One thing that has happened in our consumer economy is that shoppers have gotten use to significant discounts from full price on just about everything. Now, more and more, shoppers, even those that have not suffered a loss in income, are demanding lower prices or greater discounts. Of course this is driven by a simple fact, they can get them and the retailer's need the buyer's much more than the other way around.
With the drop in demand across the board the consumer now has an expectation that everything should be on sale. If the consumer does not think the item is offering sufficient value, they will not buy it until it does. Now discounting in retail is nothing new and if retail has prepared for a slightly slower season, as it should have, we may actually start to see popular items become unavailable.
It is going to take such shortages to make people buy at full retail or even pay a premium. As we get through Halloween and move into the Christmas season, I believe two factors are going to prevent those shortages from materializing. In the first case, stores are most likely overstocking. Forecasting is clearly difficult but this is going to be a better season than last year but not dramatically so. So I expect stock to be widely available. The other factor is simply that the ability to sell on-line makes many items available that would otherwise have not been. Central storage and distribution for on-line retail eliminates a lot of the uneven store inventory that is so difficult for retail.
Wednesday, September 30, 2009
Tuesday, September 29, 2009
Economic comparisons
We are quickly moving to a period where economic data for this year will actually be better than it was last year at the same time. After the Lehman collapse and the rapid deterioration of the economy in the last quarter of 2008 and the first quarter of 2009 things got pretty bleak. So, since there has been some improvement, we will enter a period where instead of numbers showing x% below last year, it will be x% above last year.
While this will be refreshing in a sense, it is as meaningless as the bad comparisons were. In the last quarter of 2008 we entered what has to be considered a panic period where an economy that was struggling essentially collapsed as fear prevailed. If you think about what happened, high energy costs and the resulting drop in consumer demand coupled with unsupportable home prices led to declines in real estate prices that caused sub prime mortgage backed securities to become almost worthless. The drop off in home equity and the loss of construction jobs plus the seemingly endless stream of bad economic news caused a dramatic and scary reduction across the board in costs and employment by American industries.
Of course, the reaction created the basis for the earnings we saw last quarter as despite significant declines in total sales cost reductions enabled firms to generate profits. This was the end of the recession, as profits, even at reduced sales provide a foundation for future growth.
Of course whether the Government stimulus had much to do with this is a difficult question. To some extent it prevented some jobs from being eliminated but considering how slowly it has been implemented, much of it is yet to be felt. It certainly had a negligible impact on demand and the demand lost from the drop in home equity will not easily be replaced.
It is more likely that the companies, reacting to the drop in sales have simply entered into a reverse growth mode and scaled back operations sufficiently to be profitable. This is a sustainable act since the cost dropped will only be added back as growth dictates and in fact will most likely be added at a more productive level than they were previously.
Growth needs to be measured month over month to get a picture of what the status of the current economy actually is. Year over year comparisons don't work in the current scenario.
While this will be refreshing in a sense, it is as meaningless as the bad comparisons were. In the last quarter of 2008 we entered what has to be considered a panic period where an economy that was struggling essentially collapsed as fear prevailed. If you think about what happened, high energy costs and the resulting drop in consumer demand coupled with unsupportable home prices led to declines in real estate prices that caused sub prime mortgage backed securities to become almost worthless. The drop off in home equity and the loss of construction jobs plus the seemingly endless stream of bad economic news caused a dramatic and scary reduction across the board in costs and employment by American industries.
Of course, the reaction created the basis for the earnings we saw last quarter as despite significant declines in total sales cost reductions enabled firms to generate profits. This was the end of the recession, as profits, even at reduced sales provide a foundation for future growth.
Of course whether the Government stimulus had much to do with this is a difficult question. To some extent it prevented some jobs from being eliminated but considering how slowly it has been implemented, much of it is yet to be felt. It certainly had a negligible impact on demand and the demand lost from the drop in home equity will not easily be replaced.
It is more likely that the companies, reacting to the drop in sales have simply entered into a reverse growth mode and scaled back operations sufficiently to be profitable. This is a sustainable act since the cost dropped will only be added back as growth dictates and in fact will most likely be added at a more productive level than they were previously.
Growth needs to be measured month over month to get a picture of what the status of the current economy actually is. Year over year comparisons don't work in the current scenario.
Monday, September 28, 2009
What we know
When you hear analysts talk about the outlook for the economy, they have to base their analysis on actual data. The problem with that is to some extent the fact that future events consist of three types. There is the known, things we know will happen and for which we can prepare. This area carries the least risk. The second category is the known unknowns. These are things we know may happen, but we also know may not happen, so the risk they present is somewhat predictable but dangerous. You can account for these in a strategy and plan for the various possibilities. The final area however are the unknown things we don't know about. Now, we all know things are going to happen that are completely unexpected. How do you plan for them?
You can't. If you think you can, you are clearly moving them into the category of known unknowns. For example, suppose you feel that in every previous economic downturn, new opportunities emerged that were completely unexpected, at least by most people. This is however a known unknown, we know that this type of crisis creates an environment where individuals and companies are forced to consider multiple options. This sort of creativity will result in opportunities, even if those opportunities are currently unknown.
The true unknown unknowns are not predictable. It is this uncertainty that ultimately means all forecasting must include a significant margin of error. Now, these unpredictable events are not necessarily bad, they can go either way. If you want an example of such an event, you could think about the terrorist attack on the World Trade Centers. Now, some might argue that this was more of a known, unknown and a terrorist attack now would fall into that category, but I would argue that prior to the 911 attacks, such an attack was simply not included in anyone's plans.
Now much of the objective of analysis is to eliminate the category of unknown unknowns and at least move them into the category of known unknowns. Of course, just when you think you have accomplished that, a new unknown unknown comes along.
You can't. If you think you can, you are clearly moving them into the category of known unknowns. For example, suppose you feel that in every previous economic downturn, new opportunities emerged that were completely unexpected, at least by most people. This is however a known unknown, we know that this type of crisis creates an environment where individuals and companies are forced to consider multiple options. This sort of creativity will result in opportunities, even if those opportunities are currently unknown.
The true unknown unknowns are not predictable. It is this uncertainty that ultimately means all forecasting must include a significant margin of error. Now, these unpredictable events are not necessarily bad, they can go either way. If you want an example of such an event, you could think about the terrorist attack on the World Trade Centers. Now, some might argue that this was more of a known, unknown and a terrorist attack now would fall into that category, but I would argue that prior to the 911 attacks, such an attack was simply not included in anyone's plans.
Now much of the objective of analysis is to eliminate the category of unknown unknowns and at least move them into the category of known unknowns. Of course, just when you think you have accomplished that, a new unknown unknown comes along.
Sunday, September 27, 2009
Thoughts
What was depicted as the great recession with the potential to destroy the economic system of the United States, has turned out to simply be the collapse of another bubble with significant implications, but certainly not a great depression.
The collapse of the real estate bubble and the panic of 2008-2009 will go down as a painful period in economic history, but as always, it was not the country destroying event depicted by some.
I certainly don't want to minimize the pain felt by so many and it is clear that the next few years will determine if the country can stop looking for the next big thing or settle down into a pattern of long term growth. There is tremendous opportunity for real growth and prosperity both in the United States and the rest of the world as technological and scientific improvements improve the standard of living for all. The questions facing everyone, is can we harness these improvements and stop some of the short sided thinking that has been so costly.
If you simply think for a few minutes, there is, within the United States more than enough food, space, natural resources and energy to assure everyone here a secure lifestyle. What is not so certain is if we can be as wasteful as we have been and still thrive.
Further, the growing prosperity of many emerging markets and the possibility of further development will simply further provide opportunity. It is making wise choices and developing clean energy and a healthy attitude towards our world that will determine the future.
The collapse of the real estate bubble and the panic of 2008-2009 will go down as a painful period in economic history, but as always, it was not the country destroying event depicted by some.
I certainly don't want to minimize the pain felt by so many and it is clear that the next few years will determine if the country can stop looking for the next big thing or settle down into a pattern of long term growth. There is tremendous opportunity for real growth and prosperity both in the United States and the rest of the world as technological and scientific improvements improve the standard of living for all. The questions facing everyone, is can we harness these improvements and stop some of the short sided thinking that has been so costly.
If you simply think for a few minutes, there is, within the United States more than enough food, space, natural resources and energy to assure everyone here a secure lifestyle. What is not so certain is if we can be as wasteful as we have been and still thrive.
Further, the growing prosperity of many emerging markets and the possibility of further development will simply further provide opportunity. It is making wise choices and developing clean energy and a healthy attitude towards our world that will determine the future.
Friday, September 25, 2009
Economic thoughts
I'm always amazed at how so many of the prognosticators act as if the world was inhabited by a large group of drones who weren't able to adapt to change. When you study a trend, as every prospectus in the world points out, past results are not necessarily indicative of the future.
Recently we have been living in a domestic consumer driven economy. In fact, the economy was almost 70% based on domestic consumer spending. Now, if consumer spending goes down, as it has, the economy becomes by definition less consumer dependant. Now it may also be smaller, and it is, but the recovery could be a resurgence of consumer spending or it could be instead a tremendous growth in exports and a greater reliance on American energy and American products.
This wouldn't mean that the consumer would be unimportant, but if the percentage of the economy dependant on the consumer drops to say 60% it doesn't necessarily mean that the entire economy also drops 10%. Agile businesses with excess capacity and potentially lower energy costs, may find ways to sell to the increasing demand in emerging markets. Further, each additional kilowatt of domestic energy reduces the amount of foreign energy required and increases the energy sector of our domestic economy.
Now, the economy has contracted because of the great amount of wealth we lost and the Government has provided a large amount of stimulus. This stimulus has been geared to increasing certain aspects of the economy, such as automobile production, clean energy and infrastructure improvement. All three of these areas have the potential to create a significant amount of jobs. However, they also have the potential to reduce our dependence on foreign products and increase our balance of payments.
It has been argued that our reliance on domestic consumer spending was unhealthy and fueled by easy credit and unrealistic asset prices. There is a simple formula that can be used to determine the health of an economy, the amount of wealth at the start of a period, plus the wealth created, less the wealth consumed. If the result of this formula is positive, it means the people in that economy are wealthier than they were at the start.
We have seen a decline in wealth due to asset devaluations. It is estimated that net household wealth since 2007 has fallen by about $11 trillion. This loss has been painful, but, this is still a tremendously wealthy country that will adapt to the changing circumstances we are faced with, people always do.
Recently we have been living in a domestic consumer driven economy. In fact, the economy was almost 70% based on domestic consumer spending. Now, if consumer spending goes down, as it has, the economy becomes by definition less consumer dependant. Now it may also be smaller, and it is, but the recovery could be a resurgence of consumer spending or it could be instead a tremendous growth in exports and a greater reliance on American energy and American products.
This wouldn't mean that the consumer would be unimportant, but if the percentage of the economy dependant on the consumer drops to say 60% it doesn't necessarily mean that the entire economy also drops 10%. Agile businesses with excess capacity and potentially lower energy costs, may find ways to sell to the increasing demand in emerging markets. Further, each additional kilowatt of domestic energy reduces the amount of foreign energy required and increases the energy sector of our domestic economy.
Now, the economy has contracted because of the great amount of wealth we lost and the Government has provided a large amount of stimulus. This stimulus has been geared to increasing certain aspects of the economy, such as automobile production, clean energy and infrastructure improvement. All three of these areas have the potential to create a significant amount of jobs. However, they also have the potential to reduce our dependence on foreign products and increase our balance of payments.
It has been argued that our reliance on domestic consumer spending was unhealthy and fueled by easy credit and unrealistic asset prices. There is a simple formula that can be used to determine the health of an economy, the amount of wealth at the start of a period, plus the wealth created, less the wealth consumed. If the result of this formula is positive, it means the people in that economy are wealthier than they were at the start.
We have seen a decline in wealth due to asset devaluations. It is estimated that net household wealth since 2007 has fallen by about $11 trillion. This loss has been painful, but, this is still a tremendously wealthy country that will adapt to the changing circumstances we are faced with, people always do.
Thursday, September 24, 2009
Oil, Oil Everywhere
One good thing that has probably come out of the economic crisis is the end of King Oil. Last year, for whatever reason, we had a tremendous spike up in the price of oil and gasoline. Now, considering the fact that oil remains plentiful, this price spike may have been caused by speculators or it could have been a reaction to short term supply and demand. It really doesn't matter because it was high enough and fast enough to add fuel to the fire that led to the deep recession that had probably already started and has made most Americans rethink energy usage.
As we start to see the economy recover, we are not seeing the spike in oil demand that some expect. Now, some say this indicates the recovery is weak but there is another potential answer. After the oil shock, we have seen more and more Americans start to conserve energy use, including leaving McMansions, buying more fuel efficient cars and considering alternate energy sources. We have also seen industry move in the same direction.
Now, is oil usage going to suddenly decline to zero? Of course not. However it should be noted that every time someone uses less gasoline or get a better mileage vehicle, improves energy efficiency or switches to a non oil based form of energy, whether it is coal, gas, solar, wind or nuclear, this is a reduction in oil demand that is gone forever. So, even if the economy was to return to pre-recession levels, oil demand will be less than it was.
Now the other impact of the price increases was an increase in oil exploration and quite a bit of success in finding additional oil supplies. Now, some of the new supplies will take awhile to get to market, but considering the fact that commodity prices are quite sensitive to short term trends, any increase in supply with a decrease in demand can have a disproportionate impact on oil pricing.
So will oil prices spike? In the world of commodities, and especially oil, spikes are easily created based on speculation, rumors or short term factors. However, considering all the programs designed to reduce oil usage via use of other energy sources, more fuel efficient vehicles, and overall better energy usage, the supply of oil will exceed demand on a long term basis. The real problem could be that oil goes so cheap that it makes the use of other energy inefficient. However, considering the environmental issues that are more prevalent than they were in the 1980s, it is hard to imagine we are going to relive that part of our history.
As we start to see the economy recover, we are not seeing the spike in oil demand that some expect. Now, some say this indicates the recovery is weak but there is another potential answer. After the oil shock, we have seen more and more Americans start to conserve energy use, including leaving McMansions, buying more fuel efficient cars and considering alternate energy sources. We have also seen industry move in the same direction.
Now, is oil usage going to suddenly decline to zero? Of course not. However it should be noted that every time someone uses less gasoline or get a better mileage vehicle, improves energy efficiency or switches to a non oil based form of energy, whether it is coal, gas, solar, wind or nuclear, this is a reduction in oil demand that is gone forever. So, even if the economy was to return to pre-recession levels, oil demand will be less than it was.
Now the other impact of the price increases was an increase in oil exploration and quite a bit of success in finding additional oil supplies. Now, some of the new supplies will take awhile to get to market, but considering the fact that commodity prices are quite sensitive to short term trends, any increase in supply with a decrease in demand can have a disproportionate impact on oil pricing.
So will oil prices spike? In the world of commodities, and especially oil, spikes are easily created based on speculation, rumors or short term factors. However, considering all the programs designed to reduce oil usage via use of other energy sources, more fuel efficient vehicles, and overall better energy usage, the supply of oil will exceed demand on a long term basis. The real problem could be that oil goes so cheap that it makes the use of other energy inefficient. However, considering the environmental issues that are more prevalent than they were in the 1980s, it is hard to imagine we are going to relive that part of our history.
Wednesday, September 23, 2009
On the other hand
I have been hearing a lot of "on the other hand" analysis recently. These are the people who find the dark cloud inside every silver lining. Now, it certainly is good to be cautious, especially after what the economy has been through but it is pretty easy to overdo it.
I read an analysis meant to counter an observation that ARMs resetting may not be a major problem because interest rates are so low. The dark cloud indicated by this analyst was that while, yes interest rates are low now but what if they go up? Also, some of these mortgages, and no numbers were provided, were exotic mortgages that allowed payments to be negative equity and lots of other things that could still blow up so we should all buy a lot of canned goods and head to the mountains with our gold.
Oh, and analyst after analyst first like to say the stimulus was poorly directed, but then when there is any good news, they say it was all caused by the stimulus and when that ends we should all buy some canned goods and head to the mountains with our gold.
Of course stock prices are clearly unsustainable and when the people buying stocks finally realize they have been making money in a sucker's rally things will get really bad and we should all buy some canned goods and head for the mountains with our gold.
Speaking of gold, the dollar is about to collapse, leading to rampant inflation as soon as those Chinese buyer of our bonds wise up. Better buy some canned goods and head for the mountains with our gold.
I actually could go on and on, the impending trade war with China, the upcoming explosion in oil prices, the commercial real estate collapse, the loss of all that banking talent because the Government is limiting bonuses, the further declines in housing prices, the W recovery (I guess in honor of our recent President), etc. etc.
Meanwhile, those of us suckers enjoying our stock rally are getting really nervous about the best way to spend our profits. I guess canned goods is one way to go.
I read an analysis meant to counter an observation that ARMs resetting may not be a major problem because interest rates are so low. The dark cloud indicated by this analyst was that while, yes interest rates are low now but what if they go up? Also, some of these mortgages, and no numbers were provided, were exotic mortgages that allowed payments to be negative equity and lots of other things that could still blow up so we should all buy a lot of canned goods and head to the mountains with our gold.
Oh, and analyst after analyst first like to say the stimulus was poorly directed, but then when there is any good news, they say it was all caused by the stimulus and when that ends we should all buy some canned goods and head to the mountains with our gold.
Of course stock prices are clearly unsustainable and when the people buying stocks finally realize they have been making money in a sucker's rally things will get really bad and we should all buy some canned goods and head for the mountains with our gold.
Speaking of gold, the dollar is about to collapse, leading to rampant inflation as soon as those Chinese buyer of our bonds wise up. Better buy some canned goods and head for the mountains with our gold.
I actually could go on and on, the impending trade war with China, the upcoming explosion in oil prices, the commercial real estate collapse, the loss of all that banking talent because the Government is limiting bonuses, the further declines in housing prices, the W recovery (I guess in honor of our recent President), etc. etc.
Meanwhile, those of us suckers enjoying our stock rally are getting really nervous about the best way to spend our profits. I guess canned goods is one way to go.
Tuesday, September 22, 2009
Doom you say?
There are some people who predict bad things all the time. Now they may firmly believe the predictions they make but generally, what they predict does not come true. Of course the same thing can be said about those who constantly predict only good things. Now, we are all aware of the old saw about whether a glass is half empty or half full. Now, looking at that isolated event it is impossible to know if it is in the process of being filled or being emptied. However much of the forecasting that goes on is based on isolated bits of information.
For example, because of the recent crisis, the Government has provided stimulus to the economy. If you only look at that fact, you may easily predict inflation because of the additional money and debt and higher taxes. Now, those things are possible but there are many other scenarios that shouldn't be ignored. The basic concept of capitalism is that you need to invest in order to reap ultimate benefits. If the Government stimulus jump starts the economy and ends up causing 10 times as much economic activity as the amount spent, the taxes collected from that increase will more than pay for the stimulus without increasing tax rates. Now, that may be an overly optimistic view, but clearly, the result falls somewhere between no additional revenues being collected and some multiple many times the amount spent.
The ultimate result depends on how well it was crafted. Now, once again there are those convinced that everything the Government touches is doomed so they see no positive result.
It should be noted that doomsayers in general are sometimes right. With the recent economic problems they have gained a level of prestige that rewards the fact that their general pessimistic outlook finally seemed to prevail. However, much like any soothsayer, it would really require a full analysis of their record over time to determine their credibility.
The current arguments that the current rally is a bear market rally and that we are destined to have a double dip and retest the March lows are predictions being made by some of these doomsayers. Now, you can look at upcoming foreclosures and problems in commercial real estate and assuming that nothing is going to be done come to terrible conclusions. However, it should be pointed out that had the Government not decided to crucify Lehman last year, we may easily have had a very different recession over the last 12 months. Many of the doomsayers were only proven right because the Government officials having espoused free market malarkey decided that they could let a major financial institution collapse and almost destroy the financial markets. It is unlikely that any Government officials will be quite so cavalier for a long, long time.
Now, we may have a correction and we may have a dip in the recovery. However, it is much more likely that the improvements we are seeing will start to grow and ignite the economy into fairly robust growth. It always looks bad near the bottom and in a few year I expect to hear analysts discussing what was the basis for the economic growth and how so many missed the signs.
Of course our doomsayers will toil on, but by then will once again be largely ignored.
For example, because of the recent crisis, the Government has provided stimulus to the economy. If you only look at that fact, you may easily predict inflation because of the additional money and debt and higher taxes. Now, those things are possible but there are many other scenarios that shouldn't be ignored. The basic concept of capitalism is that you need to invest in order to reap ultimate benefits. If the Government stimulus jump starts the economy and ends up causing 10 times as much economic activity as the amount spent, the taxes collected from that increase will more than pay for the stimulus without increasing tax rates. Now, that may be an overly optimistic view, but clearly, the result falls somewhere between no additional revenues being collected and some multiple many times the amount spent.
The ultimate result depends on how well it was crafted. Now, once again there are those convinced that everything the Government touches is doomed so they see no positive result.
It should be noted that doomsayers in general are sometimes right. With the recent economic problems they have gained a level of prestige that rewards the fact that their general pessimistic outlook finally seemed to prevail. However, much like any soothsayer, it would really require a full analysis of their record over time to determine their credibility.
The current arguments that the current rally is a bear market rally and that we are destined to have a double dip and retest the March lows are predictions being made by some of these doomsayers. Now, you can look at upcoming foreclosures and problems in commercial real estate and assuming that nothing is going to be done come to terrible conclusions. However, it should be pointed out that had the Government not decided to crucify Lehman last year, we may easily have had a very different recession over the last 12 months. Many of the doomsayers were only proven right because the Government officials having espoused free market malarkey decided that they could let a major financial institution collapse and almost destroy the financial markets. It is unlikely that any Government officials will be quite so cavalier for a long, long time.
Now, we may have a correction and we may have a dip in the recovery. However, it is much more likely that the improvements we are seeing will start to grow and ignite the economy into fairly robust growth. It always looks bad near the bottom and in a few year I expect to hear analysts discussing what was the basis for the economic growth and how so many missed the signs.
Of course our doomsayers will toil on, but by then will once again be largely ignored.
Monday, September 21, 2009
Time of the season
There are some people who tend to treat the stock market much like ancient people treated the world in general, basing projections upon various omens and past experience instead of looking at fundamental economic data.
There has been an ongoing belief that September and October are scary months for the market and in the past there have been significant downturns in those months. However, there have also been year where the market has gone up in those months. Now, it does turn out that September is the end of the Federal Government's fiscal year and October the beginning, and there have been enough times when budget changes, or the political process had led to increased uncertainty, and increased uncertainty is always a bad thing for equities as people want to reduce risk.
This year, there is no suspense over the budget so we have not seen that impact. Are there other things particularly ominous about these months? Well, the only other significant factor in the past was that many brokers came back from summer vacations and evaluated what had happened over the summer. This could lead to significant market moves as in effect we would have a few months of news being reacted to. However, with the advent of modern technology and the 24 hour access we all have now, this impact is just not there anymore.
Of course a third factor is simply the reputation these two months have. Once again, the belief that they are "down" months may make investors nervous and once again nervous investors seek safety. This self fulfilling prophecy may be the most significant, but it certainly isn't reliable, especially in a period where money managers are looking for entry points into an up market.
And this may be the most important factor of all in today's market. Money Managers have to address quarterly results at the end of September. You want to own the "hot" stocks that your investors expect you to own. Of course if the market is tanking, you want to get out of positions that make you look bad.
So, for all those who expect bad things to happen, and we could have a down or an up market in September and October because of the fundamentals, I think the time of year is simply not something to determine how you invest.
There has been an ongoing belief that September and October are scary months for the market and in the past there have been significant downturns in those months. However, there have also been year where the market has gone up in those months. Now, it does turn out that September is the end of the Federal Government's fiscal year and October the beginning, and there have been enough times when budget changes, or the political process had led to increased uncertainty, and increased uncertainty is always a bad thing for equities as people want to reduce risk.
This year, there is no suspense over the budget so we have not seen that impact. Are there other things particularly ominous about these months? Well, the only other significant factor in the past was that many brokers came back from summer vacations and evaluated what had happened over the summer. This could lead to significant market moves as in effect we would have a few months of news being reacted to. However, with the advent of modern technology and the 24 hour access we all have now, this impact is just not there anymore.
Of course a third factor is simply the reputation these two months have. Once again, the belief that they are "down" months may make investors nervous and once again nervous investors seek safety. This self fulfilling prophecy may be the most significant, but it certainly isn't reliable, especially in a period where money managers are looking for entry points into an up market.
And this may be the most important factor of all in today's market. Money Managers have to address quarterly results at the end of September. You want to own the "hot" stocks that your investors expect you to own. Of course if the market is tanking, you want to get out of positions that make you look bad.
So, for all those who expect bad things to happen, and we could have a down or an up market in September and October because of the fundamentals, I think the time of year is simply not something to determine how you invest.
Sunday, September 20, 2009
On-line shopping
Some of the changes in the way Americans live are blatantly obvious but still not fully integrated into the way markets are perceived. Oddly, before the tremendous expansion of suburbs and retail malls, many Americans used to do much of their shopping via catalogs, making Montgomery Ward and Sears tremendously successful retailers.
As more and more Americans started having access to real stores and the means to get there easily we saw the mail catalog business decline, until it became a very small segment of the total picture and some of the great catalog sellers of the past, discontinued it completely.
So we have seen the golden age of brick and mortar but since the mid 1990s, we have started to see the start of a new phase of what is essentially catalog sales, the on-line retailer. Taking a cue from large chains that get great volume discounts, the on-line retailer, once it grabs enough market, can match and beat the store prices because of the efficiencies related to large computerized storage facilities.
To some extent, the whole cost of the physical retail operations of these large chains, such as Walmart can be avoided and while it is replace by shipping in some cases, the competitive world of shipping has in many cases made that cost insignificant. Further, the shopper, saves the cost of going to a mall and for many the aggravation associated with that experience. It also provides the shopper to do his/her shopping when it is convenient, not when the store is open and, you don't have to worry as much about availability of inventory or sizes since the central inventories of the on-line shops are much larger than that of any individual store.
Now, we still have a great majority of Americans who do their shopping in person, but the trend to on-line is clear. Some hurdles related to payment method and fear of identity theft will slow the move, but every person who start to use on-line is generally permanently hooked into doing at least some of their shopping this way.
We have a number of pure on-line retailers, such as Amazon and E-Bay but we are now seeing the more agile brick and mortar companies enter this space in a bigger and bigger way. However, the winner among the retailers is yet to be determined but the increase in on-line shopping is not in doubt.
As more and more Americans started having access to real stores and the means to get there easily we saw the mail catalog business decline, until it became a very small segment of the total picture and some of the great catalog sellers of the past, discontinued it completely.
So we have seen the golden age of brick and mortar but since the mid 1990s, we have started to see the start of a new phase of what is essentially catalog sales, the on-line retailer. Taking a cue from large chains that get great volume discounts, the on-line retailer, once it grabs enough market, can match and beat the store prices because of the efficiencies related to large computerized storage facilities.
To some extent, the whole cost of the physical retail operations of these large chains, such as Walmart can be avoided and while it is replace by shipping in some cases, the competitive world of shipping has in many cases made that cost insignificant. Further, the shopper, saves the cost of going to a mall and for many the aggravation associated with that experience. It also provides the shopper to do his/her shopping when it is convenient, not when the store is open and, you don't have to worry as much about availability of inventory or sizes since the central inventories of the on-line shops are much larger than that of any individual store.
Now, we still have a great majority of Americans who do their shopping in person, but the trend to on-line is clear. Some hurdles related to payment method and fear of identity theft will slow the move, but every person who start to use on-line is generally permanently hooked into doing at least some of their shopping this way.
We have a number of pure on-line retailers, such as Amazon and E-Bay but we are now seeing the more agile brick and mortar companies enter this space in a bigger and bigger way. However, the winner among the retailers is yet to be determined but the increase in on-line shopping is not in doubt.
Saturday, September 19, 2009
Market valuation
With the current low rates available on treasury bills, and the current low inflation rate, what is an appropriate P/E ratio for stocks. Now excepting variations based upon growth and individual stock expectations, if we assume that the additional risk in the stock market requires twice the returns you can get in a 10 year t-bill, that would be 7%. Now, that is a P/E of 14. However a 3.5% premium over the 10 year is a very high risk premium and generally we would expect a premium of 1.5 to 2% for stock returns or a resulting p/e of 18. Based on what I believe profits in the next quarter are going to be for the S&P 500, that would result in a level of at least 1200. Now if growth is greater, the valuation would be higher.
As I hear analyst after analyst talking about how the market has gotten ahead of itself, the only justification I ever hear is that current profits are based on cost cutting and without revenue growth, they are unsustainable. I fail to understand why if everything stayed the same the profits would go down. The only real likelihood is that if top line growth appears, and it will, that profits will be greatly higher.
As I hear analyst after analyst talking about how the market has gotten ahead of itself, the only justification I ever hear is that current profits are based on cost cutting and without revenue growth, they are unsustainable. I fail to understand why if everything stayed the same the profits would go down. The only real likelihood is that if top line growth appears, and it will, that profits will be greatly higher.
Friday, September 18, 2009
Growth thoughts
As bad as the current recession has been, to some extent the reaction to certain events, or maybe I should say the over-reaction, was worse than the actual event itself.
The initiation of the recession was to some extent initiated (not caused) by two specific events. The first of these was when housing prices got so high that even with amazingly easy credit, buyers were no longer available. Part of this was related to the overbuilding in many parts of the country to take advantage of what seemed like the ever increasing real estate bubble.
The second event was the oil shock of 2008. It is very hard to see any real reason for the rapid run-up in oil and gasoline prices we had at that time except for speculation. However, the increase in gasoline and other oil related prices diverted a significant amount of spending away from other items at the same time that companies were seeing costs increasing.
When housing prices actually started to decline, and we lost the spending related to home equity loans as well as the loss in consumption due to high energy costs, the economy had to correct. Of course we all learned that the financial community had made extremely foolish decisions based on erroneous assumptions and lets face it, outright greed, that required a robust housing market.
When the housing market slowed and then declined, jobs were lost, sub prime mortgages were defaulted, and all of a sudden many billions of securitized debt lost significant value. The dramatic events that followed are fairly well known and the financial turmoil exacerbated the recession that might otherwise have been fairly mild.
Now as the recession comes to an end, we see housing has fallen to levels that are probably lower than they should be. However, we still have an oversupply of housing in some areas, the big four (California, Nevada, Florida and Arizona) that will keep those prices depressed for quite a while. However, in other parts of the country we should see price appreciation. Further, energy prices are likely going to stay near current levels, since more fuel efficient vehicles and other energy saving options and alternative fuels will keep downward price pressure on oil.
So, we need something to ignite job growth. I believe we may already have the ignition between the stimulus and the return of the consumer. Since in reaction to the "panic of 2008" we saw companies slash costs and reduce inventories, we are now going to see an uptick as some hiring will take place in manufacturing and retail. I also believe that the alternative and renewable energy fields will increase employment as well as the jobs related to the stimulus.
Increased employment, will mean increased need for housing and some price appreciation, at least in most of the country. That is the seeds for a sustained recovery and one that may start to heat up fairly soon. However, I don't think inflation will be a problem in the near term, especially as the imports of oil decrease and improve our balance of payments. A slightly weaker dollar internationally, will cause imports to be more expensive and improve our export capability. However, weaker demand for many of these products will force prices to stay low as efficiencies will be required to remain competitive.
The initiation of the recession was to some extent initiated (not caused) by two specific events. The first of these was when housing prices got so high that even with amazingly easy credit, buyers were no longer available. Part of this was related to the overbuilding in many parts of the country to take advantage of what seemed like the ever increasing real estate bubble.
The second event was the oil shock of 2008. It is very hard to see any real reason for the rapid run-up in oil and gasoline prices we had at that time except for speculation. However, the increase in gasoline and other oil related prices diverted a significant amount of spending away from other items at the same time that companies were seeing costs increasing.
When housing prices actually started to decline, and we lost the spending related to home equity loans as well as the loss in consumption due to high energy costs, the economy had to correct. Of course we all learned that the financial community had made extremely foolish decisions based on erroneous assumptions and lets face it, outright greed, that required a robust housing market.
When the housing market slowed and then declined, jobs were lost, sub prime mortgages were defaulted, and all of a sudden many billions of securitized debt lost significant value. The dramatic events that followed are fairly well known and the financial turmoil exacerbated the recession that might otherwise have been fairly mild.
Now as the recession comes to an end, we see housing has fallen to levels that are probably lower than they should be. However, we still have an oversupply of housing in some areas, the big four (California, Nevada, Florida and Arizona) that will keep those prices depressed for quite a while. However, in other parts of the country we should see price appreciation. Further, energy prices are likely going to stay near current levels, since more fuel efficient vehicles and other energy saving options and alternative fuels will keep downward price pressure on oil.
So, we need something to ignite job growth. I believe we may already have the ignition between the stimulus and the return of the consumer. Since in reaction to the "panic of 2008" we saw companies slash costs and reduce inventories, we are now going to see an uptick as some hiring will take place in manufacturing and retail. I also believe that the alternative and renewable energy fields will increase employment as well as the jobs related to the stimulus.
Increased employment, will mean increased need for housing and some price appreciation, at least in most of the country. That is the seeds for a sustained recovery and one that may start to heat up fairly soon. However, I don't think inflation will be a problem in the near term, especially as the imports of oil decrease and improve our balance of payments. A slightly weaker dollar internationally, will cause imports to be more expensive and improve our export capability. However, weaker demand for many of these products will force prices to stay low as efficiencies will be required to remain competitive.
Thursday, September 17, 2009
Cultural changes
One of the outcomes of the recent recession is that certain trends that had started to influence the ways people lived and did business have been accelerated. Between the oil shock and the financial shock of the last two years, we are moving to a society that uses less energy, does less travel and spends less.
Now these are actually good and necessary changes, but they will influence the recovery and will influence the profitability of certain industries. We just finished a period that was exceptionally excessive in the wasteful nature exhibited. Low energy costs and the exploitation of areas that were somewhat remote from traditional areas, led to McMansions, large fuel guzzling SUVs and a tremendous increase in business and vacation travel.
Considering the improvements in technology and the awareness of the environmental issues that were were developing at the same time we had a potential conflict brewing between these contradictory trends. However, the conflict was resolved by the recession, at least for now. We have been forced to abandon marginal and overly large housing and switch to more energy efficient autos. Also, the cost of travel in both expense and lost productivity is also becoming more and more unnecessary as technology provides cheaper and more productive alternatives.
As the economy improves, we may see some minor reversals in these trends, however, the shock has been so great that I believe we have turned a corner and that these environmentally friendlier and more cost effective trends will continue.
So what is the impact of this? Certainly auto makers have started to adjust. Further, I believe the real hope for housing recovery is to work on making existing homes more energy efficient and able to utilize renewable energy. Also, hotels and travel related industries need to adjust to what is most likely a permanent or at least long term decrease in business. This will of course drive out inefficient operators and allow those able to adjust survival.
Now these are actually good and necessary changes, but they will influence the recovery and will influence the profitability of certain industries. We just finished a period that was exceptionally excessive in the wasteful nature exhibited. Low energy costs and the exploitation of areas that were somewhat remote from traditional areas, led to McMansions, large fuel guzzling SUVs and a tremendous increase in business and vacation travel.
Considering the improvements in technology and the awareness of the environmental issues that were were developing at the same time we had a potential conflict brewing between these contradictory trends. However, the conflict was resolved by the recession, at least for now. We have been forced to abandon marginal and overly large housing and switch to more energy efficient autos. Also, the cost of travel in both expense and lost productivity is also becoming more and more unnecessary as technology provides cheaper and more productive alternatives.
As the economy improves, we may see some minor reversals in these trends, however, the shock has been so great that I believe we have turned a corner and that these environmentally friendlier and more cost effective trends will continue.
So what is the impact of this? Certainly auto makers have started to adjust. Further, I believe the real hope for housing recovery is to work on making existing homes more energy efficient and able to utilize renewable energy. Also, hotels and travel related industries need to adjust to what is most likely a permanent or at least long term decrease in business. This will of course drive out inefficient operators and allow those able to adjust survival.
Wednesday, September 16, 2009
Oil Prices
Generally, there is a belief that Oil Prices will go up as the world economies continue to improve. Is a significant long term rise in oil prices likely?
I think not. Now, over shorter terms there is no way to determine how the speculation will go. Especially considering the weak dollar, we may see some upward price movement. However, if you consider the basic premise that demand for oil will increase, you have to also consider the fact that supply of oil and other energy sources is increasing faster.
There have been oil supply disruptions in Iraq and Nigeria that seem to be diminishing. Also, we continue to hear about significant new finds in various parts of the world.
So the supply of oil is actually on the increase. So is demand going to go up faster than supply? It doesn't seem likely when you consider that other energy sources, notable natural gas and renewable energy sources are growing in supply. Further, there is a renewed interest in the development of Nuclear. It would take a very significant growth in energy demand to create a long term oil shortage of the type that would drive up prices.
In the US which is still the most significant user, we are seeing a move to more fuel efficient cars, more efficient energy usage and development of natural gas, coal, and renewable.
In developing countries, while oil use is increasing, they are also looking into ways to reduce use and both China and India are likely to make use of alternate energy sources on an ever increasing basis.
So, while there can always be short term fluctuations in price, the future of energy costs is extremely favorable and is unlikely to result in high oil prices.
I think not. Now, over shorter terms there is no way to determine how the speculation will go. Especially considering the weak dollar, we may see some upward price movement. However, if you consider the basic premise that demand for oil will increase, you have to also consider the fact that supply of oil and other energy sources is increasing faster.
There have been oil supply disruptions in Iraq and Nigeria that seem to be diminishing. Also, we continue to hear about significant new finds in various parts of the world.
So the supply of oil is actually on the increase. So is demand going to go up faster than supply? It doesn't seem likely when you consider that other energy sources, notable natural gas and renewable energy sources are growing in supply. Further, there is a renewed interest in the development of Nuclear. It would take a very significant growth in energy demand to create a long term oil shortage of the type that would drive up prices.
In the US which is still the most significant user, we are seeing a move to more fuel efficient cars, more efficient energy usage and development of natural gas, coal, and renewable.
In developing countries, while oil use is increasing, they are also looking into ways to reduce use and both China and India are likely to make use of alternate energy sources on an ever increasing basis.
So, while there can always be short term fluctuations in price, the future of energy costs is extremely favorable and is unlikely to result in high oil prices.
Tuesday, September 15, 2009
Money Supply
In a simplistic view, the amount of the deficit is seen as increasing the amount of money in the system and therefore leading to inflation. This view is only true if the money theoretically created gets into circulation and is greater than the amount of money that leaves the system.
Money is created in part by banks making loans. Based on the reserve requirements, banks can lend more money than they have in deposits. The idea behind this is that they have enough in reserve to meet demand while increasing liquidity in the system.
What should not be forgotten is that a lot of money has left the system, based on increases in reserve requirements, the failure of both banks and private (shadow banks) lending organizations and the tighter credit requirements. Further, the value of one's assets represent money available to the system to the extent that the asset valuations exceed current debt. To have an increase in the money supply we would need more money created than has disappeared.
Considering how greatly asset valuations, particularly in home values, has fallen this represents a tremendous decrease in the money supply. As foreclosures have increased, the reserves to cover these foreclosures must be replaced or the total lending has to be decreased to maintain reserve requirements.
In 2008, about 11 trillion dollars of wealth was lost in the United States. This means an amount between 3-4 trillion dollars and 11 trillion dollars left the money supply depending on reserve requirements. The total deficit in no way is able to replace that amount of lost money.
There is less money in circulation than there was two years ago.
Money is created in part by banks making loans. Based on the reserve requirements, banks can lend more money than they have in deposits. The idea behind this is that they have enough in reserve to meet demand while increasing liquidity in the system.
What should not be forgotten is that a lot of money has left the system, based on increases in reserve requirements, the failure of both banks and private (shadow banks) lending organizations and the tighter credit requirements. Further, the value of one's assets represent money available to the system to the extent that the asset valuations exceed current debt. To have an increase in the money supply we would need more money created than has disappeared.
Considering how greatly asset valuations, particularly in home values, has fallen this represents a tremendous decrease in the money supply. As foreclosures have increased, the reserves to cover these foreclosures must be replaced or the total lending has to be decreased to maintain reserve requirements.
In 2008, about 11 trillion dollars of wealth was lost in the United States. This means an amount between 3-4 trillion dollars and 11 trillion dollars left the money supply depending on reserve requirements. The total deficit in no way is able to replace that amount of lost money.
There is less money in circulation than there was two years ago.
Monday, September 14, 2009
Should the Government trust Wall Street?
Now that the financial system appears relatively safe, there is an uproar on Wall Street about the extent of Government involvement and the fact that the US Government is so invested in some of our major companies, like GM, CitiBank, AIG etc.
So Wall Street wants the Government to disengage and let them get back to business. Of course the big question you have to ask is what is this business they need to get back to?
Clearly, left largely to their own devices under the previous administration, this business was actually, risky business. Now, in a movie by that name, risky business involved prostitution and on wall street, it has a very similar meaning, in which they take your money and then they do something to you.
I just love to hear the "purists" decry big Government and unnecessary Government intrusion. Of course when they end up losing billions of dollars, many of these same purists learn a different song.
I don't think the Government should hold on to company stock, although, maybe they should use it to prop up Social Security and/or Medicare. However, they do need to make sure that companies that are in the business of handling other people's money, are following strict rules and have transparency. Who cares if Wall Street likes it, its usually not even their money.
So Wall Street wants the Government to disengage and let them get back to business. Of course the big question you have to ask is what is this business they need to get back to?
Clearly, left largely to their own devices under the previous administration, this business was actually, risky business. Now, in a movie by that name, risky business involved prostitution and on wall street, it has a very similar meaning, in which they take your money and then they do something to you.
I just love to hear the "purists" decry big Government and unnecessary Government intrusion. Of course when they end up losing billions of dollars, many of these same purists learn a different song.
I don't think the Government should hold on to company stock, although, maybe they should use it to prop up Social Security and/or Medicare. However, they do need to make sure that companies that are in the business of handling other people's money, are following strict rules and have transparency. Who cares if Wall Street likes it, its usually not even their money.
Sunday, September 13, 2009
Thoughts on the economy
A year ago there was general fear, and with good reason, that the financial system that allowed business to operate was in serious danger. We had already seen the Government bail out Freddie and Fannie and there were frantic negotiations going on about Lehman Brothers. We all know that the result of all that effort was futile and Lehman declared bankruptcy, the market dropped and the big question everyone had was who was next?
Since then we have seen Governments prop up many financial institutions, restore a degree of confidence in the financial system and sow the seeds of recovery. There are some who feel that all these efforts are actually counterproductive, and that the ill that infest the financial system have been allowed to continue. These doomsayers expect that the "house of cards" created by the Government will collapse once again and we will end up worse off than we would have been had we not tried to prop up a doomed system.
Meanwhile, the actual economic activity of the country has contracted and is starting to grow from it new base. The loss in wealth related to asset devaluation is significant and has reduced the amount consumers have to spend. With this reduced level of consumer spending, companies have reduced costs to remain profitable and in doing so have reduced staff leading to significant unemployment. Many of these jobs will never come back, even as these companies grow since technology and automation will be employed to avoid the high cost of labor.
I believe that the devaluation of the dollar will make our exports more competitive, increase the cost of foreign energy, promoting faster utilization of domestic resources and stabilize our balance of payments. This will help to create jobs to reduce unemployment and create increase consumer demand. It will take a bit of time for housing to start to recover although it will be faster in some parts of the country. A few areas, and some of our previous fastest growers, may find themselves in contraction for quite awhile. California, despite its desirable climate, seems intent on self destruction. Florida needs an industry that doesn't rely on population growth to sustain it. Nevada has relied on Gambling and more and more competition is being created every day. Arizona has been so dependant on Southern California real estate values that its prosperity is clearly in jeopardy for quite awhile. All of these States have an opportunity to develop solar energy alternatives because of their climates and that could help them recover and reduce local costs.
Most of the rest of the country will recover faster since the boom growth was not as pronounced as it was in those four states. One of the things that is inevitable is that the percentage of the economy related to domestic consumer spending will decrease. This is the result of the asset devaluations and it will be replaced to some extent by the growth of our domestic energy industry and increased exports due to the weak dollar. The growth of emerging markets will be a significant boost for many of our industries. Of course as more jobs are created, consumer spending will recover to some extent, but it is unlikely to be as high a percentage as it was.
Some of this reduction is going to be related to reduced prices for any items as industries have cut costs to remain competitive. We will likely see inflation in import prices and deflation in domestic prices, driven by reduced demand. This will of course force companies who rely heavily on imports to look for domestic options, such as energy. However, there is too much slack in the domestic market for inflation to be a major problem for quite a while.
Since then we have seen Governments prop up many financial institutions, restore a degree of confidence in the financial system and sow the seeds of recovery. There are some who feel that all these efforts are actually counterproductive, and that the ill that infest the financial system have been allowed to continue. These doomsayers expect that the "house of cards" created by the Government will collapse once again and we will end up worse off than we would have been had we not tried to prop up a doomed system.
Meanwhile, the actual economic activity of the country has contracted and is starting to grow from it new base. The loss in wealth related to asset devaluation is significant and has reduced the amount consumers have to spend. With this reduced level of consumer spending, companies have reduced costs to remain profitable and in doing so have reduced staff leading to significant unemployment. Many of these jobs will never come back, even as these companies grow since technology and automation will be employed to avoid the high cost of labor.
I believe that the devaluation of the dollar will make our exports more competitive, increase the cost of foreign energy, promoting faster utilization of domestic resources and stabilize our balance of payments. This will help to create jobs to reduce unemployment and create increase consumer demand. It will take a bit of time for housing to start to recover although it will be faster in some parts of the country. A few areas, and some of our previous fastest growers, may find themselves in contraction for quite awhile. California, despite its desirable climate, seems intent on self destruction. Florida needs an industry that doesn't rely on population growth to sustain it. Nevada has relied on Gambling and more and more competition is being created every day. Arizona has been so dependant on Southern California real estate values that its prosperity is clearly in jeopardy for quite awhile. All of these States have an opportunity to develop solar energy alternatives because of their climates and that could help them recover and reduce local costs.
Most of the rest of the country will recover faster since the boom growth was not as pronounced as it was in those four states. One of the things that is inevitable is that the percentage of the economy related to domestic consumer spending will decrease. This is the result of the asset devaluations and it will be replaced to some extent by the growth of our domestic energy industry and increased exports due to the weak dollar. The growth of emerging markets will be a significant boost for many of our industries. Of course as more jobs are created, consumer spending will recover to some extent, but it is unlikely to be as high a percentage as it was.
Some of this reduction is going to be related to reduced prices for any items as industries have cut costs to remain competitive. We will likely see inflation in import prices and deflation in domestic prices, driven by reduced demand. This will of course force companies who rely heavily on imports to look for domestic options, such as energy. However, there is too much slack in the domestic market for inflation to be a major problem for quite a while.
Saturday, September 12, 2009
Foreclosures
One thing about economics is that when an asset gets cheap, someone will figure out how to utilize it to make money. If you consider our current housing situation, we see an excess of housing in certain parts of the country because of overbuilding. This has caused housing prices to decrease to the point that speculators are starting to buy them with the hope of future profits.
Now, if you simply put together some charts in a room, the economics of housing in certain areas simply don't look good. We continue to have high unemployment and excess housing, meaning that folks losing their jobs can't sell their houses and end up in foreclosure. Of course, we are starting to hear about some speculative initiatives that may easily impact this.
The simplest solution for banks and perhaps the Government would be to find a way to allow the current occupants to stay in these homes until economic conditions improve. Clearly, it is in no ones interest to foreclose on a house when there is no market for it. It would seem that a program that reduced payments for a period of time, with potential additional losses underwritten by the Government could go a long way to reducing foreclosures and potentially cost the taxpayers relatively little.
For example, suppose there is a family in a house with a payment of $3,000 a month. Now, perhaps the payment has recently adjusted, or one of the owners has lost their job recently and they cannot make this payment. If we assume that the cost of the foreclosure is $20,000 for legal fees and if the house's value in the marketplace is below the value on the bank's book, foreclosing on this house will be an expensive proposition. However, the bank's rules do not allow them to refinance the house since it possibly does not have enough value for the amount owed and the occupant's do not have enough income.
I would argue, that assuming the economy will recover and the occupant's will become employed again, that the bank's work out a payment that allows small payments to be made for a year. I think as part of the stimulus the payments should be backed up by the Government and the bank at the end of the year should be no worse off than they would be today. Effectively, this would mean that the bank would put a gap into the current mortgage and suspend it for a year. During that year interest would accrue up to the point that the payments made did not cover the interest on the mortgage. At the end of the year, the mortgage would either resume or if the situation had not improved, foreclosure would proceed. The increase in the book value of the asset, related to the fact that negative amortization had taken place for the year would be guaranteed under the stimulus plan. So if the bank asset per the mortgage at the beginning of the year had been 400,000 and because of negative amortization it was now 430,000, the Government would reimburse the bank the portion of the 30,000 not recovered in the sale of the asset. So if after foreclosure it sold for 300,000 the bank loss would still be 100,000.
Now, to qualify for a program like this, certain conditions would have to be met and the closer the occupant could come to paying the full interest costs, the less the potential cost to the Government. Also, every foreclosure avoided this way would save the banks a significant amount.
Just thoughts.
Now, if you simply put together some charts in a room, the economics of housing in certain areas simply don't look good. We continue to have high unemployment and excess housing, meaning that folks losing their jobs can't sell their houses and end up in foreclosure. Of course, we are starting to hear about some speculative initiatives that may easily impact this.
The simplest solution for banks and perhaps the Government would be to find a way to allow the current occupants to stay in these homes until economic conditions improve. Clearly, it is in no ones interest to foreclose on a house when there is no market for it. It would seem that a program that reduced payments for a period of time, with potential additional losses underwritten by the Government could go a long way to reducing foreclosures and potentially cost the taxpayers relatively little.
For example, suppose there is a family in a house with a payment of $3,000 a month. Now, perhaps the payment has recently adjusted, or one of the owners has lost their job recently and they cannot make this payment. If we assume that the cost of the foreclosure is $20,000 for legal fees and if the house's value in the marketplace is below the value on the bank's book, foreclosing on this house will be an expensive proposition. However, the bank's rules do not allow them to refinance the house since it possibly does not have enough value for the amount owed and the occupant's do not have enough income.
I would argue, that assuming the economy will recover and the occupant's will become employed again, that the bank's work out a payment that allows small payments to be made for a year. I think as part of the stimulus the payments should be backed up by the Government and the bank at the end of the year should be no worse off than they would be today. Effectively, this would mean that the bank would put a gap into the current mortgage and suspend it for a year. During that year interest would accrue up to the point that the payments made did not cover the interest on the mortgage. At the end of the year, the mortgage would either resume or if the situation had not improved, foreclosure would proceed. The increase in the book value of the asset, related to the fact that negative amortization had taken place for the year would be guaranteed under the stimulus plan. So if the bank asset per the mortgage at the beginning of the year had been 400,000 and because of negative amortization it was now 430,000, the Government would reimburse the bank the portion of the 30,000 not recovered in the sale of the asset. So if after foreclosure it sold for 300,000 the bank loss would still be 100,000.
Now, to qualify for a program like this, certain conditions would have to be met and the closer the occupant could come to paying the full interest costs, the less the potential cost to the Government. Also, every foreclosure avoided this way would save the banks a significant amount.
Just thoughts.
Friday, September 11, 2009
S&P 500 levels
Since last September the S&P 500 is down about 10%. Since September 2007 the S&P 500 is down about 30%. Most of the problems in the economy existed back then, we just didn't know about them. Now, the highs from 2007 were a dangerous level and not supported by the underlying economics. However the current lows are still depressed from where they should be based on projected earnings and overall economic considerations.
There are many people who feel that because we have recovered from what were ridiculous levels in March, the current market has gone up too high. What was priced in the March market was a collapse of the economic system six months out, or now. Well instead of collapse we have the start of a recovery. If the market looks six months ahead, it should be higher than it is now.
We still have analysts and others predicting that housing prices are going to fall dramatically further and that the economics will continue to deteriorate. As you see business making profits because they have cut to the bone, the only legitimate path into the future is up. Hiring is going to pick up, partly because of the stimulus but also because we are seeing an uptick in economic activity.
There are many people who feel that because we have recovered from what were ridiculous levels in March, the current market has gone up too high. What was priced in the March market was a collapse of the economic system six months out, or now. Well instead of collapse we have the start of a recovery. If the market looks six months ahead, it should be higher than it is now.
We still have analysts and others predicting that housing prices are going to fall dramatically further and that the economics will continue to deteriorate. As you see business making profits because they have cut to the bone, the only legitimate path into the future is up. Hiring is going to pick up, partly because of the stimulus but also because we are seeing an uptick in economic activity.
Thursday, September 10, 2009
Health Reform
If you consider the issues that face the United States, we have some that have the potential to weaken the very fabric of our nation. Now, one of the things that makes America great is that we don't all have to agree on anything, but we all normally want to treat each other fairly. There is an ongoing debate between those who oppose Government involvement in just about anything and those who favor Government involvement.
Last night the President gave a speech to a joint session of congress and the nation of his proposal to fix health care in this country. For most Americans, health care is represented by the relationship they have with Doctors, Nurses, Dentists and other providers. They don't much think about the business of health care, until something happens that causes them to bear unexpected costs, either because they lose health coverage or have some other catastrophic event.
For some Americans health care simply is something they either do without or provide to themselves. Now, I'm not talking about those who believe in alternative medicine or holistic approaches. I'm talking about people who are not poor enough or old enough to get Government health care and don't have affordable health care options via their employee or on their own.
These folks are working Americans or small business owners who simply are unable to afford health insurance and gamble that they won't need it until they can afford it. Now, sometimes they win and sometimes they lose. After all, insurance is a gamble by its very nature. You can pay premiums for many years and never use the benefits, or use them much less than average. The real purpose is to provide protection from unusual costs that can not be covered from normal income.
The President proposal basically provides that these people will form a group and because of the size of the group, they will be offered affordable insurance. It will become mandatory for people to have health insurance, similar to auto insurance and there will be a concerted push to eliminate waste from the current system while pushing preventive medicine to further reduce cost.
There are of course other ways to solve the problem we face and there is still time to discuss them. The providing of cheap catastrophic protection is a good idea and should not only be used temporarily, but makes sense as one of the options is an ongoing insurance exchange.
What we do need it honest debate and honest commitment by all Americans to help solve the problem and move forward. We need to assure all Americans have access to health care in an affordable way and we also need to change the cost growth curve. Lets do it.
Last night the President gave a speech to a joint session of congress and the nation of his proposal to fix health care in this country. For most Americans, health care is represented by the relationship they have with Doctors, Nurses, Dentists and other providers. They don't much think about the business of health care, until something happens that causes them to bear unexpected costs, either because they lose health coverage or have some other catastrophic event.
For some Americans health care simply is something they either do without or provide to themselves. Now, I'm not talking about those who believe in alternative medicine or holistic approaches. I'm talking about people who are not poor enough or old enough to get Government health care and don't have affordable health care options via their employee or on their own.
These folks are working Americans or small business owners who simply are unable to afford health insurance and gamble that they won't need it until they can afford it. Now, sometimes they win and sometimes they lose. After all, insurance is a gamble by its very nature. You can pay premiums for many years and never use the benefits, or use them much less than average. The real purpose is to provide protection from unusual costs that can not be covered from normal income.
The President proposal basically provides that these people will form a group and because of the size of the group, they will be offered affordable insurance. It will become mandatory for people to have health insurance, similar to auto insurance and there will be a concerted push to eliminate waste from the current system while pushing preventive medicine to further reduce cost.
There are of course other ways to solve the problem we face and there is still time to discuss them. The providing of cheap catastrophic protection is a good idea and should not only be used temporarily, but makes sense as one of the options is an ongoing insurance exchange.
What we do need it honest debate and honest commitment by all Americans to help solve the problem and move forward. We need to assure all Americans have access to health care in an affordable way and we also need to change the cost growth curve. Lets do it.
Wednesday, September 9, 2009
Consumer Credit
Yesterday we saw an unprecedented drop in the levels of consumer credit, across the board. This is simply another example of how people who consider past behavior and technical indicators, can never factor in a sea change in behavior.
It is clearly too early to say what this really means or if it will last, but it does indicate that Americans have been scared by the financial crisis and are moving much faster to deleverage themselves than anyone expected. Yes credit is still there and being used, but more and more Americans seem to be improving their individual financial status.
It also is possibly indicative of new policies by credit issuer who are making it harder to get credit, forcing frugality on some.
Considering the loss in home equity values that Americans experienced, clearly many are trying to replace those amounts by saving. In this respect, saving is being accomplished by reducing debt, where you can get a 19% return on your money. So the increases in savings we have seen in the statistics is actually a buy down of individual debt.
I am waiting to see the final results of the back to school season, which I believe was better than forecasted. I also think that Americans, seeing the end of the recession and feeling better about reducing their debt are going to spend this holiday season, not recklessly, but they are going to want to feel good and they are going to shop.
I have been saying here that we are going to grow modestly from where we have contracted to and all the data I see actually supports a slightly higher growth rate than I originally thought. However, Americans are not going to spend recklessly as they did in the past and that is the foundation for a lasting recovery. Weak businesses will continue to fail, not because of the recession, but because they are not competitive.
It is clearly too early to say what this really means or if it will last, but it does indicate that Americans have been scared by the financial crisis and are moving much faster to deleverage themselves than anyone expected. Yes credit is still there and being used, but more and more Americans seem to be improving their individual financial status.
It also is possibly indicative of new policies by credit issuer who are making it harder to get credit, forcing frugality on some.
Considering the loss in home equity values that Americans experienced, clearly many are trying to replace those amounts by saving. In this respect, saving is being accomplished by reducing debt, where you can get a 19% return on your money. So the increases in savings we have seen in the statistics is actually a buy down of individual debt.
I am waiting to see the final results of the back to school season, which I believe was better than forecasted. I also think that Americans, seeing the end of the recession and feeling better about reducing their debt are going to spend this holiday season, not recklessly, but they are going to want to feel good and they are going to shop.
I have been saying here that we are going to grow modestly from where we have contracted to and all the data I see actually supports a slightly higher growth rate than I originally thought. However, Americans are not going to spend recklessly as they did in the past and that is the foundation for a lasting recovery. Weak businesses will continue to fail, not because of the recession, but because they are not competitive.
Tuesday, September 8, 2009
Back to School Crowds
I went to a local outdoor outlet mall yesterday since the weather was nearly perfect and my teenager still needs some back to school items. I have never seen this mall so packed with back to school shoppers. In the only store we actually purchased something in, American Eagle, the lines were extremely long.
Now, there were of course many labor day sales going on, and this is only one mall on one day, but all the food places and all the stores were jammed. In fact, we decided it wasn't worth the wait to get lunch there and headed home, we live very close.
Now, if this is a slow back to school season and if the recession is still bad, this must have been an aberration. This is a relatively new mall and I've been there many times, including last Christmas but it never was as busy as it was yesterday.
For what it is worth, the desire of teenagers to look good for school seems to have triumphed over other considerations, at least around here.
Now, there were of course many labor day sales going on, and this is only one mall on one day, but all the food places and all the stores were jammed. In fact, we decided it wasn't worth the wait to get lunch there and headed home, we live very close.
Now, if this is a slow back to school season and if the recession is still bad, this must have been an aberration. This is a relatively new mall and I've been there many times, including last Christmas but it never was as busy as it was yesterday.
For what it is worth, the desire of teenagers to look good for school seems to have triumphed over other considerations, at least around here.
Monday, September 7, 2009
What recovery looks like
Sometimes as I listen to analysts on TV I forget that they are trying do something to get the audience to react as opposed to really being objective. Now they do try to keep some facts in view but it is clearly better to be perceived as controversial, rather than dull.
By the same token, the audience they cater to is a very very small subset of people in this country and they strive to add some excitement and controversy to admittedly a boring subject.
So we hear about the horrors of September and October (and yes they have had some of the worst corrections in history but if you consider their performance over the last 100 years it is just marginally worse than some of our best months) and the correction that is coming (maybe it is but then again, maybe it isn't).
One of the fallacies I think they propagate is that the Stock Market reflects a recovery. They mostly ignore, or at best give very minor acknowledgement, that the increase in stock prices since March still leaves us well below the prices from one year ago and far below historical highs. Now as they do sometimes point out, when they discuss earnings, we are starting to enter a period when year ago comparisons will get easier, since the economic disruption started to kick in. We have not had a recovery yet, we are coming to the end of the decline and will start to see growth in the next year. The fact that stock prices recovered from lows that anticipated economic Armageddon and are now at levels that actually reflect the downturn in economic activity is not signs of a recovery or signs that the market is too high. The Market went down much further than the economics indicated due to panic and if the March bottoms didn't exist, I think a lot of people would see how low it still is from where it was.
Those who believe that the March lows were accurate reflections of Market value are entitled to that opinion, but I think the rebound from that correction tends to prove them wrong.
The economy has fallen about as much as it is going to and as we are starting to see in retail and manufacturing, there is increasing demand. We are not going to bounce up to the bubble levels and if we did, it wouldn't bode well. However, much like economic downturns feed on themselves, economic upturns become self sustaining. Each job we create helps to create other jobs to provide goods and services. One issue we face now is that some of our jobs are gone forever and need to be replaced with new ones. However, I believe the next growth industry has already started and as it grows it will absorb those who have lost jobs to technology.
A sustainable recovery's data looks just like the data I am seeing, a slowdown in the rate of decline in area after area that will change to a rate of increase. If the increase gets too fast we risk inflation and relapse, so slow and steady is the best course of action. Tax bases will start to expand, property values will start to increase and economic activity will grow.
It is just starting.
By the same token, the audience they cater to is a very very small subset of people in this country and they strive to add some excitement and controversy to admittedly a boring subject.
So we hear about the horrors of September and October (and yes they have had some of the worst corrections in history but if you consider their performance over the last 100 years it is just marginally worse than some of our best months) and the correction that is coming (maybe it is but then again, maybe it isn't).
One of the fallacies I think they propagate is that the Stock Market reflects a recovery. They mostly ignore, or at best give very minor acknowledgement, that the increase in stock prices since March still leaves us well below the prices from one year ago and far below historical highs. Now as they do sometimes point out, when they discuss earnings, we are starting to enter a period when year ago comparisons will get easier, since the economic disruption started to kick in. We have not had a recovery yet, we are coming to the end of the decline and will start to see growth in the next year. The fact that stock prices recovered from lows that anticipated economic Armageddon and are now at levels that actually reflect the downturn in economic activity is not signs of a recovery or signs that the market is too high. The Market went down much further than the economics indicated due to panic and if the March bottoms didn't exist, I think a lot of people would see how low it still is from where it was.
Those who believe that the March lows were accurate reflections of Market value are entitled to that opinion, but I think the rebound from that correction tends to prove them wrong.
The economy has fallen about as much as it is going to and as we are starting to see in retail and manufacturing, there is increasing demand. We are not going to bounce up to the bubble levels and if we did, it wouldn't bode well. However, much like economic downturns feed on themselves, economic upturns become self sustaining. Each job we create helps to create other jobs to provide goods and services. One issue we face now is that some of our jobs are gone forever and need to be replaced with new ones. However, I believe the next growth industry has already started and as it grows it will absorb those who have lost jobs to technology.
A sustainable recovery's data looks just like the data I am seeing, a slowdown in the rate of decline in area after area that will change to a rate of increase. If the increase gets too fast we risk inflation and relapse, so slow and steady is the best course of action. Tax bases will start to expand, property values will start to increase and economic activity will grow.
It is just starting.
Sunday, September 6, 2009
Death Securities
Article in the New York Times today talked about how bankers are starting to put together investment packages where cashed in life insurance bundles are securitized. Ultimately the rate of return for these is dependant on whether the insured live longer or die earlier than expected. The one thing for sure, is that death does not ever end in foreclosure, so to speak, so these securities will never collapse the way sub prime mortgages did.
In some ways it is a good thing for elderly holders of these policies, since there will be a market that will let them cash in for more than what the surrender value would be. It will end up costing Insurance Companies more, since part of their rates is based on a certain number of these policies lapsing before the death of the insured.
I guess, if the policies have double indemnity clauses for accidental deaths, there could be some windfall gains. Makes you wonder if the proliferation of these securities would influence bankers to support public health care? Also, if you buy a lot of these and people start living longer, you could be tempted to ....
Well, bankers and investors aren't quite at that level yet, at least I hope not.
In some ways it is a good thing for elderly holders of these policies, since there will be a market that will let them cash in for more than what the surrender value would be. It will end up costing Insurance Companies more, since part of their rates is based on a certain number of these policies lapsing before the death of the insured.
I guess, if the policies have double indemnity clauses for accidental deaths, there could be some windfall gains. Makes you wonder if the proliferation of these securities would influence bankers to support public health care? Also, if you buy a lot of these and people start living longer, you could be tempted to ....
Well, bankers and investors aren't quite at that level yet, at least I hope not.
Saturday, September 5, 2009
Where the jobs are
In order to create jobs the Government stimulus for renewable and native energy sources needs to pick up. We can energise construction by further promoting energy efficient and solar solutions on houses and by further using natural gas, wind, solar and nuclear with room for clean coal, we can keep more American wealth in this country and import energy jobs.
Further, making cheap energy a fixture in this country, will induce additional manufacturing, especially as the cleaner fuels reduce issues related to pollution. It would further be enhanced by reforming the tax code, but simply slowing and then stopping the export of wealth generated in this country would provide greater economic growth, improve the tax base and lead to budget surpluses and a burn down of the deficit.
Yesterday we had a Saudi Prince accuse the President of being unrealistic as he pushes for energy independence. The fact that he did that indicates that the Prince knows that reduced demand for oil, even on admittedly a small scale to start, will result in lower prices and less wealth transferred from this country to theirs.
I'm OK with that!
Further, making cheap energy a fixture in this country, will induce additional manufacturing, especially as the cleaner fuels reduce issues related to pollution. It would further be enhanced by reforming the tax code, but simply slowing and then stopping the export of wealth generated in this country would provide greater economic growth, improve the tax base and lead to budget surpluses and a burn down of the deficit.
Yesterday we had a Saudi Prince accuse the President of being unrealistic as he pushes for energy independence. The fact that he did that indicates that the Prince knows that reduced demand for oil, even on admittedly a small scale to start, will result in lower prices and less wealth transferred from this country to theirs.
I'm OK with that!
Friday, September 4, 2009
Recovery
About 70% of the US economy is driven by consumer spending. Now how much consumer's spend is dependant on a large number of factors. We have seen major expansion in spending in this country based upon an increase in debt.
Spending can only consist of immediate or differed payments. It is fairly safe to say that there was a revolution in this country based on the wide availability of credit which allowed people to consume now and pay later.
It can make sense to finance certain purchases, if the payments extend over the useful life of the item. If you need a car and don't have enough available cash to simply buy one, making payments for 3-4 or 5 years may be your only option. Similarly, buying a house also would most likely need to be financed.
As you look at various items that you can finance, the advisability of using credit depends on the long term value of the item. Financing an education that will increase your earning potential is probably a good investment. Financing a hot tub might not be.
As credit has become more difficult to obtain, many of the items that American used to buy on credit have been hit quite hard. This is also related to the decline in home equity which used to provide opportunities for many Americans to finance purchases, or pay down other types of debt.
Spending decisions are made based on many factors and as consumers lose confidence in the future, they tend to either stretch out purchases or wait until prices fall. This results in a reduction in demand that can be persistent. Consider a decision to buy a car. Many Americans liked to trade in their car every few years in order to have a new model and avoid potential maintenance problems. As the economy declined and confidence waned, many of these same individuals decided to differ or postpone that car purchase. So if you used to buy or lease a new car every three years, but add a year onto that cycle, the number of new cars sold every year will decrease by a significant amount.
This reduced demand can be offset by price reductions, think about the clunker program, but the only way to really reverse it would be to restore consumer confidence and credit.
We are not going to do that so easily, which is why the contraction in the economy is not going to disappear quickly. However, barring any other sudden jolts, it has finished contracting and will grow in what may very well be a more sustainable way.
Spending can only consist of immediate or differed payments. It is fairly safe to say that there was a revolution in this country based on the wide availability of credit which allowed people to consume now and pay later.
It can make sense to finance certain purchases, if the payments extend over the useful life of the item. If you need a car and don't have enough available cash to simply buy one, making payments for 3-4 or 5 years may be your only option. Similarly, buying a house also would most likely need to be financed.
As you look at various items that you can finance, the advisability of using credit depends on the long term value of the item. Financing an education that will increase your earning potential is probably a good investment. Financing a hot tub might not be.
As credit has become more difficult to obtain, many of the items that American used to buy on credit have been hit quite hard. This is also related to the decline in home equity which used to provide opportunities for many Americans to finance purchases, or pay down other types of debt.
Spending decisions are made based on many factors and as consumers lose confidence in the future, they tend to either stretch out purchases or wait until prices fall. This results in a reduction in demand that can be persistent. Consider a decision to buy a car. Many Americans liked to trade in their car every few years in order to have a new model and avoid potential maintenance problems. As the economy declined and confidence waned, many of these same individuals decided to differ or postpone that car purchase. So if you used to buy or lease a new car every three years, but add a year onto that cycle, the number of new cars sold every year will decrease by a significant amount.
This reduced demand can be offset by price reductions, think about the clunker program, but the only way to really reverse it would be to restore consumer confidence and credit.
We are not going to do that so easily, which is why the contraction in the economy is not going to disappear quickly. However, barring any other sudden jolts, it has finished contracting and will grow in what may very well be a more sustainable way.
Thursday, September 3, 2009
Data interpretation
A lot of the analysts you hear express opinions act as if the data that exists is not impacted by actual people. I can look at a chart and draw a certain conclusion. If I am the only one who sees that particular data or the only one who understands its significance, I can proceed on the data with the outcome dependant upon my ability to correctly analyse it.
However, very little data is like that anymore. I see charts showing a drop in consumer demand and can extrapolate that this will mean retailers will lose money. However, if the retailers see the same data and take actions to slash costs and inventory, they manage to make money.
It doesn't mean the data I analysed was wrong, it was accurate, and if nothing else had changed, my analysis would have been correct, but there are real people involved who are trying to find ways to be successful.
So, when we predict housing prices will continue to fall, that assumes that people will be willing to sell houses at depressed prices. Yes, foreclosures are to some extent forced sales, but if I don't have to trade up and haven't lost my income source, it would be in my best interest to postpone selling my house. If you predict housing inventory based on foreclosures plus normal sales, you will be off because many of those "normal" sales will not happen.
Certainly some indicators are reasonably accurate, however, if any indicator is reliable enough to be useful, it will start to be gamed by people who want to play off the predictable behavior of those who use it.
So, when so many people expected September to be bad, we saw a significant sell of in the first few days of the month. In late August we saw a big increase in bearish behavior preparing for the September sell off. Now, only a couple of days into the month the question is will September live up to its historical trend. Those who speculated on September will want to book their gains on the first hint of an upturn. This could result in a classic short squeeze leading to a rally that makes September bullish this year. Will that happen? I think whenever a particular trend is so discussed and so believed in, that many will try to profit from it. Whenever that happens, the contrary trade becomes indicated.
Generally, I expect September to end up as a bullish month this year. In general this doesn't impact the way I invest very much but it is always fun to speculate.
However, very little data is like that anymore. I see charts showing a drop in consumer demand and can extrapolate that this will mean retailers will lose money. However, if the retailers see the same data and take actions to slash costs and inventory, they manage to make money.
It doesn't mean the data I analysed was wrong, it was accurate, and if nothing else had changed, my analysis would have been correct, but there are real people involved who are trying to find ways to be successful.
So, when we predict housing prices will continue to fall, that assumes that people will be willing to sell houses at depressed prices. Yes, foreclosures are to some extent forced sales, but if I don't have to trade up and haven't lost my income source, it would be in my best interest to postpone selling my house. If you predict housing inventory based on foreclosures plus normal sales, you will be off because many of those "normal" sales will not happen.
Certainly some indicators are reasonably accurate, however, if any indicator is reliable enough to be useful, it will start to be gamed by people who want to play off the predictable behavior of those who use it.
So, when so many people expected September to be bad, we saw a significant sell of in the first few days of the month. In late August we saw a big increase in bearish behavior preparing for the September sell off. Now, only a couple of days into the month the question is will September live up to its historical trend. Those who speculated on September will want to book their gains on the first hint of an upturn. This could result in a classic short squeeze leading to a rally that makes September bullish this year. Will that happen? I think whenever a particular trend is so discussed and so believed in, that many will try to profit from it. Whenever that happens, the contrary trade becomes indicated.
Generally, I expect September to end up as a bullish month this year. In general this doesn't impact the way I invest very much but it is always fun to speculate.
Wednesday, September 2, 2009
Productivity
Productivity has been on the rise in America and this is going to make the cost of our goods and services more affordable. This will in time promote strong growth. However, one of the downsides of productivity improvement is that it reduces jobs and payroll, leading to some decline in jobs and job creation.
We need to look at the creation of new industries and I believe the growth in renewable energy sources and better utilization of natural gas and coal are the best opportunities we have to create significant numbers of jobs and to reduce our dependence on foreign oil.
Also if we would reform our tax system, we could make doing business in this country even more attractive, but, the productivity increases may be doing much of that right now.
Recovery is coming, but many of the jobs lost in the downturn are going to be gone for ever.
We need to look at the creation of new industries and I believe the growth in renewable energy sources and better utilization of natural gas and coal are the best opportunities we have to create significant numbers of jobs and to reduce our dependence on foreign oil.
Also if we would reform our tax system, we could make doing business in this country even more attractive, but, the productivity increases may be doing much of that right now.
Recovery is coming, but many of the jobs lost in the downturn are going to be gone for ever.
Tuesday, September 1, 2009
Correction?
Is the market going to have a correction or is it going to take a pause and climb to new highs? No one really knows the answer to this question, but we do know that September may be where this gets answered.
Of course, the most likely outcome in my opinion is that September will be inconclusive as better news is not good enough to convince everyone that the economy is about to really roar back. This uncertainty and the fact that so many have been burned recently by market drops, will mean that investors are looking for certainty.
The seeds turned into green shoots and are now spreading their roots. Now root growth takes place underground until there is a sudden burst of topside growth once the roots have gotten firmly established. This is not true for every green shoot, so the trick here is to determine the winners in the next growth phase.
If you think about it logically, the secular trends are leading to more mobile technology and more on-line transactions meaning that companies that are investing and fertilizing that area will do the best in the long term. Of course the transition is going to take place slowly but it will take place and this will lead to less oil/gasoline usage, less need for brick and mortar and the need for better networks, Internets, and browsers.
Security will be a growth industry for quite a while as well.
Of course, the most likely outcome in my opinion is that September will be inconclusive as better news is not good enough to convince everyone that the economy is about to really roar back. This uncertainty and the fact that so many have been burned recently by market drops, will mean that investors are looking for certainty.
The seeds turned into green shoots and are now spreading their roots. Now root growth takes place underground until there is a sudden burst of topside growth once the roots have gotten firmly established. This is not true for every green shoot, so the trick here is to determine the winners in the next growth phase.
If you think about it logically, the secular trends are leading to more mobile technology and more on-line transactions meaning that companies that are investing and fertilizing that area will do the best in the long term. Of course the transition is going to take place slowly but it will take place and this will lead to less oil/gasoline usage, less need for brick and mortar and the need for better networks, Internets, and browsers.
Security will be a growth industry for quite a while as well.
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