David White

Nov. Consumer Confidence: "The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve. Income expectations remain very pessimistic and consumers are entering the holiday season in a very frugal mood."

Yes. The Black Friday holiday weekend may spell the end to the current rally if it does not generate enough sales. Analysts seem to be looking for a reason for a retracement now. More and more articles are appearing about how tired the market is. Holiday retail sales could be that reason.

Why U.S. GDP Will Decline in Q4

Some things you say make sense (the new housing starts for example). However, you have ignored all of the better than expected corporate results in Q3. The expectations for Q4 are even higher. Given the approx. 80% beat rate in Q3, it seems unlikely that the Q4 results will result in a lower GDP. Further only a small proportion of the $787B stimulus package had worked its way into the economy by the end of Q3. More is supposed to be employed in Q4 and Q1. This should lead to a stimulus of the GDP. The relatively low USD should help stimulate exports, even if it is not falling further. However, that may be counterbalanced by the extra costs of oil and possibly auto imports. With a high Yen, the Japanese imports (especially autos) may not be as much of a problem, although many are now manufactured in the US. All told, I would bet for an equal or higher GDP in Q4 than in Q3. A much lower GDP in Q4 does not seem to be in the cards at this time. Major companies such as Cisco Systems have noted a turn around. All I have read says they expect things to be better in Q4. I would expect the US Q4 GDP to be in the ballpark of the US Q3 GDP (or higher).

I note a number of people are now thinking that the 2H 2010 will be the start of another slow down. We will have to hope that the upsurge from the first one will be enough to carry us through.
I note a lower GDP is predicted for the Japanese quarter (.3 vs 1.2 in Q3). Perhaps the likely lower Japanese auto results will account for much of this.

Intrepid Potash and Potash Corp: Fertilizers Sprout Profits

IPI was on the recent list of companies with high insider selling. Both the Chairman/CEO and the CTO sold large blocks of stock on Nov. 17 (about $6M each). This doesn't make one think that the stock is likely to shoot up soon. The link to the article about insider selling is below.

seekingalpha.com/artic...

Equities Update: Stocks Snap 3-Day Slide

Bullard's remarks are a little at odds with some of the things Bernanke and Trichet have been saying lately. They both have been saying they expect to end stimulus measures slowly. The Congressionally allocated stimulus money that is just now making its way into the economy should heat things up in the US for a while. Many are thinking there will be a fade after that. If the Fed continued buying MBS's past March, that could prevent a fade. Still there are other considerations such as inflation. Both UPS and FedEx recently announced rate increases scheduled to begin in Jan 2010 (UPS = 4.9% and FedEx = 5.9%). This is a very real sign of inflation. There will be more such signs as time goes on. The Fed may be completely unable to continue buying MBS's in the face of high inflation.

You'd be forgiven for not noticing, but giant Wall Street "bonuses" are no more. "Discretionary compensation," "annual earnings," "incentives" are all on the rise, however.

A rose by any other name is still a rose. Those GS bonuses (oops "incentives") sure smell sweet to me.

This chart explains why the U.S. dollar is effectively worthless. "The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing."

Tyler Durden is again being a little melodramatic. Housing values may still be trending down, but the MBS's are not worth nothing. If the Fed holds onto those MBS's for 5 years or so, they could well be worth far more than their face value today. Is the Fed supporting the housing industry? Yes, it is. Are the MBS's worth less than face value at the moment? Probably so. Keep in mind that the Fed did not start buying MBS's until the housing market had already fallen considerably..

15 'Babies with Bathwater' and 5 'Dogs with Fleas' Stocks for the Week

Interesting list. I don't think I would want to bet against MON strongly though, especially since many are touting AG stocks as the next sector to make a major move upward.

On the other hand, equities may be about to retrace. If that happened, MON could certainly go down. I would still feel better shorting something else though. MON has an FPE of 18. That's high, but MON has been trading at a high multiple for some time now. This does not seem outrageous.

Global Markets in Review: Share Prices Too Far Ahead of Economic Reality

Carl Spackler: I should have added that the above is all a balancing act. I agree the long term policy is to let the USD fall. However, in many short term cases the US government may want to actually strengthen the USD. Specifically the
US government probably does not want to let the price of oil go to high to quickly. With oil at about $80/barrel currently, this may be one of the times that the US government wishes to arrest or perhaps even temporarily reverse the USD's fall. Bernanke's comments were likely geared to do just that because that was his actually desire. Sometimes people are so sure they are being tricked that they see subterfuge where there is none. Bernanke is merely trying his best to balance all of the factors.

Global Markets in Review: Share Prices Too Far Ahead of Economic Reality

Carl Spackler: I would tend to agree that the government's policy is largely to let the USD fall to an equilibrium point. However, I disagree with your prediction of the outcome. First many US companies are multi-national, even small ones. This means they can sell more of their products internationally if the USD is low. These companies should benefit. Second a large part of the US problem for more than 20 years has been the US trade deficit. This has gotten us further and further into a debt hole. It has been supported by a government which artificially kept the USD higher than it should have been. The falling USD effectively monetizes soem of that debt. Plus a lower USD will ultimately mean that the US will want to import less. People will not want to spend huge amounts of money on foreign goods which are no longer cheap. Third before this time we did not have a reasonable substitute for oil. Now we have a huge amount of new natural gas discoveries. We have solar. We have wind. We have biofuels. We may even be able to grow oil with micro organisms.To some extent we have nuclear. We are at a point where the push from rising foreign oil prices is likely to spur the quick development of these alternate forms of energy. In effect it will act as a stimulus to US development of more efficient cars and appliances. It will spur home and business solar. It will effectively create industries and jobs. Letting the USD fall will tend to stop or slow the flow of US jobs to other countries. These things will all be good for the US longer term. There may be some shorter term pain. Bernanke is no fool. Take a better look at the big picture.

Robert Shiller wonders if the recovery is just an optimist's self-fulfilling prophecy: "After all these months, people start to think it's time for the recession to end. The very thought begins to renew confidence, and some people start spending again - in turn, generating visible signs of recovery."

There may be something to Shiller's thoughts. Franklin Roosevelt's famous fireside speech reminded people "we have nothing to fear but fear itself." In other words, if people became so afraid that they didn't spend, the depression would become a non-ending spiral downward.

That being said, there are probably a lot of reasons we are not completely out of the woods yet. I am hoping that the stimulus spending, which has been slow getting into the economy, will create enough momentum to keep the economy going forward when the stimulus ends. We shall see. Meredith Whitney and Roubini seem to have much more negative views.

One of the main questions being pondered at Guangzhou Auto show this week is whether Beijing will continue its generosity, which has boosted the market by 45% YTD. GM China chief Kevin Wale thinks it will, which would be a boon to GM, given its commanding market share.

While there is no saying for sure, China may hold back the stimulus in this area next year. The government will not want to get this industry overheated. They will want it to be strong for some time to come. Then it can prop up other industries that will lag as exports lag in a long term slowdown worldwide. Second the government will not want to help add to the oil/gasoline problem it already has too quickly. The Chinese import a lot of their oil. They have many development projects in the China Sea, etc. However, these will take time in development. The Chinese will not want ot go from a huge trade surplus to a trade deficit economy too quickly (or at least in that direction too quickly). Hence I tend to think the government will say 10% growth in the auto industry without stimulus next year suits them just fine.

Euro Moves Could Signal Increasing Dollar Stability

Certainly the German, French, and Eurozone Q3 GDP's were all misses. In contrast the US Q3 GDP did well. I would tend to question whether the Eurozone is coming out of a recession faster than the US. It does not at first glance seem so. If in fact the Euro rallies over the USD as this article suggests, it could be the worst thing for the Eurozone recovery. Such a rally would likely make US products even more competitive at a time when European businesses are already struggling. The ECB is maintaining a 1% interest rate vs the Fed's 0%. This would tend to keep the Euro stronger. But would it keep moving the Euro upward after an already extended move upward?

Prechter has been predicting a move up in the USD Index based on extremely low positive sentiment (< 3%). Eventually this may come to pass.

Finding a Profitable Pattern

Interesting thesis. There may be some merit to it in the semiconductor space. Certainly John Chambers of Cisco has come out as a recovery touter. This might indicate other businesses are seeing the same situation. If so, your thesis may play out. However, you mention being long AAPL. This is one area I would tend to disagree at the moment. There is increasing competition in the IPhone and IPod spaces. Apple does not seem to be leading so much anymore as creating me-too products. Windows 7 may actually make the PC competitive with the MAC, which is also probably more expensive. The IPod has many competitors. The IPhone has many also. More importantly, it now has the Android, which is open source, as a competitor. It seems likely to lose market share longer term. Google/Motorola is a formidable opponent. The Apple E-Reader product will be one of many. All this should hurt Apple sales and margins going forward. If there is some new great product, I haven't heard of it yet. Apple will not disappear overnight. I am not saying they will lose money. I am not even saying they will lose sales. I just think that the kind of growth we have been seeing will likely not be there. When Apple only meets expectations in coming quarters (or god forbid misses expectations), the stock price will falter.

Longer term Apple may come up with new ideas. It may find new ways to differentiate itself. Or it may settle into a comfortatble mediocrity that ultimately ends in it losing business. It has done this before. Is that cycle about to repeat?

Japan in the Tank

Many are predicting the USD will go to 95 to 100 yen by the end of 2009. Perhaps a near term down turn in JGB's and yen will actually happen soon. The Japanese GDP for the current Japanese quarter is supposed to fall from 1.2% (4.8% annualized) last quarter to 0.3% this quarter. More solid news about this seems likely to trigger the yen fade.

Priceline: Are Shorts Grasping at Straws?

Interesting article Mark. You make some good points. I must confess I have been in the other camp with regard to Priceline. I thought it would do well in a down evironment for much the same reasons as those suggested by Dominic above. Still it is good to see the other side. If the economy does well, PCLN may indeed fall due to erosion of its bargain making power (and the slightly lowered inclination to save of the general population). If the double dip occurs, we may again see PCLN fall with the crowd. It did so in the fall of 2008.

However, the PCLN FY2009 PE is only about 25 based on current estimates (with only 1 reporting quarter to go). This does not seem unreasonable in a recession recovery environment, especially since this has been a top performing stock. Admittedly the P/B value is high at 7.6, but it is that kind of stock. Further the Beta is only 0.8, so it won't even outperform the market to the downside.

I also don't really buy your comparisons to UAUA et al. That stock has a debt/capital ratio of 150% (negative book value) vs. PCLN's 18% debt/capital ratio. It is speculation that UAUA will make money in 2010. It may well lose money. PCLN in contrast is already making money. It is far more believable that it will make a little more in 2010 than 2009 than it is that UAUA will turn around. In fact UAUA is currently predicted to lose lots of money in 2009 and much less money in 2010 (but still a loss). I would think twice about shorting PCLN. There are probably better choices. I have not heard of a flock of new competitiors to PCLN. In the short term they probably will not appear.

A stock that I have written about shorting is HOG. It is sitting on about $5.2B in motorcycle loan debts that is hasn't been able to sell for anywhere near face value. Its sales have been falling. It currently has a FY2009 PE of 68. This is far too high for a company whose revenues and sales are going in the wrong direction. It is predicted to do better next year, but those predictions are very much up in the air with the current high unemployment. HOG may end up facing bankruptcy in 2010. This is more the type of stock I like to short. When the profit predicitons go down, the stock tends to fall with them. Thus far, the near term profit predictions have been consistently falling. Many analysts are predicting a turn around, but it is more likely that HOG will disappoint at least for the near term. That makes it a decent short until such time as we begin to see some measurable positive signs. Revenues and sales are still decreasing. HOG is ending two lines of business (selling one in MV Agusta). Sales don't seem likely to pick up measureably near term. Decreasing sales, revenues, and profits seem more likely near term. Increasing reorganization costs should hurt too. HOG is even thinking of moving its main plant -- expensive short term. I think you can see why I might prefer to short this stock. Of course, I cannot guarantee anything, but it does fundamentally seem a better bet to short HOG than PCLN. HOG's Debt/Capital is 69%. Its P/B is 2.85. It stands to lose a lot of money in Q4, so both of these statistics are likely to worsen soon. Good luck investing.