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

The Oct Conference Board Consumer Confidence figure of 39.8 was well below expectations of 46 and down from 46.4 in Sept. It’s the weakest since Mar ’09 when it was down to 26.9. Both the Present Situation and Future Expectations components were down. The answers to the labor market questions were mixed. Those that said jobs were Plentiful fell to 3.4 from 5.6 to the lowest since Dec ’09 but those that said jobs were Hard to Get fell 2.3 pts. Those that said Business Conditions were Good fell to the weakest since Nov ’10 and those that said Business was Bad rose to the highest since Nov ’10. Those that plan to buy a home within 6 mo’s fell almost 1 pt to the lowest since Dec and those than plan to buy an auto was little changed. Interestingly, those that plan to take a vacation within 6 mo’s rose to the most since Dec. Take me away! One year inflation expectations were unchanged at 5.8%. Bottom line, the general economic unease we see everyday is certainly reflected in the data and while how consumers behave doesn’t always equate to how they feel, the uncertain feeling just won’t go away.

I mentioned that although I am not a truck guy, I was taken by the Evoque the other day. on Twitter.

Motor Trend just named the Evoque the 2012 Motor Trend SUV of the Year:

“In the enthusiast’s dream, all sports cars have manual transmissions and all SUVs are body-on-frame. But as so often is the case, reality does not intersect with our fantasies. Ferraris — save for one — no longer have manual transmissions, and car-based crossovers are rapidly pushing traditional SUVs to the brink of extinction. In a world that appears increasingly hostile to an all-SUV brand like Land Rover, adaptation is the only option. Some adaptations are failures. Others are Motor Trend Sport/Utility of the Year winners. The Range Rover Evoque is most certainly the latter.”

Pictures below; video after the jump

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video after the jump

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The latest Case-Shiller Home Price Index was released today, covering the period through through August 2011.

Modest improvement was seen from July to August 2011, with gains of +0.2% for the 10- and 20-City Composites. Year over year, however, saw falling prices of -3.5% and -3.8% versus August 2010, respectively.

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Click to enlarge charts:

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Both 10- and 20-City indices are back to their mid-2003 levels

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Source:
Annual Rates of Change Continue to Improve
According to the S&P/Case-Shiller Home Price Indices
S&P Indices, Press Release, October 25, 2011

These are my morning reading materials:

• Hulbert: How not to seek dividend income (Marketwatch)
• ‘Dark Pool’ Settlement Shines Light on Potential Abuses (WSJ)
• HFT: Is There Still Juice in the Oranges? (All About Alpha)
• Fresh Worries of Recession Grip Europe (WSJ) see also Penny Wise and Euro Foolish (Hussman Funds)
• More tablets means video hogs even more bandwidth (Gigaom)
• Apple TV Effort Said to Be Led By ITunes Creator (Bloomberg) see also Steve Jobs Told Cook ‘Just Do What’s Right’ (Bloomberg)
• Secrets are safe as WikiLeaks, starved of funds, halts operations (Christian Science Monitor)
• The Romney Economy (NY Mag) see also What 2012 election means for stocks (Market Watch)
• The world’s population has more than doubled since I was born (what happened since you were born?) (Guardian)
• Blogging the Stanford Machine Learning Class (Slate)

What are you reading?

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via yFrog

click for video

The S&P/CS home price index in Aug fell .05% m/o/m seasonally adjusted and 3.8% y/o/y, both more than expected and the index level fell to the lowest since March and is just a smidge above the lowest since 2003. On a y/o/y basis, home prices rose in Detroit and Washington, DC (not what the founding fathers hoped for) and fell the most in Minneapolis, Phoenix and Portland. Bottom line, home prices are about to break below its previous low point in this cycle and its not until home prices bottom that the balance sheets of US banks can be confidently relied upon. Also, while DC has a newly revised HARP program, it will only help those who are already paying their mortgage. House prices will bottom when they reach a level that is attractive to buyers. Rocket science I know not but somehow a mystery to many.

The Wall Street Journal – Lean Companies Ready to Cut
Despite another quarter of robust corporate profits, an ominous impulse is stirring at many big companies—restructuring. In a sign that executives see a rockier road ahead, many manufacturers are setting aside money to fund moves aimed at cutting costs and streamlining operations. Those steps could include job cuts and factory closures, as businesses seek to pare expenses ahead of what is widely expected to be slow revenue growth in 2012. Danaher Corp. plans to double its fourth-quarter restructuring budget to $100 million to be “mindful that the environment is likely to be more challenging going forward,” the industrial and health-care products maker said last week. United Technologies Corp. recently added more than $100 million to its restructuring budget, raising the total to $300 million this year. Honeywell International Inc. said it will apply $300 million in gains it reaped from a divestiture to funding more restructuring. “We all read the headlines,” Danaher Chief Executive Larry Culp said last week. Given the uncertainties around 2012, it is “better to be prepared and ready for what may come than to postpone what we think is a very prudent action,” Mr. Culp said on a conference call with analysts.

The Financial Times – US earnings tell story of resilience
After a brief flirtation with bear market territory at the start of October, and despite continued disagreement between eurozone leaders on how to resolve the crisis, the S&P 500 has bounced back. It is up more than 9 per cent this month, and on Friday traded at its highest level since early August. The best-performing sectors this month are energy, materials, consumer discretionary and industrials. All boast high earnings growth expectations. Recent turmoil has left US and, up to a point, European markets trading at cheap levels versus the outlook for company profits. This means long-term investors could be tempted to look for bargains if they believe what they are hearing from companies and analysts. “Given the uncertainty over Europe, it is not prudent to jump into the market with both feet, but if you have a three- to five-year time horizon, there are great bargains out there,” says Anthony Conroy, head of trading at BNY ConvergEx. Analysts expect a blended average of actual and forecast earnings for the S&P 500 to rise 14.6 per cent for the quarter from a year ago according to S&P Capital IQ. That figure is up from 12.4 per cent a week ago but below the mid-July estimate of 16.94 per cent.

Comment
The WSJ story above is hailing the fact that 70% of the companies have beaten expectations.  This statement can only be made by someone that is not paying attention.  As the table below shows, the current percentage of companies beating expectations is the lowest since the end of the Great Recession.  In other words, the fact that 69% of companies have beat expectations is not that great.

Economists David and Robert Wiedemer, the authors who predicted the bursting of the real estate, stock, and private debt bubbles that led to the Great Recession of 2008 and 2009, are back to provide the definitive analysis of what is ahead for the US and global economy in 2012 and beyond, with a thoroughly updated second edition of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown (Wiley, 2011).

The second edition of the Wall Street Journal bestseller Aftershock (Wiley, 2009), features David and Robert’s analysis of how recent action by the U.S. Federal Reserve will prove to have dire consequences, the future fall of China’s bubble economy, and what – if anything – can the average investor do to stay above water.

Not even their own profession is safe, as David and Robert provide a harsh look at inadequacies of the field of economics and the dramatic failure of economists to understand and foresee the warning signs of the current economic downturn. Beyond criticism, they provide the first look at a groundbreaking new theory of economics that not only can correctly analyze what has occurred, but also begin to accurately predict what is yet to come.

Robert Wiedemer is a highly successful entrepreneur having raised venture capital and taken onto NASDAQ a high technology information services company. He is also the primary business valuation advisor to the Small Business Administration’s SBIC venture capital program. It is the largest fund of venture capital funds in the world with $20 billion invested in over 4500 high growth companies. Robert is a managing director with Absolute Investment Management. Robert has appeared in the Financial Times, Wall Street Journal, CNBC, and Fox Business News.

David Wiedemer has a Ph.D. in economics from the University of Wisconsin. He co-founded a NASDAQ-listed company providing e-commerce services based on his patented technologies for securing the sale of electronically transmitted intellectual property, such as digitally stored information. David is the chief economist with Absolute Investment Management. David has appeared in the Financial Times, Wall Street Journal, CNBC, and Fox Business News.

You can see Chapter 4 after the jump . . .

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Aftershock Chapter4

I have been fortunate in my career to have met a number of investing legends. At the top of that list is Felix Zulauf.

Felix is an advisor to a fund that one of my office colleagues raises assets for. We were fortunate that Felix was in NYC yesterday briefly for a Barron’s conference (he has been a roundtable member for 20 years). Afterwards, he swung by the office and spent some time discussing the situation in Europe and elsewhere with us.

The highlights:

• We are on a spiral caused by mass credit creation, excessive borrowing, reckless spending, and a enormous credit crisis. The end result is inevitable, and most likely unavoidable.
• The Europeans have created their own credit crisis, and it is attributable, in part, to the creation of the EU. They EU is following a path similar to what the US went through n 2008-09.
• There will be yet another bailout in the US and QE3 (or more) — but not until the situation gets much worse; That refers to both the market and the economy.
• There was a window for an Austrian economics solution, but that opportunity has passed. Worse still, imposing Austrian economics on weak countries here and now will only make the situation worse, causing a recession or making any contraction worse.
• Equities remain in a long term secular bear market dating back to 2000, one that is unlikely to end before 2017.
• Multiples will compress over this time period. Look at more than P/E — consider Price to Sales as well.
• Of all the currencies in thew world, the US Dollar is the least ugly. That says less about the Greenback than it does about the Euro and Yen.
• The Eurozone was problematic since its inception. You cannot have a monetary union but not simultaneous fiscal union.
• Policy makers inevitably punish savers.
• Germany is the creditor to the rest of Europe. Given their history, their biggest concern is hyper inflation, while nations like Greece, Italy and Ireland are facing deflation
• Watch for rising populism in response to economic turmoil. It is already happening in Europe, and will eventually come to the US.
• The political situation in Europe is unlikely to improve until the crisis is much worse. The same is likely true in the US.
• There will be an eventual repricing of all currencies.
• Greece may very well will leave the Euro, but Italy is probably to big to do so.
• Countries that can print & devalue their own currencies get to invite tourists, stimulate economy, and climb out of their morass. Tied to the Euro, they simply cannot.
• There is no currency that will retain its value over the next decade except Gold. Every other currency is in a race to print and devalue, inflating away the debt.
• There is no price target on Gold, but he expects higher prices, and perhaps significantly higher prices over the next decade.

All told, a fascinating discussion.

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Previously:
Interview with Felix Zulauf

Transcript

Pretty astounding:

• Apple’s iPod history
• PC Mag: Apple iPod: The First 10 Years
• Techland: How the iPod Shaped Music History