The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Most investors know that the S&P 500 hit a record high in October 2007 and a (the?) low in March of this year. But when you break it down by sector, things are a bit more complicated.

Otherwise, for those who are wondering whether there is more upside ahead, the fact that four groups — telecom services, financials, energy, and utilities — have not seen new highs this month while the S&P 500 has might be a cause for concern.

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Some good learnin’ here:

This web site stems from a personal interest in critical thinking and is a collection of links to articles and sites pertaining to numeracy and critical thinking. Links should be good for at least the date posted. After the posting date, link reliability depends on the policy of the linked sites. Some sites may require registration before allowing access.

The Quote of the Day comes to us via Bloomberg’s Alice Schroeder:

“We’re in the midst of a deflationary trend that is temporarily being masked by inventory restocking and free lunches like Cash for Clunkers. Consumers are done with borrowing. They’ll keep refueling the deflation by going through their attics and garages to find stuff they can sell on Ebay to raise cash.”

-Gold Tells You U.S. Bubble Hasn’t Popped Yet

OK, it’s not quite the “magazine cover indicator”…

…but surely this must be telling us something about the gold market (lol)?

Hat tip LOLFed

Source:
Cats for Gold
http://www.catsforgold.com/

Evan Newmark writes a regular column on the WSJ’s Deal Journal. His stock in trade is contrarian takes on the markets and politics. To the extent that he represents an extreme version of the Wall Street world view, he’s a bellwether.

Yesterday, he may have run the bell a bit too hard. In a post explaining why Goldman Sachs has nothing to apologize for–a completely legitimate position that can be debated with great nuance from both sides–Newmark insists on rolling this M-80 under the chairs of his readers:

In an economy full of losers, everyone is fixated on hating the winner.

He’s right about the world fixating on a winner. Goldman has made itself a lightning rod for the nation’s frustrations by being particularly ham-handed in their handling of their compensation. But that isn’t the issue here.

Where does Newmark get off describing the US as an economy full of losers? Does he not recognize that the vast majority of workers at all salary, skill and social levels who are out of work right now have lost their jobs due to the miscalculations and mismanagement of others?

The decisions that led to their dire financial situations certainly were not theirs. The loss of their jobs didn’t come because they were incompetent or made lousy products. You could blame them if those problems appeared over time as with the automakers but this is a collapse, an exogenous event in their working lives.

It’s bad enough that the world economy was mismanaged to a level that created a disruption that will fall disproportionately on persons who had no role in creating the bubble or reaping its rewards. That may be unfortunate and unavoidable. But do they really deserve to have Marie Antoinette Newmark call them “losers?”

Later, Newmark sums up with a thought that applies equally (in reverse) to himself:

It’s much easier for the public to point the finger at the great Goldman conspiracy than to point it at itself.

Source:
Don’t Apologize for Anything, Goldman Sachs
EVAN NEWMARK
Deal Journal/Wall Street Journal ; Nov. 19, 2009
http://blogs.wsj.com/deals/2009/11/18/mean-street-dont-apologize-for-anything-goldman-sachs/?mod=djemDeal

Back in October, I laughed off the latest China GDP data as utterly fabricated.

As it turns out, I was not the only one. China expert Gordon G. Chang (author of The Coming Collapse of China) is more than skeptical — he has the data to question much of China’s growth miracle.

Spoiler alert: Its been wildly exaggerated:

“Beijing, in the 1990s, ordered factories to churn out goods in periods of low demand, and there are indications that officials are resorting to this tactic now. While optimistic analysts point to astounding car sales–up 70.5% in July, 94.7% in August and 83.6% in September–there are reports that central government officials have ordered state enterprises to buy fleets of vehicles and that these businesses are storing them in parking lots across the country. These stories are as yet unconfirmed, but they are consistent with statistics showing that gasoline sales have been flat this year–up only 6.4% in August, for instance, and sliding since then from all indications. So here’s another question: At a time when economic activity is supposedly rising at a quick pace, how can large increases in passenger vehicle sales not be accompanied by corresponding surges in fuel usage? (emhasis added)

The answer is that Beijing’s statisticians have gone back to their old tactic of making up figures to support the Politburo’s predictions. The Chinese economy is probably growing due to state-led investment, but it cannot be doing so at the rates claimed. Wen Jiabao’s stimulus plan is, above all, grossly inefficient. For all the money he is pouring into the economy, the country is getting a small return in economic output. That’s why Premier Wen, despite the high growth numbers he’s been reporting, consistently refuses to end his stimulus program. If his numbers were real, he would be worried about overheating. But he’s apparently not.”

Gee, whoever would have guessed that a Totalitarian government would lie in its official data?

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Previously:
Who Believes China’s ‘Bernie Madoff’ Data? (October 22nd, 2009)
http://www.ritholtz.com/blog/2009/10/who-believes-chinas-bernie-madoff-data/

Source:
China’s 8.9% Growth? No Way
Gordon G. Chang
Forbes, 10.23.09
http://www.forbes.com/2009/10/22/china-growth-gdp-economy-opinions-columnists-gordon-g-chang.html

Compared to historical norms, Nasdaq market capitalization is significantly above median levels relative to GDP.

The Nasdaq’s median percentage of GDP has averaged 61.8%; its now over 100%. As the chart below shows, the big aberrational periods have been due Fed bubble inflation: first in 1998-2000; then more recently in 2006-07.

The present Zero Interest Rate policy (ZIRP) is helping to inflate a 3rd market bubble:

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Chart courtesy of Ron Griess of The Chart Store.

Phil Gramm, the former Republican Senator from Texas who co-wrote the act that undid Glass-Steagall, has our DQotD:

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“I’ve never seen any evidence to substantiate any claim that this current financial crisis had anything to do with Gramm-Leach-Bliley. In fact, you couldn’t have had the assisted takeovers you had. More institutions would have failed.”

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Your dumb Quote of the Day is sponsored by Cognitive Dissonance, a Nasdaq Company . . .

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Sources:
Wall Street Faces ‘Live Ammo’ as Congress Aims to Unravel Banks
Alison Vekshin and Robert Schmidt
Bloomberg, November 12 2009
http://www.bloomberg.com/apps/news?pid=20601109&sid=az7AcisnxsCA&pos=11

As long as I am here in Europe, I might as well give you some flavor of what has become known as Recession Porn: The most dire forecasts expecting the most egregious outcomes.

Today’s “Crisis Porn” comes to us via Société Générale by way of the UK’s Telegraph, and its Pretty grim:

“In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.

“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank’s “Bear Case” scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.

Note that the report is a “worst case scenario.” That’s your recession porn for the day . . .

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Source:
Société Générale tells clients how to prepare for ‘global collapse’
Ambrose Evans-Pritchard
Telegraph, 6:12PM GMT 18 Nov 2009
http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

Why aren’t we listening more to this font of common sense and logic?

“A proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul A. Volcker, a former chairman of the Federal Reserve Board, said Monday.

Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule.

But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency. He voiced concern that rising political pressures on both sides of the Atlantic were endangering that independence.”

The Financial Services Committee is to vote on amendments to a bill to establish a council of bank regulators as a systemic risk regulator, able to take action if bank activities threaten financial stability. . .

Mr. Volcker was the founding chairman of the International Accounting Standards Committee Foundation, which oversees the International Accounting Standards Board, and has long been a supporter of independent rule-setting. He has been campaigning for a single set of international accounting standards, but he said on Monday that he feared that effort was being undermined.”

Its quite likely that this power will be exercised in the next crisis, removing yet more transparency and data for investors; Worse still, the accounting exemptions will create a new class of zombie banks.

The amendment is strongly supported by the banks. In addition to removing Mark-to-Market accounting, it allows a systemic regulators “to order the Securities and Exchange Commission, which now oversees the Financial Accounting Standards Board, to suspend or change any accounting rule that the council thinks is a threat to financial stability.”

Here’s the most insane quote I’ve seen in a long time:

“The amendment has been endorsed by the American Bankers Association, which says the S.E.C.’s focus, on helping investors, is too narrow. The amendment has been strongly opposed by groups including the Chamber of Commerce and groups representing investors.” (emphasis added)

If this passes, there will be no end to the shenanigans banks can play in the next crisis. As we have sen, many financials insitutions have taken egregious advantage of the crisis they created.

This new reg will be a license to pillage . . .

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Source:
Volcker Criticizes Accounting Proposal
FLOYD NORRIS
NYT, November 17, 2009
http://www.nytimes.com/2009/11/17/business/economy/17volcker.html