Powered By Blogger

About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, December 30, 2008

Stock Market & Economy

If this be but a nasty variant of an ordinary business cycle, I would
say the environment is an easy call from here. Specifically, my
indicators point to a steep further economic downturn through
mid-2009, followed by a moderate economic expansion that could
continue for several years. In this world, the stock market would
most likely bottom Mar. - Apr. of '09, followed by an upturn in
corporate profits by Sep. '09 and the first hike in the Fed Funds rate
at some point in half 1 '10. Commodities would turn up over half 2
'09 and inflation would re-accelerate from a very low level by late
'09. Piece of cake.

But, my range of indicators also suggests to me that the US is
flirting with economic disaster. The key word here is "flirting". It is
far from clear to me that consumers are going to behave as
positively and predictably as they have in prior downturns and
readily jump in and lead the charge to recovery. Consumer
hesitation to spend in the months ahead can lead to further
downcycling and subsequent considerable difficulty in turning
things around. Real incomes have been punished too long for most
and wealth has fallen rapidly, especially for the upscale folks. Debt
levels continue on a high plane and take up substantial income. So,
I think it is reasonable to wonder whether they are going to be so
eager to spend and borrow in 2009. Moreover, if they remain
reticent, I doubt monetary and fiscal policy will prove so
enticing to them. Realistically, and looking at the household sector
on an individual basis, it would be kind of dumb for folks to jump
into heavy spend and borrow mode.

It is easy enough to envisage recovery where consumers exhibit
much greater balance between spending and saving. On the
surface, that's one way to finesse the issue and maybe that's how
it will work out. But, it will need to happen soon, lest a weak
economy and job picture leads to further forbearance.

Production, trade and employment all seem primed to contract
in the months ahead, but the stock market can endure that if
consumers show some signs of putting spending on a more even
keel and if prospective homebuyers show more interest this
coming spring.

For now, I'll probably go along with the framework outlined in the
first paragraph of the post, but I will not stay with it long if we
continue to see folks shunning the shops as we have been.


Doug Gryder said...

Is Buy and Hold Really Dead??
If buy and hold isn't dead, it is certainly hibernating with very low respirations. My grandfather was on of the best investors that I have ever seen and these markets would be driving him absolutely crazy if he were still alive. He made a lot of money by finding brand name companies paying good dividends and loading up on them. I have done a study on expanding and contracting multiples---historical multiples for certain industries etc and have found the results of my work to be useless BECAUSE IN THIS MARKET WE CAN'T DEFINE THE E. Earnings are very difficult to predict in this market and that has many investors at a loss as to how to act on a daily basis. No doubt I have lost more money on the positions that I considered to be "investments" than I ever have on those I classified as "trades". In this market, it is tough to find dividends in which you can have confidence. If I heard him say it once, I heard my grandfather say a thousand times "You own good stocks and they are paying dividends---just forget about their closing price--it'll come back" He WAS RIGHT. But he would NOT BE RIGHT in this environment. Even in today's action, while the market was going up---so were the treasuries. That tells me that this rally is fishy as investors are still seeking the safety of the treasuries.

We have been preparing for our upcoming interview with Walter "John" Williams of shadowstats.com For those of you that don't know of John, he is an economist that has predicted an upcoming period of hyperinflation and has even talked of a hyperinflationary depression. John's views are seen as radical, but he makes excellent points and always has statistics to support his forecasts. While we are not calling for a hyperinflationary depression, we respect John's views and he has been a very good friend of our show. At the end of this blog, we will post our last interview with John and you can listen and submit questions for the upcoming show. Of course we want John to answer the question as to whether he feels that the government injections are going to rebuild the balance sheets of the banks and if so why does he still see inflation. We will also want him to tell us what factors have held inflation at bay since our last visit with him--as he was forecasting hyperinflation last April.

While I am not personally looking for a hyperinflationary depression, I am looking for inflation. I am looking for a weaker dollar in 2009. I also look for gold to push higher in 2009. I want to be able to identify the catalysts that will start the inflation fire---as I am convinced that once the inflationary period begins---it will be difficult for the government to act to curb inflation once it is out of the gate.

I am hearing more and more "pundits" with sentiment for the weak dollar. On CNBC tonight even Donald Luskin was calling for a much weaker dollar. I was shocked that Luskin was taking that position. I still like a short UUP position---will be a slow mover but should produce some gains.

For those morons that have made comments and sent us emails telling us that we were wrong on some of our calls---Of course we were you mental midgets. Who in this game has not made mistakes---especially since last fall. We have been very clear as to who we are and what we are trying to accomplish. We are not registered investment advisors---we are just individual investors risking our own money trying to learn this game. And yes we have made mistakes---traders call it tuition and we have payed plenty of it this year. But every time we are wrong, we analyze it and try to make it a learning experience. We have learned over the last six months that in this environment that buy-and-hold is a dangerous game and the best way to play is to be nimble and willing to admit your mistakes and take small losses.

I am considering adding to my SRS especially if we get a move up in the morning. I believe that the current rally is very weak and I am convinced that we have more pain to be felt in the real estate arena. Our TBT call took a hit today, but I think the treasuries are the next bubble and I still like the play. Again, you have to use smart position sizing to make sure that you can stay solvent longer than the market can remain irrational.

The Fed is planning to buy $500 Billion in mortgage securities to boost the housing market. To those that are making the argument that we are just rebuilding the banks balance sheets---this could really be an effective move that begins to get some money flowing through the system again. I keep maintaining that once money begins to flow---you are going to need to open the floodgates. I have been wrong to this point, but still stand firm in my belief that we are going to see inflation by the end of this year.

We will continue to bring you as many different perspectives as we can. The last John Williams interview is posted below. Send us your questions--we are looking forward to hearing John's ideas.

I found a video that presents the exact opposite case from John Williams. This guy was on CNBC and is saying that China was the biggest beneficiary of the excess credit and is headed for a very hard landing. We will be contacting him to see if he will be willing to appear on our show. We want to get as many facts from all sides and will do our best to bring this interview to you as well.
The video can be viewed at www.stockshotz.blogspot.com

Anonymous said...

This is all because of the recession and so they’re paying more attention to their spending. 2008 is a never forgotten year in the history of stock market investmentt. Hope 2009 would make a lot of difference.