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

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Interesting website that compiles analyst commentary and media coverage on stocks:

Street Pulse, finds comments by sell-side, industry and credit research analysts and melds those with comments from respected bloggers in an effort to answer the question “what do key opinion leaders have to say…” about a given company.

Deal Pulse* compiles the latest news on rumored, announced and completed M&A transactions. Uncovers deal ideas and rumors from all corners of the web.

Weak Pulse* displays news articles and blog posts that highlight distressed companies, such as those “seeking strategic alternatives,” announcing layoffs, filing for bankruptcy or restructuring

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click for website

http://www.alacra.com/products/pulse.asp

Bloomberg News is out with its latest monthly survey of economists’ forecasts and, according to those polled, the U.S. economy “will grow 3 percent this year and next, more than anticipated a month ago.”

Good news, right?

Well, maybe not. If you go back and look at how the experts have fared when forecasting the pace of growth for any given quarter, let alone for the year ahead, their tea leaf reading skills have left a lot to be desired.

Based on an analysis of Bloomberg monthly surveys published just prior to or at the beginning of each quarter over the course of the past decade, the professional prognosticators as a group have rarely been close to the mark.

Except for the last quarter of 2007, when the economists’ prediction (published in September) came within 5 percent of the reported result, the differences in percentage points between their estimates and the actual readings have been in the double digits — at a minimum.

In fact, on three occasions — the first quarter of 2000, the fourth quarter of 2002, and the third quarter of 2006 — the economists overestimated the pace of quarterly GDP by 1,133 percent, 2,400 percent, and 2,900 percent, respectively.

Aside from the fact that many of the so-called experts still haven’t quite figured out that what the economy has been going through is anything but a garden-variety downturn, their history of poor calls on the near-term outlook suggest their longer-term forecasts should be taken with a grain of salt.

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http://www.financialarmageddon.com/2010/02/grain-of-salt-forecasting.html

I just read a research report from Dick Bove of Rochdale Securities that made me actually laugh out loud.  It has the most irony impaired title I have ever read — the bold, all caps, title Bove penned was:

WILL IGNORANCE, DECEIT, AND RAGE DESTROY THE FINANCIAL SYSTEM?

Someone should tell the boy its too late for “ignorance, deceit and rage,” as the financial sector has already destroyed financial system . . .

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I just have to ask: WTF do these people get their ginormous cojones from? Do they have a tailor on call to let out their inseam to make room for their balls ? Talk about unmitigated gall — a research analyst from Wall Street is upset over anger destroying the financial system.  It would be funny if it wasn’t so god-damned pathetic . . .

Numerous Wall Street analysts, strategists, and economists over the years have managed to laden their commentary with references to their favorite bands, songs, sports teams, etc.

It is all but unavoidable: Assume the average age of the senior echelons of most research departments are age 50-60; That leads us to a top level of management who all came of age during the 1960s & ’70s — quite a prolific and influential period for music. (Most of them probably wouldn’t have passed the industry mandated urine test back when they were in college)

Which brings us to today’s tidbit: An extended Led Zeppelin reference-fest in the market commentary by Bernie McSherry of Cuttone & Co. It includes paragraphs such as this one:

“Corporate guidance has been positive in recent months and assuming that there hasn’t been a widespread communication breakdown, analyst expectations of a 184% YOY increase in profits for the S&P 500 should be exceeded. Banking stocks in particular should lead the way, however, if Alcoa’s disappointing report is any indication of what we can expect, this earnings season may turn out to be a heartbreaker.”

I spy 2 Zep songs in that paragraph alone, 7 in the article all told (see first comment for my short list). Did I miss any?

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Hat tip Paul, Dow Jones Market Talk

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Source:
Is She Buying the Stairway To Heaven?
Bernie McSherry
Cuttone & Co., January 12, 2010
http://www.cuttone.com/index.php?option=com_myblog&show=Is-She-Buying-the-Stairway-To-Heaven-.html

Official site
http://www.ledzeppelin.com/

Alcoa reported a Q4 2009 loss of $277 million loss, on lower sales and higher costs. Losses narrowed from a year ago when they were $1.2 billion dollars.

Pro forma operating profits were 1 cent, missing analysts estimates of a 6 cent profit, and begging the question of HTF can you report a per share profit on a quarter billion dollar loss? The analyst and accounting industries should hang their head in shame, and reach for a wakizashi to perform Seppuku, being the only honorable thing to do after the great shame brought upon their houses.

US futures dropped after the miss, and have weakened this morning:

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Source:
Alcoa Drops After Quarterly Earnings Trail Estimates
Edmond Lococo
Bloomberg, Jan. 12 2010
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYU0EdBl.FLI

Invictus is a bulge bracket asset manager with $100+ million AUM. He has no patience for money losers, hacks, partisans pretending to be financial analysts . . .  this is the first in a series of critical looks at analysts, media, economists, financial TV. Feel free to share any thoughts in comments.

Here’s Invictus:

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I’ve been reviewing some older columns that stood out to me as giving especially bad advice during  the period near the market peak. One in particular stands out as especially bad — poorly reasoned, not well thought out, full of weak analysis. It was amongst the worst of the money losing financial advice Smart Money has ever run. If I find more examples as bad as this one I am going to suggest the magazine change its name to Dumb Money.

Let’s set this one up first: This weekend, in Barron’s Alan Abelson devoted part of his column to the travails of Citibank:

“THE CITI NEVER SLEEPS. AND WE couldn’t, either, if we were Citigroup, given the way things have been going for the bank and its shareholders. The bank is wallowing in the red, and the stock, which sold at 56 and change in 2007, is now less than 3.50.

Moreover, among its other woes, it’s in a legal battle with Abu Dhabi, whose sovereign wealth fund is trying to squirm out of a deal closed back in November ‘07 that obligates it to buy $7.5 billion of Citi stock at $31.83 a share come March.”

It seems like only yesterday that Don Luskin, a top Ideological Hack Hall of Famer, told us the 11 Reasons to Buy Now — this was in November 2007, a month AFTER the top, that Abu Dhabi’s investment in Citi was proof that Citigroup and the market were both cheap:

“ADIA’s investment in Citi means that stocks have gotten very, very cheap. Mega-investors like that only step in with $7 billion when they are getting a deep bargain.”

Or not.

The S&P was in the 1400’s at the time, Citi in the mid-30’s or so.  I’ve chronicled Luskin from time to time, and put together an incomplete Greatest Hits over a year ago.

It’s not just his pompous, arrogant, know-it-all attitude that is annoying about Mr. Luskin. Rather, its that all of his commentary seems to be that of a broken clock. He has been bullish as long as he has been on TV. The only time I have seen him bearish was yhis one exception: On March 6, 2009, he finally capitulated his bullish stance. Of course, this was RIGHT AT GENERATIONAL MARKET LOWS. Luskin wrote in Even Worse Than the Great Depression that:

“We can’t blame President Obama for the mess he inherited. But we can definitely blame him for making it worse. Stocks are off 28.4% since his election, 15.2% since his inauguration, and 17.2% since his so-called “stimulus” bill was enacted. To say the very least, whatever he’s doing, it ain’t working.”

And there is the partisan hackery he is so famous for. Since that politically inspired post, the S&P has rallied 63%. No word from DL as to what this rally means.

I hold no animus toward those who get it wrong in finance/economics. We all do. It goes with the territory. I do hold a fair amount of ill will toward those who distort facts, deliberately mislead others, or otherwise dissemble to support an ideological position. (As another example, see this 2008 foolishness about Housing  data).

Refusing to acknowledge one’s mistakes when presented with incontrovertible evidence is similarly a no-no in my book. And these folks need to be called out on their nonsense. It is both intellectually dishonest and counter productive.

Smart Money readers should learn to ignore his money losing advice . . .

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Source:
11 Reasons to Buy Now
Donald Luskin
Smart Money, November 30, 2007

http://www.smartmoney.com/investing/stocks/11-reasons-to-buy-now-22207/

I hereby invoke Bob Farrell’s Rule #9: When all the experts and forecasts agree — something else is going to happen.

Let’s look at the forecasted year-end 2010 levels for the S&P500 and S&P500 earnings:

In today’s Baron’s, Mike Santoli discusses “A forecaster worth listening to sees more gains ahead.” He has penned missives such as “A Bear Is in Sight” and “Why This Rally Is Really Different”

Santoli adds:

This guy, though, is the one whose dispatches I saw as the very uncertain market trajectory took shape, illuminating the real-time contrast between his high levels of conviction and clarity and the deep ambivalence and confusion enfolding most of us.

He doesn’t claim any magic formulas or proprietary systems. His approach is eclectic and inclusive, ranging among economic, technical, historical, valuation and sentiment inputs. He’s in the business, as a broker, and shares his missives with clients. And he still doesn’t want to be identified. But his current thinking isn’t less valuable for being presented without attribution.

Two questions:

1) Most compliance departments go beserk over this stuff. Do many retail brokers do these sorts of emails without their firms knowing? Any insights?

2) I am curious if anyone knows who this broker/manager is. You can contact me directly, rather than post his name in comments.

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Source:
A Really Different Rally, Again
MICHAEL SANTOLI
barrons, December 12, 2009

http://online.barrons.com/article/SB126057496212588073.html

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Interesting discussion on one of my favorite subjects — The Folly Of Forecasts — on NPR with Chicago/Austrian economist Russ Roberts, now at George Mason University.

• click here for audio

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Previously:
Apprenticed Investor: The Folly of Forecasting
Barry Ritholtz
TheStreet.com, June 07, 2005

http://www.thestreet.com/story/10226887/apprenticed-investor-the-folly-of-forecasting.html

Source:
The Folly Of Economic Forecasts
NPR, December 7, 2009

http://www.npr.org/blogs/money/2009/12/podcast_the_folly_of_economic_forecasts.html

Invictus is a street insider, a long-suffering “lifer” whose close work with Wall Street research teams gives him unique insight into the current strategist spat.

Enjoy:

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It was noted back in October that a feud seemed to be simmering between the former Merrill Lynch Chief North American Economist David Rosenberg (now at Gluskin Sheff) and those who succeeded him, Economist Ethan Harris and Strategist David Bianco (who replaced Rich Bernstein).

Often nuanced in nature and discernible only to those who read the research from both shops, the differences occasionally bubble to the surface, as they have in the past few days.  The nub of it, obviously, is that Rosenberg’s outlook is decidedly dour, in sharp contrast to his successor(s), who are much more bullish.

So nuke another bag of popcorn, as the gloves appear to be coming off.

In a research note last week, Bianco asserted that it is an “investor misperception” that the consumer (PCE) is really 70% of U.S. GDP:

Personal Consumption Expenditures (PCE) do indeed make up about 70% of US GDP, making total US PCE or household spending about 15% of the global economy and bigger than the entire Chinese economy (Chart 2). How then can the US economy and the rest of the world grow with the US consumer in retrenchment? To answer that, we take a closer look at the composition of PCE.

Only 25% of personal consumption is discretionary spending

What many investors fail to realize is that the majority of PCE is not made up of iPods, handbags and dinners at the local Outback Steakhouse. Instead, about 75% of household spending is non-discretionary in nature, such as housing, healthcare, energy, food eaten at home and other household staples. We think it is worth noting that most of these non-discretionary items are made in the US.

While there is certainly room to reduce non-discretionary spending, the areas of consumer spending feeling the brunt of higher household saving rates are cars, travel, apparel, restaurants and other discretionary items that make up about 25% of PCE, equivalent to 20% of US GDP (Chart 3) or less as many of these nondiscretionary items are imported. 20% of US GDP is still significant, but far less than the 70% figure that makes the headlines. Another figure sure to make the headlines this time of year is retail sales. The contribution to US GDP from retail sales has actually been declining for over ten years. Excluding supermarkets, retail sales are under 40% of total consumption, or about 25% of GDP.

Bianco’s piece was referenced in last Saturday’s Barron’s.

On Monday, Rosenberg was having none of it:

The “Streetwise” column in the current edition of Barron’s (It’s Still Too Early to Worry Too Much) runs with a series of assertions otherwise dubbed “common misperceptions” — one of them being that the U.S. consumer is really not 70%+ of the economy because “only a quarter of it is truly discretionary.”

We’ll get back to this in a second, but the fact of the matter is that much of what appears to be non-cyclical is in fact, cyclical (like elective surgery in health care; veal chops in the food category, etc). Second, even if this assertion is correct that ‘only’ 25% of consumer spending is economic-sensitive, it begs the question as to why that is important in anyone’s analysis. Is 25% small? If it is, then what is going to be the driver for the economy going forward; government spending? If 25% is small, then how is it that on average consumer spending manages to generate 300 basis points of growth for the economy coming out of recessions — because they are buying more soap and toothpaste with the other 75%? Maybe that 25% (and that number is not correct but it doesn’t matter in any event) is a huge swing factor in recessions and expansions for overall GDP growth. Once again, this is a classic failure to assess the economic shifts at the margin.

Even if consumer discretionary spending is just 25% of the total expenditure pie (and hence 17.5% of GDP), that would still make it the largest cyclical component of the economy — almost double capital spending and exports, just as an example, and almost eight times larger than housing and commercial construction.

Stay tuned.  I expect this one’s not over by a longshot.