Are We in the Eye of the Economic Storm? 21 comments
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You know I'm bearish right now, but it's getting harder and harder for me to remember the fundamental compost that's hidden beneath piles of M3, stimulus, and the last 5 months' rally. Yesterday, Morgan Stanley (MS) announced a hiring initiative that would add 400 traders and salesmen to its fleet. They also released a statement that they'd be building a retail bank from scratch. The move to capture safer deposits is a sharp juxtaposition to the GS approval as a financial holding company, because Goldman (quelle surprise!) received an elegant exemption from all the normal risk restrictions on holding companies. Yea, the MS hirings will incrementally add to the remnants of their trading base, but additions to the salesforce plus the retail ramp-up spell a new era in the bank's emphasis: deposit harvesting.
I jumped on the story and phoned a manager in MS's New York Brokerage training facility. Not only has the MS-Smith Barney arm exceeded its own 400 new hire target (they have 450 in their pipeline), but they've received a 12-month quota of 2000 new trainees!
These targets are pretty flexible, so there's a possibility that MS will revise down its ambitious goals; it's still the rosiest employment news I've seen in some time. The Macro data coming across has smelled a lot fresher lately, but I stick to my guns that there's still a scraped-up underbelly that'll bleed through without the government's printing press here to cauterize the wounds. For the first time in post-war history, we've tested the depth of our government's wallet, after Quantitative Easing spelled the inevitable end game of a sustained disinflationary Fed policy (since the 80s!). Whether by causation or coincidence, QE appears to have temporarily repaired the stock market, but it's missed its other objectives.
Obama hasn't delivered the spectacular job growth targets he promised. Actually, the fact that he'd create jobs wasn't even debated, it was the delusional magnitude of the projections that everyone questioned. But, it looks like we have yet to find any sustainable job creation from "shovel-ready" programs. I'll tell you what, here in Boston--where we relatively didn't need the shovels--blithe road repair projects have already come and gone.
The entire impetus of the that stimulus was to create blue collar jobs that would choke off loan defaults & delinquencies (among other Macro effects & resonant benefits). Like much of the other stimuli, this program is a bridge to carry the economy over the output crater that's been left behind by this crisis. Well, we're at the end of the bridge, and it hasn't yet reached the other side of the crater.
Markets performing the way they have certainly trickles down, but not with the exponential effect that other variables could. The blue collar job creation was supposed to echo into white collar hirings. (That's what drew my eye to the MS story. There have also been small reports from government entities like the NY Fed who's recycling Wall Street's homeless into sophisticated watchdogs.) On the broad measure, that hasn't happened.
The problem all this brings to the table is: Washington has spent a lot of money. It's contributed to the "G" (Gov't Spending) in GDP, but it hasn't shown returns. Money supply has exploded in all measures, but Monetary Velocity has severley lagged in correlation:
Note that the chart above (from the end of May) uses M1 in its calculation. North of M1 (M2-3), growth has been unprecedented, meaning MV is dragging ass. The new cash being infused is sitting in bank vaults.
Now, the government has a decision to make with so many programs expiring in September and so much stimulus having come & gone. Investors should be moving from a technical mindset to a more fundamental one. The S&P needs to boast 150% earnings growth to hit forecasts and substantiate off-the-hook trailing & forward P/Es. Yes, companies are lean right now (i.e. margins have the potential to push wider), but I'm not sure that the consumer can come out of the woodwork any stronger than he already has (i.e. despite magins, revenues just won't be there to produce blockbuster earnings).
I'm betting we're still in the eye of the storm.
Disclosure: no positions
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Not even. We are in the "lie" of the economic storm. People keep losing their jobs and getting thrown out of their houses, but P/E on the S&P of 140 is just fine!
Also , I appreciate and thank him for his data and article.
On Aug 21 09:23 PM enigmaman wrote:
> exploding 9T deficit could be the ticket, dollar could take a serious
> licking next week as a result, admin miscalculated the deficit by
> only two thousand billion dollars, this may affect the market next
> week because even Obama recently said " a trillion here a trillion
> there and soon we are talking real money"
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It REQUIRES exponential growth, within a finite environment!
We are now in the final stages of proving that the current system is not working & is actually unworkable, over time.
Recent increases in leverage, in the financial sector & the Peaking of 2 of the 3 major growth drivers (Population & Oil) of the last 200 years, are now conspiring, to bring economic growth to a shuddering halt!
What proceeds from there, may not be pretty, but nor will be the final judgement of historians.
Innovation, is now the final frontier for economic sustainability, the exponential growth fairy is dead, but in the long run, we are all dead.
The "facts" are now changing, what we do or don't do with this new paradigm, over the next 5-10, will set the course of humanity, for the next 200 years.
We must now go, where there is no path and leave a new trail!
We can, the $64 Trillion question is, will we?
90% of Americans because it has a negative multiplier. It is a vast appropriation of resources from the middle class of today and a theft of resources from our National future to be grossly misallocated to low or no value added uses , away from high or higher value added uses.
Govt. is not external to the economy: it cannot create, it can only take and, with high transaction costs, reallocate and mostly misallocate.
The stimulus has obviously succeeded for the top 1 % of Americans by further concentrating income, wealth and power over national decisions. It has probably been of some benefit for the next 9 % of Americans who live off their connectivity with the top 1%.
The trickle down is from the top 1% to the next 9%.
Without the stimulus we were in a fierce but short and cleansing storm. With the stimulus we are in a cruelly prolonged hussicane that is once again gathering strength and energy from the criminal misallocation of national resources and from the spreading ocean of fiat money. It could strike us with terrifying force in 2010.
It was never meant to work!
On Aug 22 08:44 AM perceptions_now wrote:
> "The trickle down"
>
> It was never meant to work!
Innovation is the ONLY real engine that can create widespread wealth and prosperity. Unfortunately, that is not how fedbama think. They have wasted trillions of dollars on propping up bad banks, and bailing out spendthrifts. If you work hard & innovate - just wait, Obama is coming around with tax increases to reward you.
1.He can aim at jobs creation by lowering the taxes on small business,
2.removing the small business regulations in place and contemplated by Congress,
3. Give a tax holiday to consumers, say no federal tax for 90 days,
4. Drop the grandiose plans for health care and offer fixed cash for buying care, or personal use, up to some reasonable number.
5. Skip cap and trade as poison the economy can not swallow.
6. Assure the public that recovery objectives includes more than banks and brokers- really!.
He will not do this because the he is the President of Wall Street not the us.
Those who rode this entire rally up ( feel very smart) have to be wondering when will it end, they have to know it will and when it does will I know and will I know what to do when it does, will I get out with profits or losses.
Seems to me, in or out the concerns are the same, fear of failure, In or Out whichever group blinks first will set the course for the market going forward.
Those of us posting show our hands by the opinions we read, which tend to be the ones we believe to be true, preaching to the choir does not provide the prospective one needs to think outside our BOX
Thanks!
On Aug 21 08:50 PM SW Richmond wrote:
> "Are We in the Eye of the Economic Storm?"
> Not even. We are in the "lie" of the economic storm. People keep
> losing their jobs and getting thrown out of their houses, but P/E
> on the S&P of 140 is just fine!
He the wonder boy with his bling: Aif farce one and 20 or so handlers for his wife Ugh. Oh, and 30 plus Zsars to do his thinking for him.
It is ironic that at a time of major crisis we have to have a boob-a-lina at the helm. But, wait! That may actually be a good thing. Because now there can be no doubt that we need real leaders, not just in the Black house and in the kneeling cringing incompetent congress, but in industry. Let us vacate the executive offices from the drones who lap up millions of our money while producing nothing.
This country was based on productivity and innovation on all fronts. We were once a nation of hard working and hard fighting individuals who solved the worlds problems beyond just our own. Now look at the US of A, it is a pathetic patchwork of organizers and self servers.
It is time. Time to take America back.
I am feeling no such thing at all, and I am on the "sidelines" as far as stocks are concerned. I don't trust this "rally" at all.
P/E chart
www.chartoftheday.com/...
On Aug 22 09:41 PM SW Richmond wrote:
> "Those who sat on the sidelines during this rally are kicking themselves,
> lost opportunities ( feel very dumb) all those months I could have
> should have, what should I do now, get in, then what if it tanks
> will I lose even more."
>
> I am feeling no such thing at all, and I am on the "sidelines" as
> far as stocks are concerned. I don't trust this "rally" at all.
>
>
> P/E chart
> www.chartoftheday.com/...
We are more like Wiley Coyote after chasing the Roadrunner off a cliff in a cloud of dust, but before realizing that gravity will take over and plunge us to the floor of the canyon below. Soon enough the winds of reality will begin to blow the dust away and reveal that we are standing on nothing of substance.
Every time we see a government official on television, in print, or via audio tell us that the economy is recovering we should all visualize the word "ACME" pasted on their forehead, in the manner of the coyote's many trials and tribulations at catching his dinner.
Having a parachute on hand might be a prudent precautionary measure as well.
Unfortunately, when you look at the demographic composition of Phd programs in the hard sciences you will see that the student body is about 95% Asian. Thirty years ago those graduates stayed in the US and started tech companies. Now they are returning to their homelands to start companies. Innovation, profits and jobs are moving to Asia. We have some serious cultural soul searching to do before we can restore economic prosperity to America!