logicalthought

Employment Up, Equities Down: What's Next?

I just wrote a crazy little TA-oriented look at the implications of today's dollar move relative to the S&P 500:
seekingalpha.com/insta...

Equities Are Dead - Long Live Equities

What you have left out of your chart is the equity in one's home, which was traditionally a huge component of one's net worth, and for many folks has now evaporated and often gone negative. If you include that, I think you'll find the current "equity" allocation to be very much in line with historical averages. Meanwhile, the previous unusually high equity allocations tended to come at the peak of bull markets, and at least some of that was probably due not to "active allocation" but, rather, to the rise in the prices of stocks that folks happened to have already owned.

Did Weekly Jobless Claims Really Fall Below 500k?

>>...as the weekly claims figure has dropped from 462,000 Americans last week to 457,000 this week... the... Emergency Unemployment Compensation exploded up by 265,000 Americans.<<

There are no great revelations here, as it seems to me that we're talking about initial vs. continuing claims. In other words, those getting the extended benefits should simply be added to the "continuing claims" rolls, and thus this doesn't affect the "green shoots" argument which says that the "firing" is winding down. The problem is that while I do agree that at some point the "firing" WILL wind down (after all, a certain number of people are needed everywhere just to "keep the lights on"), I think it will be years before net HIRING happens, as (on an economy-wide net basis) there just won't be enough demand to require it. So, the disappointment for the "green shoots" folks will come in the months after the month we finally get a "zero" net job loss report, because "zero" is where we'll flatline for a long time.

Reich: Don't Expect Lost U.S. Jobs to Return

>>Heck of a job, Larry, Tim and Ben.<<

This is one problem for which you can't blame that trio of ivory tower idiots. The simple fact is that thanks to the internet and high-speed transportation, a great deal of labor is internationally fungible, and thus will go where it's cheapest. In the long run, anyone without a unique, non-fungible skill will have to work for less in order to prevent his or her job from being off-shored. It's highly unfortunate, but the alternative (high tarriffs) is a terrible "solution" that will only result in retaliation (resulting in job losses for our exporters) and higher import prices for many basic items bought by people who can't necessarily afford to pay more for them.

Strong Free Cash Flow in 2010 as U.S. Companies Crimp Capital Spending

>>"Improved efficiencies in both capital and operational spending are expected to lead to strong 2010 free cash flow growth, in spite of generally muted revenue growth expectations.<<

Gee, I didn't realize there was anyone left to fire, or any machinery left not to buy.

Liquidity Pumps Still Set to 'Full Power'

Great article... I'm starting to think that my recently acquired, Fed-fighting short positions are among the dumbest moves of my long life in the markets. On the other hand, perhaps it's a good contrary indicator that earlier today, I was actually hoping the S&P would take out its recent highs and hit 1115 so I could get stopped out of a big chunk of my SDS and be put out of (most of) my misery. Of course, the S&P never quite made it... After all, markets never do what you want them to do, even when you want them to help you lose money!

Dubious Investment Strategy: When the Train Leaves the Station You Have to Be on Board

>>...a great trader has to be able to trade the market and make money even when it's not cooperating with his own thoughts about valuations.<<

What you can do in a situation like this is be short the overall market (via ETFs) and be long whatever stocks you can find whose fortunes aren't dependent on the strength of the overall economy. (For me, these tend to be small cap drug or device companies, but there are other "oddball" stocks around that may work just as well.) Thus, as long as those companies continue to run their businesses properly they should rise with the overall market (hence offsetting the losses from your short ETFs), and yet when the market finally tanks, they shouldn't get hit too badly (as long as they're economically non-correlative) and, in fact, may even keep going up as investors look for anything that manages to grow in a tough environment.

Why I'm (Cautiously) Optimistic About the Future

I think that 20 years from now, life will be a lot better in terms of what counts the most: health. Medicine marches onwards, and there's no question that the type of breakthroughs alluded to by the author (stem cell therapies, for instance) will result in healthier and longer lives for most of us (as long as healthcare "reform" doesn't remove the incentives for drug companies to invest in new products, of course).

In terms of (admittedly less important) material things, though, I think it will be much more of a mixed bag for Americans, because as long as knowledge and labor are fungible, third world living standards will continue to improve while first world standards continue to stagnate and perhaps backslide a bit, until eventually (on average) we all meet somewhere a bit below where we are now. So, the days of the average American having a boat or a vacation house or a new car every three years may be behind us for a very long time, but we'll still have cars that work, roofs over our heads and plenty to eat. And meanwhile, on the bright side, electronic gizmos that didn't even exist 20 years ago (the Internet, flat screen TVs, 3G cell phones, etc.) will continue to get better and cheaper. As someone (Buffett?) once said, the average middle class American today has a FAR more comfortable life than even the wealthiest people in the world did just 100 years ago. And anyone with an entrepreneurial bent, a good idea and a strong work ethic will still have a chance to build a business and, if it works, buy that boat, second house, and as many new car as he wants.

Interview with Scott Wren: Forward Earnings Estimates Are Too Low

>>...earnings estimates for this year, 2010, and 2011 are probably too low... I think that the demand for credit is very low... I think it’s going to be hard for housing prices to recover a lot over the next few years.<<

Somehow, I don't see how "b" and "c" follow from "a".

Investors Still Nervous, Despite Equity Rally

Sorry-- at the beginning of that last paragraph I meant to say "the reason for the steep yield curve..." (not "inverted" yield curve).


On Nov 24 06:50 PM logicalthought wrote:

> >>Even though equity markets have rebounded, recovering investors
> have flocked to the drug store with their prescriptions for bonds.
> <<
>
> Traditionally, investors kept a much higher allocation of bonds than
> they had been doing during the last 20 or so years. Current bond
> allocations may simply be a return to tradition.

Investors Still Nervous, Despite Equity Rally

>>Even though equity markets have rebounded, recovering investors have flocked to the drug store with their prescriptions for bonds.<<

Traditionally, investors kept a much higher allocation of bonds than they had been doing during the last 20 or so years. Current bond allocations may simply be a return to tradition.

>>The mountains of cash on the sidelines have the potential of fueling further gains under the right conditions.<<

Sure... And those conditions would be folks having substantial positive equity in their houses and a high degree of confidence about their future incomes. In other words, don't hold your breath waiting for "sideline cash" to buy your stocks at higher prices than you paid for them.

>>...the yield curve is the steepest it has been in the last 25 years. This... should provide comfort to those blue investors that cried through inverted yield curves (T-Bill yields higher than 10-Year Notes) that preceded the recessions of 2000 and 2008.<<

The reason for the inverted yield curve is not the traditional expectation of capacity-constrained inflation going forward. Instead, it's due to a combination of inflationary fears caused by the recent massive money printing, as well as the fear that higher rates will be necessary in order to attract enough capital to continue to fund the enormous level of Federal debt. So, rather than being bullish, the inverted yield curve is symptomatic of some huge problems around the corner.

Top Line Numbers Not Bad

Playing the "beat the estimates" game is lots of fun, but the actual numbers show nothing more than stabilization at awful levels. This is a recipe for significant PE multiple compression. As to when that occurs, your guess is as good as mine, because right now, I'm "short and wrong".

Employment Lags the Stock Market

>>There is really no debate about the point that unemployment levels lag the stock market.<<

I refer you to last week's Wall Street Journal:

"The time-worn Wall Street gospel is that employment is a lagging indicator, but that isn't always so. It has only lagged significantly in the recoveries that followed the past two recessions. In the eight recessions between World War II and 1982, payrolls bottomed and unemployment peaked, on average, less than one and two months, respectively, after the recessions ended. Assuming, as most economists do, that the latest recession technically ended in June 2009, this recovery already is looking jobless."

online.wsj.com/article...

The Problem of Where to Invest

May I suggest Beanie Babies? If nothing else, it's better than real estate:

www.nydailynews.com/mo...

Down Fridays

First of all, hedge funds end their years on 12/31; it's the mutual funds that use 10/31, and if anything, the mutual funds would be more likely to "window dress" and spend money to mark up their year-end holdings, rather than let them get crushed.

Second, Galleon had $3 billion in positions, not $30 billion, and had supposedly unwound almost all of them earlier in the week.

I think there's now a different, more negative tone to this market, and you can see it in the broken charts of the financials, the transports, the Nasdaq and, perhaps, in the S&P 500. I have no idea what happens Monday, but I think the S&P will see the low 900s (if not lower) by year-end.


On Oct 31 04:10 PM cstauffer wrote:

> Hedge fund fiscal year end with large unrealized gains over the preceding
> 6 months means that they most likely felt compelled to lock in those
> gains ahead of the GDP report in case it came in short. Let's not
> also forget that the Galleon hedge fund, which I believe was $30
> billon was unwound over the last seven trading days or so. On balance,
> earnings and the economic numbers over the last two weeks did not
> change the outlook of the economic recovery for better or for worse.