Posts filed under “Research”

“Recovery” Bypassing Small Businesses

The National Federation of Independent Business (NFIB) released its monthly Small Business Economic Trends (SBET) survey, and the outlook for small businesses is still not good.  The NFIB counts its membership at about 350,000 small businesses.

The overall Optimism Index declined in the month of March to 86.8, roughly the same level it was at the very tail end of 2008 (87.8 in November ’08, when the world was on the brink of collapse):

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NFIB Optimism Index

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NFIB’s economist, William Dunkelberg, commented as follows:

While news about the economy has been positive for two or three quarters, small business owners remain quite pessimistic about the future for the economy. The Optimism Index has been below 90 for 18 consecutive months and below 90 in all but four months since the recession started in January of 2008. [...]

Since small firms produce half the private sector GDP, it is hard to envision a sustained recovery without their participation. Once the gains from inventory rebuilding are exhausted, it is hard to see what will fuel growth. Small firm capital spending is at 35 year low levels and plans for future expenditures are equally low. Plus, hiring plans remain “negative” as more firms still plan reductions than increases in their employment).

Unfortunately for small businesses, their larger counterparts enjoy (at least) three distinct benefits that they don’t:

  1. International sales
  2. Stronger balance sheets
  3. Easier access to credit

Small businesses overwhelmingly continue to cite “Poor Sales” as their number one problem:

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Small Business Sales Remain Weak

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I agree with Dunkelberg:  Barring a turnaround for the nation’s small businesses, it’s hard to see how this “recovery” will have much sustainability or make a dent in the ~8.4 million jobs we’ve lost since the recession began.  The problem, I believe, is how to stoke final demand (hence the “Poor Sales” problem), without which not much progress can be made.

Category: Data Analysis, Economy, Markets, Psychology, Research

Exonerating the Shorts

Interesting discussion by the always worth reading Mark Hulbert about a recent research paper on Short Selling. While I agree with the paper’s conclusion, it overlooks two major related issues regarding short selling. Let’s look at a few excerpts first: “Short-selling became particularly controversial during the recent bear market, when many of its practitioners turned…Read More

Category: Research, Short Selling

NBER: Having It Both Ways?

There seems to be growing consensus that the recession ended some time in mid-2009 (June or July), and we recently pointed out that regional St. Louis Fed economists have placed their bets on a July 2009 trough. Now it’s up to the NBER. We know that they weigh a variety of economic indicators, including Employment, Industrial…Read More

Category: Data Analysis, Economy, Research

The St. Louis Fed has made it official, at least through their lens.  The recession ended in June 2009.  As you read here first in January, late last year the St. Louis Fed discontinued the use of  recession shading (thereby signalling its end) in its graphs as of mid-2009. They have now retooled their Tracking the Recession page to…Read More

Category: Cycles, Economy, Employment, Research

Luskin: Buy Stocks, Buy Citi (11/07) Sell Stocks (3/09)

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: ~~~…Read More

Category: Analysts, Media, Really, really bad calls, Research

Multibillion-Dollar Push Into Energy Research

> This is actually terrific news: “The Obama administration’s push to solve the nation’s energy problems, a massive federal program that rivals the Manhattan Project, is spurring a once-in-a-generation shift in U.S. science. The government’s multibillion-dollar push into energy research is reinvigorating 17 giant U.S.-funded research facilities, from the Oak Ridge National Laboratory here to…Read More

Category: Energy, Research

Sign Up for David Rosenberg (Merrill Lynch) Research

One of my more favored Wall Street researchers, the former Merrill Lynch North Amercian economist David Rosenberg, has moved on to Gluskin Sheff. Rosie’s new firm is making his research available for free, via email, on a trial basis. He should start publishing after the holiday weekend. You can sign up for what was formerly…Read More

Category: Research

Bank Market Caps, Then & Now

On Sunday, we looked at a charting error in a JPM research piece that compared bank market caps, then and now. It appeared the JPM analyst erroneously selected area rather than diameter in Excel. (Data can be found here). TBP Readers did a nice job taking JPM to school as to what the chart should…Read More

Category: Markets, Research

Failings in Structured Finance Agency Conflicts

As we begin to address regulatory reform in the financial services industry there is a clear consensus view that the credit rating agencies played a role in fomenting the crisis environment. In February 2007, Joe Mason and I presented a paper warning of the risks that CDO market problems would present in the capital markets…Read More

Category: Credit, Derivatives, Finance, Markets, Real Estate, Really, really bad calls, Research

Can Wall Street Do Basic Math?

That’s the question Bob Cringely asks.

Bob points out what might be an embarrassing error in a chart (below) — on the Banks/Financials no less — prepared by a JP Morgan Analyst:

It’s a chart showing the deterioration of major bank market caps since 2007.  Prepared by someone at JP Morgan based on data from Bloomberg, this chart flashed across Wall Street and the financial world a few days ago, filling thousands of e-mail in boxes.  Putting a face on the current banking crisis it really brought home to many people on Wall Street the critical position the financial industry finds itself in.

Too bad the chart is wrong.

It’s a simple error, really.  The bubbles are two-dimensional so they imply that the way to see change is by comparing AREAS of the bubbles.  But if you look at the numbers themselves you can see that’s not the case.

Take CitiGroup, for example.  The CITI market cap dropped from $255 billion to $19 billion — a difference of 13.4X.  If we’re really comparing the areas of the bubbles, that means 13.4 of those tiny CitiGroup-of-today bubbles should precisely fill the big CitiGroup-of-the-good-old-days bubble.  Only they won’t.  As a matter of fact it would take about 13.4 times as many little bubbles to fill the big bubble as the chart preparer thought or 179.64 little bubbles.  Pi r squared, remember?  This is because the intended comparison wasn’t two-dimensional but one-dimensional — the chart maker was intending we compare the DIAMETERS of the bubbles, not their areas.

My first read of this is that comparing height (i.e., bars rather than circles) would be accurate. Circles won’t work due to the squaring (π R squared) , where as diameters do not bring in a factorial change. That’s what creates the exponential rather than arithmetic change in the circle’s area.

I don’t have the original data, and I am wondering if this might be a simple Excel charting error [Update: Excel gives you the option of selecting Area or Diameter when choosing the circle chart as an option. I suspect this was a simple spreadsheet graphing error — not a mathematics error — but its embarrassing nonetheless]

If anyone has either the Market cap data handy, or wants to pull the teeny data from the chart onto a spread sheet, please email it to me at thebigpicture-at-optonline.net. Alternatively, if you can design a more informative/accurate graphic, please send that along . . .

UPDATE: 2/15/09 5:52pm

Several corrected versions of the original chart (below) follow . . .

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Category: Humor, Markets, Mathematics, Research, Valuation