Sunday, July 31, 2011

It's All About the Deviations

Lawmakers entered each of the past two weekends fretting over how Asian markets Sunday afternoon and Wall Street Monday morning would fare without a debt ceiling compromise... Truly folks, there is something inherently wrong with that picture...

Now don't get me wrong, seeing Dow futures up 180 pts (hours ago the President proclaimed a deal had been struck - a proclamation he surely wouldn't have made without a yes-vote-is-eminent assurance from Messrs. Boehner and Reed) on a Sunday warms my heart just as much as yours... Particularly after the week from purgatory we just endured... But I'm afraid policymakers these days are all too concerned, in my humble opinion, with how traders

Thursday, July 28, 2011

Time to Worry?

Four days from August 2nd and still no debt ceiling deal and a very likely first-ever downgrade of America's credit rating... Let's clear our heads for a second and try and see the forest through the trees:

Bonds and the Dollar
Consensus would have it that a U.S. credit downgrade would cause the dollar, as well as bond prices, to plunge and interest rates to soar... Let's look at this in China (being our largest foreign creditor) terms... A credit downgrading would still leave the U.S. with a higher rating than China and on par with Japan... And of course the Euro is nothing to write home about these days... Not to mention the fact that the U.S. is China's largest export destination... I suspect that if yields do spike, China will intervene (buy treasuries) like mad...

As I type, treasuries are rallying (interest rates are falling)... Fascinating that the flight to quality is, at this minute, a flight to the debt of the country whose debt situation is bringing all this to bear... Now how do you discount that one????

Stocks
History tells us that 10% market corrections are annual phenomena... I'm in the camp that says these pullbacks are healthy, essential even, in terms of the market cycle (a two-steps-forward, one-step-back sort of thing)...

Stocks are up 20%ish over the past twelve months, and, at this point, that double-digit sell-off is officially overdue...

Thus far a tsunami, triple digit oil, soaring food prices, and overthrown governments, for crying out loud, have only delivered single-digit blips... Now if this debt ceiling fiasco doesn't do the trick, I'm really going to start worrying!!

The Economy
We are indeed in uncharted waters... But come to think of it, the global economy has charted more than its share of uncharted waters (tech bubble, 9/11, real estate bubble, credit crisis, Iraq, Afghanistan, Hezbolla, Chavez, Tsunamis, etc., etc., etc.) over the past decade or so - and here we sit...

So what do we do now? We sit...

Stay tuned...

The Business at Hand

The insomniacs in Washington received letters this morning from the heads of every major bank in the country, imploring them to stop the politicking and finish the business at hand... While I don't know whether they plead for a deal that deals real reform or simply a raising of the debt ceiling, I'd bet, in spirit, these genius overseers of once MBS (mortgage backed securities)-ridden balance sheets begged for the latter...

Of course Wall Street simply wants to get on with its business at hand - and get out from under this dark debt ceiling cloud... And I suspect you, like me, would like the same... And therein lies our fundamental problem... No one likes pain...

The good news is, Tea Partiers notwithstanding, they'll increase the debt ceiling...

The bad news is, they'll increase the debt ceiling...

The good news is, you and I, as we look to the future, will not need to measurably adjust to anything resulting from all the present politicking...

The bad news is, you and I, as we look to the future, will not need to measurably adjust to anything resulting from all the present politicking...

Now in all honesty, it's easy to sit here and carp about the fact that we're about to, for the hundredth-plus time, as a country, increase our credit limit so we can pay on what we've already borrowed, when I know it's absolutely going to happen. The fact of the matter is, you and I will be scared crapless if they don't do it...

I confess, with bated breath, I await the news conference where our heavily caffeinated leaders step to the podium and announce that, with great courage, compromise and all-out herculean effort, they've struck a deal... When I can get back to my business at hand and determine how our clients will exploit the opportunities that will surely arise from the blood, sweat, tears, favors, bribes and kickbacks our policymakers endured to do what's best for themselves...

My cynicism aside, I am optimistic that there will be change for the good... For I suspect that voter disdain for the political process is at an all-time (modern history) high....

Stay tuned...

Tuesday, July 26, 2011

Please Keep Screaming!

You may know me, as an advisor and a writer (Making Lemonade, a Bright View on Investing, on the Economy and on the Financial Markets), to be an optimist. I've defended my bent over the years by pointing out how, in America, optimism, as history has shown, has been synonymous with realism...

And while I can easily spin Greece's present woes to the positive (nothing short of an epic crisis would ever cure its ills), I'd prefer not to title my next book America's Dark Before its Dawn... I'd prefer rather for us to understand that were it not for our amazing story; our fight for independence, freedom, entrepreneurship and global trade (resulting in the greenback becoming the world's reserve currency) and now, alas, the printing press, there'd be little today (from a fiscal-health perspective) separating the U.S. from the nations that dot Western Europe... Rational optimism aside, that's friggin scary!

Therefore, it is incumbent upon us Americans, Pollyannas and pessimists alike, to speak (scream) up and tell our policymakers we're done with it... We watched our friends and neighbors, hypnotized by what they saw as their own personal printing presses (their once ever-growing home equity), leverage themselves into swimming pools, boats, his and her jet skis, lavish vacations and sports cars, do the unthinkable - default on their obligations and destroy their personal credit ratings... And we're simply not going to stand by and allow our politicians to do the same...

The realist knows that the debt ceiling will see new heights in the near future... And while you may agree (in the near-term anyway) with the politicians that that's a good thing, I could make a very strong case that it's not... That it's akin to bribing the appraiser after applying for the refi... But of course it's going to happen; the "pain" that policymakers have convinced us would ensue if they had to slash the current budget by a couple $trill would be more, they say, than the global economy could bear... So I won't waste space here pleading for a no-deal... I'll instead point to the subtle clues that tell me we voters have our work cut out for us:

1. Ben Bernanke, when pressed by one libertarian Texas Congressman, recently stated that it was inaccurate to view the two QE programs as spending programs. In that the exercises themselves amounted to the Fed investing in fixed income securities... So then, Mr. Bernanke doesn't equate the printing of two trillion brand new dollars (whatever the reason) with spending...

2. Moody's recently issued a statement that suggested we do away with the debt ceiling altogether... They then turned around and warned that if we don't present a serious plan to raise it under the condition of long-term spending cuts, they'll downgrade the U.S.'s credit rating... So then, on one hand Moody's says get rid of the ceiling, that without it there'd be no threat of a downgrading... On the other, the ceiling itself puts the deficit under the spotlight, and inspires their threats, which inspires fiscal reform... Moody's and Bernanke are clearly on the same page...

3. President Obama recently complained that he'd much rather talk about things people want to talk about "like new programs and the NFL season"... "NEW PROGRAMS" Can you believe, in this environment, he said that?? (your classic Freudian slip)... President Obama, Bernanke, Moody's, and make no mistake my friends, their opponents as well, are all on the same page...

The difference is that you and I are no longer on their page, and that's what's screwing with Washington

Saturday, July 23, 2011

Grandstanding Notwithstanding

In one respect (short-term marketwise) I find the whole debt ceiling issue a yawn-inspiring event... Think about it; what's the likelihood that we hit August 2nd without a deal on raising the government's self-imposed credit limit? I'm thinking the political risk is way too high, which is what the equity market has discounted to this point; last week's action clearly reflected the tone of Q2 earnings announcements... Next week however, if there's no deal struck over the weekend, may be a different story altogether...

Ultimately, all the grandstanding notwithstanding, I don't suspect we're about to experience the "first-ever" default on U.S. debt... "First-ever" that is, unless you consider (as you should) printing (devaluing) money to meet our obligations (which is essentially what we did when we exited the gold standard in the 30s and the gold [exchange] standard in the early 70s) a subtle form of default...

Stay tuned...

Monday, July 18, 2011

Timely Medicine

"Next time you need to get here earlier!".... the parting jab from my airline attendant sparring partner on this too-early Monday morning.... What the late middle-aged woman with the personality of a menopausal postal clerk didn't know, nor I suspect wouldn't care if she did, is the frustration a frequent-flier endures while hosing dog diarrhea out of his garage onto moonlit pavement 55 minutes prior to take off....

Rather than share the blow-by-blow with the American Eagle antagonist (I fear you'd think less of me) I'll vent here on the virtues of competition (inspired by this morning's encounter at the ticket counter) and limited government...

The beauty of free enterprise is choice... The curse of central planning is the lack thereof... I can choose a different airline, but I can't choose a different DMV, I can't choose to allocate that 15+% of my income (self employed), currently confiscated for Social Security, to a legitimate retirement plan... The DMV enjoys monopolistic luxury - knowing I've nowhere else to go, they can treat me as they will... As for Social Security... need I say more?

Ratings agency Moody's suggests we do away with the whole debt ceiling concept altogether... Citing the unnecessary angst it inspires every time it's breached... At first blush that sounds pretty darn good - August 2nd would be just another day... Just another day, that is, in a year when the world's greatest nation will spend $1.6 trillion more than it brings in. When that nation's debt will exceed $15 trillion (which exceeds its GDP by some $3 trillion)... When that nation already sports the second highest corporate tax rate on the planet... When policymakers conspire to increase regulations on key industries, as well as taxes on job makers (although I am in favor of closing loopholes [along with a lower corporate rate]), while their nation's jobless rate pushes 10%...

And Moody

Friday, July 15, 2011

Wildly Optimistic!!

These are indeed the best of times...

Years of spending beyond our means are about to come to a close... There's no more hiding behind the printing press...

Europe tested the water for us... We now conclude that big government relative to GDP leads to nothing but disaster...

We taught Asia and much of Latin America well... They're opening their markets and creating opportunities for individuals the world wide... Corporate America understands this (40% of S&P 500 company earnings already come from these markets)... Apparently other countries aren

Wednesday, July 13, 2011

July 13, 2011 Market/Economic Report (video)

What If We'd Had Sam Walton in Washington?

This is what trade with a country that a plethora of politicians and citizens alike say plays dirty pool with exports (it's accused of devaluing its currency and even subsidizing its exports to make them dirt cheap to U.S. citizens) looks like... Shame on it for increasing our discretionary income that way...

These are the results (copied and pasted an email I just received) from just one company who fully exploits China's fully exploiting our pocketbooks...

Pass this one on to all your friends...

1. Americans spend $36,000,000 at Wal-Mart every hour
of every day.

2. This works out to $20,928 profit every minute!

3. Wal-Mart will sell more from January 1 to St.
Patrick's Day (March 17th) than Target sells all year.

4. Wal-Mart is bigger than Home Depot + Kroger +
Target + Sears + Costco + K-Mart combined.

5. Wal-Mart employs 1.6 million people, is the world's
largest private employer, and most speak English.

6. Wal-Mart is the largest company in the history of the world.

7. Wal-Mart now sells more food than Kroger and
Safeway combined, and keep in mind they did this in only fifteen years.

8. During this same period, 31 big supermarket chains
sought bankruptcy.

9. Wal-Mart now sells more food than any other store
in the world.

10. Wal-Mart has approx 3,900 stores in the USA of
which 2,906 are Super Centers; this is 1,000 more than
it had five years ago.

11. This year 7.2 billion different purchasing
experiences will occur at Wal-Mart stores.
(Earth's population is
approximately 6.5 Billion.)

12. 90% of all Americans live within fifteen miles of
a Wal-Mart.

13. Wal-Mart has gross sales that total more than the
total revenue of all the countries in the world,
except 6.


MAYBE we should hire the guys who run Wal-Mart to fix the economy.

What If We'd Had Sam Walton in Washington?

This is what trade with a country that a plethora of politicians and citizens alike say plays dirty pool with exports (it's accused of devaluing its currency and even subsidizing its exports to make them dirt cheap to U.S. citizens) looks like... Shame on it for increasing our discretionary income that way...

These are the results (copied and pasted an email I just received) from just one company who fully exploits China's fully exploiting our pocketbooks...

Pass this one on to all your friends...

1. Americans spend $36,000,000 at Wal-Mart every hour
of every day.

2. This works out to $20,928 profit every minute!

3. Wal-Mart will sell more from January 1 to St.
Patrick's Day (March 17th) than Target sells all year.

4. Wal-Mart is bigger than Home Depot + Kroger +
Target + Sears + Costco + K-Mart combined.

5. Wal-Mart employs 1.6 million people, is the world's
largest private employer, and most speak English.

6. Wal-Mart is the largest company in the history of the world.

7. Wal-Mart now sells more food than Kroger and
Safeway combined, and keep in mind they did this in only fifteen years.

8. During this same period, 31 big supermarket chains
sought bankruptcy.

9. Wal-Mart now sells more food than any other store
in the world.

10. Wal-Mart has approx 3,900 stores in the USA of
which 2,906 are Super Centers; this is 1,000 more than
it had five years ago.

11. This year 7.2 billion different purchasing
experiences will occur at Wal-Mart stores.
(Earth's population is
approximately 6.5 Billion.)

12. 90% of all Americans live within fifteen miles of
a Wal-Mart.

13. Wal-Mart has gross sales that total more than the
total revenue of all the countries in the world,
except 6.


MAYBE we should hire the guys who run Wal-Mart to fix the economy.

Monday, July 11, 2011

Free to Lose

"The major revelation of the last four years was the fragility of the global economy", European Central Bank President Jean-Claude Trichet said last Sunday... "Strengthening resilience is absolutely essential given the fragility exhibited by the global economy." He called for a "serious advance in the way we regulate systemic institutions, including nonbanking institutions"...

Europe

July 11, 2011 Market Message (video)

Saturday, July 9, 2011

Love the Counterfactual

The counterfactual is a beautiful thing.... You can forever go there when all evidence suggests you've screwed up...

You're late for your daughter's wedding... Good thing... If you left on time you would have been in a horrible accident... It was divine intervention...

You lost your metalworks job two years ago... Cool... If you hadn't been laid off, an anvil would've fallen on your head... And besides, you wouldn't be kicking back on unemployment for another year...

Trillions of taxpayer-funded stimulus over the past two years and we sit atop a 9.2% unemployment rate and a limping economy... Of course that's great compared to where we'd be without all the government intervention... Or so say the sympathizers...

And I do recall/confess (alas) that that's precisely what conservatives were saying two years (and no jobs) after the end of the '02 recession..

Seven years older, and hopefully wiser, I believe I see the folly in fiscal and monetary policy-wielders thinking they can fix a wannabe free-market economy... Directionally speaking (spending-wise) there's no distinguishing the current administration from the last (both Keynesian all the way)... In terms of velocity however, the current admin has had its pedal to the metal... But who knows, maybe, under the circumstances, the previous admin would've been worse... They certainly had it in them...

We gotta vote smarter my friends!!

Friday, July 8, 2011

Earth to Voters

Earth to Washington - More regs and talk of higher taxes on businesses does not a job market make...

Earth to Washington - Yes, higher taxes does, all things being equal, equal higher revenue... However....

There's however this point, as Arthur Laffer (Laffer Curve) points out, where higher tax rates have a negative effect on tax revenue... Mr. Laffer states that tax revenue would be zero if tax rates were 0% and zero if tax rates were 100% (no one would work), and somewhere in between lies a rate that maxes tax revenue. Go beyond that point and you're on a collision course with zero...

Earth to Voters - We can no longer elect truckers to Congress!

In an article titled Landmark US-Mexico trucking agreement resolves 15-year conflict, Howard LaFranche of The Christian Science Monitor wrote;

"the accord was greeted warmly by US trade, farm, and business organizations

Thursday, July 7, 2011

Operative word; "global"

I've suggested here lately that if we see a pick up in global economic growth the second half of the year, stocks, by conventional valuation metrics, don't look pricey at present levels...

Operative word; "global"

I've suggested here lately that if we see a pick up in global economic growth the second half of the year, stocks, by conventional valuation metrics, don't look pricey at present levels... The operative word being "global"...

Some 40% of the earnings of the companies making up the S&P 500 Stock Index come from foreign customers...

Think about that the next time you hear someone carp over foreign trade... or a politician pander to a back-scratching lobbyist's plea for a favor (GW Bush tariffed Japanese steel, BH Obama tariffed Chinese tires.... Very Very Bad Policy - I assure you!!...)

Clearly, without the rest of the world so desperate for U.S. dollars, with which to buy U.S. goods (not to mention U.S. treasuries) we'd be in an even worse pickle...

The outside world is indeed growing more industrious by the second... We have so much to offer... and thus so much to profit from in the years ahead.... provided we get our fiscal house in order...

Stay tuned...