bizzXceleration: Performance, Value and Profit

Continuing on the theme of slowing capital spending combined with increased pressure on foreign economies we turn our attention to the Tech Sector. And with the NDX down 1.4% so far today on the heels of Apple's surprise this might be even more timely than anticipated - purely accidentally of course. Which nonetheless reinforces the point that, at the end of the day, the state of the economy and general business matter even for a superb innovator like Apple. If this keeps up consider this an early fore-shadowing of a future buying opportunity.

Just to put a point on it consider the accompany multi-company chart graphic, which shows pairwise comparisons of key tech bellweathers. The top contrasts the NDX with CSCO where Chamber's honesty and directness has led to a more serious decline in Cisco's stock than many techs so far. Meanwhile the new and the old (AAPL, IBM) show two companies that have held up very well but highlight key concerns with consumer spending domestically, the likely downturn in capex and the issue of foreign demand. Which leads one to the next pair of GOOG and MSFT both of which blindsided with lower than expected performance. The final pair is also a new and old contrast in the software business showing Salesforce.com vs SAP. Both of which holding up well. Lots and lots of issues hiding there as well that get to the heart of the Tech outlook. Besides the general the key question there is how will spending on softward hold up as the economic malaise grows and extends worldwide ? One might suspect future surprises in store - unless of course the thesis that software spending saves money in a downturn holds it up. Not a thesis btw that's historically well-grounded. Which leads us back to yesterday's international economic outlook summary (Economy (Int'l): Re-coupling Redux and Deterioration Accelerations).

How all these conflicting forces play out is illustrated after the break with another set of worthwhile readings excerpts, starting with Cisco but then comparing and contrasting INTC vs AMD. There you get an almost perfect contrast between innovative strategic transformation PLUS superb execution and scale verses self-inflicted foot-shooting. But the real poster child for bad execution is Sprint which continues to suffer tremendously from terrible customer service problems.

The other interesting pair of excerpts is on the transformative nature of Apple's recent iPhone announcements which change it from a very smart customer gadget to a new computing platform. A fundamental game-changer that's not being widely recognized as yet but calls for strategic re-positioning on the part of all the players involved. Jim Jubak is one of the few widely read commentators who gets it and his discussion of GOOG vs NOK vs AAPL highlights some interesting aspects. And creates a list of future buying candidates that you need to table for evaluation.

The final excerpt discusses Kleiner's strategic shift to green tech investing and away from its' traditional base - which could serve as the exemplar for the paradigm shift emerging in the VC community and is worth thinking about. 

Continue reading "Readfest(Tech Indstry): Playing it Again, Same...oops Sam" »

Posted by dblwyo at 11:18 AM | Permalink | Comments (0)

Having reviewed Markets and the Domestic Economy that led us to the on-going disruptions in the Finance Industry. Notice despite decent JPM performance and not bad from Wells Fargo that a lot more results aren't as encouraging. Not to mention in other industries. Nor the collapse of Indy-Mac, the "bankruptcy" of FNM and FRE and the on-going threats in the Auto Industry. Most of which is "dashboarded" by this composite chart of some key companies and industries (GM, F, Airlines, Hombuilders, Retail and the Con. Disc. sector). Again what's continuosly surprising from these charts is that folks are surprised. At the same time they illustrate several key themes we've hammered more than a few times. Key ones of which are a) business performance matters, incredibly much.(Business Hilbert Problems: Fundamental Factors of Performance) And b) the Economy-Industry-Company mantra is alive and well. We've previously dissected some of these industries in particular, for their own sake and as representative exemplars of key strategic issues (Retail Industry: Plus Ca Change...or Bend Over and Kiss...,Once More Into the Breech: 3 Decades of Auto (Industry) Delusions, Life and Death in the Air: Carriers, Manufacturers, Realities). After the break you'll find these stories, trends and arguments carried over into the Industrial Sector (Dow, GE, aircraft manufacturing), the Auto Industry (Honda, GM, BMW), Retail (Saks, Starbucks, Tesco, office-supply) and logistics services (FDX/TNT).

GDP Components and Outlook

As you skim over these excerpts we'd ask you to keep the accompanying chart on YoY changes in GDP components in mind. It offers, IOHO, some deep insights into the pressures that are slowly emerging and evolving on each of the major sectors. Just as a reminder the top sub-chart shows the YoY changes in each component while the middle one shows the % contribution (impact) on the YoY change in GDP. And the bottom shows the running total. Look at Consumer Spending for example which has been shrinking rapidly and who's contribution likewise. The two most important things to think about are the decrease in Capex as businesses tighten up - what one would expect as capital spending begins to follow the normal cyclical pattern - and Net Exports. Which have really been the sole source of relatively good news. Which raises the interesting question of whether the accelerating downturns in foreign economies will allow that to continue. Which we don't think it will - bad news for GDP in general but specifically for the Tech Industries who've shifted so much of their business offshore. And one then has to ask what're the implications for the Tech stocks, eh ? As well as any realistic grasp of these trends is priced into the markets !

Continue reading "Readfest (Business): Back to the Future, Revisiting Old Themes" »

Posted by dblwyo at 01:33 PM | Permalink | Comments (0)

Well we've had our apparantly isolated opinion about the economic situation and outlook - that is we're not in a recession, we are early in the cycle and the real downturn is just beginning. Also that Housing has a long way to go to bottom out, the credit crisis has morphed into a credit crunch and credit restraint will link and feedback with bad loans to accelerate a slowdown. A view shared only by folks...never mind...you've seen our little list. Anyway just consider the feedback loop implied by this chart as loan standards are growing increasingly stringent and put it together with Dimon's comments.

But apparantly it's really....really official now because Dimon of JPM has basically come out and confirmed all that. Actually we're sorta serious - we're just watching the game with our little white chip. He's got a big stack of blue and red and gold ones. Here's what Magister Jaime had to say:

JPMorgan Chase CEO: Recession is Just Beginning JPMorgan Chase & Co.'s chief executive said Monday that while the crisis in the credit markets appears to be three-quarters over, he believes a U.S. recession is just beginning. "Even if the capital markets crisis resolves, it does not mean that this country will not go into a bad recession," said CEO James Dimon, whose bank saw its first-quarter profit fall by half due to the recent collapse of the U.S. mortgage market. "The recession just started." "We don't know if it's going to be mild or severe," he continued, speaking at a conference in New York hosted by Swiss bank UBS AG. "We're thinking there's a third of a chance that it's going to be pretty bad ... closer to the 1982 recession than the very mild recessions we had in 2001 and 1990."

 After the break we've got our usual collection of readings excerpts for your skimming pleasure starting with Prof. Feldstein's point that .6% GDP growth was QtQ changes and doesn't mean that in fact in Q1 things didn't slow down rather abruptly and drastically. A point we'd support from our own figures and stats btw. The other recent economic indicator that got people all excited entirely out of reason was a monthly drop in jobless claims. Below you'll find an interesting chart from Northern Trust that pretty well shoots that one in the head. As well as a superb Economist must-read on the state of the Housing market. Aside from being short and very nicely done it's the first major MSM piece we've seen the recognizes what CalculatedRisk and a few others have been telling us for some time - there's a long way to go in the Housing downturn...especially measured by prices.

There's also a section on the World Economy where Europe is beginning to slow appreciably while the credit crisis impact on lending appears to be spreading there as well. The last few readings speak to some major trend issues that are really worth paying attention to. First off the other data that was misread was exports where growth appears to be slowing. But more importantly are two big structural changes that are beginning to emerge. One is the confluence of major problems that need worldwide management to deal with, meaning that all the risks are increasingly on the downside. The other deep changes is the continuing slow erosion of the dollar's status as the default world currency. This won't happen overnight or even in a few years but it is beginning with possible serious consequences for our freedom of manuver in monetary policy. 

Continue reading "WRFest 11May08(Economy): Jaime Spoke, Anybody Listening ?" »

Posted by dblwyo at 03:24 PM | Permalink | Comments (0)

With us getting swamped with this and that we didn't get the separate Int'l economic news up last week so this is a double dose. On the other hand that leads to the concatenation of some very interesting stories. By this time we'll presume that no reader here is a fan of the de-coupling thesis ? So the real question, aside from the minor detail of horrendous inflation leading to exponentially rising food prices and socio-political collapse (so much for the end of History, too), is what's happening ? And where are things headed ?

Below you'll find stories on Europe, Asia, Japan, India, China and Turkey. In literally a matter of a few weeks various authorities have gone from benign and sunny on Europe's outlook to seeing a slowdown stretching thru at least '09. Compounded by accelerating inflation which'll make it difficult for the ECB to help out, as if it would, with interest rate cuts. Sooner or later though they'll have no choice...which'll help the dollar enormously.

Similarly Asia is beginning to experience it's own brand of turmoil. Only partly from the growing US slowdown, and benefiting from avoiding much impact from the credit crisis. Instead they're dealing with inflation, and surging oil and food prices. Oddly we're on the ten year anniversary of the last Asian crisis and another looks to be shaping up.

Japan has never managed, as we no doubt all know, from its' "Lost Decade" which is now on its' weigh to being the "Lost Two", but kept hoping for inflation to help pick up interest rates and prices and start the monetary machinery moving more naturally again. Well they've managed to start getting some inflation, but just like the rest of us it's for the wrong reasons. 

All of which doesn't bode well for either India or China. Both of which are experiencing all of these problems (slowing external demand combined with growing, disruptive internal problems) but now being exposed to deeper-rooted structural challenges. In India's case that means rising inflation and, a natural result of the growth adjustment process, a growing shortage of skilled labor. In the long-run that's self-correcting and a very good thing. In the short-run it maintains a low-quality and high-cost infrastructure.

China's the growing wild card in a way, sharing all these problems as it does. If it manages to keep the wheels on in a few short years GDP as measured by purchasing power partiy would make China the largest aggregate economy in the world, though not on a per capita basis. But aside from escaping from all these other problems it's facing major institutional adjustment and structural challenges.

Finally Turkey, also facing the general conditions, has rapidly shifted from poster child to not-wanted poster as internal debates over the future of the state and nation have started making investors very nervous. So much for ignoring geo-politics, eh ? 

Bottomline here is that it turns out nobody's immune. My how things changes...and how fast they change. 

Continue reading "WRFest 2May08(Int'l): Re-coupling, Slowdowns & Mal-Adjustment ?" »

Posted by dblwyo at 03:50 PM | Permalink | Comments (1)

Here's an interesting accumulation of Tech-related readings (after the break) that are worthwhile in their own right but also are perfectly illustrative of many of the themes we've tried to strike here. Both for the Tech Industry itself and for it's inter-actions with the larger economy. Most of us, myself included, have this wonderful, romantic view of the Tech Industry as being its' own thing running on an internal dynamic. Unfortunately most of the major names are now mature companies struggling to find the NBT (next big thing). Worse many of them are experiencing severe organo-sclerosis in their core disciplines. Tech is not the only industry driven by Innovation however. In fact it is more central to the Pharmaceutical and Aerospace industries than what we traditionally think of us tech. And, as I hope we've established, innovation is returning as a fundamental requirement for survival let alone prosperity. Put all this together and you have two broad mis-conceptions to adjust:

1. Patterns of Innovation: Once a company or industry matures it is no longer driven by internal dynamics, e.g. the famous "S-curve" of fame and fortune. Worse when a company is used to living on the curve it gets both complacent and, with growth, harder to manage. Often its' core disciplines deteriorate as well, so that one ends up with desperate gamble after desperate gamble to recover the glory years. There are however key players who have managed, thru discipline, execution and insight, to find sources of renewal. 

2. Business Cycles: one you're off the curve then you become just another capital "equipment" supplier (or consumer supplier for those migrating into the entertronics industry). Which means normal business cycle consequences begin to show up. In this downturn, which we've barely seen the beginnings off, first consumer demand will slow and turn down, likely severely. And companies will cut their hiring and capital expenditure plans. All of which we're beginning to see and more of which is coming. As IT budgets are constrained what do you think happens to IT spending and tech industry outlooks ? Wouldn't ask the analysts on the Street :)

The trick is to sort out the survivors from the also-rans who are going to struggle. And then sort the survivors into the so-so's and the real men. As you skim over the readings we think the portents for the future are pretty clear. Which means in terms of evaluating investment and performance we're back to asking Economy - Industry - Company questions. You're hopefully looking for the companies with the skill, chutzpah and resources to gain new high ground. And IOHO those are the folks who've re-made or are re-making themselves. Those will be the buying opportunities after we get thru this current unpleasantness.

A perfect contrast is AMD vs Intel. The former had a hit but failed to follow-up, sustain it or execute. Instead it made an acquisition gamble looking for the easy fix. In stark contrast Intel transformed itself by building on it's base skills in chip design and manufacturing as well as operational excellence and is now extending those capabilities to whole new markets. (We can't recommend some of the last investor presentations highly enough btw). MOT is the perfect poster child for what we've called decliners in the charts. IBM on the other hand could serve as the example, if not exemplar, for the sustainer.

The real interesting contrast is APPL vs MSFT. There are a lot of readings below but consider what we think is the most fascinating and powerful contrast. At it's heart MSFT is a software company and it's most fundamental  discipline should be product development. Yet it delivers Vista late, emasculated, bloated, missing an ecology and buggy. What Longhorn was going to be and what Vista became reduces in large part back to Code Red - when internal development broke down almost completely and they had to do emergency surgery.

In contrast Apple made a decision to create a new, elegant, powerful and portable OS that not only drives Max OSX but the iPod and iPhone because it's modular, componentized and scalable. (Shades of NEXT and it's object-oriented OS and application platform). That means that every product Apple makes runs the same software base and therefore can share applications, within limits of course. So MSFT is wrestling its' own kudzu and Apple has created a self-sustaining, evolving and growing eco-system. Which holds the most promise for the future do you think ?

Of course there's many a slip 'twixt cup and lip and MSFT is still a huge, tightly run profit machine and Apple will need to sustain it's innovations with the NBT on top of this wonderful foundation. Which merely makes it easier and more likely. But it's looking like Apple joins Cisco and Intel in that pantheon of folks who've made the necessary cultural changes to embed innovation in their DNA. (Sailing Into the Storm: From Execution to Innovation)

Continue reading "WRFest 27Apr08(Tech Ind): Innovators, Survivors & Also-rans" »

Posted by dblwyo at 06:19 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)

When a big....big...big storm is moving thru it's often preceded by smaller storms that make people think they've seen the worst, particularly because there's often a pause.. Well we're in such a pause now between the gust fronts in the financial markets  that scared everybody and the real economic storm that you can hear growling over the horizon. Now if you've been reading along on this blog any time at all you'll know that this has been our position for months, many months in fact. Just as a sidebar we'd like to re-draw your attention to two category archives. In the Key Posts are priors that we think put up a sustainable piece of machinery or analysis that we find ourselves referring to over and over again. Any time you're looking for something here on Minsky moments, credit markets, business cycle structure, etc. you might check there first. Supplementing that is the sub-category of Key Post Tables which has a limited number of tables pointing to all the critical posts in a particular area, e.g. Economy, Market Analysis, usw. structured in a logical order with some annotations. Consider it our "guidebook" if you will. It turns out there's quite a bit of accumulated machinery that's been published and once we found ourselves loosing track well... Anyway the point being that you can search out all the gust front analysis there if you like.

After the break are this week's economic readings, which we won't review in detail, but leave to your skimming. Instead we'll point you to the bookends - the the first two excepts plus some vidclips on CNBC and the last four in a sub-section on Commentators. The first two pieces are a FT column by Mohammed El-Arrian of PIMCO in which he says shortly, eloquently and directly what we've been putting so much more crudely. All we've done is survive the breakdown in the credit markets and freed up the machinery for a normal cyclic downturn. A downturn in which we are in the very early stages of. BtW - if you read the very extensive posting on the state of the Finance Industry the bottomline there is that as the economy weakens a whole new wave of writedowns and loan losses is about to go ripping thru their balance sheets. All this capital raising they've done merely patches the damage from their own self-inflicted and occasionally fatal wounds. Think about it.

The second starter post we'll call out is Immelt's assessment of where we're at in which he argues, now like others, that this is going to get a lot worse. Now we happen to think that Immelt has done a magnificent job of re-structuring and re-positioning GE, as we've made clear. You might note that Warren Buffett shares our opinion, calling him one of the best CEO's in America. Which makes the clip all the sadder because it's clear that Jeff and GE, who appeared on Rose last summer with a fairly sanguine outlook which they repeated in their Q4 investor presentations and outlook. The sad part - there's nothing going on now that we and others didn't see thru the use of simple, readily understandable tools. In other words Immelt & GE, like a lot of other CEO's and therefore investment analysts, tends to be looking at the economy he sees now on the surface. Not at the deeper currents that are perceivable thru a bigger toolkit. He's likely learned that lesson but he's also likely to be in the vast minority. On how and why this works you might want to re-skim last weekend's reflective postsing in the Enterprise Performance archive that talk about earnings, analysts and performance. 

The ending bookend are four commentators observations that begin with the standard view of it's likely over and work their way thru to why it's not and what's next. Needless to say we want to make sure you understand that the first of the four is there for contrast and the last three for substance. But between them they capture the Yin to the Yang.

Now we'll also admit that reading El-Arrian's column actually made us sad. Our comments may sound a little schadenfreudish but aren't so intended. Rather we're reviewing priors to make our case that if we, who're not professionals and don't get paid for this and use simple tools then the guys who in fact make their livings or control many $Bs of companies and many Ks of jobs and lives certainly ought to be doing better than this. On a final note we've posted links to five CNBC videos which taken all together will take you less than an hour to watch. We've finally figured out CNBC - watch the talking heads for amusement and the occasional insight or bon mot but understand their book, i.e. their biases. Pay real attention to folks like CEOs or hard-nosed observers like Wilbur Ross who really have something to say. In this case we've never seen a more steller cast. The co-host was Joe Stiglitz, they had another Nobel prize winner as a guest (Bob Engle) and Bob Hormats from G-S also co-hosting. Their guests also included El-Arrian, Roubini et.al.

IF YOU TAKE AWAY NOTHING ELSE AND DO NOTHING ELSE WATCH THOSE VIDEOS ! TAKE NOTES !! AND THINK ABOUT IT !!! PLEASE 4! :) 

Continue reading "WRFest 26Apr(Economy): Between the Gust Front and the Storm" »

Posted by dblwyo at 04:58 PM | Permalink | Comments (0)

Welll the arguement is running, on the one hand, that we're getting mixed messages on the earnings front(s). We're not so sure about that. Rather it might be that it's early in the downturn on the one hand. And on the other they aren't being parsed out very well. In fact that explains the headline because all too often analysts and other forget how these things work at their most basic. Earnings = Profits. And Profits = Revenue - Costs. The two things that aren't generally being asked are what's going on underneath that with currency translations and with sales. Consider Revenue = Price X Units. Now the few good earnings stories, so-called bearing in mind for example Intel's expectations adjusting manuvers beforehand, turn out on inspection to have more to do with foreign sales benefiting by the drop in the dollar. So the real questions are what are earnings quality when that's allowed for ? In other words what were unitl sales abroad and domestically ? What prices did you get in local currency terms ? And that also should lead one to ask how're costs doing ?

Below we provide some excerpts on general business conditions, including Goldman's very negative outlook and the rising risks of bankruptcies and then then look at the Materials and Manfucturing sectors. The themes we're seeing are that companies with significant foreign sales are getting major currency translation benefits but real sales are less clear. Those more domestically focused are experiencing the US downturn which is likely to catch up with the foreign revenues (units) in the future. At the same time everybody's experiencing rapidly rising costs which are difficult to pass along. So for example Aloca took a big hit. Unless of course you're in industries where demand > supply and you aren't subject to so much pricing pressure. Surprise, surprise that describes many of the materials companies. On the whole that all suggests that domestic earnings will continue down with the downturn while foreign earnings are exposed to the same factors in the future. And everybody's exposed to severe cost pressures.

The bottomlines are just that - few fancy manuvers left. Now it's about capabilities, good products, good management and execution. We're likely to see some severe sorting going on here between survivors, hangers on and the walking dead. The winners though, ah that's another question. Keep an eye out for those. (Performance Assessment Basics: Five Fundamental Factors)

Continue reading "WRFest 20Apr08(Business): Price X Units - Cost = Profit" »

Posted by dblwyo at 10:31 AM | Permalink | Comments (0)

Well the markets are just roaring ahead today, and really thruout the week, despite the fact that not only was there no good economic news it was uniformly bad. One possible interpretation is that we're so jaded that our awareness has gone numb. Another, of course, is that the recession is already priced in. A third would be that that there's a lack of grasp of how serious this is, how long it might go on and what the faultlines are that open us up to other risks. If you've been reading along you know we're in the third camp. The natural consequences of this is we view this uptick as a bear market sucker's rally. And that we haven't begun to price in what's coming. What we think is going on is that, despite an excess of R-word reporting there's a pretty complete lack of grasp of the structure, patterns and timing of how a recession plays out. As we pointed out in the prior economics post (Econ Indicator Update: Real Sales -2%, No Recession, Yet !) we're definitely not in a recession yet but real sales and other indicators have turned sharply....sharply down. In another context a friend asked me why the MSM media wasn't reporting on the facts as they are and interpreting the context. Aside from having no good answer we'd guess it's because reporters report not analyze; and they report on that day's simple news. The trick is to build a set of filters that sorts and aligns all this flood of raw data into a coherent whole so you get an idea of where everthing fits together. Taking a systemic view in other words and then being systematic about executing against that view in data collection, analysis and interpretation.

With that in fact, since there's no more major economic news below the break is our collection of excerpts for this week. As you'll guess there's continued weakening in the core economy (Beige Book, et.al.) particularly in real sales and in indicators of future demand (wages + employment). beyond that Housing indicators continue abysmal and worsening with more to come. In particular we point at CalculatedRisk's dissection of the March selling season which has gotten off to a worse than abysmal start. The excerpts end with three stories on strategic factors that you need to take a deep breath, step back and really think about. Commodities pressures will continue for years (and as we pointed out in the prior post on the In'tl Economy there are major cracks metastasizing around the world). Further it turns out that we're far from out of the woods on the credit crisis. And the NYT put up a great article on how we're already seeing severe reductions in hours in employment - the classic harbinger of doom to come.

Continue reading "WRFest 18Apr08(Economy): No Good News in Sight" »

Posted by dblwyo at 09:00 AM | Permalink | Comments (0)

As usual there's a lot of tech and related news so we've accumulate and sorted key stories and prior posts that span the suddenly exploding Yahoo Wars, the search wars, iPhone news and rippled effect changes in the telecom, media, entertainment and related distribution industries. It's kinda hard to sort it all out and put it into an organized context but we'll take our best shot. Ram Charan had an interesting article (When -- and How -- to Reposition Your Business) on one of the most fundamental strategic requirements of business - looking outside the business and re-thinking it when things change. And they're changing enormously and rapidly across multiple industires.

Telecommunications is seeing the bandwidth wars between cable and traditional providers with alternatives coming up fast. New "phonelike" platforms, e.g. the iPhone, are going gangbusters AND forcing major re-thinks of the traditional business model, at the heart of the Yahoo discussions are two things. First off, and let's not kid ourselves, was a profound lack of execution on a large and rich portfolio of sub-businesses. And second the fundamental debate over getting and monetizing eyeballs. Yahoo's model was create attractive content and then DISPLAY advertising. Google stumbled into the alternative of embedding advertising in search and the brilliant notion that they could collaborative with any and all content providers.

Meanwhile in the last week old media has finally really, truly been heard form. Not only did the Yahoo/Msft contretemps boil up and over but all of a sudden the promised disruptions of old media by new took on new life with Time-Warner's and Fox's entry into the bidding wars. This is a cusp-point SEE change that we've been waiting for since 1995 and the development and distribution of content will never be the same. Media is beginning to re-think itself.

And two of the major changes enabling and driving it are the sudden appearance of new platforms that are alternatives to the ones we're all used to. The iPhone being the preminent example but the gaming industry, which combines platforms with content, being another and bigger one. Which is also driving enormous changes in distribution. And in the entertainment business that means re-thinking and re-structuring the networks. In parallel the other form of distribution is the retail channel which is experiencing very hard times as the steady stream of profitable new consumer electronics drys up. So at the end of the day we have five major industries that are going thru huge disruptions with new value propositions, strategies and business models to be developed and established. And with a profound dearth of good operating execution on the old models, which contributed to the problems, and no apparant clues as to what the new operating models should be let alone examples.

These are not critiscisms per se, by the way. They're observations reflecting a natural state of affairs that ALWAYS results when new technologies, products and services emerge. Cast your mind back to when mass-market newspapers took off in the 1890's - how long did it take Hurst and Pulitzer to develop new models ? How 'bout when radio emerged in the '30s and the models had to be re-thought ? And again in the '50s in the early days of TV ? Everybody always started with adapting what they knew to the new formats and capabilities. And then slowly evolving more effective and efficient approaches.

We're in the first inning of what promises to be a long game. And an early season game in what will be a long...long season. Now that the bigs have emerged from their cocoons this'll get really interesting. 

Continue reading "WRFest 13Apr08(Telemedia, Entertonics): Let the Wars Begin" »

Posted by dblwyo at 07:44 AM | Permalink | Comments (0)

After the break you'll find an interesting set of compare and contrast stories over the week starting with the one suggesting we look beyond the recession for strong stocks and good companies that will hold up in a mild downturn. Double Oops ? Then there's the one surveying the Polyannas who think the credit crunch has started winding down. Maybe but not only is Citi selling $B of leveraged loans at distressed prices but an inside the finance industry trade journal mentioned, which the mainstream business press did not, another $17B writedown in Q1. And we have the problem that yet another obscure debt instrument is turning sour and the overall credit markets continued "challenged". You'll notice btw that all the Markets news this time is by and large about continuing disruptions and threats to the credit markets, not the markets per se.

Just in case you missed it we'd like to draw your attention to a little piece we worked our little hearts out on: Long-term Market Performance: It Sure Ain't What You Thought !. Start there for a real compare and contrast between real market performance and what the talking head outlooks are going to be.

Continue reading "WRFest 12Apr08(Markets): The Fat Lady Missed the High Notes ?" »

Posted by dblwyo at 08:31 PM | Permalink | Comments (0)

As the de-coupling myths further unravel we're starting to see a wide variety of consequences around the world and on many different levels and fronts. In an earlier post (WRFest 6Apr08(Economy III): International Ripples to Faultline Cracks) we used a conceptual chart on the four sets of inter-related geo-political factors that investors must always been aware of (we call it the 4-Quad Chart) but the "cartoon" at right from recent Pulitzer Prize winner Mike Ramirez puts that abstraction more simply, clearly and bluntly. Now to be fair that's not the only thing going on nor is it the primary driver. But rising worldwide inflation driven by a combination of growth in the developing countries, leading to highter commodity, energy and food prices, and these kinds of policy errors is putting enormouse and accelerating strains on countries around the globe. Which brings us full-circle back to geo-political problems. Put the Social, Economic, Political and Technical issues to watch together with the strains that Mr. Ramirez puts so bluntly and what do you have ?

Here's what we see so far.

Continue reading "WRFest 12Apr08(Int'l Econ): Decoupling Myths to Devolution Fautlines" »

Posted by dblwyo at 07:46 AM | Permalink | Comments (0)

Since I started this news clipping service the amount just keeps climbing from the original 4-6 pp/week for all topics to about 10+. Only this time there's so much it turned out to be 14pp. of clippings. Ouch. So it seemed like a good idea to get an early start and start putting up the chunks early. Not quite the plan but then life is what happens, right ? Though it was a great temptation to have a focused look at GE's earnings after yesterday's long post/readings analyzing the situation. You'd almost think we arranged it but Jeff and I never did so much thing. A couple of key observations though - GE operates across a lot of industries and geographies. If you take a look at the details you get a pretty good sense of where things are at. More importantly GE generally "manages" its' earnings very carefully so the surprise is even bigger than you know. Here's the real kicker though - GE was pretty sanguine last quarter despite various folks who were suggesting this was early days but you could hear it coming.

In other words if you don't think the performance of the economy and earnings are strongly linked we think our case just got a great real-world test. Go back and skim yesterday's post - why were analysts so optimistic ? Because they aren't paying attention to the train ? Why is executive management telling the analysts to be optimistic ? Because they're looking at this quarter's results rather than looking at the wind, waves, currents and storms warnings. Remember when Cisco was going to ride out the Tech bust ? If not look it up.

Continue reading "WRFest12Apr08(Economy): Here That Train aComin ?" »

Posted by dblwyo at 06:47 PM | Permalink | Comments (0)

My favorite pair of lines from the movie War Games is the closing and the key kickoff lines. The latter was, "let's play global thermonuclear war" and the closing was "how about a nice game of chess ?". Unforunately some of the latest news puts us closer to WldCon2 (for World Economic Condition Two, analogous to DefCon2 - a state of high alert with the bombers on the pad with hot engines) than to WldEcon4/5 where we'd like to be. The reason - well for one thing this last year has exposed some of the serious socio-political fault lines in the two big developing economies with China's winter storms and India's near-riots in the farming regions. Recent news is also not encouraging with the recent civil disorder in Tibet growing and spreading to other ethnic and sectarian minorities. The problem is that these sorts of things threaten the legitimacy of the state, which not being based on representation nor the "Mandate of Heaven" and having abandoned its' religion (Communism) is extremely vulnerable. Now however rising energy and food prices are beginning to threaten widespread civil disorder in many countries. While to us this may just be higher prices in the markets and pinched budgets these issues are still literally life-or-death for many. So we're re-posting an earlier chart to remind everyone that these geo-political forces define the ecology we all have to survive in. And for the first time in 20-30 years we're seeing serious structural faultlines get shaken fairly badly. And think about what we're implicitly comparing it with there.

Continue reading "WRFest 6Apr08(Economy III): International Ripples to Faultline Cracks" »

Posted by dblwyo at 08:00 AM | Permalink | Comments (0)

Another big piece of economic news from last week were the proposed changes, the most sweeping since the Great Depression, in the regulatory regime for the Finance Industry. In some senses this is both industry and markets news but the credit markets have moved to being the most urgent and important issue in overall economic performance since last summer. Hence we provide this seperate set of excerpts.

As usual we'll suggest that the punditocracy continues to miss some, though not all, of the implications. "Fortunately" enough folks have picked up on their versions of the 'collapse of Western Civilization" meme that the point is getting thru to folks who follow the economic and business news. We say fortuntaly advisedly of course - we doubt our neighbors are paying much attention. Let's hope they don't have to considering what that'd imply.

Up until St. Patrick's Day though none of the efforts of the Fed and the other central banks appear to have been working. Our view since then is that between the BSC buyout (forced liquidation) and the opening of the discount windown to the non-bank banks as well as the extremely rapid innovation and introduction of new policy instrments the Fed is starting to unkind and unplug the terribly clogged pipes of the economy Whew....the alternatives being as we said.

This'll take a while to sort out of course as we're going to have to go thru more writedowns, more bad credit problems are coming, there will be a massive de-leveraging of the markets and risk will have to start being priced correctly. All of that will be very painful.

But at least it's now possible for the great unraveling to beging instead of being locked up - or more correctly seized up. At least some of the early indicators are beginning to show signs of favorable responses. And oddly, for all the sturm und drang, it is the BSC liquidation that seems to have turned the trick. Though in our judgement the opening of the window is structurally more important. Whatever the case may be we appear to have avoided catastrophic disaster. Now we can enjoy the merely painful one that excesses and bad business practice have earned. 

Addendum: the excerpt below from John Mauldin's newsletter (thoughts on the continuing crisis) gives you just a flavor of the whole thing. It's probably the best, shortest, simplest but still accurate description of the risks we faced, who saved what and what's to come I've read. HIGHLY RECOMMENDED. 

Continue reading "WRFest 4Apr08(Economy II): Economy vs the Credit Markets" »

Posted by dblwyo at 08:00 PM | Permalink | Comments (0)

There was lots of economic news last week, none of it particularly good when you read over the excerpts, but two stand out. First off the job market dropped -80K in March, which continues the downtrend started in early '06 but accelerates it. And, if our analysis & charts are accurate, we're just beginning to see the beginnings of a serious downturn. The other almost equally important news was that the Fed Chair used the R-word in Congressional testimony.

Now you really need to put that in context. It's the Chair's responsibility to tell the truth in such a way that we can all grasp it but not scare either the horses or the peasants...meaning us. In pursuit of that noble goal you'll hear a lot of careful language and hedging, which may struck some as mealy-mouthed. Actually it's the right thing to do because the horses tend to stampede when somebody screams fire. But consider the chain of public commentators who've been fairly fore-sighted about all this (ourselves excluded of course). People like Roubini and Fleckstein were pretty negative over a year ago. Then last fall we began to hear from the grey eminances of the econ profession who were sounding the tocsin's because of the structural disruptions they could see emerging (Summers, Feldstein, Greenspan, et.al.). (NBER's Feldstein says U.S. sliding into recession) It doesn't get more eminant than that. Now in the last few weeks we've started seeing the Street's economic eminances speak out (Goldman, Merrill, et.al.) about a likely downturn. And now the Chairman.

When the Chair speaks you really....really need to listen. And understand. 

The other big new was of course jobs, which we covered in a seperate post and excerpt below. BUT...the talking heads still aren't getting that right either so may we suggest that you go back and review those charts ?  And as a final note - if you click thru to read only one link do so for CalculatedRisk's take on the likely duration of the Housing downturn. Here's the money quote:

If the Composite 20 bust takes a similar amount of time,
the real price bottom will happen in early 2013 or so. (But prices would be close in 2010).

Continue reading "WRFest 4Apr08(Economy): the Chairman Said What ?!" »

Posted by dblwyo at 02:53 PM | Permalink | Comments (0)

Almost more than any industry the Telecom Industry has been the "beneficiary" of a series of perfect storms that have shaken and re-shaken it from the telecom bubble and bust to the displacement of wirelines by wireless to the VoIP shift to the fat pipe wars that are going on now. And as the underpinnings of the industry have changed so have the players - people still under-estimate for example how revolutionary the iPhone is for product development, commercial relationships and industry structure. But the realizations are growing.

There was a fair amount of news in the last two weeks which we've gathered up here which reflects a lot of this change as well as how the individual companies are coping. The first harbinger for example of weakness in the Tech outlook was Chamber's discussion of earnings last Fall which scared everybody. What everybody forgot is that when a tech company says everything's all right now they are capital goods and capex spending lags in downturns. Well that's beginning to be visible. Meanwhile on the coping front a lot of equipment suppliers are still failing to cope with this brave new world, for example Siemens and Sony/Ericsson. But the unfortunate poster child is Motorola which under pressure from Icahn is proposing to go thru yet another breakup. We think this is, at best, only a short-term financial good idea and is a terrible strategic choice. MOT's problems haven't been so much strategic focus as a total lack of execution on a sustainable basis. This'll be the third time in the last decade that they've broken off a chunk on the theory that this time we'll fix it. And each time failed and it failed because they couldn't figure out how to change the way the company operates.

Continue reading "WRFest 30Mar08(Telecom): More Perfect Storms a'Comin" »

Posted by dblwyo at 11:54 AM | Permalink | Comments (0)

In case noone's noticed the Technology Industry as a whole has reached the point where it is mature, which we define as being able to provide products and solutions who's capabilities exceed customer requirements. If that sounds a bit like Clayton Christiansen's arguments in the "Innovators Dilemma" it should because it is. In fact we're on record as arguing that the PC industry reached that point circa '98/'99 when speeds and feeds were adequate for the software, e.g. Word, who's functionalty was well beyond any reasonable cutoff point, say 60/40 and meandering around the 95/5 or worse. Unfortunately costs tend to go up non-linearly as you add bells and whistles.

The chart at right traces out this industry dynamic. It's kind of simple but hopefully it gets the point across. We show customer requirements slowly evolving over time along with two products which have high demand initially because the gap between requirements and capabilities is large and negative, that is customers want more than can be delivered. New products may have some special capability or vastly lower cost but not meet current requirements and have to be introduced in a niche. So does a company keep investing in old products or gamble on new and jeapordize the franchise and cash flow ? You have to apply this thinking to each major business segment in the stack as well because their history, status and outlook are all different. But for the bottom layers of the stack, by and large, capabilities vastly exceed requirements. The top layer, applications and business alignment are very different as the capabilities are vastly exceeded by requirements, especially in the SMB space. But NONE of the customers believes the industry can deliver value-enhancing, businss-driven solutions. As you go thru each of the readings below you might keep all this in mind because a lot is explained.

Continue reading "WRFest 30Mar08(Tech Industry): Commodization, Consolidation, Consequences" »

Posted by dblwyo at 05:50 AM | Permalink | Comments (0)

The alternate title was "Waiting for Armageddon" which happens to be the title of the Economist article looking at what increasing economic pressures will do to corporate performances and bankruptcies. Bear in mind that we're early days yet in the Business Cycle for the downturn and despite all the agita in the credit markets and financials the ripples haven't yet shown up in general business performance. But they will. And given the massive buybacks, re-leveraged balance sheets, and general lack of performance disciplines you can expect, shall we say, some distressed or under-valued buying opportunities. In fact we're not the only ones who see that. The same people who six months ago were sending me invites to new ways to find funny money just sent me their 3rd or 4th on distressed investing:

P.E. Investing in Distressed Companies MasterClass We figure that at any given moment, 5% to 10% of all middle-market companies in North America are either in distress or are significantly underperforming.  Every week we see 5 or 10 of them, and we turn most away.   Over the next 18 months, in this volatile market, we know it’s going to be hard work to make good decisions -- about choosing good companies, recruiting the right management teams, and actually fixing the companies we buy.  Making the right choices will mean the difference between earning just plain decent returns and really great returns.  These observations highlight two thoughts -- first, it’s obvious there are thousands of distressed investment opportunities we do not see.  And even if we saw everything, there just aren’t enough hours in the day, or dollars in our fund, to handle the avalanche of new situations stemming from the current recession and credit crunch. Second, if you have the skills and experience and resources to consider buying distressed private companies, now is the perfect time to jump in. The door is open, but the ride ain’t free (to quote an aging New Jersey rocker). 

Actually they've got a good idea. The trick in sorting the wheat from the chaff is timing, filtering and tools for understanding. So besides the Economist article we added pointers to earlier posts on the subject. In fact we added pointers to relevent posts where we thought they were appropriate. But as you wrestle with the sturn and drang and start looking around check out the readings which cover Materials (Pulp, Coal), Transportation (Trucking, Airlines), Manufacturing (Boeing - a special case we admit, Autos (Ford)) and Retailing (incuding a reprise of our enterprise framework for reference). As you read these don't just read them strictly for the story but also as indicators for their industries and the broader general business climate that's slowly emerging behind the financial rubble.

There will be opportunities here but there's a lot of pain between there and now. 

Continue reading "WRFest 30Mar08(Business): Days of Reckoning at Hand ! Repent Sinners ?" »

Posted by dblwyo at 04:29 PM | Permalink | Comments (0)

Here's our collection of story excerpts for the Finance Industry. With all the near-death experiences we were going thru we didn't get the excerpts for the week of 23Mar up so they've been combined with last week's in one kind of massive posting. Nonetheless they make interesting reading taken all together, particularly in light of the market's huge rally with the SP500 up almost 4% and the Dow up just short of 400 points. Of course we've seen a lot more days like that in the last couple of months than not. And, for our money and for several of the commentators in our stories, the writedowns are far from over, the downsizings have just begun and we've got a long way to go. And we assure you that these weren't selected to excerpt just because they agree with our views. They capture some of the better thinking. We'll especially call you attention to the stories by Michael Lewis (Mr. Liar's Poker) and Merdith Whitney (who'll soon be known as Mrs. Dr. Doom for telling it like it is) who both point to troubles to come.

Our title comes from a Fortune article which got re-covered but came to a similar conclusion this week as well. And just happens to coincide with our assessments about the future of the Finance Industry which we've been harping away at in all the related posts. Another story worth paying attention to is the one reporting estimates of 200,000 job losses on Wall St., which is an unprecedented number.

Now tell me - is the worst over for the industry and financial stocks ? Or are we just at the gust front of the storm as the artificially inflated profits and earnings of the last decade are destroyed, the share of industry profits in national income begins to reverse, a new regulatory regime that'll change the rules systematically and systemically goes into effect ? And most especially (cf our earlier comments about good business practices) as the basic business models, management systems and leadership development of the industry are re-thought !

Interesting times indeed. 

Continue reading "WRFest 30Mar08(Finance Industry): End of Wall St. as We Know It ?" »

Posted by dblwyo at 09:40 PM | Permalink | Comments (0)

Well too bad for me that the collection of bigpicture market news didn't go up earlier, especially my comprehensive assessment of the markets. In a certain sense my timing couldn't have been better since my tone was pessimistic and the markets just said in your face with a 3.5% rally. Whee. So much for not breaking the 50-day MA to the upside or getting out of the stairstep pattern. Well you'll have to decide for yourselves whether I was on target, or the target. What do you mean we kimosabe ?

Anyway just in case you missed it my earlier overview of the markets was here:Market Performance and Outlook: the Dance of the Stairsteps. Now for the last couple of weeks, actually for the last several months, market news had been broken up into market news and credit market news with the latter dominating as it should. Reflected in several running posts where we collected and analyzed things. Along with the reglar market news you'll find some of those listed in the readings section as well. But just as a reminder in the midst of today's euphoria let me point to this post which summarizes all the systemic threats we dealth with in the last two weeks: Five "Funny" Things on the Way to the Market.

Now with all that out of the way we start off with an interesting WSJ excerpt on the Market's "Lost Decade" which points out that over the last ten years it's returned 1.3%/yr and for the last eight it actually returned -1.4%/year ! We couple that with an earlier posting outling an approach for re-thinking your investming strategies in a low-return world. And a fascinating article on "sell while the selling's good" by Jon Markman, written before the Fed's rescue effort and which he's since backed down on. Nonetheless the logic and analysis are really worth your while to think thru. Relatively speaking the US Markets are doing better than most and CalculatedRisk's little riff on Shanghai "Cliff Diving" is amusing in light of the euphoria prior to Oct/Nov. Finally there's a couple of major excerpts talking about the writedowns still to come and the growing rise in junk bond losses and rising risk of corporate defaults. Oops...looks like another set of boulders is dropping into the pond.

So enjoy today - we may even get a nice bounce out of this where there'll be a good chance to re-position your portfolio. And there may be others but we think that increasingly unlikely. Of course we may be entirely wrong about all that. Presuming all the economic data we collected isn't pointing where we think it is.(WRFest 30Mar08(Economy): GDP, Housing, HF, Oh My !) Ironic that we get the biggest uptick in the markets on the day major banks announce huge new writeoffs that they promised us weren't coming because those same banks can raise the capital necessary to maintain their solvancy. Isn't it ? :)

Continue reading "WRFest 30Mar08(Markets): Boy, Talk About Timing" »

Posted by dblwyo at 03:34 PM | Permalink | Comments (0)

Well it's time to return to our regular programming having spent much of the last week or so focused on the minor distractions of collapse in the credit markets and the resultant collapse of Western Civilization as well know it. Despite widespread acknowledgement of the reality of that near-death experience and the Fed's miracle of financial engineering the other 90% of the the marketplace and economic news didn't get the attention it deserves. In the excerpts postings you'll find stories on GDP and its' near stall as well as all the other data (Home prices and sales, Consumer confidence and spending and factory orders among others). All of which was NOT, we repeat NOT, good. Meanwhile credit conditions continue to tighten and the economic contagion appears to keep spreading to Europe and Japan. In particular we'll call your attention to the excerpt on Housing where the headline and talking head coverage was almost malfeasantly misleading. We analyzed it earlier this week in a dedidcated post but you'll find more below, especially CalculatedRisk's comments on a recent John Mauldin newsletter that details how no bottom is in sight in Housing. This and similar deeper understandings about the business cycle, etc. should stand you in good stead - a) we're early days as yet in the downturn, b) none of this appears to be generally accepted and c) is not therefore reflected in stock prices. Just to pull the pieces all together here's the pieces we've put up in a sort of logical order.

•  The Great Circle: Where We're At in the Business Cyle Reviewing the nature and structure of business cycles and the specific data for this one.
• More Dialog: Facing Harsher Realities in Housing Deep dive on a comprehensive review of the situation in Housing which argues that we're at best approx. 1/4 of the way thru the total adjustment process at best. Depending on how you frame it with further sales and price declines, more huge waves of foreclosures and an extended bottoming process before price declines stop.
• Economic Dashboard: Current High-Frequency Indicators A comprehensive summary and analysis of our complete suite of monthly high-frequency indicators. Two in particular were "interesting" - the indicator of future consumption is combined growth in real wages and employment which has turned negaive. And YOY growth in the real money base continues to shrink because of the credit crisis.

So as you skim over the excerpts we'd suggest reviewing those three posts which provide as complete a framework and simple a toolkit for do-it-yourself economic analysis in easy-to-see graphic form as we can manage. And if you've got any questions about our hyperbolic summary of the troubles in the credit markets may we suggest reviewing the following:

•  A Dialog Concerning Three Systems: Real Economy, Finance & Credit
• Continuing the Dialog: Facing Realities in the Credit Market
• Five "Funny" Things on the Way to the Market
• Adult Supervision Re-emerges: Bush Proposal for Regulatory Overhaul

Now in the spirit of "seeing things as they are" we'll ask the semi-rhetorical question - would one of the most conservative and ideological administrations in post-war history be proposing the most sweeping, deep, structural and systematic regulatory reform if the situation wasn't forcing the deepest re-thinking of the financial systems. If you continue to doubt then our first post this morning was particuarly to your address:

• Sunday Morning Reflections: Learning to See Things as They Are
  

Continue reading "WRFest 30Mar08(Economy): GDP, Housing, HF, Oh My !" »

Posted by dblwyo at 04:44 PM | Permalink | Comments (0)

This has been an interesting, even bizzarre, market as those who feel that the kitchen sinks are accounted for and discounted in prices "debate" those who feel it hasn't been. As you might have gathered we're definitely in the latter camp. Along with such minor and inexperienced observers with names like Feldstein, Summers, Greenspan, Krugman and Volcker. In the long-run what we're seeing here is the beginnings of a "great unraveling" where the excesses in financial markets and the industry as whole are undone and then repaired. And when the unsustainable levels of Consumption that have been financed with debt-based funny money are also. In fact we're in the early stages of a reversal of over two decades and beginning to enter an entirely new and different regime for which noone is prepared, at least broadly speaking.

In the short-run we may get a bounce as optimism triumphs over both experience and the data.

Continue reading "WRFest 23Mar08(Markets): From Margin Call to Great Unraveling" »

Posted by dblwyo at 08:00 PM | Permalink | Comments (0)

In the midst of all the sturm und drang over the near collapse of the financial system there were stories aplenty about the economy which recieved little or no attention, at least in the sense of being reflected in the level of emotional investment in paying attention. Given the un-remitting run of bad news it seems to us that everyone's more than a little jaded (the other day Joe Kernan on CNBC even went so far as to say he's tired and wants to move on). And the meme is still widespread, prevalent and embedded that the full extent of an economic downturn has been "faded", that is incorporated into everyone's thinking, business plans, investment outlook and earnings and valuation estimates. UNSINN ! Or in English, nonsense. What the Fed did was get the machinery working again with a new set of tools so that we can in fact have an orderly unwinding of the excesses and a downturn won't bring about a major economic collapse. In yesterday's post (The Great Circle: Where We're At in the Business Cyle) on the Business Cycle we tried to intercept and filter what still appears to be the standard wisdom by reviewing how a cycle works, what the lag structures are, where we're at in the current cycle and what the data tell us. In our opinion we're still early days yet and the full extent of the downturn is not visible nor incorporated into much of the decision-making - despite being, we feel, readily visible in our simple charts.

Just to take one example the headline on Existing Home Sales was that they were up. Well guess what - Feb is always higher than Jan but when you look at the real data YOY sales were down ~ 24% ! Which is what the headline should have told you, in addition to the biggest price drop we've seen in years, rising cancellations, rapidly accelerating foreclosures and so on. Sorry to be the bearer of more bad tidings but when you review the excerpts you'll find that, almost without exception, none of it is good and ALL of it is following predictable paths consistent with our view of the business cycle. In fact we are early days and the downturn is just beginning to move into the Main St. heart of the economy.

Which BtW makes the recent market surge most likely a dead cat bounce ! 

Continue reading "WRFest 23Mar08(Economy): Jaded and Faded" »

Posted by dblwyo at 07:12 AM | Permalink | Comments (0)