the major types and the aggregate compare since 1980 and 1998. On our reading a bubble we didn't know about in Business Loans is beginning to pop.

Credit Tightening and Money

A natural consequences of banks drawing down their reserves is that they have much less to lend. Which should in turn be reflected in loans but so far not much. Where it is beginning to show up is in the inflation-adjusted monetary base, i.e. the effective money supply that lubricates the whole massive economic engine. As you can see below, and we've discussed before, real growth in Money has been and continues to be negative. And has been declining rather rapidly for some time. The Fed can lower short-term rates all it wants but markets are markets and will tighten as standards are increasingly tightened. What the Fed can do is keep the wheels from falling off but it can't force them to turn.

The middle sub-chart shows real money growth as -3% while the other charts wrap some bigger picture monetary and rate indicators around it. The top shows various spreads with the 3Mo-Treasury spread showing continued fear and weakness, the AA-Bas commercial spread showing quality fears and the 10Yr-FF spread showing a steeping yield curve. The latter is normally a sign of either inflation fears or a growing economy yet the bottom sub-chart shows inflation and TIP spreads. While headline inflation has been painful the worldwide slowdown is likely to do exactly what the Fed anticipates and lower commodity prices. Hence the TIP spread over non-inflation-protected bonds is around 2.5%. Inflation aint' the problem - fear, uncertainty and doubt are. Otherwise known as a metastasizing credit crisis that continues to be ever-present in the markets.

More Rocks in the Pond

The credit crisis was started by problems in sub-prime mortgages and related synthetic debt instruments but it was just a catastrophe waiting to happen. Now we're beginning to see other problems succumb to the same pressures, starting with Alt-A quality mortgage loans as well as Option ARM resets. Lined up behind those private real estate loans are all the commercial real estate loans, then various consumer and business loans and so on. Consider the graphic below which tries to conceptualize what the continued tremors roiling thru the market mean for more asset class rocks to topple into the credit pond and keep it churning.

 As one "rock" toppled it rippled up the entire chain of instruments built by leverage, greed and bad business practices and destroyed the underlying asset base. When the process works in reverse that's de-leveraging. Worse the ripples from one chain's breakdowns immediately spread to other credit markets, even ones that weren't necessarily adjacent in the sense of being technically linked. The Fed's new instruments appear to have prevented these topplings that would turn into a tsunami that drowned all us "innocent" bystanders but hasn't stopped the process. And the reverberations impacted other assets classes, each with their own sub-components, e.g. bonds, equities, etc. We didn't really realize how bad it could be until Bear-Stearns collapsed but now with Merrill and Lehman almost aground on the rocks it's clear what the consequences are.

An Example: Option ARM resets.

Just as one small example consider the next wave when Option ARMs, adjustable rate mortgages where the loanee has the option of deferring part or all of the payment until a cap is reached, are likely to do as they reset. Reset meaning that that rates are going higher so payments will and the expectation is that defaults are going to rise unmercifully. The lefthand shows just resets. And they aren't really going to start hitting until early '09 and then they build and build thru '09, '10, '11 and into early '12. Yet insiders and, now, the financial press are seriously worried about the default levels we're seeing now. The right-hand side shows the increase in payments - and if nothing else - what's that going to do to consumer budgets ? And therefore consumer demand. Recovery, schmovery. Thain was interviewed on CNBC and let slip one telling quote: "if there are not more problems there wont' be any more writedowns and we won't need to raise more capital. but if....". You know the rest.

Ripples and Credit Metastasis

As a closing note we leave you with this graphic which tries to trace some of the links between various instruments coming under pressure, bank writeoffs and the resulting tightening of credit. And then link it back into the economic consequences to establish a feedback process. Yes, judging by the readership stats, you've seen and looked at it before. But if Option Arms are just one tiny piece of a piece in the chart below what happens then ?

The final reading is Jim Jubak's most recent column discussing how Merrill's recent stock sale to raise capital destroyed the investment positions of everybody, especially the multitude of small stockholders, except Temesek. He's right but what's he's forgetting is that without capital MER was going to run aground and nobody would get anything. Put the pieces together - more rocks, more ripples, more write-offs, fewer loans, tighter credit, slower economy. Whaddya get ? And where's that leave MER, LEH, and so on and so on.

Continue reading "Cramer's Anniversary: Continuing Credit Metastasis and Economic Outlook" »

Posted by dblwyo at 05:25 AM | Permalink | Comments (1)

Sometimes you work to a plan and sometimes you get interrupted by events. If you can put the events into the context of the plan we call that interrupt-driven event-managed, the sine qua non of aglity and resilience :). In this case the plan was to take forward the prior economic discussions and apply the implications to various business sectors. The last two days of market gyrations, Merrill's stunning announcements and some serendipitous inside scoop from Big Picture cause us to change course...a little. Consider the following excerpt from a recent post:

 Merrill's $5.7B Write-Down, $8.5B Share Issuance My (naive) question: "Wait a second -- didn't Merrill just report last week? How did they not disclose a $5.7 billion dollar whackage?"Merrill guy's by-the-book-answer: "Earnings were the 17th; The decision had not yet been made to sell the ABS CDOs, or take the writedown, or issue more stock. That was done this week." I think:  "yeah, sure it was."  Frickin weasels. 

Other Merrill guy says: "Geez, the stock is gonna get hit tomorrow" (ya think?) The stock closed Monday at $24.33, down 55% year-to-date. Merrill woman: "When do we buy this?" CDO guy: "When it hits $15" Me: Ouch!

Only that wasn't quite how it played out. The markets nose-dived yesterday and got another nosebleed today from re-climbing back to their previous altitudes. As Barry occasionally puts it ...WTF !!! Take a look at the accompany 10-Day composite chart of the SPX and NDX and tell me it all makes sense you. Particularly in light of the last two posts on the domestic and international economic situation (Note: trade talks have collapse - NOW that's really bad news as we discussed). No way that all makes sense. The commentary yesterday was that the IMF report on Housing troubles was the trigger and the running unsinn today that better confidence was the re-trigger. BS ! But let's put those arguments to bed.

WTF 1: Real Data on Confidence and Housing Prices 

The first composite chart shows U of Mich. consumer sentiment on a YoY% and absolute basis. Notice that YoY changes are as bad or worse as the Volcker-Reagan surprise short-stop of the economy that broke inflation. But on an absolute basis they're as bad as we've seen in nearly 30 years. Headlines may talk about MtM improvements but in actual fact these haven't been worse in a long...long time.

Now, courtesy of Calculated Risk consider the composite of Housing prices based on this morning's SP Case-Shiller reports. Ditto...they also are about as bad on both an absolute and YoY basis as we've seen in a very long time. Much worse if you think thru the absolute numbers we'd think that there's a long way to go before a semblance of normalcy returns to the housing markets....years of future pain. Now everybody may be getting jaded.

WTF 2: What Really Happened ?

On the basis of those charts plus Merrill's stunning anouncement, which follows right on the heels (that's deliberate - heels as in slimebxxx not heals as in fixes or even heels as in bringing up the rear) of MER's recent earnings announcements which said "we're under control, don't need more capital and no more write-offs. Sheesh.... Several reactions.

1. If they didn't know this was coming a few days ago their grasp of their own situation is sadly deficient and the company is completely out of control (which should also make you wonder about the rest of the industry).

2. If they did know it was coming and weren't ready or refused to couple the two together that's borderline malfeasance. If the deception was deliberate it's beyond borderline and on a murderous cattle raid that should start a war.

But wait, there's more.

3. Yesterday's news should have been insufficient to trigger the major drops we saw, especially since it was triggered and driven by financials. If it was/is true then today's more credible news on the economy PLUS MER's announcements should have seen an even bigger drop.

4. It looks like the details of the announcement got leaked out all over the place without being formally and publicly announced yesterday. That, I believe, satisfies the technical definition of criminal. Now we're beyond bad companies and into bad judgement and bad behavior - can you spell integrity.

5. Oh BtW, as long as we're having several WTF moments - the recent fantasy rally was based on the Financials having seen reality, admitted it and cleaned it up. So much for that notion.

Who do you think can trust to tell anything resembling the truth at this point ? Now there's a question you should never have to ask. It's one thing - not a good one IOHO - to spin-doctor to keep the patrons from stampeding in the fire. It's entirely another to tell them there was no fire, there is no fire and anyway it's out. And leave the building while leaving them there watching the movie.

After the break are some readings you might want to consider on this business picture designed to survey the depth and breadth of the breakage as well as provide some guidances for finding candidate truth-tellers. 

Update: BNN comes thru again with the best, substantive and human discussions that'll actually do you some good instead of being more tainment than info

 Scott Peterson reports on Merrill Lynch & Co.'s plans to raise $8.5B by selling stock.

 BNN speaks to Janet Tavakoli, president, Tavakoli Structured Finance Inc.

Continue reading "Bad Times, Bad Behavior: Merrill, Malfeasance, Markdowns, Markets" »

Posted by dblwyo at 11:21 AM | Permalink | Comments (0)

If the last post didn't convince you that you care about long-term economic performance perhaps this will add some fuel to the fire. Or not - in which please feel free to browse the archives :). In one of those strange little pieces of serendipity that happen from time to time a couple of Dallas Fed economists recently published a piece on the long-term improvements in our wealth and well-being and were immediately taken to task by one of our favorite major bloggers Barry Ritholz of BigPicture. Who called them hackonomicists for their pollyanish views. Where Barry failed to uphold his usual high standards of data verification and analysis is where is own ox got gored - their conclusions didn't agree with his so obviously it was without merit. We'll leave you read both pieces but will suggest that both sides of the argument have merit, neither is completely right and in the sturm und drang the critical question is left drowned in the noise. First off the Dallas boys re right - we have had quite an uppath in this century. But Barry has a point of what have you done for us lately ? The question that should be on the table is how did we get here, can we keep on this path, and if not, how do we fix it ?

LT Economic Performance

Which are, in fact, the questions we suggested in the last post are important and which we want to start on here. Just to set the record straight you'll notice that GDP since the '50s has grown from $2T to almost $12T in real terms while population has shown an equally astonishing growth from 150mil to over 300mil. In other words US population doubled in about sixty years - and if you think that was all native US population "organic" growth think again and check your math. Immigration has been a recent major factor in our prosperity as much as it ever was in history. Just to put a point on things the second sub-chart shows GDP, Population and GDP/Capita normalized to 1952, i.e. set to the same scale, so you can get a sense of what's done well. GDP/Capita has tripled in these decades - a truly astonishing performance.

The fundamental questions we should be asking are:

1) what are the sources of our prosperities ?

2) what are their likely futures and ?

3) how do we make sure that we get the right things things in place to improve our chances ?

BtW - just for fun here's four links to the Dallas boys piece, Paul Krugman on '90s policy failures (whose diagnosis we think flawed but worthy), Barry's polemic and a great little piece on human capital breakdowns:There's a Price to Economic Pessimism, Behind the Bush Economic Bust, Hackononics, Part II, America's Human Capital Is Tested

Continue reading "Bears of the Apocalypse II (LT Econ): Who's Fault is this Mess ?" »

Posted by dblwyo at 09:41 AM | Permalink | Comments (0)

We hope you've been having a great holiday weekend. Here in the Northeast the weather's been a tad cloudy, rainy and cool with intervals of rain and sun to break it up. Nonetheless it's a major holiday weekend and the midpoint of the summer for many. And the midpoint of the year for many investors who've been prompted to take stock - along with various media mavens. Particularly now that it's clear that the worst isn't over, the word bear is being freely bandied about and the "Lost Decade" of zero returns has been re-discovered. This isn't just about angst, agita and schadenfreude however because the real underlying economics, beyond the market gyrations, mean a whole lot to a lot of people: as in jobs, livlihoods, prospects for their children and outlook for the country. So, it being our 232nd birthday, it seemed like a good time to step back and reflect a bit. Although the Economist with its' typical flair and sense of humor does well at setting the stage with the "Four Bears of the Apocalypse".

However Jon Markman's recent column in MSN Money does one of the better jobs IOHO of summarizing things:

Bad times for good companies Even household names such as Coca-Cola are getting drubbed in this ugly market. Many careful savers and investors are vulnerable, and the trouble isn't close to being over. The collapse of market value since autumn has actually wiped out years of progress, putting all but a few big companies' returns for the decade below zero -- an extraordinary development that has jeopardized thousands of families' financial plans and possibly soured an entire generation on the stock market. Indeed, it's fair to conclude now that the bear market of 2000-02 never really ended and that the 2003-07 period of modestly higher returns will look from a historical perspective like a twitch of life in a moribund carcass. Although the story of what's gone wrong in this Lost Decade has been well documented, by myself and others, fresh evidence suggests the last pages of this sad history have not yet been penned -- not even close. For after months of denial that anything was seriously wrong, a few leading government, banking and industrial executives have decided in recent weeks that it's time to come clean and acknowledge that the collapse of the greatest credit bubble of all time will leave profits and price-to-earnings multiples impaired for years.

• Profits & Profit Margins, That Was The Week That Was, Profits drop by record amount

• Barron's: The Bear's Back, Back in the Pool, Bearish battalions  , Lost Decade

 The URL pointer sets are to a) a very nice set of longer-term perspectives on the market and corporate profits by BeYourOwnEconomist that are worth reviewing and b) a selection of recent articles/postings on the return of the Bear (Barron's, Economist, WSJ) for the most recent re-discovery of potential long-running flaws. We propose to dig into this rather thoroughly, having touched on it before (Long-term Market Performance: It Sure Ain't What You Thought !) and noticed that in the last couple of weeks, as the markets went traveling in a handbasket, that our posts on the markets and economy were fairly popular. (Quite a Day: Prescience, Schadenfreude, Luck or Toolkit ?,Boys, Wolves, Broken Records III: Market Schizonphrenia Runs Amok ?) Given the scope of the issues we're going to shoot for a 3-parter. Part I - long-term market perspectives, Part II- long-term economic perspectives and Part III - Next Big Thing and Boiled Frog syndromes. (Our equivalent to a House episode :) ).

After the break this Part will take a pretty deep look at four different sets of market and market vs economy performance chart sets that we think are worth a tad of contemplation. What you'll find if you read on is four things: 1) a look at long-term real market performance, 2) a comparison between market and economic performance, 3) the critical importance of long-term economic performance on both the cyclical and secular performance of the markets and 4) some surprising and scary implications for the future. Which'll be discussed more fully in Part II.

Continue reading "Bears of the Apocalypse I: Long-term Market Performance Perspectives" »

Posted by dblwyo at 03:23 PM | Permalink | Comments (0)

Just in case you hadn't noticed the markets got slammed pretty badly today - look up the states anywhere you look. In a spirit of Schadenfreude we could of course try variations on "told 'em so, told 'em so" but that might be a working definition of hubris and brings back memories of old Greek sayings (whom the Gods wouldst destroy...and so forth) so we won't. On the other hand given several of the immediate prior posts (Technology Industry: HPQ/EDS, PCs and Prospects,Markets: Fear, Loathing, Schadenfreude and Cusps on Wall St.,Crime, Punishment, (Profits) and Outlooks: High Noon at the Street ?) which reflected long-running themes of ours a certain level of Prescience might be claimed. That's vulnerable to the same hubris charge though. And to tell the truth we were actually very surprised - probably as much as anyone. While we expected the bear rally to fade we didn't expect it this soon or this much - and who knows what happens tomorrow or next week, after all ? BtW the accompanying graphic is drawn from a composite of two different time periods using StockCharts.com's "Market Carpet" tool. It captures 10-days from early May to the most recent two weeks. Kinda speaks for itself.

So, if we're surprised, was it all luck ? The next graphic is a chart of the SP500 that was one of our amateurish efforts at Technical analysis. The color coded price levels id'd various barriers that had to be reached/breached for the market, which we argued was in a bear rally and was going to top out, had to go thru to settle the issue one way or another. And discussed in this post. So we might be forgiven the argument that it wasn't entirely a matter of luck, though today's surprises certainly are.

What we think is going on are three important things. First off there was widespread mis-readings of the states of the credit markets and of the economy, as well as the consequences that would be working themselves out. Second - our primary point from the "Fear and Loathing" post - is that a major (and we do mean major) re-thinking of the outlook is going on by Mr. Market and all his assorted minions. Bob Pisani captured it perfectly this morning commenting from the trading floors rather early in the day - "the Traders aren't waiting for the analysts or economists to call a recession....they've decided the whole second half outlook is wrong". And the Lord spaketh and the scales fell from mine eyes and lo, I could SEE !

Setting aside the extent of our surprise, and that nobody should be pontificating about a short-term random process where the Gods can here you, after we net all that out there's the matter of a little work. Specifically building and exercising a collection of tools, toolkits and habits of thought for trying to look beneath the headlines. After the break we go a little more in history and review a few of them. The primary goal is to provide a shopping list for you to explore and possibly use. Our real goal here is to present this stuff in such a way that you can go out and independently verify it and apply it yourselves. So we're always happy to be learning and refreshing the tools.

But it might behoove you to read on thru and check it out for yourself. You'll find four things: 1) our Market key factors summary from late April (btw again - just to peak your interest one of the conclusions there was to sell into the rally and position for a downturn, circa Apr29 or so. Somebody might have made some money that way), 2) the most current version of the Market Factors summary from last Sa. which all of a sudden seems to hold up reasonably well, 3) a Macro Risk Factors chart which summaries the major economic barriers we see/saw which is also holding up reasonably too. And 4) a bit of a review on the current Business Cycle and its' major components with particular attention to Capex vs Consumer Spending. The reason being that the two primary triggers of today's catastrophe were the sudden change in perspective on the Financials and on Technology. Now frankly we think the latter is overdone and ahead of itself given the lags between consumer slowdowns and capex declines but we'll take it. And the former is over-due now that everybody's downgrading everybody else because, guess what, a slowing economy means trouble in Financial City and more write-downs, etc. etc. The table kinda bookends the day starting and ending with the AP, "OMG" stories intersperced with the key headlines plus the URL for the CNBC vidclip with Pisani. After all the cheerleading we especially love the "short stocks" notion from CNBC of all people !

Continue reading "Quite a Day: Prescience, Schadenfreude, Luck or Toolkit ?" »

Posted by dblwyo at 05:55 PM | Permalink | Comments (0)

With all due apologies to Tom Wolfe ( Tom Wolfe's 'Bonfire' Returns as Heartburn) the last few days have seen, IOHO, the beginnings of a major sentiment shift in Wall St.'s grasp on economic realities as the notion that the worst isn't over but rather just beginning. We're not entirely there yet but the actions of several key indices indicate a major attitude adjustment is likely beginning. The Schadenfreude part comes because there's nothing, from GDP & business cycles, to accelerating Housing problems, to unemployment, to credit contagion metastasis to deterioration in the performance of the financials that we haven't discussed here, often extensively and for weeks or months. Beyond the S-factors (puns implied intended) the important thing is that this is thru no special merit of ours. Rather, just a repeated, careful, systematic and systemic look at how things were playing out. In other words anybody with a little work, a smidegeon of discipline and a decent toolkit - which we've tried to demonstrate - could do this for themselves and reach their own interpretations. C'est la guerre.

Just to put a point on it though here are some very recent headlines: Tech Stocks: Apple, Yahoo tumble with sector, Goldman Cuts Financials and Discretionaries, Citi Halfway Through Cutting 6,500 in I-Bank: Source, Goldman Cuts Financials, Admits Upgrade a Goof, Sentiment Shifts: Credit Crunch Isn't Over, March Wasn't 'The' Low Questions ? :)

After the break you'll find a, again IOHO, decent collection of excerpts including the most recent Barron's Roundtable and some fun stuff from Jubak and on the analyst wars; as well as a dissection of the smart money. Overall these commentators seem to come to similar conclusions which means that there is a SEE change, a crossing of the cusp point, potentially in the offing. One of the most interesting "tells" for how Mr. Market is feeling is the Tech stocks which have been running ahead of the rest of the pack until the last few days when they've been leading to the downside. BtW - in case you missed it, as most seem to have ,we did a deeper dive on the major factors why the Tech outlook is likely poor (Technology Industry: HPQ/EDS, PCs and Prospects) which might be well worth re-reviewing.

All together then it seemed like time to update our overall Strategic Market Assessment based on our four factor model but we're going to start with a little chart just to set the mood. The central chart is the NDX which you'll notice is settling on a sideways move (the 200/50-Day MAs are converging) until very recently. At the top is the VIX index of volatility options - the fear and loathing part - which you'll notice has an interesting correspondence of rising as the NDX tanks and conversely. The bottom shows the SP500 and the SP500:NDX ratio. As the SPX has faded the NDX hasn't and the resulting "outperform" ratio has risen significantly. If we're right in our assessments of the economic, capex and tech outlooks that's really ripe for a major cusp point shift...along with what appears to be an accelerating down drift in the markets.

So...the major bottom line we see is things have been going on much as we've been discussing but there's been a major sentiment shift in the last week or so; which leads us to this updated assessment. BtW - the before and after are contrasted from our last update so you can where we've shifted our views (old= higher row). You can find the previous Assessment Table and post (WRFest 27Apr08(Market): Three Steps to Two Views) by clicking thru.

Continue reading "Markets: Fear, Loathing, Schadenfreude and Cusps on Wall St." »

Posted by dblwyo at 08:48 AM | Permalink | Comments (0)

The prior post was really about filterring and structuring data into information and presenting it in form and way that makes decision-making easier. It was also, and perhaps more so, about the decision-making process itself. We can't help a lot with the latter, particularly in light of our own struggles therein :), other than provide the sort of excellent reading excerpts on the processes and methods. With the former we're doing our our best to build dashboards and control rooms that are accurate, simple, easy-to-grasp and help with decision-making. Perhaps, to continue the analogy, we're even trying to go so far as to help you build your own war room for the areas we think belong in a control center: the Economy, Markets, Industries and Companies analysis and frameworks. As well as details and tools.

Toward that end we've accumulated quite a bit of machinery. Any time you want to backtrack, other than checking the Category archives which you'll notice are structured down our control center design principle components :), or using the search function, the Key Postings category provides a short(er) list of some of the machinery we've found ourselves re-visiting over and over again. The Key Post tables is a complete list structured according to dashboard principles of many of the key posts and/or current refreshes. A dashboard/user manual for the control room if you will. 

Of course part of the question is just how one designs the dashboard - what instruments, what do they look like, and how are they laid out. And then there's the control room bigger quesiton - what consoles with what instruments, operating proceedures and so on and so on. Well it's not a "control loom layout" per se but here's our shot at depicting the control room in two parts.

The first part is the Economy and Markets room which has three multi-panel consoles and each console has multiple indicators on it. We haven't put up the detailed inventory of these postings but they'll be up shortly. Hopefully this'll make finding previous posts and machinery that's still relevent and useful much easier. It turns out there was a lot more of it than we knew - funny how stuff builds up when you keep plugging away at it.You can find the Key Posting Tables which list all the detailed discussion in that category archive. And then there's a complementary Business Analysis/Industry/Company "control panel" as well.

Both tables are posted after the break. We hope this is helpful in sorting out the various resources and tools that have built up on the blog. 

Continue reading "Dashboards for the Real World: Economy, Markets, Industry, Company" »

Posted by dblwyo at 06:07 AM | Permalink | Comments (1)

We harp a lot around here about the differences between the underlying data and the headlines; and about the associated dilemma between today's data, underlying or not, and the context. What does it really mean in terms of trends, timeframe, pattern and change points ? What we've found over and over again is that people tend to look at today's unfiltered data, extrapolate it into the future in their heads rather than based on some deeper analysis and then be surprised when the world turns out differently than they expected. What's needed is some way to collect, filter and present that data in a user-friendly, easily grasped and accurate format. A dashboard in other words that captures the essence of a particular problem. Take another look at yesterday's post on the most recent economic data and take a look at the charts...if those aren't "dials" about the health of the economy we don't know what is. The trick to a dashboard, which historically didn't come about by accident and wasn't perfected overnight - more like decades if not a century - is that it's based on understanding the underlying "machine" in question, sampling the right data and presenting it in the right way.

The immediate trigger for these thoughts was yesterday's post on the real data behind the curtain but the real trigger was an exchange with Tim Walker of Hoover's expressing concern about whether or not people were spending too much time worrying about the economy instead of doing their jobs. Now on the surface you'd think that we, with our constant Economy-Industry-Company mantra, would be far apart on this; and we are to some extent. The point being that one can NOT ignore the economy nor the industry as it will swamp you best efforts in a blindside. On the other hand if you spend all your time obsessing about headlines, especially distortionate ones, at the expense of performance that's equally bad. Perhaps worse. Tim and I didn't finally resolve our little discussion so this is a continuation.

Have you ever gotten off the highway in a strange/new city ? And been overwhelmed looking at the street signs, power/telephone lines, traffic patterns, etc. ? Too much data, no filters and no information. But as you get familiar with the street and the patterns you can start looking for the key data - your brain (& this is biological btw) creates a filter that focuses on the key & changing elements in the overall pattern. The same way a lifeguard scans for splashes not every swimmer. The catch is that building the right filters has to be suited to the job. Too simple and you don't get enough of the right information. Too complex and it takes a lot of time to learn the data and acquire the interpretive and decision-making skills required to "fly the plane". The complex, busy and massive cockpit dashboard may be heard to learn - but is it required for the problem ? As well of course as being right, minimal, and well-designed ?

And when you need a Dashboard that covers all the relevant information across a variety of key areas and indicators now you're scaling from simple problem dashboard to Moonshot operations control center. Yet, as GE/Immelt learned and demonstrated with their last quarterly announcements, lack of the proper control is deadly dangerous. Think about it for a minute - GE is a well-run, famously controlled company led by a CEO whom Warren Buffett describes as one of the best. And they got blindsided by economic and credit forces they didn't anticipate or position for. And yet many of those forces were visible and publicly analyzed for a long-time, e.g. real estate as CalculatedRisk handles it. Obviously GE didn't have the right kind of super-dashboard or war room for the size and complexity of their organization. Read the Wiki description of the flight control center and all the myriad functions embodied in it to get an idea of what it takes to fly a shuttle mission. And then consider the analogy/metaphor/model to a global business.

It's one thing to design and build the right kind of control room but entirely another to use it correctly. As a bit of a stretched analogy bear in mind that ALL of the functions in NASA's "little" room are required just to fly orbital missions. For the scifi spaceships of our dreams that entire team, the data, monitors and computing power have got to show up onboard the trip thruout the journey. Contrast the "panel" in MS Space Simulator to the reality of NASA's FCC and ask yourself what's reasonable ?

We've been having a little fun with the dashboard analogy and the pictures but hopefully it's clear this is a really serious business. The sub-text beyond just understanding the problem well enough to design and build the instruments for the dashboard(s) and the right dashboard(s) for the war room is what then ? You, the operations director, have to be able to interpret that information flow, make decisions, evaluate changes and then decide & act again. In a continuous and on-going loop. That's a matter of training, experience, skill and attitude. Especially attitude.

Perhaps the hardest thing in all this is finding the right decision-making patterns and training you mind to them and then sticking with that discipline. After the break you'll find an interesting collection of readings on the importance and impacts of failing to come to grips with these problems to explain why this is important. Followed by some interesting stuff on how our minds work and how filter/dashboard building is so difficult mentally along with some complementary stuff on self-development and sustainable discipline. And ending with a suggestion of some hard-won rules of thumb to get you started. We particularly like the selections on the psychologies of misjudgement and how practice is required to implement change. 

You might want to reconsider yesterday's post: Behind the Misperception Veil: What's that Data Behind the Curtain ? as dashboarding exercise ! :) Take a look at the set of charts again and think of them as speedometers, power status indicators and the like. How's your/our spaceship doing btw ? 

Continue reading "Data, Dilemmas, Dashboards and Decisions" »

Posted by dblwyo at 10:32 AM | Permalink | Comments (0)

Here's our update for the market outlook and situation with the readings (after the break) divided into three sections. One on the nature of the recent rally, then on whether or not the "crisis is over and the third on analysts outlooks. Each of these touch on topics we've explore in depth before so each section has prior posts also included for your review and refresh. The bottomline, IOHO, is that the "Market" appears to think the worst is over and the upcoming/current mild recession is already fully priced into valuations and outlooks. On whether that's true or not rests the largest gap we can remember between the Street and the rest of the world of informed observers we've ever seen. On the state of the Finance Industry and whether it's over please see the prior post listed below. On whether or not we've seen the worst of the economy please...please recall the prior post WRFest 26Apr(Economy): Between the Gust Front and the Storm. To the extraordinarily distinguished list of economists and observers who think that a) we're just headed into the real beginnings of the down cycle as of this monring you can add Warren Buffett. The key point here is the one El-Arrian made....now we're just seeing the real economy turn over and it'll take the financial economy with it. Think about it.

 For how that's playing out, the debate between the two diametrically opposed views, consider the chart which shows the SP500 on two views. One is the 2 Steps and Jump view we've been exploring for some time where each time the market looked like it was "bottoming" some other unanticipated surprise popped up to take it down. Until this last time when the April Fool's surprise of a massive UBS write-down and re-capitalization led insiders to conclude that things were hunky dory. Our minds our boggled (in the prior post you might want to look at the excerpts on UBS's internal report - gross incompetence is the best summary of their own words. One has to think they aren't alone). The second sub-chart shows how the debate is playing out with what we've argued is the lull before the real storm with the emergence of a sideways trading range. With this week's momentus economic data upcoming this'll get really interesting indeed.

To complement that we've update our Key Factors Table which looks at the Structural, Fundamental, Technical and Sentiment Outlook situation. Since it's been a while from the last update the prior observations are included for comparison as well as the current ones. The delay was from more than laziness since until recently most of our assessments were holding up well. Now the only real change is further deterioration in the real world drivers combined with an improvment in Sentiment. Go figure ! :) But feel free to violently disagree with all of these observations - but we suggest doing it systematically (and disagreeing with, for example, Jim Jubak, et.al.).

Also please note that for each major Factor we show last month's entry above this month's update, with key changes and/or issues highlighted in BOLD. But what we see is hidden risk factors mounting, being ignored and short-term optimism triumphing yet again over underlying deep factors.

Continue reading "WRFest 27Apr08(Market): Three Steps to Two Views" »

Posted by dblwyo at 02:55 PM | Permalink | Comments (0)

The title quote is (again) from Mr. Kipling's If and parts of it go like this:

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;

If you can fill the unforgiving minute
With sixty seconds' worth of distance run --
Yours is the Earth and everything that's in it,
And -- which is more -- you'll be a Man, my son! 

It's not entirely clear that many are indeed keeping their heads nor looking at the facts as they are. By and large the outlook is still too, entirely too, sanguine and fails to grasp the full extent and scope of the on-going tsunami's in Housing and the Credit Markets and what that'll do for the Finance Industry. Nor what's happening with the core economy - let's all not forget shall we that there's a real economy turning down out there with consumption starting an Acapulco cliff diver's warmup routine. On the other hand of those few who get it in their/our attempts to shake out some of the complacency we may get a little too alarmist. Yes these are serious problems that carry grave and serious risks with them. But we've coped with worse before and in recent memory.

The long-term outlook is in fact not bad. Certainly we have strong markets, a robust and innovative economy and a skilled and educated workforce. All of those things need to be better of course. But the question is will we keep our heads and make it so. Or panic and huddle in the blankets in the basement ?

We could summarize, explain and interpret the following readings but the titles and excerpts seem to follow, IOHO, pretty much carry themselves. While they're all worth clicking thru on to read the whole that last two (first from Jesse Eisinger of Portfolio who holds up the doom is coming end of things and next from Warren Buffett who holds up the we can cope, it's not that bad and keep your  head up and your powder dry end) are especially worth reading in their entirety. 

Continue reading "IF You Can Keep Your Head: Readings & Perspectives" »

Posted by dblwyo at 03:22 PM | Permalink | Comments (0)

There's a couple of things going on that caused us to dig into long-term market performance, using the SP500 as a proxy. The big one, which'll we'll dig into shortly, is it's earnings seasons and we anticipate a large dose of cold water in the face as reality meets the analysts. A different and surprising tack is how does the current market compare to long-term performance trends. Oddly we were led to that by all the hoorah about Citi's performance where Weill has been claiming sanctity because he generated such wonderful performance. That turns out to be even more ill-founded than future earnings outlooks. But in the process we stumbled across some perspectives we thought worth sharing. So we're going to start with a short-term lookat the SP500 but follow up with some very long-term ones back to 1950.

If you'll take a gander at the busy little chart at right (we apologize for the business if it's too excessive but wanted in this case to take advantage of some tools). In prior posts we talked about the steps and stumbles as the market gradually worked its' way down the staircase of the credit crisis and associated realities. If you look at the base chart you'll notice, among all the information, that the 50-day MA was still pulling away from the 200-day but has recently flattened. Driven largely by (our alternate title) April Fools where UBS doubled its' writedowns another ~ $19B but raised capital ! Sheesh. We don't want to spend immense time here but notice the flags and pennants. As we mentioned we saw three forming. The last two got busted to the downside but 4/1 saw the upside "surprise" all the bottom-callers were looking for. Which seems to be coming under pressure. Whether the rally holds will depend on how views on earnings evolve. But let's shift gears a LOT and look at real market performance over the long-term.

Below you'll find charts dissecting long-term market performance and returns in four different ways going back to 1950 and some, we think, very surprising conclusions. Our bottomline is that the era of highest performance was the '50s and early '60s. And that performance was driven by huge increases in economic performance which are unlikely to come again. But take a look for yourselves. 

Continue reading "Long-term Market Performance: It Sure Ain't What You Thought !" »

Posted by dblwyo at 12:38 PM | Permalink | Comments (0)

In the last 10+ days we experienced four major changes in the way the world works that haven't gotten the attention they deserve. Though all of them made the front page of the WSJ with long, in-depth and excellent articles. And several other places as well. So let me try and point them out as a prelude to follow-on detailed discussions but first ask a key question - how do you boil a frog ? Surely everybody's heard that joke by now but the sad part is my first time was over two decades ago by a speaker talking about changes in the world and business. Guess what - they all happened by and large, nobody payed any attention and everybody was "surprised" when the tipping points were crossed. Just as they've been surprised by the economic data and market disruptions of the last few months. We'll probably get the same reaction from our review and discussion of those four things but once more into the breech, dear readers. Our friend at Non-Sequiter pretty well captures it though.

Just in case you missed it here are the four things and an appropriate headline (we'll put up more detailed excerpts in our readfests so don't take notes). And it's not as funny, so may not hit home as hard and be dismissed as too intellectual but the chart at right is a repeat from an earlier post on business strategy. And it deserves another looksee because it provides a pretty good blueprint and checklist of the big picture you ought to be a little aware of. Especially with all these deep structural changes. Remember those frogs ! 

Continue reading "Five "Funny" Things on the Way to the Market" »

Posted by dblwyo at 06:59 AM | Permalink | Comments (2)

He in this case being the Rminator and while he's not necessarily in the house that's his engine your hear revving up. Today's economic news was the release of Feb. retail sales data. As we, and others have been expecting, it was down. With the Commerce Dept. estimating it dropped 0.6% MtM though they estimated a 2.4% YoY increase in nominal sales. Much more importantly estimates of real retail sales showed a pretty severe drop. My e-friend CalculatedRisk estimated a drop over 1%(Real Retail Sales). Using a different, simpler but consistent method we estimated that YOY sales dropped -1.45% for Feb. and the 3MoMA was -.84%. In any case the particular monthly number isn't as important as they trend which is captured in the chart at right. In the top you see real and nominal sales which have been trending downward on the whole since early '06. The interesting thing to notice is that there was a late pickup in nominal sales in late '07 due to inflation but now it's headed down. Consequently the real sales line is dropping much more steeply. We've been making the points about business cycles, lag structures and where we're at. This gives us an excellent idea and you can see it. And the bottom shows sales since Jan93 and we'll make the obvious point. Real sales has dropped about as much as it did at the bottom of the '01 mild recession. And if we're right about the cycle well, "argh...Captain you're strainin' the ingines...I cannah hold her".

In other word we're very early in the downturn part of the cycle but from these charts arresting the decceleration doesn't appear likely; and we're early days yet. To keep hammering on that point - where will real sales go if they've already fallen as far as '01 and we're early in even a mild downturn ?

But let's dig into things a little more with a refresh and update of our pool of high-frequency economic data after the break. 

Continue reading "He's Back: Retail Sales and other H.F. Scary Data" »

Posted by dblwyo at 11:57 AM | Permalink | Comments (0)

1. The economy is in a downturn that's a natural characteristic of business cycles but which threatens to tip over into something much worse as consumer demand slows and the credit crisis threatens to seize up.
2. Credit markets are normally the lubricant that allows for the smooth functioning of the cycle, up and down, but the normal predictable patterns in the overall market and the stable relationships between markets, which are not a given but the result of market equilibrating forces, are as badly broken as they've been in the post-WW2 era.
• Comparable examples of credit collapse would be 1929, 1912, the 1870s, 1920ish in Britain under Churchill and the problems in the 1890s. The situation is that serious. 
3. If the credit markets are not repaired, including order write-downs, de-leveragings, re-pricing of risk and huge losses necessary for a return of normalities then the economy is at serious risk of major...major problems. (that's a euphemism btw but I'm superstitious)

And apparantly our judgement on the situation is not entirely an isolated one. From the WSJ's "Market Blog" we have this little tidbit:

Continue reading "Galt vs the Fed II: Credit Disequilibriums, Broken Markets and Economic Implosions" »

Posted by dblwyo at 06:36 PM | Permalink | Comments (0)

Last summer George Magnus of UBS asked whether or not we were at a Minsky moment. That is a situation when leveraged borrowing had progressed from sound borrowers (who can repay) to speculative borrowers (betting on cash flow) to Ponzi borrowers (guess !) and we were about to proceed with the reverse unraveling. As the previous and many other posts here have argued not only wasn't the credit market contagion NOT confined to sub-prime, or even housing-realated, markets but there were many rocks and then boulders which would topple into the ponds of the credit markets. And the effects would be self-reinforcing as the various ripples from those topplings impacted not just adjacent markets but distant ones as well. In this recent FT 3-part interview George updates his outlook and it is anything but sanguine, in the modern sense of the word. The old sense of sanguinary was bloody - as in the aftermath of a major battle. We use it in that sense. The vidclips can be reached thru clicking on thru the picture and we HIGHLY recommend that you do so. The interview is pretty non-technical but the numbers and consequences are startling.

Below the line we've gone back over the last several months posts and collected up a bunch of the critical readings related to these issues. Including one that introduces the original Minsky Moment phrasing (BTW - for the record the person who really first started talking about Minsky-like problems was Paul McCulley of PIMCO and he did it back in '06.) We also re-list the links to our prior posts on the credit crisis, perverse incentives and the "rocks in the pond" model.

While it's tempting with short-term satisfactions to indulge in some schadenfreude we'll postpone that for this evenings scotches...yes that's plural. This is too severe a problem, spreading too rapidly to be fully savored (our previous labeling was Ebolatization of the credit contagion and we used the movie of the same name as our model. That still seems to be accurate IOHO !).

BTW - this is a 3-part interview and you really should watch all three, you really...really should. And HT to Barry Ritholz for posting this before we got to the FT today as well. Anyway if you'll listen to all three you'll hear George pretty well - we actually exactly - concur in that marvelously understated British way with our take on the credit markets, the economic outlook, the worldwide slowdown and the market's lack of awareness. Or that's what we think we heard. You decide - because you will one way or another !

Continue reading "$Trillion Losses: the Minsky Moment Continues" »

Posted by dblwyo at 12:14 PM | Permalink | Comments (0)

A friend of mine has suddenly paid some small measure of attention to the arguments we've been making about the problem portfolio we face and the likely outlook for the business cycle, as opposed to the headline reporting. And - thank goodness - started investigating his portfolio and investment strategies. Actually he's not quite the first - another friend called us a month ago on a business trip, and while talking to us, used his Blackberry to re-shuffle part of his. Boy, I sure hope I got that write. Now at the time we also suggested that the real time to pay attention was in Dec. but better late than never, we always say.

Obviously our view is that there's a long way to go to bring valuations into line with the business cycle and enterprise performance outlooks but we've been wrong, or at least badly timed, before; and surprised of course that the Universe didn't fit our "model" :). But all in all it seemed like a good time to translate the thrust of our arguments into some investing strategies (bearing in mind that blind advice on the web is potentially worth what we're paying for, this is intended as a representative exercise for you to go do your own homework and any negative consequences are on your own head. A suprise upturn of course we expect to get a cut :) ). In the process we'll point you to PoliticalCalculations SP500 return calculator which you ought to have handy.

Continue