Can You Have a Profitless Recovery ?
Andy Kessler has an especially sharp WSJ OpEd today on whether this is a sucker’s rally or the start of something more sustainable.
Andy credits/blames 3 things for the rally: Armageddon is off the table, Zero yields, and Bernanke’s printing press. None of these represent fundamental improvement in the underlying economy or profit picture. For those of you who buy into the ancient, quaint notion that markets should operate with direct government involvement manipulation, note that all 3 of these factors are government/Federal reserve orchestrated.
I don’t often agree with Andy, but he is onto something here.
Kessler:
The stock market still has big hurdles to clear. You can have a jobless recovery, but you can’t have a profitless recovery. Consider: Earnings are subpar, Treasury’s last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying “I don’t stand with them,” California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?
Until these issues are resolved, I don’t see the stock market going much higher. I’m not disagreeing with the Fed’s policies — but I won’t buy into a rising stock market based on them. I’m bullish when I see productivity driving wealth.
Interesting stuff.
Source:
Was It a Sucker’s Rally?
ANDY KESSLER
WSJ, MAY 12, 2009
http://online.wsj.com/article/SB124208415028908497.html
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May 12th, 2009 at 7:11 am
http://finance.yahoo.com/news/US-plans-new-antitrust-apf-15203949.html
WASHINGTON (AP) — The Obama administration warned corporate America on Monday that the government will more aggressively investigate big firms that hurt smaller competitors, contending that lax enforcement by the Bush administration contributed to the current economic troubles.
…Barry, do you think there is any chance that some of our biggest corporations might move overseas? Somewhere where capitalism is still encouraged? Just wondering…after all, I see in the soon to be BK GM’s numbers that sales in China are doing well. Why not just move the whole shooting match over there? Or Microsoft to Singapore or Taiwan? Question would be, why not?
…just wondering…
May 12th, 2009 at 7:21 am
http://money.cnn.com/2009/05/11/news/economy/stimulus_jobs/index.htm?postversion=2009051118
750,000 stimulus jobs by August – White House
“The report assumes that it takes about $92,000 of government spending to create one “job year,” or one job for one year.”
Heh, heh, heh…….Ho, ho, ho……let’s see…750,000×92,000=69,000,000,000…!
HEH, HEH, HEH…
May 12th, 2009 at 7:33 am
You can’t have a recovery without consumer spending. And consumers won’t spent if they face personal uncertainty regarding their jobs and budget. You definitely won’t see big spending on discretionary items unless Uncle Stupid discovers speculators in the oil pits. Only an idiot would believe oil prices are going up because oil prices are going up. But that’s the logic behind oil speculations. Again.
Current demand has nothing to do with rising prices. Fantasy future demand is a part of the sales pitch. This pitch brings in the rubes and is also probably reserved for some pesky investigators Uncle Stupid might have hired out of college.
May 12th, 2009 at 7:35 am
Sounds to me like Kessler is suffering from the classic “do you want to be right or do you want to make money” issue.
May 12th, 2009 at 7:39 am
@ Bruce in Tn 7:11
“do you think there is any chance that some of our biggest corporations might move overseas? Somewhere where capitalism is still encouraged?”
———
Where would that be? Every government wants/needs to manipulate the economy and markets in some way. No?
May 12th, 2009 at 7:45 am
go long 7/11-
http://pagead2.googlesyndication.com/pagead/imgad?id=CJup6qXnp5OzcRCsAhjYBDIIra9vaHRYG-Y
May 12th, 2009 at 7:46 am
I’m bullish when I see productivity driving wealth.
——————-
It’ll be interesting to see productivity numbers in the next couple of decades. I have a hard time seeing much productivity increases. In some areas sure, but generalized no.
If you’re going from 5 workers per dependant to 2/1 in the next couple of decades, how can you expect more productivity? All the running around for the ageing and the worrying. Technology better improve by leaps and bounds.
I keep on thinking about all the boomers who’ll retire with not enough money and start little businesses here and there.
These won’t be based on generating 15% ROI. I can already hear them saying: “I’m not looking for growth, I’m just looking for a few thousands per year to make ends meet. Who cares if I’m not maximizing profits, it’s my hobby.”
Imagine the impact on those trying to maximize profit.
May 12th, 2009 at 7:47 am
Bruce: Chinese auto sales have been pumped by their own stimulus and government ordered lending. A couple of articles mentioned that they were just borrowing against future sales. Also, GM and other Western companies have all experienced competition from Chinese knockoffs after they have opened plants and the Chinese have had a chance to learn how to copy the designs. Whatever the Chinese say, they want Chinese to own the means of production.
BTW, Chinese exports fell 22% Y/Y in April. The BS about investment is that. The Chinese gubment is causing it’s producers of industrial materials to continue to overproduce. They are also stockpiling oil that they can’t use. My guess is that they are trying to avoid recycling their surplus into dollars by buying commodities. But that is creating new minibubbles that will pop when the green shoots are shown to be made of baloney.
See the second part of this article which contains some actual stats:
http://ftalphaville.ft.com/blog/2009/05/12/55762/chinas-metallic-grab/?source=rss
May 12th, 2009 at 8:14 am
One look at the DOW Transports, and there doesn’t look like much of a recovery going on. The S&P may not be very predictive but the transports often tell a pretty good story about what’s going on.
One question: What exactly has been done to take “armageddon off the table”?
Mortgage resets aren’t going to stop until 2012, credit deflation appears in full swing and if CRE does in fact blow up, and the S&P burns from here, and lets say sets a new low, say thats 40-50% down from here. What exactly are we going to call that? How did we take it off the table, the stress test? Joking right?
Zero yields. Ok, so its an easy environment to make some money if you are bank. Well I’m not so sure that’s really worked, after all, all the banks had to pull some accounting tricks to have a profit during the last reporting period, orphan months, asset revaluation, market speculation etc.
And the printing press, well if someone can point out to me the massive benefit this has had I would appreciate it.
I’m not so sure I understand, about two months ago we were setting new lows, we haven’t even re-traced much of this entire move down and all the sudden AAII bulls is getting closer to my target of where it was October 2007, and on top of that, I keep see that armageddon is off the table.
Now Bruce puts up a link that I was looking for as well. To call a top to this rally I’d like to see Obama say that we no longer need wasteful government spending because they have done enough, they have won. The announcement that we get 750k jobs by August due to the stimulus, which to my knowledge wasn’t all to be spent until 2012, well that’s a start to what I was looking for.
May 12th, 2009 at 8:15 am
Weak Dollar Giving Heroin Shot to all Asset Classes
In the last few weeks we’ve pointed out that the risk to the upside in the stocks and commodities was a weakening of the Dollar. We encouraged top pickers in the indices to pair it up with a DX short of some kind because of how awful the Dollar looked. And, so it goes. The Dollar has been predictably weak. The rally in commodities and stocks has had everything to do with the debasement of the currency. Alas, there truly is no free lunch.
The DX has now reached some of the minimum downside objectives and is now generating intraday bullish RSI divergence. We’re not suggesting covering DX shorts, but once a market meets minimum objectives, we start to open our eyes for bottoming action.
There’s another possibility worth considering….the weak Dollar has been the ‘heroin rush’ required to force asset prices off the floor….at what point does a precipitously falling greenback affect stocks negatively? i.e. end of 2007/early 2008? An ‘orderly devaluation’ is clearly what Big Ben wants. However, markets have a way of disappointing.
Over the next year, our forecast is for a bullish DX. This move is correcting the initial wave of debt deflation. Once this bull market correction ( B Wave) has run its course, we’ll be set up for a strong C wave higher. 80 – 78 would be a terrific zone to hold for DX bulls.
May 12th, 2009 at 8:34 am
AT,
I agree, dollar seems to be moving pretty much opposite the DOW so a bottom in the dollar probably indicates a top for the DOW. I think I see the trend channel you are describing around 80, which looks like the bottom of the channel.
May 12th, 2009 at 8:36 am
The meme is that we’re in for a V-shaped recovery which we can already see in the green shoots. Green shoots aren’t a crop and they may turn into yellow weeds. Aside from that minor detail how big a crop – this is going to be (the Fed, OECD, IFM, World Bank, Summers, Roubini, me) a long, slow, painful, drawn out and jobless recovery where earnings are going to be poor for a long time. In fact we’re dealing with two hidden bubbles. The Tech bust which drove stock prices over l.t. economic growth and the Housing ATM Finance bubble. For the first time in post-WW2 history corporate profits surged above l.t. trend because companies weren’t hiring nor investing in capex. What of all that damage is being repaired ? Right now the market is fully priced and then some for a V along with a normal quick recovery. Given that’s the common “wisdom” how long will it take for denial to be replaced by reality and what’re the markets going to do in the meantime ? And what about earnings and PEs. Making a lot of assertions here so if you want the charts and words to back it up:
http://llinlithgow.com/bizzX/2009/05/from_economy_to_markets_more_b.html
May 12th, 2009 at 8:37 am
“productivity driving wealth”
Now there’s a concept.
“750,000 stimulus jobs by August – White House”
Not a frickin’ chance unless they’re including smoke and mirrors stats and more gov’t census workers. Obfuscation and delay tactics are more blatant and obvious as ever. One of these days even headline writers will clue in.
May 12th, 2009 at 8:38 am
Deflation/Inflation
Watching CNBC in the morning is always a fun event. One thing I’ve noticed in the last 1/2 hour is that the word deflation isn’t even being mention, instead there is just a constant argument about when the inflation actually gets here, is it 1 year, 3 years, 5 years, etc.
Most of these peeps have decided there is NO other conclusion beside eventual inflation.
This could make deflation even worse as people are slow to switch sides.
Oh also, this guy Barbera answered my question above about why armageddon is off the table, it’s b/c the financial index has doubled off the lows. I should have known!
May 12th, 2009 at 8:39 am
Yes, Andy T. is correct in my opinion. It is possible to have a recovery and a monster rally in the stock market, even with 97% unemployment. We could also finance the pay of our representatives soley with from cigarette and beer taxes . However, if this comes to pass and you are not prepared to deal on the black market then be ready to starve or die. The slow burn that took down Zimbabwe has been almost a 30 year ride. Geithner should be retired by then.
May 12th, 2009 at 9:13 am
Not sure what “nationalized health care” is doing in a list alongside California going broke. But I suppose that’s the view from certain towers …
May 12th, 2009 at 9:14 am
Bruce:
Our biggest corporations have already moved overseas — it’s called “Globalism.”
China (they’re communists, you know), Singapore, or Taiwan? Anyone who wants to move their corporate HQs there can go, as far as I’m concerned. Just make sure the corporate officers move with their companies, and remove US corporate status and protections when they do. Wanna be a Chinese corporation? Good luck
Monopolies are not capitalism. Monopolies are dictatorships. We have laws to protect capitalism/innovation/entrepreneurialism from monopolies. If laws were broken, and a party is damaged as a result, the recourse is to take them to court. There is nothing wrong with that.
Crony capitalism (not really capitalism, at all), lack of law enforcement, and bloated/entrenched companies with teams of corporate lawyers is a large part of what got us where we are today.
I hope anyone who gamed the system gets sued into oblivion.
May 12th, 2009 at 9:26 am
Andy T and Ben22:
Check the dollar index. While it is declining, it’s much stronger now than it was a year ago.
A strong dollar will kill us, BTW.
May 12th, 2009 at 9:27 am
http://www.scribd.com/doc/15245616/egan
Barry – Thought you might like this…
Sean Egan – Solving the Credit Crisis
“..until they address the issue of rating shopping, they won’t accomplish anything.”
May 12th, 2009 at 9:30 am
I’m bullish when I see productivity driving wealth.
That will be a long wait, my friend. Has this guy been on the sidelines for years? Because the average schmoe hasn’t seen real wealth from productivity gains in 30 years.
May 12th, 2009 at 9:31 am
“The Obama administration warned corporate America on Monday that the government will more aggressively investigate big firms that hurt smaller competitors”
What a joke. Does this mean, just like he is doing with the banks?
I should have voted for McCain.
May 12th, 2009 at 9:43 am
I don’t understand their concept of Armageddon, so I can’t evaluate whether that’s off the table or not. What would “Armageddon” entail?
May 12th, 2009 at 9:48 am
Armageddon, literally:
http://en.wikipedia.org/wiki/Armageddon
In an economic sense, it means the end of our monetary/financial system, I think.
May 12th, 2009 at 9:51 am
I think we now have not so much a classic Bear or Sucker’s rally, but rather another Fed induced Stock Bubble. Like most bubbles it will last longer, go higher and crash harder than one would expect looking at the economic fundamentals.
May 12th, 2009 at 9:52 am
Interesting numbers behind the headline Trade Gap number; both exports and imports fell at the same time, showing the continuing decline in world trade. Hurting our manufacturing and gonna kill China in the near term.
May 12th, 2009 at 9:55 am
ZackAttack, Not sure what author’s view is, but some economists would argue that Armageddon looks something like this:
With the shadow banking and securitization imploded, credit becomes severely constrained. That doesn’t matter, though, because individuals and firms have no need for credit anymore. Seeing that asset prices continue to fall and with little good new business prospects, nobody wishes to borrow anything. Consumer spending falls 20-30% as Americans discover frugality and the “simpler life.” Vast swaths of strips malls, tanning salons, nail salons, gymns, Chachki-style restaurant chains all go under. U-6 unemployment goes to 25%. Suburban areas turn into ghettos and a ‘cheap housing’ alternative for large extended families. A majority of municipalities default on obligations under the burden of promised safety nets with a declining tax base.
May 12th, 2009 at 9:58 am
What exactly is subpar earnings these days? The last 10 years have seen over-inflated earnings created through new accounting magic simply to generate bonuses for corporate middlemen. The supposed profit that these bonuses were based on essentially never existed, but the optimism that it imbued into Wall Street was very real. So, now that we have seen the movie…..when do we get to read the script? What is a true mark for earnings now? I think the market is churning looking for that very answer. I think when it finds it we are all going to wish it hadn’t.
May 12th, 2009 at 10:00 am
Andy T-
Chotchkies? Please- I love that place
May 12th, 2009 at 10:03 am
@ Andy – Just throw in Paris Hilton and you’ve got a great new Fox reality series
Any new thoughts on the short-midterm market activity? As always your input is greatly appreciated
May 12th, 2009 at 10:03 am
call me ahab – apols…I completely hacked that spelling. From the urban dictionary:
Chotchkie : A small piece of worthless crap, a decorative knick knack with little or no purpose.
We became the United States of Chotchkies….
May 12th, 2009 at 10:05 am
The fact that GM is over a dollar amazes me- especially since GM said they would wipe out shareholders BK or no BK- looks like its taking a dive closer to the sub 1 cent stock that it is
May 12th, 2009 at 10:06 am
“Consider: Earnings are subpar, Treasury’s last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying “I don’t stand with them,” California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?”
Why not call these what they are: Right wing talking points. You could have gotten all of this baloney off of Fox News, and at least the talking head trying to fill your mind with propaganda would be attached to a nice-looking woman to look at.
Look, Republicans don’t have to like the policy implications of their dramatic loss in 2006 and 2008. Nobody likes losing. And it’s understandable that they would use simple-minded propaganda such as this in an attempt to scare the American public. However, I don’t know why Barry would be suckered in by it, since he’s usually about the numbers and the facts run counter to all of these right wing talking points. Confirmation bias?
May 12th, 2009 at 10:11 am
Andy T-
but the restaurant- c’mon it has to be better than Fridays or Ruby Tuesdays or Chilis or Bennigans or Applebees or Red Robins or Uno’s or . . . but i am sure I missed a few other “fun” restaurants. Advice- never order fish and stick to the burgers.
May 12th, 2009 at 10:12 am
AT”s Armageddon doesn’t sound so bad. Sure beats living in a state of delusional stupor as we pretend dollars actually represent something of value, or that “flair” is why people go out to eat.
I especially like the part about municipal and state bankruptcies:
Obama regularly channels his inner Lincoln, thinking himself to be the natural heir of his legacy, which in many ways he is. Lincoln had to fight to keep states in the Union such that government of the people, by the people and for the people would not perish from the face of the earth. Perhaps Obama will have to fight to kick a few places out in order to save the “of, by and for” stuff. Lincoln established the premise that, having voted yourself into the Union, you couldn’t vote yourself out. Perhaps Obama will have to establish a counter-premise, that if once the cost of your membership in the Union exceeds the benefits to the Union by some factor, then the Union can vote you out. California comes to mind.
May 12th, 2009 at 10:17 am
@AT http://www.ritholtz.com/blog/2009/05/profitless-recovery/#comment-170698
Hey, that could never happen. Oh wait….
You mean that just because we pulled something like a whole decade (or more) of demand into the last decade means that we can’t just keep doing the same? You mean we have to pay the price for that? How unfair.
We really need a super duper productivity machine to wipe out the selfish excesses of the last 20 years (last decade especially). Lacking that we’ve hitched an anchor to our economy for a long time.
May 12th, 2009 at 10:17 am
they are nor right wing taking points franklin- if someone looks at the negatives facing the USA and sees a more bleak future that does not make them a Republican- that makes them a realist-
just because someone does not agree with Obama’s economic prescriptions does not mean they are not a Democrat-
But- I guess we can consider re-education camps for us “malcontents”
May 12th, 2009 at 10:18 am
Mortimus – I stand by last weeks comments. Still see the whole 937 – 943 as big resistance. What I’m really looking for is a clear five wave move down on the intraday charts to become convinced we’re heading much lower. We’ve seen “wobbly” action, but nothing of a clear five wave nature. Have not seen it, yet. i.e. if you look at the 60 min. charts on cash sp500, this is the third leg down from the highs. From a bearish wave perspective, I would like to see this leg extend past 895….If it just goes down to 895 – 900 today/tomorrow, and the bounce real hard….it’ll just look like like another “three wave” move lower (bull market correction)…we really need to see a “five” stand out on the 60 min. charts….if I see it, I’ll be shouting it out.
May 12th, 2009 at 10:20 am
uh- I – uh- meant “talking points”
May 12th, 2009 at 10:21 am
@franklin411…everything you read might not have political machinations at its core. You can blame right-wingers, or left-wingers, or SUV driving soccer moms (my personal favorite) or whomever for the reason why the stats Kessler cited, which are true so far as I am aware, are what they are.
If they are true, the question then becomes, how to act accordingly. Kessler is saying the stock market rally might be a sucker’s rally because of the stats. But he acknowledges he doesn’t know for sure. How is this “right-wing” talking points?
May 12th, 2009 at 10:22 am
Thanks Andy
May 12th, 2009 at 10:29 am
I am always amused by those who forget that the system failed and then complain when the rescue of the system does not quite look ideologically pure.
The statement:
‘that markets should operate with direct government involvement manipulation, note that all 3 of these factors are government/Federal reserve orchestrated’.
We are either kidding ourselves or practicing selective amnesia if we think or believe that the ‘markets’ were not manipulated by private entities prior to their failure.
May 12th, 2009 at 10:30 am
@TC:
Neither the stats nor the policy objections he brings up are new, so I don’t see why this column should be highlighted any more than any other belly-aching right-wing column that’s been published over the last 4 months. You don’t have to agree with the policy decisions Obama has made to see this column for what it is.
May 12th, 2009 at 10:34 am
A lot of key support levels in play today…
SPX- 901
XLF- 11.80 (gap support)
QQQQ- 34
Should be an interesting session for sure…
May 12th, 2009 at 10:40 am
I think we’ll get a very narrow profit recovery. Where there is competition there will not be a lot of recovery as the titans fight over the increasingly fickle consumer. Where there are virtual monopolies though, I think all that stimulus will trickle into and in some cases flood onto the bottom line.
It is incumbent upon the traders to figure out which is which.
@dead hobo Says:May 12th, 2009 at 7:33 am
Only an idiot would believe oil prices are going up because oil prices are going up. But that’s the logic behind oil speculations. Again.
Someone said (I’m not sure if it was here) keep an eye on the oil price. As we approach the election it would drop so as to take the heat off those who control that market as well as those who protect them in government. Surprisingly, they said that soon after keep watching the oil price and you’ll see it start to creep back up again. I don’t know who that was but I wish I had traded off that advice. It was great insight and something I may trade off in the future
It seems the price of oil is a real good dog during election times and soils the carpet most every other time
May 12th, 2009 at 10:48 am
The question isn’t whether we will see financial Armageddon. Rather the question is “what form will Armageddon take?” Maybe not the rapid wholesale destruction and transformation of our financial system, but still death of our middle class by a thousand cuts.
The way I see it , we have been “saved” of a swift clearing of the overhanging debt, and the creative destruction of the over reaching financial institutions. This is a false salvation, leading to a form of financial hell. The status quo has largely been preserved by and for the leaders of those very institutions that lead us into this trap.
The financial band-aids mean less short term pain, unfortunately leading to a much longer process to burn off the excesses. I see a slow motion version of Armageddon-lite in our future. Some combination of time, inflation, debt write-off, and economic growth will eventually put our economy on sound footing. But it won’t be a quick cleansing process, rather it will take several (7-14) years. Meanwhile, the baby boomer class will be decimated as they cling to their deflating real estate assets and their failed hold-and-hope dogma.
In the meantime, I expect the market to fluctuate, trading in a VERY wide range (SPX 300-1550 is in the realm of possibility), driven by investor sentiment which in turn will be driven by fear, greed and the extrapolation of short term economic signals into the long-term future.
The key to profitable trading over this period will be market timing, getting the intermediate-term trends right. Incredible fortunes await those that get this right.
May 12th, 2009 at 10:48 am
AT,
Not sure if you are following Prechters counts.
According to him/Steve Hochberg we are in wave 2 (circle 2), I think on his primary count. They told people to cover shorts on 2/23 or 2/25 and predicted a very large rally to SPX 1k or DOW 10k. Then primary wave 3 (circle), they are predicting a massive crash from there with targets on the S&P below 400. Huge intraday swings during that down wave should keep bringing people back in only to see it go lower and lower.
Deflation is unstoppable.
I’m sort of a simpleton when it comes to wave counts but I know wave 3 can’t be the shortest wave. Wave 1, lasted over a year. Can the size of the wave be based on price and duration or does it have to be one or the other? I don’t even want to think about what wave 3 is going to be like for most people, however, if I’m short, it should be a blast.
I think they are looking for the same things you are in any event.
May 12th, 2009 at 10:53 am
franklin411 Says:
May 12th, 2009 at 10:30 am
@TC:
Neither the stats nor the policy objections he brings up are new, so I don’t see why this column should be highlighted any more than any other belly-aching right-wing column that’s been published over the last 4 months. You don’t have to agree with the policy decisions Obama has made to see this column for what it is.
Reply:
Dude…your guys won. Give it a rest. What the fuck does it matter how much right-wing belly-aching there is if you own the Executive, Legislative and (soon) Judicial branches of government? It’s all yours. Go play.
But, I don’t see Kessler’s article as right or left-wing or belly-aching–just observations and guesses in my book, but then, I don’t see politics, particularly the left/right wing schism, as underpinning all of human intercourse.
May 12th, 2009 at 10:57 am
franklin- Says:
“so I don’t see why this column should be highlighted any more than any other belly-aching right-wing column that’s been published over the last 4 months.”
Whaaaaaaaaa . . . Whaaa . . . Whaaaaaaaa. . . those big right wing meanies aren’t being nice . . . Whaaaa. . . mommy please make them stop-
everyone has a right to an opinion- but you are still wrong franklin- it isn’t right or left- you cannot see truth when it is presented to you-
it’s easy to be an ideologue- no thought required
May 12th, 2009 at 11:06 am
Franklin:
Don’t you see that 92 thousand dollars to create a job (uh, a one year government job) is ludicrous?
The claims of the present administration just don’t live in reality…that is the point. The idea that, like Chavez, you can turn your country into a Peronist paradise is not realistic in my opinion…when you get out of school you’ll get experience and see why the kool-aid you been drinking is not good for you.
May 12th, 2009 at 11:12 am
Well, it’s certainly crystal clear that you can have a profitless stock market rally.
A profitless economic recovery? … meh, not so clear.
In my own simple minded way of looking at things, profits will come from sales. No other way that I know of for this to happen on a sustainable basis (yes, you can manage short-term profitability by cooking the books and changing accounting rules, but those profits are generally not sustainable — just ask Bernie Madoff).
While we have a ton of money on the sidelines, the confidence is so lacking that I think it will be a very long time before that money gets plowed back into investments, and into consumption beyond the bare necessities. The sky-high level of unemployment is going to keep a lid on bullish enthusiasm in the land of the sheeple.
750,000 government jobs is hardly much support, when we have been losing almost that many jobs every month this year. And nobody who takes such a job will see it as anything representing a viable future, just as a way to make it to the end of the week/month. Again, nothing to build long-term optimism and hope.
Probably some profits will be viable from industries that produce essential commodities (food, oil, TV sets), but not much else that I can see. Certainly not cars, with contemporary cars lasting for a couple of decades before requiring replacement. Maybe iPods, as they don’t last as long as cars. Houses? Houses last longer than cars, plus we have a few years of demand in inventory at present.
May 12th, 2009 at 11:15 am
Bruce,
Do you visit Zero Hedge?
They had a very interesting article there this morning about the spending habits of Obama over the years. If it is in fact true, and they seem to be taking data from tax returns so why wouldn’t it be, then that 92k for a job sounds just about right.
Franklin,
How is saying that there are bad earnings or that the treasury auction had weak demand a right-wing talking point? It’s stating facts, why is that automatically “right wing”
May 12th, 2009 at 11:49 am
Of course you can have a profitless recovery – it’s called operating earnings! Didn’t Morgan Stanley opine yesterday that stocks were cheap and they cited operating earnings? cvienne even suggested that franklin411 may be working on nano-operating earnings. I heard an interview with Obama wherein he talked about living in a “bubble,” as in an isolated place removed from ordinary life. Well, that would explain much of what passes for economic analysis these days. MS and their banking brethern are living inside a bubble.
May 12th, 2009 at 11:52 am
BTW, ben22 is right. In figurative terms, we may be sitting in the ante-room of financial Armegeddon. Most seem to be ignoring the clouds on the horizon, but it seems a hard rain will begin falling soon.
May 12th, 2009 at 12:05 pm
@constantnormal Says:May 12th, 2009 at 11:12 am
In my own simple minded way of looking at things, profits will come from sales.
Well, technically, profits will come from the margin on sales. You can have a truckload of sales and still have no profit if your sales price isn’t above your costs. I think the debate going forward will be how much margin can be squeezed out of Mr. and Mrs. America before they put away their wallets
May 12th, 2009 at 12:50 pm
@ How the Common Man Sees It – 12:05pm
Well, yes, even I realize that there must be a non-negative margin, but what I was getting at is that the profits come from the sales of goods — i.e., if there is no sale, there can be no (sustainable) profits. And that only miserly sales come from a populace without confidence in a foreseeable manageable future.
People who see inflation on the horizon don’t invest much, as they know (or should know) that their investments are going to be devoured by inflation, and their incomes more heavily taxed as they slide up the tax scale (regardless of the phony “indexing” based on a phony metric).
But we are not yet at the point of inflation, deflation still has the upper hand. And under deflation, cash becomes such a scarce resource that there is none left to support consumers or investors.
Point being, both inflation and deflation crush consumer enthusiasm (in part through their impact on employment) and the willingness to invest. Without investment, there is no forward momentum in the economy, and few if any profits.
Stock markets can be driven in just about any direction when volumes are low and leverage is readily available. But economies are not so easily fooled.
May 12th, 2009 at 1:12 pm
Monopolies are not capitalism
————–
Correction: monopolies are the end result of capitalism.
That’s why no system has proven itself over the long term.
May 12th, 2009 at 3:20 pm
http://quotes.ino.com/chart/?s=NYMEX_SI.N09.E&v=dmax
http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax
always worth re-reading:
Andy T Says: May 12th, 2009 at 10:18 am
Mortimus – I stand by last weeks comments. Still see the whole 937 – 943 as big resistance. What I’m really looking for is a clear five wave move down on the intraday charts to become convinced we’re heading much lower. We’ve seen “wobbly” action, but nothing of a clear five wave nature. Have not seen it, yet. i.e. if you look at the 60 min. charts on cash sp500, this is the third leg down from the highs. From a bearish wave perspective, I would like to see this leg extend past 895….If it just goes down to 895 – 900 today/tomorrow, and the bounce real hard….it’ll just look like like another “three wave” move lower (bull market correction)…we really need to see a “five” stand out on the 60 min. charts….if I see it, I’ll be shouting it out.
May 12th, 2009 at 4:56 pm
Isn’t it time that someone does an investigation in whether or not all of this liquidity powering the market since March 9 is literally coming right out of TARP?
May 12th, 2009 at 4:57 pm
AT,
from 1003 post
see: http://www.tchotchkes.com/ urban dictionary got their spelling from illiterates..
May 13th, 2009 at 6:38 am
Quaint. The notion that the stock market has anything to do with producitivity or real wealth accumulation is so old-fashioned, so naive. It’s a Keynesian beauty contest pure and simple.
May 13th, 2009 at 4:31 pm
Could you have a profitless recovery? Yes. Even though in the long run the correlation between corporate profits and stocks is a postive 93% there are numerous instances when they move in the opposite direction. And naturally these occur in times of economic crisis. Here are some examles: A.June’59-March’61 – profits declined 16% while stocks rallied 7%. B.December’78-June’80 – profits declined 22% while stocks rallied 19% D.December’85-September’86 – profits declined 13% while stocks rallied 30% There are, of course, a number of periods when corporate profits rise while at the same time stocks sell off. So, as Andre Kostolani once said, “The relationship between the stock market and the economy is the same as between an old man walking his dog; the man walks slowly forward, while the dog runs back and forth.” Corporate profits and stocks do not necessarily need to move together all the time.
May 15th, 2009 at 11:47 am
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