Using Common Sense in these Troubled Times

I would like to begin with a very topical quote about the economic situation:

The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced if the nation doesn’t want to go bankrupt. People must again learn to work, instead of living on public assistance.

Take a guess who said this? Bernanke? Paulson? Somebody from Congress? Wrong! The credit goes to … wait for it … Cicero, who issued this warning in 55 BC! (Hat tip: Jim Sinclair’s MineSet.) If only we would learn from the lessons from history!

Next, a tag cloud of the text of all the articles I have read during the past week. This is a way of visualizing word frequencies at a glance. As the saying goes: A picture paints a thousand words …

Economic reports

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior
Aug 19	8:30 AM	Core PPI	Jul	0.7%	0.2%	0.2%	0.2%
Aug 19	8:30 AM	PPI	Jul	1.2%	0.6%	0.6%	1.8%
Aug 19	8:30 AM	Building Permits	Jul	937K	975k	959K	1138K
Aug 19	8:30 AM	Core PPI	Jul	-	0.2%	0.2%	0.2%
Aug 19	8:30 AM	Housing Starts	Jul	965K	975K	960K	1084K
Aug 19	8:30 AM	PPI	Jul	-	0.6%	0.6%	1.8%
Aug 20	10:35 AM	Crude Inventories	08/16	9390K	NA	NA	-316K
Aug 21	8:30 AM	Initial Claims	08/16	432K	435K	438K	445K
Aug 21	10:00 AM	Leading Indicators	Jul	-0.7%	-0.3%	-0.3%	0.0%
Aug 21	10:00 AM	Philadelphia Fed	Aug	-12.7	-12.0	-13.4	-16.3

Source: Yahoo Finance, August 22, 2008.

In addition to the FOMC releasing the minutes of its August 5 meeting, next week’s economic highlights in the U.S., courtesy of Northern Trust, include the following:

1. Existing Sales (August 25): Sales of existing homes are predicted to have risen in July (market consensus) after a 2.6% drop in June. The elevated inventory of unsold homes does not support this forecast. Consensus: 4.94 million versus 4.86 million in June.

2. New Home Sales (August 26): Sales of new homes fell by 0.6% in June. A larger drop is likely in July, given the large number of unsold new homes. The market consensus is a small decline again. Consensus: 525,000 versus 530,000 in June.

3. Durable Goods Orders (August 27): Durable goods orders (+0.5%) are expected to show an increase mainly due to aircraft orders which fell sharply in April and June and posted a small gain in May. Bookings of defense items probably fell after two monthly gains. Orders of non-defense capital goods excluding aircraft may have dropped in July. Consensus: 0.1% versus +0.8% in June.

4. Real GDP (August 28): An upward revision of real GDP growth for the second quarter is expected (2.5% versus 1.9% advance estimate). A narrowing of the trade gap in June is the primary reason for the upward revision. This report will contain corporate profits which have dropped in five of the last six quarters. Consensus: 2.7%.

5. Personal Income and Spending (August 29): The earnings and payroll numbers for August point to only a small decline in personal income (-0.1%). Auto sales fell to annual rate of 12.55 million from 13.7 million in June. Non-auto retail sales have been soft. Inflation-adjusted consumer spending is predicted to have declined again after a 0.2% drop in June. Consensus: Personal income -0.1%, nominal consumer spending +0.1%

6. Other reports: Consumer Confidence (August 26), Consumer Sentiment Index and Chicago PMI (August 29).

Click here for a summary of Wachovia’s weekly economic and financial commentary.

A summary of the release dates of economic reports in the U.K., Eurozone, Japan and China is provided here. It is important to keep an eye on growth trends in these economies for clues on, among others, which way the U.S. dollar is going to move and how strongly.

Markets
The performance chart obtained from the Wall Street Journal Online shows how different global markets performed during the past week.

Source: Wall Street Journal Online, August 24, 2008.

There are a vast number of imponderables investors need to deal with in these troubled times, reminding me of Voltaire’s words: “Common sense is not so common.” Hopefully the words and charts from the investment wise below will assist in making profitable investments. But be careful of convicted opinions, err on the side of conservatism and invest/trade lightly.

That’s the way it looks from Cape Town.

Source: Slate

 

Comments

[jjason:]

Thanks. Nicely done.

2008 Aug 24 04:33 AM

[User 209003:]

SHARK&PAUL
Can you say something different to different posts ?
This country has survived major depression and wars , this is still the best country to live in . We are still buying thousand of I-Phones on a daily basis . Europe has been paying 9-10$ a gallon for gas for years . These are just few examples of events that this Country is not Doomed .

2008 Aug 24 10:06 AM

[xatta:]

SHARK&PAUL, I have read the first 8 words of your comment.

You bore me.

2008 Aug 24 11:18 AM

[Fabien Hug:]

When I arrived in LA in 2006, everybody told me why do you rent this gloomy TH? I said prices are to high and I don't buy at these prices, it is going to drop. Everybody told me you bore me. I have no friends, I still have my money and I can go back to Europe to have a drink when I want. Et voila.

2008 Aug 24 05:24 PM

[WEBISKING:]

Common sense is correct.Buy great companieslike MO PM KFT UST BRK KO XON at reasonable prices and kick back and enjoy life and dont worry about anything

2008 Aug 24 09:43 PM

[investor88:]

Prieur has given timely advice to revert to common sense and caution in these tumultous times. Many experts at the bankers conference at Jackson Hole fear the worst but there are also large numbers of optimists who think that good times are round the corner like it used to be these last 20 years. Who knows but the problems in the US appear to be of the once in a generation or once in 3 generation type. Potentially serious but can never be sure. Hope for the best but prepare for the worst?

2008 Aug 25 09:06 AM