May 4, 2008

First a word to my long time readers of this blog...I'm sorry that for some time now, my comments are no more frequent than weekly.  Let me wax about economics in philosophical terms.  Time is our most important commodity --we can't accumulate more of it (no matter how rich), we can't store it, we can get it back.  So in busy times, when the commodity is in  short supply relative to life's demands, we ration.  I hope to become a frequent contributor to the Hog Blog again--perhaps this summer.  In the meantime, thanks for sticking around.

You do understand that we don't have Inflation, right?  Seems a lot of people don't.  Believe it or not, the biggest inflation risk right now is not that food and energy inflation (which clearly exists) spill over into the core consumptive mix, but that people's perceptions lead them to behave as if we have Inflation.  The Fed is concerned about that possibility, but that's different from it existing now--if it did, they wouldn't be cutting rates.  Few people ever actually look into economic statistics (that's OK, that's what you have me for...you have your own time constraint issues--I understand).  But take a look at the inflation numbers for yourself, and you'll see the following (I've included the decimal points so you can look up the figure on your browser in case you can't follow where I pulled it from):

- Minus food and energy, inflation (the average annual price change of personally consumed goods and services, weighted by preference) stands at 2.4% (6th row from bottom, 4th data column).  That's on the upper end of the comfort zone, but is NOT considered high inflation in the slightest.

- Gasoline only makes up 5.215% of the spending mix.  That's tiny relative to amount of attention it gets in the press.

- Food and Energy make up less than 1/4th of our expenditures (24.5%)

This week saw benign job loss figures for last month, and a return to full employment (5% unemployment).  A month does not a trend make, but it sure makes last month's apocalyptic headlines about unemployment look silly.  (Recall the Oregonian's headline "Brother, spare a space in line."  I still can't believe that.  The journalist who wrote that article should be compelled to run a disclaimer: "I studied journalism, not economics, in college, am too young to remember what real unemployment problems look like, and  will do my part to ensure that the Republicans aren't allowed back in the White House.")

On March 13 (see Blog archive), the market was in a panicked state--unmatched in this five-year cyclical Bull Market.  Those kind of opportunities bode well for stocks over the ensuing weeks, and I predicted that the Market would make a "huge upward move shortly."  And so it did--the Market's up 12.5% from the low two days later--that's a lotta love for seven weeks.  And it's probably about out of steam.  Clearly, sentiment has turned around.  The American Association of Individual Investors (AAII) survey of members (read: dumb money) reported a 60% BEARISH view back then, and now it's about 25% BEARISH--both figures are extreme (and consistently good contrarian indicators).  So while, the Market doesn't necessarily have to turn down imminently, and it may continue higher--or not, the signal from March worked like a charm.

April 24, 2008

I like what's happening.  Financials are doing well, repeatedly, on news that would normally be catastrophic for stocks.  Banks are repeatedly announcing earnings that are half--or less--of what they were a year ago, and these announcements are often accompanied by large write offs.  And I've observed a number of earnings numbers that also are below analyst estimates--another usual kiss of death.  What do the stocks do in the wake or their earnings announcements?  Rally!  Again, that tells me we've turned the corner on this longtime lagging market sector.  Expectations are just too darned low.  So go out and acquire a batch of financials?  Not necessarily.  I'd like to see a few more weeks of confirmation--financials doing as well, or better than, the broad Market.  But what if we miss "the move?"  If the turn is for real, the opportunity will be there for awhile.  If it's not for real, then these stocks' fortunes will turn shortly so you won't want to be in them.  Remember, this is a big bet.  Financials make up about 20% of the Market--it's the biggest sector.  At the firm, we're still devoid of the sector, but stand ready to welcome it back into the portfolio.

So who's going to be our next President?  Still too early to say...regardless of the match up, it looks like it will go down to the wire.  But the remarkably prescient trading markets on the outcome, intrade.com and the like, give the edge to Obama.  Here are the most recent probabilities assigned to likelihood of who will be our next President.:

Obama  47%

McCain  39%

Clinton  14%

Commodities are starting to look bloated.  As I understand it, the supply & demand curve for Oil (and Gas) haven't changed much since the price of Oil and Gas were 40% cheaper.  The run up in prices are therefore due to speculators.  On the food front, it's not that clear.  But clearly, that appreciation pattern seems unusual, and it may be short lived.  (I'm looking into it more now.) 

Yet, despite what you read, we really don't yet have broad inflation.  Food and Energy makes up less than 25% of most gauges of inflation.  Take it out, and the reading of the rest of consumer mix shows benign inflation--just a bit above the 2% annual appreciate rate.  So, it does not yet appear that inflation has spilled over to the rest of the system.  Which makes sense--when food and energy are expensive, it takes away from the rest of the funds to be devoted elsewhere.  And let me repeat a point I've made--that you almost never hear--credit crunches are always deflationary.

April 20, 2008

The word of the week is "hiatus."  Say it with me...HI - AY - TUS.  I decided this week that I'm taking an indefinite hiatus from two regular parts of my life.  One is weekly weight training and the other is commenting on residential real estate.  Both were becoming a pain in my ass.  In the former case, I'm referring to my low, low back pain that was exacerbated by the leg press.  And commenting on real estate has become a tired activity and now I just feel like I'm piling on.  Enough.

More SHOCKING, BREAKING NEWS!!!:    "U.S. bankruptcies soared 38 percent in 2007!!!!"

The minute I saw this, I knew the press was taking us for a ride.  So l looked up the numbers:

2007     805,912

2006     617,660

2005  2,078,415

2004  1,597,462

2003  1,660,245

That number for 2006 was a 20-year low.  2005 saw a spike because of the tightening of rules for filers.  So at 805,000, yes we're up from 2006--an artificially low year because of 2005.  But we're at about half the normalized level pre-2005.  Hardly a case for the Depression the press wants you to buy into.

THE RICH LIFE:  If you want to see some cutesy pictures, put to music, from our recent sitting (and I don't know why you would, but what the heck?), click here.

April 11, 2008

The press wants us to know that consumer confidence is perilously low.  This from Forbes.com today: "Consumer Confidence Crushed!"  This comes on the back of news that: "The Reuters/University of Michigan Surveys of Consumers reported that its preliminary index of confidence fell to its lowest point in 26 years in early April"

What does this tell us?

• The Media wants more than anything to rid of the White House of the Party in control for the last eight years

• The Media wants to sell its product--in an increasingly competitive period.

• The Media's been successful in convincing the populace that the Economy is worse than it is.

• None of this matters...Confidence readings are useless in predicting economic activity or even consumer behavior.

But oh well...

Above are the gauges that Don Hays shares with subscribers to his e-newsletter (and it's a great letter pick up--sign up here).  At any rate, I'll confess to deleting my emails from Mr. Hays of late (due to limited time allotted for reading).  But  IO checked in today and it was good to find someone as outlandishly bullish as I.  I can't speak to what's going to happen this Summer and Fall, but between now and then I think we're to be treated to very kind returns in the global market for stocks.

And everything I see continues to confirm that a substantial shift may be under way.  As mentioned last week, it implies that there's light at the end of the credit tunnel.  Additionally, it suggests that the Market's laggards of the last year, may be its imminent darlings.  We haven't made a change to the portfolio in months (to our credit), but I'm getting that inner tingling that suggests it may be time for an overhaul.  No reason to rush--I play multi-year themes--but it's feeling like we're about look and feel very differently.

April 4, 2008

To call the Fed intervention in Bear Stearns a "bailout" is to show either a complete lack of knowledge on the topic or bad faith via the disingenuous use of the term in order to bolster a bailing out of sorts for those mortgagees unable to make their monthly payments.  In many cases, it's a combination of both: those claiming Bear was bailed out know little of the mechanics of the deal, but see it as yet one more opportunity to point out how Wall Street always comes out on top and the little guy always gets screwed.  Fortunately, the recent legislative attempts to bail out irresponsible borrowers AND irresponsible lenders have failed to garner the necessary votes.  That's good...let the chips fall where they may, even if it stings.

We MAY--let me repeat--MAY be turning the corner on the Market and Homebuilders--and Financials may not be far behind.  That doesn't mean that we're out of the woods economically, nor does it mean that Housing is near a bottom--and it certainly doesn't mean we've seen the last of Financial company write-offs and failures.  What it means, if I'm right, is that the forward-looking investment markets are seeing light at the end of the tunnel for the economic contraction and home building stability.  Should those two events be out there in the next 9-18 months, stocks will continue to move up in advance.  And were that the be the case, Financials should soon follow suit.  Notice the seeming basing pattern in Homebuilders.

If there was a way to characterize my forecasts, it's "Usually early, usually right."  It's possible that the we have another material leg-down for the Market, Homebuilders, and Financials.   But in just this last week, I've begun to notice a litany of reasons for making this forecast.

March 30, 2008

The public is generally hysterical about the "credit/sub-prime/housing crisis" and it's a useless, unwarranted and naive response.  If you consider yourself in this camp, and want out, I suggest you develop real knowledge quickly--if you feed yourself with the media's description of what's going on, you'll be wont for serious, attitude-adjusting medication.

I said coming into this year that I thought it would see a turn in the Dollar.  And I want to reiterate my view in that regard, and update you on possible timing:

• Just like the aforementioned credit market assessment, the dollar is being made to big a deal off.  I've found that a scant few of those that try to speak with authority have very little understand of exchange.  I'm not just talking about the entertainers that won't take payment in the Greenback, but those flippant types that intend to ascribe cause and effect to trade rate of the dollar.

• If the dollar is "very weak" now (and I don't buy that), then it was very strong in 2000 (at least relative to the Euro).  And oh, by the way, we're really only broken out of the Euro Trade range in the last few months, and the Dollar is merely on the low end of the Yen range.

• Cheap dollars = Good for Exports

• The Dollar can't bottom until we see the light at the end of the Fed easing tunnel.

___________________________

HEDGEHOG ARCHIVE