Thank Goodness for Friday

Macro Man isn't normally one to say "TGIF" on a Friday; while he certainly loves his weekends, he also does legitimately enjoy the weekly battle to figure out (and extract money from) global financial markets.

But Friday morning, he couldn't help but think "TGIF". Maybe it is not being able to get back to sleep Friday morning after waking at 4.30. Maybe it's the surreal sight of seeing that Macro Boy Jr. (aged 5) pulled up and attempted to log onto Macro Man's home Bloomberg terminal while he was in the shower. Or maybe it's just the mental fatigue of seeing the economy slide into recession and market prices exhibit hyper-active Brownian motion.

And let's make no bones about it - the US (and almost certainly the world) economies are sliding into recession, if they ain't there already. Thursday's monthly drop in industrial production (2.4%) was the lowest since Mrs. Macro was born (i.e. 1974). Ex-post, of course, the figure was spun off as being negatively impacted by the hurricanes and Boeing strike last month.

This, of course, begs two questions:

1. Haven't there been other hurricanes and strikes in the last 34 years?
2. It's not exactly new news that there were hurricanes and strikes last month, so why weren't they in the economists' forecasts (which expected a 0.8% monthly drop)?

Meanwhile, the Philly Fed index notched its lowest reading since the early 90's and the biggest monthly drop in history. Yep, the good news keeps on rolling!

Of course, none of this necessarily means that stocks will go down. Hell, they didn't Thursday, though some of the late-session rally may be related to Friday's option expiration.

And St. Warren of Omaha has issued what some may take as a clarion call to buy US equities in Friday's NY Times; it makes an interesting contrast to Cramer's recent "sell everything and buy tinned beans and a shotgun" message.

Still, any Buffett-induced rally may well represent yet another selling opportunity. Buffett himself claims no particular ability to time markets on anything but a very long-term basis. And while he may be correct that stocks start to pick up before the economy, Macro Man has difficulty in believing that stocks will meaningfully bottom until earnings do; certainly that's not been the case yet. Worryingly for equities, as of the end of last month analysts still expected S&P earnings for 2009 of $83 per share (versus $50/share trailing).

And of course, a country like Japan is 18 years past its equity market peak, which probably falls into even Mr. Buffet's categorization of "long term." Yet the Nikkei is still some 80% or so off its peak- hardly a ringing endorsement of blind long-term investing.

Nevertheless, Macro Man will concede that Mr. Buffett is probably right in the very short term and the very long term. For his intermediate term "sweet spot", however, Macro Man cannot help but think that more downside awaits.

Comments

[Chkrazer:]

TGIF stands for Thank GOD Its Friday ... dont you mean to thank God ?

2008 Oct 19 09:16 AM

[Fabien Hug:]

I am not really keen on comparing with Japan. US is a different animal that lets its idol fall. US doesn't have that "save the face" problem. That helps to clean up the problems.

2008 Oct 19 01:20 PM