Lilguy

When Year-Over-Year Growth Doesn't Apply

This is terribly misleading for strategic investors. I will only mention one way: You use UTX EPS numbers to show earnings growth--even last year & then again next year. If you take a serious sample of the stock market, say, the S&P500, EPS was down tremendously all last and, on annual basis, continues to fall this year because of the horrible 4Q08. Here is S&P's "as reported" EPS data since the recession began:

Quarter EPS(Q) EPS(trailing yr)
4Q07 $7.82 $66.18
1Q08 $15.54 $60.39
2Q08 $12.86 $51.37
3Q08 $9.73 $45.95
4Q08 -$23.25 (MINUS!) $14.88
1Q09 $7.52 $6.86
2Q09E $7.27 $1.27
3Q09E $7.45 -$1.01 (MINUS!)
4Q09E $7.73 $29.97
1Q10E $9.68 $32.13
2Q10E $9.34 $34.20

Please note that the sudden jump in annual EPS beginning in 4Q is based on a notion that "green shoots" will rescue us. I fear a possible repeat of 4Q08 when producers were far too optimistic about holiday sales.

4Q07

Americans Are Saving Like There's No Tomorrow

The key question is how much longer Americans will save at the current rates--or higher. I hope they sustain or continue to grow their savings, because I don't think this recession is anywhere near its end. (Bottom in mid-2010; very slow recovery, say 1%/yr, for at least a couple of years).

Unfortunately, I'm less confident that Americans (on average) will continue to grow their savings. First, even if they don't have a job (& more won't over the next year or two), they have to buy essentials (OK, they could steal). Second, some will feel compelled to pay down their debt--mortgage & personal; others, in increasing numbers, will default. Finally, all the talk about "green shoots", pernicious advertising, etc., will persuade far too many that "the worst is behind us"--and they will stupidly go out and buy something non-essential.

So, I'm not expecting the savings rate to go much higher, and a year from now it could well be lower as Americans are forced to spend their savings to meet daily needs.

Ugly, but I think realistic.

Doubling down: Figures from the top seven U.S. commercial banks show they went easy on increasing loan-loss reserves in the quarter, betting on the economic recovery. "If they’re wrong, and borrowers don’t pull out of a tailspin, bankers and their investors will take a beating."

OK, Mr. Rielly's article (see "Doubling Down") is a little hyperbolic itself, not that I'm optimistic about a recovery--or even an economic--bottom soon.

Reilly says the 7 major banks are betting on a "V-shaped" recovery by not bolstering their loan loss reserves. NOT true: They're betting the economy will not get worse and, therefore, their current reserves will be adequate. That's not a bet I would take, but it is far less risky than betting on a quick recovery soon. OTOH, if you're a bank that's "TBTF", WTF, bet the farm cuz ol' Uncle Sam (& his bro Ben) will bail you out. So, either way, from the bank's viewpoint, there is NO RISK!

Which shifts the focus to the Fed and its absolutely mind numbing unwillingness to get tough with the banks. First, as CautiousInvestor above says, they can raise the loss-reserve requirement. The key reason for not doing so is that that would hamper lending. OK, so how much new lending has anyone seen since the Fed & USG pumped trillions into the financial sector, especially these 7 big banks?? The word NONE comes to mind.

So, it's time for the Fed and Treasury to kick the banks in the a**. They should mandate--by whatever means possible--that all (or a very high percentage) of the funds they have put into the banks be offered as loans to good borrowers. If they don't, all we will see is more TBTF banks buying other banks, creating bogus balance sheets, boosting executive compensation bonuses on false profits (or maybe "false prophets"), and basically telling the Fed & USG to f*** off.

...but we know that won't happen with Ben & Larry running the show.

Michelle Caruso-Cabrera, Charlie Gasparino Bash Finance Blogs

OK, I'm going to take the challenge put up by redwine44:

> Do any of you critics really think that you are better off if CNBC
> goes off the air?

Absolutely, YES. Bloomberg gives far better--more factual, informed, insightful, and less biased--reporting than CNBC. I even think some of FOX Business reporting is better--and I'm no FOX fan. More broadly, however, I don't think one should be getting their financial advice--of which CNBC offers far too much (& waaaaay too often wrong)--from a TV network. The mainline financial press offers a solid alternative if you want MSM inputs, although it too has a pro-business bias. Go to the library if you must to read ValueLine, S&P, or other serious investment reports for FREE. As we see here, the internet is full of resources, some good, some bad.

> Do professional money managers pay much attention to what anonymous bloggers write?

More and more they do. First, they want to avoid getting caught breaking trading laws or regs--like some HFT using PT may be doing. Second, most serious professionals in any profession seek a wide range of information, assessments, and opinions--including anonymous blogs.

> Would you trust your company or union pension plan, which is maybe in the billions of dollars, to the hands of amateur bloggers?

Now that's a mis-shaped question. The answer is "Hell NO!", but neither would I trust it to anchors on a TV business channel (my gawd, Cramer's bets have lost hugely in the last year) nor even to business print media professionals (e.g.--Zweig). OTOH, looking at CalPers, the Harvard endowment, and others, even huge pension and investment funds have done and continue to do poorly.

> So what if CNBC is 10 minutes of useful news in a 50 minute hour?

First, I doubt if there are 10 minutes of useful business news on CNBC in an hour. Maybe more like 3 minutes. NTL, if I knew WHICH 3 minutes were useful, I'd tune in. Otherwise, I'll watch Bloomberg for my business news, but (more importantly) I'll keep tracking bloggers--anonyous or otherwise--who seem offer much greater value for my investment purposes.

> Go ahead, take your shots at me.

Thanks for giving us all this opportunity. I do think CNBC could be a really valuable contribution to TV business telecasting, but it is too caught up in conventional stereotypes about what sells. I'd like to see it combine the openness and deliberativeness of Charlie Rose, major research pieces on key economic and business issues (actually CNBC's Faber did a good one on the financial sector some months ago; much better and more relevant than their recent porn business one), the factual base of parts of PBS' Business News, the edginess of some blogs--such as ZH, and yet keep most of its cosmetics (anchors, graphics, etc). That I'd watch. Right now, it's all cosmetics and hyperbole.

Michelle Caruso-Cabrera, Charlie Gasparino Bash Finance Blogs

I have to agree with just about everything everyone has to say on CNBC. It is a fine opportunity--for public enlightenment on our economy and the markets--badly wasted.

--The talking heads time horizon is lucky to last the day--unless some particularly good piece of info comes in, and then they forecast an inevitable upward forever trend in the market.
--They do talk over each other incessantly, a problem made worse as the number of talking head boxes has increased.
--With the exception of Steve Liesman, who tries to do a reasonable analysis but is forever being cut off, they have actually no--zippo, nada, rien--understanding of the economy--which should be more or less driving the market.
--Led by Caruso-Cabrera (& Kudlow), they have an absolutely negative knee-jerk reaction to any Administration (both) or Fed policy initiatives to stabilize the economy and financial markets--in their view, unnecessary interference that cuts down on competiveness, blah, blah, blah. OK, sometimes they're right; but they are so negative on ALL proposals that they totally undercut any credibility they might otherwise have.
--And, as cautiousinvestor above says, they don't even touch the tough and controversial topics in the markets.

So, if you want a single, tightly spun line on business and economic news, watch CNBC every hour, every day.

OTOH, if you want a variety of views from people who know MUCH more about economics and the markets than all the CNBC talkingheads, read some blogs. SA here provides a great cross-section of blog inputs, which makes it "must reading" for me. You can read other blogs by single (or small groups) of people who, say, have won Nobel awards (Krugman), are former senior economic policy makers (Reich), experts in the markets (Ritholtz, Durden, Salmon) or economy (Simon Johnson, Hamilton, Thoma, Calculated Risk, & many more), etc.

The diversity and quality of these blogs is exceptional and can offer you well researched and thought out views from every perspective. They are truly a godsend to people who want a full view of the world economic and market situation and direction.

OTOH, if you want entertainment, watch CNBC--or The Comedy Channel.

Washington's Dilemma: This Isn't a Recession, It's a Collapse

Bailing out the states would be about the worst policy action Washington could take at this time, all things considered.

Therefore, I consider it an entirely likely eventuality.

Then we're fried!

The Fed and the Possibility of Macroprudence

The Fed has mis-focused its policy initiatives so far. Rather than trying to preserve the economic wellbeing of the United States, it has focused on sustaining the wellbeing--or at least the continuing existence--of the major investment banks. Moreover, since more or less stabilizing the financial sector, it has done nothing to restrain these same banks, the primary sources of our financial instability, from repeating the kind of folly that got us here in the first place.

The Fed is totally unsuitable as a candidate for national economic macroprudence. We'd do better with no one at all.

A synchronized breakdown: New research suggests the unprecedented collapse in global trade flows is being exacerbated by globalization.

Once again, the economists at VoxEU have put together a telling DATA-DRIVEN analysis that points to the hole we (the major trading nations) have dug for ourselves. Here's the proverbial bottom line:

"The remarkable degree of synchronisation (in sharp trading declines among the 6 key OECD countries) emerges rather neatly. There have been episodes of synchronised trade declines, namely following the dot.com crisis and September 11, but by end-2008 suddenly more than 90% of OECD countries exhibit simultaneously a decline in exports and imports exceeding 10%. It is the synchronised and large drop in trade in every OECD country that explains the collapse in international trade."

So, if no one overseas is buying, how are we going to boost exports as part of a recovery? Conversely, of course, the American consumer as well as corporate America is in deep pain and it is unlikely they will be buying more of anything in the months, maybe years, ahead.

Read the piece. It has excellent graphics depicting the plunge in OECD-related trade.

Nonfarm payrolls: -467K in June vs. consensus estimate of -365K. May revised to -322K from -345K. Unemployment jumps to 9.5% from 9.4%, vs. 9.6% consensus.

OK, a quick follow-up on my consensus note above:

If the consensus was that 365K people would be newly unemployed, how could they get to a consensus estimate that the RATE of unemployment would be 9.6%.

The actual job losses were 467K and the rate escalated to "only" 9.5%.

Figure me that!

Nonfarm payrolls: -467K in June vs. consensus estimate of -365K. May revised to -322K from -345K. Unemployment jumps to 9.5% from 9.4%, vs. 9.6% consensus.

The consensus estimate of almost any economic measure has been so wrong in estimating the depth and length of our recession for so long, it is simply not worth paying any attention to them.

I said now more than a year ago that when economists begin to OVERSTATE the seriousness of our recession we can begin thinking about a recovery. So far, they have failed miserably, and I don't expect a recovery to begin (more accurately, the bottom of the recession) until at least the middle of 2010. Even then, recovery will be slow and uncertain.

We actually could be in this hole (ie--below previous economic and market peaks) for up to a decade. I hope not, but I think its a distinct possibility.

Official Unemployment Numbers Understate the Problem

Excellent article! Gives a great boost to the argument that we have been in a secular bear market since the bubble burst in 1999. It also makes it hard to believe that there will be a significant economic recovery anytime soon. In fact, it looks kind of grim.

Time for California Muni Bond Investors to Take a Stand

You may be late to the TIPS pot--at least for the appreciation--but you're wise to cut back on Ca. munis.

I share your views on investment: looking for opportunities to make a fair return based on hard, smart work in well-managed entities. Now, after 40 years, I am finding that those US stock market "opportunities" in the US are increasingly, if not predominantly, manipulated at the exchange by machine trading, the books of the companies I've researched are totally cooked, the regulators who are to keep this all in balance are stupid, lazy, and corrupt, and now the economy as a whole is deteriorating at an unprecedented pace, led by the substantial disappearance of the American middle-class that has been the backbone of the country's growth.

So, while you are shifting out of Ca. munis, I have shifted out of stocks and don't plan to return until the playing field is level, transparent, and robust.

Robert Prechter thinks the over-crowded inflation trade is a loser, and insists we're headed for serious deflation - despite the feds' best efforts to the contrary: "With consumer prices reflecting deflation and expectations staying high for hyperinflation, the stage is set for deflation to overwhelm all sectors of the economy."

I think the Fed & Treasury are SO aware of the inflation/deflation issue that they will largely avoid either--at least until the US economy begins to rejuvenate next year or later.

In the meantime, all kinds of bloggers, pundits, analysts, and other ne'er-do-wells will write why the US dollar will certainly deflate or inflate.

The balance in the argument is, to me, proof itself that neither is likely to happen in a serious way under recovery begins. Since I think that recovery will be slow in coming and slow to rise, I think even our current Fed will be able to largely contain the inflationary impulse--unless, of course, Greenspan is put in charge again.

Calculated Risk takes a position quite different from Mike Shedlock, who calls Ben Bernanke "a disingenuous liar with a memory problem." Quoting James Hamilton: "As someone who's known him for 25 years, I would place him above 99.9% of those recently in power in Washington on the integrity dimension, not to mention IQ."

As I said in commenting on Dr. Hamilton's blog (Econbrowser), I believe Dr. Bernanke has both high intellect and high integrity, but I do not accept the premise (as stated by Dr. Hamilton & supported by CR) that he had the "ordinary person" first and foremost in his mind. His first priority was and is sustaining the financial sector. He has done so at the expense of the American taxpayer for the benefit of the some of the wealthiest people in the country.

Economy-Wise, The Great Experiment Seems to Be Working

The ultimate test of the "increased government social benefit payments" (as it was so discreetly put by the BEA) is whether the multiplier effect of the payments on GDP is greater than one.

So far it's not, so the great experiment appears to be a failure so far.

Part of the reason for this (& for the broader inadequacy of the Obama economic policy) is that the Administration's economic policies have been driven more by political agendas than the obviously serious economic one.

If FDR (or Volcker) were in charge, the banks would be getting hammered with constraints, not massive recipients of taxpayer money. Moreover, the American public--especially the growing number of unemployed--would be receiving much larger sums through a gaggle of alphabet soup organizations--WPA, CCC, NIRA, etc.--that could stimulate the economy.

If Herbert Hoover were in charge, well, we'd be taking a different route all together.

Instead Obama is pursuing economic policies that are neither fish nor fowl--and they are not, and probably will not, succeed. They are based instead on lobbying interests in protecting the status quo in the financial sector (which drove us into this hellhole)--increasing financial aid, minimal regulatory reform, federal guarantees--rather than focusing on a stable, sound, and well-regulated national and international financial system.

I expect the patient to worsen in the next year unless the medicine changes substantially in scope and direction.