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Conventional Wisdumb

Conventional Wisdumb
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  • March sales of construction excavators in China look ugly, plunging 47% Y//Y to 23.3K units, with Caterpillar (CAT) sales off 51%. The numbers may not bode well for CAT Q1 earnings (report date 4/25), or the DJIA, over which the stock has a large influence.  [View news story]
    Here's the whole paragraph from the story. Draw your own conclusions:

    "March sales of construction excavators in China plunge 47% to 23,248 units, against tough year-ago sales that were a record at 44,150 units. Caterpillar’s excavator sales last month were down 51%, leaving it with a 5.3% share of the market. But the excavator market should start to look better soon, as year-ago comparisons start reflecting softer market conditions last year in China. The monthly average in 2H of 2011 was just 8,450 excavators, William Blair says. “We should start to see some real growth in the summer,” firm adds."

    Suggests to me that CAT won't be able to rely upon robust purchasing from China to support the y/y comparables and it appears that it will mean lower overall calendar year sales as well from this source. Don't know how much impact that has on CAT's total book.
    Apr 10, 2012. 04:05 PM | 1 Like Like |Link to Comment
  • National home values increased 0.5% in February, according to Zillow, bringing the Y/Y decline to 4.5%. The rental market continues to shine, rents rising 2% Y/Y. Apartment rental REITs: ESS +18.2%, AVB +15.5%,EQR +7% Y/Y.  [View news story]
    "National home values increased 0.5% in February",

    Funny that's exactly the opposite of the first line of the actual story:

    "The February Real Estate Market Reports show that national home values decreased 0.5% to $145,400 from January to February. On an annual basis, this represents a 4.5% decline (See Figure 2)."

    I'm sure the SA proofreaders will catch this one eventually.

    Tomato, tomato I guess :)
    Apr 10, 2012. 01:59 PM | Likes Like |Link to Comment
  • European shares close sharply lower, with some of the loss being catchup for yesterday's day off, but the rest from continued sovereign debt concerns - the yield on Spain's 10-year +22 bps to 5.98%, a 4-month high. Stoxx 50 -3%, Germany -2.4%, France -3.1%, Italy -5.1%, Spain -2.9%, U.K. -2.2%. The euro -0.2% to $1.3080.  [View news story]

    Hate to be an Italian investor - this really smells like a panic.

    That Italy number really stands out. Nasty chart:
    Apr 10, 2012. 11:56 AM | 1 Like Like |Link to Comment
  • Feb. Wholesale Trade: Inventories +0.9% to $478.9B vs. consensus of +0.6%, +0.9% (revised from +0.4%) in January. Sales +1.2% to $409.4B. Inventory-to-sales ratio at 1.17 vs. 1.15.  [View news story]
    I guess, rising inventories implies slackening demand which means that either production will slow or demand needs to pick up.

    One path is good, the other is bad for equities.

    I guess this explains the immediate negative reaction of equity markets.
    Apr 10, 2012. 10:07 AM | 1 Like Like |Link to Comment
  • Bad Jobs Number Triggers Market Sell Signal [View article]
    TA really works on the assumption that you can use historical precedent to predict the future, however I believe that we no longer have a free and open market in equities and bonds. I think it still works for individual stocks but on the broad market I would be less certain.

    So I would be careful relying upon it as investing tool since Uncle Ben and the central banks worldwide have so infiltrated the monetary system and destroyed the normal, natural signal that there is no semblance of historical comparison to the time when we actually had a free market.

    A free-market by definition means that you have voluntary participants involved in the buying and selling process.

    Under ZIRP we have a coerced market: a choice between a zero-return risk-free environment and the uncertainty of equities. People who have no business or interest in taking risk are being forced by financial repression to engage in risk-taking activities that they would never have dreamed of taking on voluntarily. All this in an effort by Ben in his friends to reignite animal spirits but what happens when ZIRP finally ends?
    Apr 9, 2012. 03:31 PM | 1 Like Like |Link to Comment
  • Why It May Finally Be Safe To Short The 30-Year U.S. Treasury Bond [View article]

    Tx. Good post.

    This really is the "widowmaker" trade. It should be a "no-brainer".

    Something is seriously wrong with the bond or equity markets when it comes to forecasting inflation and economic strength - one of them must be wrong or they could both be just a little bit wrong (no recession, very tepid growth).
    Apr 9, 2012. 09:54 AM | 1 Like Like |Link to Comment
  • "What we've observed in the employment figures is not recovery, but desperation," writes John Hussman. Of the 1.84M gain in payrolls since the recession's "end," 2.96M jobs have gone to workers 55+, while employment for those under 55 has shrunk by 1.12M. By shorting savers of interest income and promoting repeated booms/busts - but no durable returns - "the Fed has successfully provoked job growth of the obligatory, low-wage variety."  [View news story]
    That explains why I see so many more seniors bagging groceries at the local Publix markets - the "golden years".

    Man what a tragedy. Read that excerpt above again - these are the casualties of the war on savers.

    Another interesting excerpt:

    "Beginning first with Alan Greenspan, and then with Ben Bernanke, the Fed has increasingly pursued policies of suppressing interest rates, even driving real interest rates to negative levels after inflation. Combine this with the bursting of two Fed-enabled (if not Fed-induced) bubbles - one in stocks and one in housing, and the over-55 cohort has suffered an assault on its financial security: a difficult trifecta that includes the loss of interest income, the loss of portfolio value, and the loss of home equity. All of these have combined to provoke a delay in retirement plans and a need for these individuals to re-enter the labor force.

    In short, what we've observed in the employment figures is not recovery, but desperation."
    Apr 9, 2012. 09:28 AM | 3 Likes Like |Link to Comment
  • Weighing The Week Ahead: More Excuses For Selling? [View article]

    Are you looking for a proxy for retail?

    If so the ICI Flow of Funds seems to be the most authoritative source for tracking mutual fund flows a proxy for retail investors.

    Estimated Long-Term Mutual Fund Flows
    April 4, 2012

    "Washington, DC, April 4, 2012 - Total estimated inflows to long-term mutual funds were $3.34 billion for the week ended Wednesday, March 28, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.
    Equity funds had estimated outflows of $4.43 billion for the week, compared to estimated outflows of $1.08 billion in the previous week. Domestic equity funds had estimated outflows of $3.53 billion, while estimated outflows from foreign equity funds were $906 million.

    Hybrid funds, which can invest in stocks and fixed income securities, had estimated inflows of $1.65 billion for the week, compared to estimated inflows of $1.82 billion in the previous week.

    Bond funds had estimated inflows of $6.12 billion, compared to estimated inflows of $5.66 billion during the previous week. Taxable bond funds saw estimated inflows of $5.47 billion, while municipal bond funds had estimated inflows of $656 million."
    Apr 9, 2012. 09:15 AM | Likes Like |Link to Comment
  • Greek February industrial production falls 8.3% Y/Y after a 6% January decline. The country, however, had a bit less of an inflation burden, CPI dropping to 1.7% from 2.1%. The IP drop calls into question of whether the country can meet the EU's forecast of just 4.7% GDP contraction in 2012.  [View news story]
    "The IP drop calls into question of whether the country can meet the EU's forecast of just 4.7% GDP contraction in 2012"

    Is there anyone that actually believed they could "achieve" this level of non-growth?
    Apr 9, 2012. 09:11 AM | Likes Like |Link to Comment
  • Weighing The Week Ahead: More Excuses For Selling? [View article]

    I think one of the reasons we had so much market volatility last year was a function of the leading expectations arising from ISM that were unmet - in theory we should have been at a 5% growth rate.

    I just wonder if these diffusion indices are being "gamed" by all of the gimmicks employed by the government in the last few years: cash for clunkers, handouts for houses, appliances for the affluent, and most recently the 100% Capex credit expiration. Even if you don't assume the conscious targeting of the numbers, the indirect, unintended result seems to have had the same effect.

    Perhaps it is these "distortions" versus historical precedent that have made these numbers unreliable as forecasting tools. The goal of "raising animal spirits" being reflected in policies that target metrics that actually cause market equity participants to have their spirits raised creating that old self-fulfilling prophecy thing.

    No one ever said this investing stuff was easy :)

    As you might note, I have a quirky and somewhat cynical view of the conventional wisdom and I very much appreciate your considerate and thoughtful responses.
    Apr 8, 2012. 01:22 PM | 5 Likes Like |Link to Comment
  • Will Stocks Hit A Speed Bump This Summer? [View article]

    No one should ever beat themselves up for booking a gain and given how far the markets have come in a short period of time it's not a bad strategy to book some profits or reallocate.

    Of course, if you think the economy is going to strengthen dramatically then you might miss a move to 1500 plus range and experience "sellers" remorse :)

    The problem with ZIRP as I see it is that it has created a situation where all paths are bad and the rare time when both major asset classes are overvalued so no good choices for long term investors.

    Putting new money to work here doesn't look wise to me.
    Apr 8, 2012. 12:32 PM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: More Excuses For Selling? [View article]

    What is a PPT?

    When I see that I think "Plunge Protection Team"?
    Apr 8, 2012. 12:06 PM | 3 Likes Like |Link to Comment
  • Weighing The Week Ahead: More Excuses For Selling? [View article]

    Another interesting article.

    I think this relationship between ISM Manufacturing and projected GDP growth has been broken since the 2008 recession.

    "ISM manufacturing was better than expected at 53.4 versus expectations of 53.0 and a 1 point increase over last month’s 52.4. The ISM’s own research says that this value (if annualized) corresponds to GDP growth of 3.7%."

    Just look at the chart at Calc Risk and you see numbers last year that came in close to 60 at a time when the actual GDP was close to zero. It was over 60 in April last year before falling dramatically.

    I think the historical expected relationship between this number and expected subsequent GDP growth is one of the reasons why growth expectations have been so notoriously overstated in the past year - last year was started with expectation of 4% plus growth and we got almost zero in Q1.

    What's your opinion (assuming you care, that is)?
    Apr 8, 2012. 12:03 PM | 3 Likes Like |Link to Comment
  • North American rail traffic posts impressive numbers despite plunging coal shipments (thanks to natural gas), notes Todd Sullivan. Leading the increase are metal and stone - think construction. The economy is continuing to strengthen; those who "sell in April/May and go away" may regret the decision.  [View news story]
    The complete picture from Calculated Risk Blog which also has some very useful charts. I am not sure I understand why the author above calls it "impressive":

    AAR): AAR Reports Mixed Rail Traffic for March
    The Association of American Railroads ( today reported reported U.S. rail carloads originated in March 2012 totaled 1,123,298, down 69,190 carloads or 5.8 percent, compared with March 2011. Intermodal volume in March 2012 was 928,350 containers and trailers, up 31,348 units or 3.5 percent compared with March 2011.
    Commodities with carload declines in March were led by coal, down 84,854 carloads or 15.8 percent from March 2011. Other commodities with declines included grain, down 9,088 carloads or 9.7 percent; chemicals, down 4,278 carloads or 3.4 percent; nonmetallic minerals, down 1,863 carloads or 9.7 percent; and farm products excluding grain, down 479 carloads or 13.3 percent. Carloads excluding coal and grain were up 4.4 percent or 24,752 carloads in March 2012 over March 2011.
    “There is no denying that coal is a crucial commodity for railroads, and there’s also no denying that recent declines in coal traffic are presenting significant challenges to railroads right now,” said AAR Senior Vice President John T. Gray. “That said, it’s encouraging that many commodities that are better indicators of the state of the economy than coal is — things like motor vehicles, lumber and wood products, and crushed stone — saw higher rail carloadings in March.”
    Apr 7, 2012. 11:49 AM | 2 Likes Like |Link to Comment
  • February Consumer Credit: +$8.7B vs. +$12B expected and $17.8B prior. Non-revolving debt (student loans, car and personal loans) up $10.94B, while revolving debt (credit cards) fell $2.21B. The debt total for consumers marks the highest level since April 2009, although the rate of growth was the slowest since last October. [View news story]
    "Consumer credit increased by $8.7 billion in February to $2.522 trillion, missing economist expectations for a $12 billion gain, new data out of the Federal Reserve shows.
    Although that represents the highest reading in nearly three years, it was the slowest pace of expansion since October.
    Revolving credit, which includes credit card debt, declined 3.3 percent during the month. Nonrevolving credit offset much of that drop, increasing $10.9 billion to $1.723 trillion."

    Read more:
    Apr 6, 2012. 05:05 PM | Likes Like |Link to Comment