Putting the 60% Rally Into Perspective
By Guest Author - October 22nd, 2009, 2:15PM
Stock markets are up 60% plus. How does this rally stack up with previous ones?
Here are some key criteria of what previous 60% rallies have looked like when analyzed across 10 different key economic dimensions :
- Year over Year Retail Sales: 9.3% average in prior 60% rallies versus -5.3% in the current one
- Consumer Confidence: 95.5 average; 53.1 now
- Capacity Utilization: 79.9% average; 66.6% now
- Year over Year Industrial Production: 4.1% avereage; -10.7% now
- ISM: 53.9 average; 52.6 now
- Payroll employment gains over period: 2.2% average; -2.0% now
- Decline in continued unemployment claims from cycle peak: -26.3 average; -11.6% now
- Year over Year growth in total credit market debt: 9.3% average; 3.0% now
- Year over Year growth in household debt: 8.8% average; -0.1% now
- P/E Multiple: 16.8x average; 20.0x now
Data courtesy of Contrary Investor via Zero Hedge
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October 22nd, 2009 at 2:27 pm
Printing presses running day and night, large piles of banknotes delivered daily to TBTF broker-dealers….
High frequency trading, front running, dollar going down forever…
C’est normal…..
October 22nd, 2009 at 3:25 pm
Another 10 reasons why what is happening should not be happening… face it… this ship ain’t going down! Someone is missing a critical point that someone else has figured out.
October 22nd, 2009 at 3:37 pm
rob, this is EXACTLY why this ship IS going down.
Retail Sales are continuing their decline.
Real world example with made up numbers for a retailer:
- $1B in revenue, expanding, adding headcount, building more stores, buying more inventory from suppliers.
- then, our revenue is down 25%. so we cut headcount, don’t replenish the inventory, and stop building the stores mid-construction.
- a year later (i.e., today), our new cost structure in place, our permanently lowered inventory, reduced headcount, and no more construction, we can say “we’re now profitable again!”
- but that profit comes with a cost: $30M in payroll no longer being paid to the fired employees, $100M in inventory no longer being bought from suppliers, which trickles down to them firing their employees, fewer retail outlets with all of their associated expenses (electricity, construction, etc.).
This is bad, even though the stock market makes us think that it’s good due to the fact that companies are once again profitable. We NEED that revenue to come back, and it simply isn’t going to. The revenue plans that I see are built on stopping the bleeding and resetting at a permanently lower level, rather than “getting back to where we were” as is the case with real recoveries.
Now that we’ve been through the “destruction” phase of creative destruction, when do we get to see the fruits of the “creation” phase, Mr. Schumpeter?
October 22nd, 2009 at 3:51 pm
There just won’t be the kind of unabashed growth in consumerism for some time, if you ask me. This is a generational change, and the largest group of consumers, the so-called “baby boomers” are cutting back and scaling down. They are doing what they should have done years ago, but instead, are doing it all at once. The fall off in equities for a second time in a decade, the loss this time of home “value”, and the election of a POTUS and his Court that have no experience running a country has put the fear of God in that group.
It’s a lot to absord in a short amount of time. I have been in front of those groups of employees, and they just seem less trustful, less eager to jump on the bandwagon this time. I think the big investment firms know this. I think the companies in my industry, retirement, know this. It’s a change to a smaller consumption, lower output economy.
I think there will be debate for years to come as to the “end” of this recession. Statistically, there will be some who said that GDP turned positive in Q4, therefore the end was then. Others will point to lingering higher unemployment, and say that the “real” recession never ended. Jobless recoveries have to bring down the quality of life for that economy, absent credit binges, which is how we got through from 2003 to 2008.
October 22nd, 2009 at 3:52 pm
edit: ABSORB, not absord…
October 22nd, 2009 at 6:06 pm
LB nailed it. Equity markets appear liquidity driven because there are no other logical reasons for it.
October 23rd, 2009 at 1:47 am
Having gleaned some interesting tidbits from Todd Harrison’s book it seems that the hedge funds have driven the markets up 60% and have cashed out so as to crystallize their earnings for the year. Based on what he wrote it seems this is the common pattern. Liquidity drives the bankable gains and then the funds are in cash until January when the cycle starts all over again.
It explains a lot. It’s like a season on the African savanna
If you want to see how the hedge fund world works go read Todd Harrison’s book and understand the cycle