Geopolitical and other stuff
Vincent Farrell, Jr. is Chief Investment Officer of Soleil Securities, a New York based investment management company. Over his long career on Wall Street, he has worked for numerous distinguished firms. Mr. Farrell graduated from Princeton University in 1969 and received his M.B.A. from the Iona College Graduate School of Business in 1972.
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The geopolitical has reared its head again with Hamas and Israel locked in a deadly and ugly struggle. Oil prices reacted predictably as they always do when there is unrest in this section of the world. India and Pakistan are rattling their nuclear sabers in yet another bout of full-throated bellicosity. Somewhat below the radar but troublesome nonetheless is the Russia-Ukraine dispute over alleged past due natural gas bills. Russia is threatening to cut off gas to the Ukraine. Europe uses gas for about half its heat and about 80% of that flows through Ukrainian pipelines. With Russia having used about one-quarter of its currency reserves trying to defend the ruble, it is hard to see how far they might take this, but Europe (and the Ukraine) needs gas more urgently than Russia needs cash. What Europe doesn’t need is additional complexity as they try to figure out the best policy for confronting the economic crisis.
Back on the home front we’ll get the Case Shiller housing report on Tuesday. Prices in the 20 metropolitan areas that are surveyed monthly fell 17.4% in September from a year ago and 1.8% from the month earlier. Expectations are for a steeper decline of -18% and -2.2% for October. A worsening rate of decline is bad news. But if you read the article on Washington Mutual’s lending practices in last Sunday’s New York Times nothing would surprise you. One participant said if you could breathe you qualified and that requirement could be waived. Some guys need to be jailed for what went on!
It looks like this holiday season will be the worst for retailers in 40 years or more. The International Council of Shoppers reported Monday they expect 73,000 retail outlets to close in the first half of 2009. Greg Segall of Versa Capital says 50,000 could close and the average consumer wouldn’t notice. There have already been 148,000 storefronts closed this year and that is the worst since 2001 when 151,000 were shuttered. But since 2001, real consumer incomes haven’t grown and retail square footage has increased a solid single digit percent every year. We got over stored just like we got over mortgaged and pay back is tough.
There is now $8.85 trillion in cash, bank deposits and money market funds and that is equal to 74% of the market capitalization of the stock market. The Leuthold Report says this is the biggest since 1990. As we have been saying for some time, this pool of money will tire of earning close to 0% interest and will start to move out the risk spectrum.
We continue to expect three month Libor to fall from its current 1.46% (and that is down from close to 5% at the worst point of the crisis.) One month Libor (which is the London Interbank Offer Rate), or the rate quoted in Europe that banks loan to one another is currently at .46%. With the rate on U.S.Treasury bills close to 0%, the three month/one month Libor should converge around 1% in the near future. Rates that low should encourage borrowing.
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Vincent Farrell
Chief Investment Officer
Soleil Securities Corporation
December 29, 2008
December 30th, 2008 at 2:38 pm
I can’t believe you let this guy post on your site. He has been a cheerleader all the way down….became bearish after we dropped 30%… when i see his name or hear him introduced on TV, I put my fingers in my ears ears and shut my eyes. I wish you would control the content a little better.
December 30th, 2008 at 3:37 pm
@ hipster:
I think a lot of people, Mr Farrell included, were unprepared for the depredations of hedge fund selling. On the whole I have found much of his commentary to be thoughtful, although his bottom calls have been inaccurate.
Here at TBP many of us prefer the Gisele bottom, no doubt Tom Brady agrees.
December 30th, 2008 at 3:53 pm
@ Left
I agree with the Gisele bottom, but all “Uncle Vinnie” ever spews is information provided by someone else. I’m sure somewhere quoted above(because i refuse to read his sheeeet) will be a reference “thanks to the boys over at [insert a source] for this great information.”
Me, i’m just anticipating another leg down..way too much optimism, not too mention way to high PEs. I like shorting the CRE sector at this point.
December 30th, 2008 at 4:32 pm
Does anyone know if the ratio of credit:cash purchases is tracked on a YoY basis? It would be interesting to see a yearly comparison. I prefer cash and I don’t use credit cards for purchases and rarely use my debit card. In my limited anecdotal xmas shopping experience I saw (what I perceived) to be many more customers paying with greenbacks.
December 30th, 2008 at 4:56 pm
The use of cash has definitely increased. My family typically gives the youngsters some sort of gift card but this year they all received cash or a personnel check.
VF is a sell side dude .. never forget that. His blurb about all the cash on the sidelines should not be taken as a bullish indicator under current circumstances. The typical small investor has lost all trust and confidence in Wall Street. I doubt they will return any time soon.
December 30th, 2008 at 5:11 pm
Nice to observe there is still 8.85 trillion in cash sitting on the sidelines…
Little problem: There are far more dollars compared to the combined wealth of the USA.
The FED is also talking about printing more of that although until now new sells of US Treasuries go perfectly.
Yet, in the end economies have that nasty tendency to reflect the actual wealth via, for example, the value of the US dollar. It can take a long time because the players do not understand the amount of dollars compared to the actual wealth. But in the end the players get tired and reality will set in, that’s the way it has worked for centuries…
We only have to wait.
December 30th, 2008 at 9:39 pm
lb,
I’m as open, to dischordant, to my own views, as the next guy, maybe, even moreso, though, “Uncle Vinnie” is, as hipster points out, bought ‘n paid for..
His take, I’ll give, isn’t worth the film, exposed to it, for it is something that, even, Algae can intuit from the current stream–MainStReam..
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Reinko,
rad take, welcome to ‘Fractal Economics’ : )
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Moss,
“Made on Wall St.” has, certainly, lost its cache`..now, if we can, only, get to burning Charlie Merrill, in effigy, and rediscover local/regional Exchanges, the Republic may, yet, be re-born..
December 30th, 2008 at 11:25 pm
Ditto, Moss..
our kids got cash too and my wife and I well we have each other and life is great.
Otherwise, DOW 3000 dare I say.
HAppy New Year
December 31st, 2008 at 10:44 am
Does anyone know a source of historical data of cash “on the sidelines” versus total market capitalization? Would such data help put this data point in perspective?
December 31st, 2008 at 11:45 am
all that money in cash is going tire of making 0%? So it’s going to what? start buying stocks and lose 40, 50, 70%?
That wasn’t even the flimsiest of cover, it was out and out con artist sales tactics. We won’t be at the bottom until lies like that start looking like… the obvious self serving con-artistry they are, to everyone.
December 31st, 2008 at 2:23 pm
Agreed VoiceFrom:
Cash on the sidelines is a Wall Street con. How much of it is leverage anyways? Probably a lot.
I think the big picture being missed is that the entire last 10+ years of economic growth was leverage and inflation (not the traditional and flawed CPI variety).