ChipSeal

20 Questions About the Markets

"17) When will the S&P 500 trade at 1000 again?"

Sometime after it trades at 550!

Buy and Hold Stocks: Now More Relevant than Ever

"But when stocks are cheap, load up the truck, and wait.
And now, stocks are cheap. Very cheap."

After bankruptcy, they will be cheaper still!

Load up if you want. Just be careful to buy a firm that will survive the next five years. I expect about 20% of publicly traded companies will not.

American consumer spending will not reach the levels seen in the past 10 years for a long time to come. Consider that mortgage equity withdrawals contributed over $400 billion a quarter to the USA economy. Those are gone.

The American consumer is now saving instead of spending. (What little they had in savings is diminished, and retirement looms ominously close.) And soon he will be saving and paying a higher tax burden instead of spending. This will be a VERY long trend.

Because of that, we have too many factories, stores, restaurants, car dealerships, office buildings and capacity of all types. GDP will not grow until this overcapacity is worked off. Any buy and hold now will be premature, and risk being an investment in a soon to be failing enterprise.

Better to wait a few years and miss the very bottom. Growth will be slow and painful for the next decade or so, so the risk of being late to the party is tiny compared to the risk of being early. (3-4% vs. 100% loss in a bankruptcy)

Time to Bury the Markets?

"The bankers surely should be investigated and indicted, and called up before a Grand Jury, but all is quiet in these areas."

It will never happen, because any hearing will reveal how congress enabled the fraud and liar loans. As it stands now, congress is posturing as "innocent bystanders" to the crime they are an essential part of.

Remember, politicians don't make economic decisions. They make political decisions that have economic consequences.

The Market Is Not Your Friend

"The Senate Banking Committee holds hearings while Rome burns."

Better that than actually doing something! In fact, I would feel more secure if the banking committee went on an extended junket somewhere. politicians can only do harm then the "help".

Scary Numbers

"...there to watch the crashes..."

You say that like it was a bad thing!

Up Days: The Scarcest Commodity of All

The magnitude of up days has been lower than the down days this month, and up days have had lighter volume as well.

Wall Street Breakfast: Must-Know News

"Obama officials called the minimal details intentional"

This is because they are in campaign mode. Be vague, make general statements about your goals but don't commit to specifics. This way, each member of your audience will impute his own favored solution into your remarks and support the idea! Once it is being implemented, it will be too late.

"Critics are livid with the industry for handing out $18.4B in bonuses even as the companies reported losses and accepted government funds, and for lavish expenditures including private jets and expensive retreats."

I thought all that money was to stimulate the economy. What is the "stimulative" difference between loaning out the money and buying jets and paying bonuses? I dare say the bank executives seem to spend taxpayers money just as responsibly as our elected officials!

The New Economic Reality

Politicions don't make economic decisions. They make political decisions that have economic consequences!

This is not a stimulus plan, it is a Porkulus plan.

We will rue the day we looked to big government for help.

A Most Dangerous Inflection Point

Any recovery is doomed to a long agonizing protracted incremental rise because of the crushing debt burden now being deployed. The best case scenario, due to federal policy, is awful. Perhaps GD-II will be so bad we can put away forever these pernicious Keynesian ideas.

The problem is that politicians don't make economic decisions, they make political decisions with economic consequences. It will end well only if we are really, really lucky.

2009 Dogs of the Dow

I seem to recall that the dogs of the Dow could be improved by investing in the "dogs" two through four. Casting out the bottom dog avoided the the likeliest to be in real trouble and cut their dividends, or to be de-listed and such, and thus improved overall performance of the theory.

Wall Street Breakfast: Must-Know News

Dear Rachael,

You have repeated the same mistake again. To wit:

"The ISM report indicated that the non-manufacturing sector improved slightly from the previous month. However, a sub-50% reading indicates sector contraction. So, a slower rate of contraction in December brought activity to 40.6%."

The sector did not "improve slightly" as you insist. It got worse. It simply got worse at a slower rate than the month before.

In my portfolio I lost 20% in one month and then lost 18% the next. My losses are not as great, but my portfolio is still shrinking. It will "improve slightly" when it has actual growth. For example +.05%!

Improvement indeed!

I am still a fan! Thanks for your reply.

Wall Street Breakfast: Must-Know News

"Economic activity in the non-manufacturing sector increased by 3.3% in December to 40.6%, according to ISM, better than the 37.0% consensus."

Whoo Hoo! A counter trend move! The sector is GROWING... right? But the very next sentence in your "news" is:

"This marked the third month in a row of sector contraction, though the rate slowed slightly."

So it is growing and contracting at the same time? Are you just making this stuff up? Do you even read what you write?

Please do better, Mrs. Granby.

2009 Predictions I Hope Are Dead Wrong

2009 will be the year of the walk-away. Walk-away home owners, walk-away commercial real estate renters, and walk-away debtors.

I wonder how local governments will fare this year. Brother, can you spare a dime?

How to Inspire More Panic in the Economic Crisis

Dear fellow citizens,

Sadly, we have a cascade type banking crisis on our hands. One need not be genius to see it.

First, the "mortgage crisis" resulted in the American consumer halting the mortgage equity withdrawals from their homes. This resulted in a sudden consumer spending drop.

A sudden backup in inventories caused an unemployment spike, spooking whatever consumers were left. Thus holidays sales, car sales and travel ceased.

Now we are going to see retailers closing, (empty malls, commercial real estate malls [CRE malls] going bankrupt) hotels closing and CRE hotels going bankrupt, light industrial/warehouse properties empty and CRE manufacturing bankruptcies, office space vacancies rising and CRE office bankruptcies.

Local banks, struggling with home mortgage problems are going to have distressed business loan on their books too- and the fed is already at a zero interest rate policy. (zirp) They have no more bullets in their gun! (zirp is designed to stampede money market investors into bank certificates of deposits [CD] to help capitalize small banks.)

With every loan category on the bank's balance sheet in distress, they need every dime available as a capital reserve just to remain solvent and avoid seizure. They will be unable to write new loans of any kind! This will be true for every lending facility in the country.

This is why all the infusion into the banking system has not and will not result in more liquidity.

Directing scarce resources into failing business ventures like auto manufacturing will only prolong and delay our recovery. Businesses need to turn to the bankruptcy court (The appropriate body to deal with it- not the legislative or executive branch. After all, politicians don't make economic decisions, they make political decisions with economic consequences!) and get all the losses distributed out of the system. From the bottom we will grow again from a sounder foundation.

On top of this will be local governments in distress. All tax revenues will be down sharply. They will have difficulty selling bonds and may be faced with defaulting on existing debt- yet another hazard for our suffering bank balance sheet!

Liquidity Crisis, Ponzi...What Happens Next?

"Although regulated banks can now borrow at a low rate from the fed, the banks are extremely cautious to on-lend fearing the risk of default. Also, the fresh cash injected into the banks by the US Government is not making its way to new borrowers or entrepreneurs. It takes time to rebuild trust in a financial system especially after such gigantic losses."

As regulated banks attempt to maintain a sound balance sheet in the face of major write-downs of assets, they simply have no more money to lend. Any infusion of money is needed to prevent seizure by regulators.

Next up will be a commercial real estate bomb. As retailers close this winter, malls will shut down when they can't re-finance when loan covenants are violated. Fewer retailers will cause a cascade of small business bankruptcies and industrial REIT to collapse. The same hazard is hanging over the hotel and hotel property industries.

Bank balance sheets will get worse before they get better. They have to hoard every penny.