David McSwain

Earnings Season: The Car Is Shiny, But Look Under the Hood

The Pragmatic Capitalist said:
"This shows that margin expansion and cost cutting is leading to much of the bottom line growth."

This is the answer to the detachment from reality that that market has. This is why things are 'well' on Wall Street but not on Main Street.

When 'ABC Company' cut its costs, sells assets and lays off it workforce, its bottom line looks great! "It's a great investment" we say, "look at the balance sheet!”

But look close. Has ABC Company sold more widgets? How about their future of selling more widgets with fewer employees and less real assets?

Companies that have cut their production ability to make their balance sheet look good to investors today have actually cut their future profitability. Companies like this are shrinking but the stock market only looks at the bottom line and says "This is a great company that can profit in an economy like this". And up goes their stock. Just wait. When they have cut all they can and it is time to produce to be profitable what will their balance sheets look like then?

Stock Market Projections

I called the March 09' low of $6,547 in September 08' (I predicted $6500). In late March I predicted the market would bounce back to $10,000 and then begin a long slow and steady decent to $3,000.

The false earnings and balance sheets from cuts, layoffs and asset sales will be replaced by the reality of lower revenues. At this point the market will wake up to the reality that most companies simply are not selling as much of their goods and services as they once were.

I agree with the "haphazard guesses" above. After the lows of this next winter we will see a bounce again but not as robust. This cycle will repeat a few times until we bottom out at $3000 in 18 to 24 months.

From there we will trend up and it will finally be sustainable. However the robust strength of the American market will never return. America hit it's zenith as a nation in the 80's and 90's. Here is why:

seekingalpha.com/artic...

Have a nice day.

The Dow: Ominous Parallels to the 1929-1930 Era

FB5000 said:

"This sort of analysis is useless."

Your statement proves the old adage "The only thing we learn from the past is that we don't learn from the past.

Is looking back useless? I say it is invaluable. Go ahead, forget the charts and pour your money into the market and hope your right about it getting to 13,000. If analysis of the past is worth anything then the dow will not move much higher than 10,000 and then will begin a long slow steady decsent to 3,000.

Market Outlook: Why I Am Scared

Good article. The unprecedented government intervention skews the current trend line. The current trend would look a lot more like 1929 if there wasn’t such huge stimulus dollars being pumped into the economy. The sad part is that this government intervention will continue because of a fundamental flaw. What is the flaw?- Belief in a lie. Here is the lie:

“Only government can break the vicious cycles that are crippling our economy -- where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”
-Barack Obama at George Mason University 1/8/2009

And

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief”.
-Alan Greenspan before the House oversight committee 10/23/2008.

What is the lie? The lie is one we tell ourselves- that we are getting better and smarter. Obama says that we are “big” enough to fix problems. Are we? Alan thought we had progressed enough to not make the mistakes of the past. Have we? Both have the same core belief- that we are better and smarter than our counterparts of 1929 or any other past figures in the middle of a downturn. This is the lie we tell ourselves. The truth is, we are no better than those of the past. The truth is, we do not learn from our mistakes. The truth is, we think it is all about us. We are wrong. There is a God in heaven. He sees things as they really are. Here is what he has to say:

If My people who are called by My name will humble themselves, and pray and seek My face, and turn from their wicked ways, then I will hear from heaven, and will forgive their sin and heal their land. –the book of 2 Chronicles, chapter 7 verse 14.

Do you want you land healed?

Wall Street Breakfast: Must-Know News

Since when does the government have a say in who will be the next CEO of Bank of America?

I guess it's the TARP money that B of A was forced to take.(www.cnbc.com/id/30745687)

So let's see... forced to take Tarp money, coerced to do the Merrill Lynch deal (www.marketwatch.com/st...) and now finally, reserving the right to have a say in the final descision for the next CEO.

Is anyone else bothered by this? Is anyone else like me, as mad as hell about how our government is involvoing itself in private business?

Fight Club: Will the Rally Last?

Great analysis. I particularly like idea that the rally is due in part to what “The broader investment community believes”. I also get the sense that many out there just simply don’t want to believe the economy is that bad. If they don’t believe the economy is that bad then like you said “FOR TWO THIRDS OF THE TIME, THE ECONOMY REALLY DOES NOT MATTER”.

At some point the rose colored glasses will come off however, and the craziness will subside. My true concern is that the longer the fantasyland rally continues the harder the fall back to reality will be.

Is it Time for a Correction to Shake Out the 'Crazies'?

Yes! Is the answer to your title. The jobless rate, lack of investment and tight credit make this rally unsustainable. I believe many of the improved balance sheets of many companies have not come from real growth. The balance sheets and earnings simply look better because they have laid off workers, sold off assets and scaled back operations. There has been no real growth in any part of our economy since 2007.

NO GROWTH IN ANY PART OF OUR ECONOMY SINCE 2007

This current rally is the result of spin by our government and media. We lose 300,000 jobs and they say “Hell that’s great!! We were expecting to lose 400,000 jobs…” What kid of nonsense is this? When did ‘not as bad as expected news’ become good news? I would tell you the answer, but that would be an Obamination.

The market will correct. It will reflect at some point the reality of the economy. I cannot say whether it will be a slow steady decline or a crash but in either case, I predict within the next 2-3 years we will see the Dow sink to 3000.

U.S. Economy Now Entering Phase B of the Recession

Fantastic article!

I have long been arguing for a long downward spiral of our economy just like in the 1930’s. How can it be any other way? With fewer jobs demand for all goods and services will necessarily decline.

The sharp decrease in private investment you point out is made only worse by the government bailout. Our government seems to forget the basic economic law of scarcity. Even money is subject to this law of scarcity (there is only so much money). The bailout money comes from somewhere. Where would it have gone if the government hadn’t taken it? Private investment maybe?

Not Even Close to the Worst Since the Great Depression

4Annie said:

"Let's see, peak to trough 1929-1933, Oct.07-now-not even half way through the same time comparison."

Amen! and amen! If we are lucky we are half way through this mess. I believe the malaise will last much longer than the Great Depression bcause of the massive government intervention. The funny money of the stimulus has only given false hope and has prevented all markets from correcting as quickly as they could have.

Does Volume Show Correction Is at Hand?

Exactly! I have been telling friends that all the improved earnings and balance sheets out there are coming from lay offs, asset sales and a general retraction in spending. The revenue bump for many companies is not growth related revenue, it garage sale revenue. Companies with improved revenues from garage sales are not growing, they are not getting bigger they are actually getting smaller and are just cleaning house. Tiffany’s is actually selling less stuff. With increasing job losses (less demand) how can anyone invest in Tiffany’s with the idea that their earnings are going to continue to trend up? How many garage sales can they have?

In Defense of Green Shoots

Arnold,

Tough crowd huh? I appreciate you’re noting of positives. Keep looking for the green shoots, they will come, it is good to keep the crowd informed.

For today, I must agree with the crowd however. The fundamentals of rising unemployment, the Robin Hood programs of our government (stealing from everybody and giving to who ever will build political clout), and finally the Real Estate value crash are all too much for us to overcome quickly.

NARcasting the Future of U.S. Housing Prices: July 2009

Wow! Fantastic work! The entertainment value in this article is off the charts! Way to expose the truth. I would love to see this article in a national newspaper or magazine.

Expect a Market Crash and the Worsening of Global Economic Time

I agree that there will be another market crash in October. Economic fundamentals have been ignored in the current rally. One reason the rally is happening at all, is due to a lot of positive political talk. But ‘spin’ can only last so long.

Another reason for the rally is the strange phenomenon of getting a bump from economic reports being "better than expectations". I can’t tell you how many times in the last couple of months where I have seen headlines of huge job losses, horrendous earnings, or other concrete bad news, only to see stocks rise because “only 400,000 people lost jobs instead of 600,000”. What kind of madness is this? It's getting worse not better! Hello!!

Sooner or later the shell game will be found out and the fundamentals of overall reduced demand from unemployment will be exposed. Also exposed will be the high supply of certain goods, namely housing.

When the market wakes up from whatever it is they have been drinking, we will see the DOW head below the $6,600 level of this last March. Don’t be surprised if we see it flirt with values in the $3,000 range.

Fannie Mae and Freddie Mac Go Junk

Great post! I agree wholeheartedly. As many have said "if bad loans got us into this mess how can we expect more bad loans to get us out?"

Last September when the wheels fell off I had concerns about actions that would prop up the economy only to have it fall further. I had hoped the powers that be would have had the testicular fortitude to do the right thing and just wait out the storm. It appears they do not.

My bet is that actions like this will give a false sense of recovery for a time only to have us fall further in the future, much like the stimulus money is currently doing.

To me these actions are sheer panic. It's like hitting black ice at 80 mph and slamming on the brakes- your panic reaction only makes things worse.

Options Arm Recasts: Hype or Not?

crewman asked:

"So would you be a buyer of land in Orange County right now?"

At the right price, I would absolutely buy. Developable land in Orange County (if you can find it) ranges from 500K per acre on up. If acreage existed in the 500K to 1MM range that could be developed it would be a good buy.

Why?

Orange County is largely built out. The simple lack of supply in supply constrained markets with continuing demand (like the OC) indicates that values will return and return sooner than in outlying markets.