Ali Mogharabi

Consumer Sentiment Key Element of Today's Economic Calendar

key element? You'd think so, but with this mkt, we even could see some pigs fly soon. The consumer sentiment data came in significantly below consensus ... during the Holiday season ... and S&P and the Dow are up 0.70% and 0.80%, respectively. Amazing.

Youbet.com: Growth Potential and Cash, Cash, Cash

being acquired by chdn for cash and stock. with mgmt and the board agreeing to this, it doesn't look like they were very confident in the company's growth potential. then again, with Brodsky as chairman initially as ceo), everyone knew that he'd start slightly turning it around and sell it at 100%+ change in price to benefit many parties, including new world opp. but with more than 65% of this $2.84/share deal (based on today's closing price) being the CHDN stock, it'll be pretty risky to stick with it and hope to get a better deal. up nicely in AH, but will prob see some selling starting late morning. Good company, structured well with very good strategies (unlike a few yrs ago), but the current environment has forced shareholders (old & new) to lose patience. Selling this at around $2.60 - 2.70 doesn't appear to be a bad deal.

While Goldman CEO Lloyd Blankfein understands that "people are pissed off" with bankers, he says everybody should be happy: "Companies are looking to grow again and raise money. That's where we come in. The financial system may have led us into the crisis but it will lead us out."

The govt, the same one that bailed out these mofo bankers, should look into GS' trading during the week of Oct. 26. Does anyone remember what GS did during that week? The bank that had been more bullish regarding the stock mkt, came out with a lower GDP growth rate estimate. One of its great economists said that inventory replenishment may not have turned out to be that great, so he/she/who-knows lowered the GS GDP growth rate forecast from 3.0% to 2.7%. And the mkt tanked. I wonder if GS was actually buying the market indicator ETFs, or buying calls on those or selling puts, or ... you get the picture. Just curious because the next day, the GDP growth rate turned out to be 3.5% and the mkt of course went to the moon. It makes me wonder how these experts could make such a mistake? Its nearly impossible or unthinkable. We're not talking about making a call on a stock ... its the economy ... the GDP. Then I thought to myself .... if you are a bank that handles more of the trading than the next 5 banks combined, if you are basically the master of the US govt, if you are the master of the Fed, which is the co-master of the govt, if you basically control all other i-banks, if all other M&A opps come falling into your lap because there's basically only 1 maybe 2 banks that compete with you ........ well ... then you can do ANYTHING you want, which includes manipulating the mkt, as you did during the week of Oct 26. Good job GS! I guess if anyone or org had this much power, it would also abuse it as you have ... and continue to do every trading day.

Q3 GDP: Obviously Fictional

Although I am not bullish regarding this economy and the mkt, and I do agree with your thoughts on consumer credit and consumption, I must disagree with your interpretation of last quarter's GDP figures.

First, actually at the end of 2008, or in Q4 of that year, the official annualized GDP contraction rate was 5.4%, not 6.4% as you stated.

Second, your claim of a 10% swing by merely subtracting annualized growth rates from each other, which are based on SEQUENTIAL growth estimates, is not correct. The 3.5% annualized growth rate basically means that compared with the prior quarter (Q2), the economy grew at a 3.5% annualized rate, or a monthly rate of around .292%. So its saying that if the economy grew at this rate for the next 12 months, then we could say that the economy expanded at a rate of 3.5%. Such rate is not directly related to the Q4 2008 GDP. Similarly, the annualized 5.4% contraction rate of Q4 2008 was based on the sequential estimated growth for that quarter.

Simply put, your assumption of a "10% shift in U.S. GDP" during the last 9 months doesn't appear to be correct.

The 3.5% growth rate figure is derived from BEA's estimated chained-dollar GDP, which I would say would be a better figure for you to use because then you can actually compare it with Q4 2008. If you do that, you will actually see that compared with Q4 of last year, the Q3 GDP contracted at a 1.3% annualized rate, indicating a less significant "shift".

Another Jobless Recovery, Part 1

I think most will agree that this is likely to be another jobless recovery. The question is - will it be successful similar to the previous two jobless recoveries. Those were successful but only for a short period of time. What drove those receoveries was consumer credit and consumers leveraging various assets (such as homes) to continue to consume, helping push those recoveries through.

The environment is very different now. Consumers no longer have credit. In addition, they remain highly levered. During the first four months of this year, we were actually seeing positive indications for the well-being of this country's recovery for the LONG-TERM - 1) consumers were trying to pay off their debts; and 2) they had begun saving again. However, govt stimulus plans (such as the cash for clunkers) drove consumers to again save less and spend more. Those green weeds started sprouting and everyone thought everything would be great, indicated by the huge jump in the equity mkt.

Unfortunately, the govt programs not only help sprout those greeneries, but they also help kill them. The green shoots will not and have not grown to create a lasting, or I must say, a valid, economic recovery.

Although current zero rates indicate otherwise, I still think paying off debts and saving would be the best way to recover from this downfall. It would help the recovery last for much longer than basically every election year. As we all know, the politicians will push through bills that provide that short-term 'high' for the economy, but also make the economy more dependent on those measures and/or dollar printing in the long-run.

The equity mkt has had a life of its own. Its basically controlled by a couple of big banks (just ask yourselves why Goldman came out with a huge cut in its GDP estimate only a day before that # was to come out) that make money just by trading. They help themselves by publishing very very low estimates which they know most companies can beat during earning seasons. Look at their assets ... all plummeted and continue to do so. They are not willing to lend. That should give you a good idea about where they think the economy is really headed.

It comes down to accepting the highly probable change(s) taking place in our economy - consumers are not willing to consume (unless the govt gives them free $, which will come back and haunt them in a few yrs) and the US GDP cannot remain strong based on 70% consumption.

Let the Chinese continue tap into their huge domestic mkt. Let them get a taste of that great "high" of consuming. And let it create an opportunity for us to finally begin producing/manufacturing again. This transition will take a while, but its the best for the US economy for the long-run. With cheaper dollar (will likely be cheaper in a couple of yrs too), let those Chinese buy our stuff. Let the cheaper dollar make the US more attractive for production not only by American companies but also foreign ones. let the true measure of the wellness of the economy be based more on production rather than consumption.

Of course no one has such patience. So we will continue to go through these short-term cycles and will continue to destroy the economy from within. Sounds a bit pessimistic ... but I guess that's been my view of the economy for a long time.

Unemployment: Is Hiring Around the Corner?

I usually agree with you, but on this one, I'd say the banks are doing the right thing. I'd rather see bank assets (loans) decline in the short term and deposits/cash build up. The credit crisis that we experienced was unbelievable. I'd also like for consumers to save more. In addition, without much consumer demand, I'm just wondering if there is that much of so-called inventory replenishment necessary and if there's demand for credit/loans from small businesses. Just my thoughts.


On Oct 08 07:51 PM conceptwizard wrote:

> Try asking a small business owner whose bank is strangling him by
> cutting credit lines, while his inventory is dwindling, if he about
> to rehire in mass numbers.
>
> The banks are crippling American small business and the consumer
> and the Obama Admin and Congress are letting it happen. Their answer
> is to use rebates and free cars.
>
> We already lent the banks the money, with no stipulation for them
> to lend it back out.

Unemployment: Is Hiring Around the Corner?

One of the most dependable indicators of a potential turnaround in unemployment is some consistent increase in part-time/temp workers. Before even the companies that supposedly overcut HR decide to bring them back, they begin filling some positions with part-time workers. Its basically a way to hedge their hiring against the economy potentially declining again. And we haven't seen much of that. Let's see what happens when (if) the stimuli expire. I'd say not much would happen. Just my thoughts.

Roubini Softens His View on the Economy ... Slightly

He's like the rest of them - adjusts his views every single day just so he can continue be viewed as a soothsayer. Lost respect for him once I realized just how often he adjusts his views about the mkt and the economy. Listening to him these days is just like listening to a POS politician.

The Economic Recovery That Isn't

Agreed. However, keep in mind that the Q3 'economy' was likely growing nicely during the first couple of months of the quarter ... of course thanks to this great govt of ours. Just saying that indication of a slowdown in Sept may not have significantly impacted the so-called better numbers of the first two months and the overall quarter.


On Oct 04 04:51 AM markfl wrote:

> Looking back at last week's numbers, I was surprised about what many
> reporterss overlooked: the surprisingly poor job economists did of
> predicting the final Q2 GDP. It turned out to be better than expected,
> only -.7 %, but that wasn't the big story. Bloomberg's survey had
> predicted a concensus of about -1.2, what the markets expected. Their
> forecasts were off by 50%! Not a huge absolute number, but a huge
> margin of error on a percentage basis.
>
> The most important econ. report in years if not decades comes in
> a few weeks. If the economists expect Q3 GDP of 3 percent and the
> error is wrong on the downside by 30-50 %, it could make last week's
> plunge in the Dow tepid by comparison. A recent string of poor monthly
> reports is a warning of potential danger: the economy is stumbling
> again.

Department of Labor Consumer Spending Chart

no matter how much home prices fall, owners still have to pay the same based on the price at which they bought the house. although many have refi'd, the fall in rates hasn't made up for it. also, overall income is prob down too as either the husband or wife got laid off. avg household salary or income is supposedly around $63k. avg per peron is between $30k and $40k. transportation is driven by oil as its still way above where it should be compared to the state of the economy ... of course, as always, consumers end up paying for this.

yes, the figure for reading is very low, but then again many now read online. I'm wondering how much alcohol expenditure has gone up during this recession as % of income.


On Aug 20 08:25 AM Jiang Nan wrote:

> At 34.1%, how come the big drop in house prices did not translate
> to a bigger fall in CPI?

Why Do We Listen to Nouriel Roubini?

Your argument was very well represented. However one can also argue that many of the factors mentioned by Roubini did play a role in the downturn. also, I'm wondering what you would consider as "basic economic fundamentals of the underlying housing market"? it was simple, banks were lending to stupid consumers that wanted to buy homes they couldn't afford. what is more basic than that? maybe if those mortgages weren't securitized and sold off, it may have taken a bit longer for the housing bubble to burst.

the ones that may have stated the causes of this downturn more accurately, likely did so as we got closer to the downturn ... which means props to their forecast must also be discounted.

another thing that you left out, which i think weakens your argument, is that economics and finance aren't like other sciences ... no one can be accurate making projections in those fields, unlike medicine, physics, chemistry, etc (which also have their own 'standard' standard deviation). i guess that's why economics is referred to as the 'dismal science.'

overall, it appears that you may have some personal vendetta against this guy. although i'm still bearish and believe he was correct, i must say that he has 'adjusted' his view regarding the market too many times during the last 5 months without necessarily 'admitting' it. then again, that's also the norm among probably 95% of the professionals in this field.

Los Angeles Ports Face a Grim Future

Agreed. Whether you want to cite the bad state of ports, disappointing retail #s, higher savings rates, continuing decline in consumer revolver or lower consumer confidence, the consumer is nowhere to be found. And we cannot recover without the consumer. China could've helped more, but its credit tightening policies will likely limit consumption there, which will lower demand for our products, which means our recovery is even more dependent on consumption right here at home.

But everyone thinks that since the equity mkt has spiked up nicely, all consumers have made their money back and will soon unleash that "pent-up demand". As George Bush Sr. (one of my favorite Presidents) would say: "not gonnaaa dooo it."

Are These Earnings Really Cause for Celebration?

I agree that the economy is not yet on its way back. However, regarding the mkt, although the recent spike that we've seen can't be explained by anything besides inventory replenishment, I must say that Q3 and Q4 Y/Y comparisons will be much easier to meet ... or beat. As a bear, that's what I am worried about. For the time being, just by looking at the chart, it appears that 1000 - 1100 will be the max for S&P 500, as after it reaches that point, it will be waiting for that 50-day to cross the 200-day with both having positive slopes. If it doesn't, and it retraces, it looks like 875 - 900 will be the floor until next earnings season. Of course, if it breaks through that going down, then the low 800s become very very realistic. The lack of reaction to today's very bad consumer sentiment report is telling us that it will take a lot to reverse the current trend. The durable goods report tomorrow is huuuuuge! let's see. But overall, I remain bearish. In the meantime though, I'm being realistic and willing to admit that the mkt is riding nicely on a strong upward trend.

Fair Value for the S&P 500? Tell Me Lies, Sweet Little Lies

Well said. Amen!


On Jul 28 05:29 PM Davewmart wrote:

> No investment advice here. The market is so manipulated that small
> investors are likely to be badly stuffed anyway, whilst the profits
> are creamed off.
> The aim should be to loose less than the other guy at the moment,
> not to make money.
> The big unknown is how long the ponzi scheme can continue, as money
> is being printed which is flooding into stocks leading to their current
> valuations.
> Notice that nothing here is being said about absolute levels, so
> that the nominal value of the stock exchange might not go down much
> - stocks will just be trashed on real purchasing power.
> Personally I reckon deflation will triumph for a fairly long time,
> then hyper inflation will bite.

Fair Value for the S&P 500? Tell Me Lies, Sweet Little Lies

Good stuff. Although I would be more interested in P/E comps in prior recessions. I think that might answer your question as to what P/E ratio level (or range) is best to apply to which earnings (bottom-up or top-down). But yes, overall, who knows. Mentality in the financial biz is the same at most other businesses - keep your customers confused, which will make them more dependent on you, which will make you more money.