Recently, in front of a Congressional committee, Ben Bernanke stated that there were, “tentative signs of the economy stabilizing.” Does that mean recovery? Uncle Ben, are we there yet?
The National Bureau of Economic Research declares when recessions officially begin, and when recessions officially end. Since 1967, recession ending declarations have dovetailed with four economic factors. Some would call it coincidence. I call it the necessary building blocks for long-term recovery, and the foundation for a strong stock market.
1) Sales: Nothing happens until you sell something. Currently, about 80% of corporate earnings reports are positive because of cost cutting, not revenue growth. Savings rates, a much misused term, have been climbing over the past six months and are currently approaching 7%. This means that the consumer is shopping for needs over wants, and thus sales have diminished.
2) Production: Currently, industrial capacity utilization is at a four-decade low of 68.3%. Manufacturing capacity is at a six-decade low of 65%. If you’re not selling, then you don’t need production. Of course, there will be the occasional inventory restocking, which will create the sense of increased production. However, when the items, once produced, sit on the shelf collecting dust and are not sold, then the quick euphoric spurt will evaporate in despair. Currently, we are experiencing that spurt.
3) Employment: Once sales take off and production is ramped up, employees are called back to work. But right now, there are no sales, no production, and unemployment continues to rise. The President himself has called for higher unemployment, and the Federal Reserve has stated unemployment may not start to improve until 2011. Keep in mind, a slow down in unemployment is not employment.
4) Personal Income: One of the most significant statistics to be put forth by the government is the number of hours worked per week. Once at forty hours, it has now declined to thirty-three hours. This 15% decrease means less employees, less income, less purchasing power, fewer sales, less production, and the vicious cycle continues.
I’ll close with this example. In November 2001, the National Bureau of Economic Research declared the recession was over, much as most pundits are doing right now. Unfortunately, employment and income had not turned higher. In fact, not until 16 months and 21 months later, respectively, did all four components (sales, production, employment, and personal income) improve. The Bureau missed the call, and look what happened to the stock market from November 2001 until October 2002. A major disaster.
Currently, not one of the economic pillars is moving higher, let alone four.
Is the market flirting with disaster like 2001? You be the judge.
Please, Uncle Ben, are we there yet?
Till next time,
Bill
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A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
Wednesday, July 22, 2009
Tuesday, July 14, 2009
Big Bank Earnings?
So, let me get this straight. In the land of fantasy, a big bank has blockbuster earnings, everyone cheers, and the media labels the big bank as being the smartest guys in the room.
Keep in mind; the big bank’s two chief competitors are gone, and that means they have the playing field to themselves. Their VAR (Value at Risk – how much they are willing to lose in trading everyday, therefore high leverage), is 20%. Their cost of capital is zero because it’s fronted by the U.S. government (meaning you and me, the taxpayers - money they should have never received in the first place.) In addition, the big bank has added no new jobs, and the average annual compensation per employee is $772,925.
Smartest guys in the room? I know who’s standing and cheering, and it’s not you and me.
Don’t you just love the land of fantasy?
Till next time,
Bill
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
Keep in mind; the big bank’s two chief competitors are gone, and that means they have the playing field to themselves. Their VAR (Value at Risk – how much they are willing to lose in trading everyday, therefore high leverage), is 20%. Their cost of capital is zero because it’s fronted by the U.S. government (meaning you and me, the taxpayers - money they should have never received in the first place.) In addition, the big bank has added no new jobs, and the average annual compensation per employee is $772,925.
Smartest guys in the room? I know who’s standing and cheering, and it’s not you and me.
Don’t you just love the land of fantasy?
Till next time,
Bill
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
Monday, July 6, 2009
The White Paper - Emerging Markets and China
Popular opinion suggests that China is on the verge of replacing the U.S. as the engine of growth for the world’s economy. After all, doesn’t China have such a large population that everyone wants their first car, their second plasma T.V., and their third cell phone. (iPhone, of course.) With India, Brazil, and Russia, charging right behind, it would seem obvious why all the pundits believe that an investment in emerging markets is a play on the future. Who am I to take an opposing position? But I have. So here goes.
I could discuss China’s communist government, but the reality is the Chinese were merchants and capitalists long before the U.S. and Karl Marx showed their faces on this earth. Therefore, it is the capitalistic arena that the discussion must be focused. China’s latest stimulus package was applauded as being directed and efficient. It sparked immediate growth (maybe), in the economy, and a dramatic surge in their stock market. However, on closer examination, the stimulus money had two recipients. The first was businessmen, who started building additional capacity for manufacturing. Unfortunately, weak global demand, and even weaker domestic consumption, has called into question the statement “If you build it, they will buy”…..who will buy? The second recipients of the stimulus, and maybe the largest recipients, were those who used it for investment in the stock market. Much like our banks using our TARP funds, and a majority of other government sources to bolster and manipulate our markets, so too, I believe have the Chinese. Rising Chinese stock and property values are simply creating a bubble that ultimately will hurt their economy when it bursts. This type of artificial growth is exactly what we, in the U.S., have experienced for the last nine years, and are now feeling the consequences. India, Brazil, Russia, and the rest of the emerging markets are basing their futures on the same foundation of sand we did, with more than likely the same results.
The continual printing of money by the U.S. Treasury has created the thinking that hyper-inflation is just around the corner. While I do share that opinion, I believe the corner may be a few blocks down. Short-term, deflation is the biggest problem, and therefore the trade of commodities, including oil, is in my opinion, pre-mature. Emerging markets live and die on the commodity trade, so draw your own conclusion.
Whether it’s the U.S., or an emerging market, real domestic consumption, not artificially induced by printing money, real successful business, not zombies propped up by governments, and real stable currencies, not funny money printed at every politicians whim, is the only true path to growth.
The death knell for emerging markets is sounding in the short-term, and one could be foolish not to heed its sound.
Till next time,
Bill
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
I could discuss China’s communist government, but the reality is the Chinese were merchants and capitalists long before the U.S. and Karl Marx showed their faces on this earth. Therefore, it is the capitalistic arena that the discussion must be focused. China’s latest stimulus package was applauded as being directed and efficient. It sparked immediate growth (maybe), in the economy, and a dramatic surge in their stock market. However, on closer examination, the stimulus money had two recipients. The first was businessmen, who started building additional capacity for manufacturing. Unfortunately, weak global demand, and even weaker domestic consumption, has called into question the statement “If you build it, they will buy”…..who will buy? The second recipients of the stimulus, and maybe the largest recipients, were those who used it for investment in the stock market. Much like our banks using our TARP funds, and a majority of other government sources to bolster and manipulate our markets, so too, I believe have the Chinese. Rising Chinese stock and property values are simply creating a bubble that ultimately will hurt their economy when it bursts. This type of artificial growth is exactly what we, in the U.S., have experienced for the last nine years, and are now feeling the consequences. India, Brazil, Russia, and the rest of the emerging markets are basing their futures on the same foundation of sand we did, with more than likely the same results.
The continual printing of money by the U.S. Treasury has created the thinking that hyper-inflation is just around the corner. While I do share that opinion, I believe the corner may be a few blocks down. Short-term, deflation is the biggest problem, and therefore the trade of commodities, including oil, is in my opinion, pre-mature. Emerging markets live and die on the commodity trade, so draw your own conclusion.
Whether it’s the U.S., or an emerging market, real domestic consumption, not artificially induced by printing money, real successful business, not zombies propped up by governments, and real stable currencies, not funny money printed at every politicians whim, is the only true path to growth.
The death knell for emerging markets is sounding in the short-term, and one could be foolish not to heed its sound.
Till next time,
Bill
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
Wednesday, July 1, 2009
Market Manipulation?
Mortgage applications decline, unemployment continues to rise, consumer confidence comes back to reality, and yet the pundits point to the success of the stock market in the second quarter. There must be green shoots in the air.
Or, perhaps something else is going on. For the past several months, “high frequency” trading has been occurring. According to Bloomberg, machines have been trading with machines at a fever pitch in order to create the illusion of high volume, and drive market prices higher. Unfortunately, volume is not liquidity. Keep in mind that when the stock market collapsed in 2008 and early 2009, 40% of the natural “investors” went to the sidelines. Yet, the machines kept cranking out trades, giving the illusion that there were better things to come.
Where did the money come from? Consider this possible theory: The government bails out an insurance company, then the insurance company pays off the CDS (insurance) to a bank. The bank, which also accepted TARP funds (which it didn’t need), uses both the insurance money and the TARP funds in order to drive the stock market higher. Thus, sharp upward spikes in the major stock market indexes at the end of the trading day have become the norm. Factor in three or four more banks, (all funded by Uncle Sam), and you have a great recipe for manipulation. Of course, all of that is theoretical.
But what is not theory is that “high frequency” trading appears to be great on the upside. However, when the stock market goes down, and everyone heads for the exits at the same time, that’s when the folks at CNBC will say “What’s going on, how could the Dow Jones be down 1,000 points in one day?”
Just more conjecture.
Till next time,
Bill
P.S. – Next, the White Paper continues.
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
Or, perhaps something else is going on. For the past several months, “high frequency” trading has been occurring. According to Bloomberg, machines have been trading with machines at a fever pitch in order to create the illusion of high volume, and drive market prices higher. Unfortunately, volume is not liquidity. Keep in mind that when the stock market collapsed in 2008 and early 2009, 40% of the natural “investors” went to the sidelines. Yet, the machines kept cranking out trades, giving the illusion that there were better things to come.
Where did the money come from? Consider this possible theory: The government bails out an insurance company, then the insurance company pays off the CDS (insurance) to a bank. The bank, which also accepted TARP funds (which it didn’t need), uses both the insurance money and the TARP funds in order to drive the stock market higher. Thus, sharp upward spikes in the major stock market indexes at the end of the trading day have become the norm. Factor in three or four more banks, (all funded by Uncle Sam), and you have a great recipe for manipulation. Of course, all of that is theoretical.
But what is not theory is that “high frequency” trading appears to be great on the upside. However, when the stock market goes down, and everyone heads for the exits at the same time, that’s when the folks at CNBC will say “What’s going on, how could the Dow Jones be down 1,000 points in one day?”
Just more conjecture.
Till next time,
Bill
P.S. – Next, the White Paper continues.
>>>>>>>>>>>>>>>>>>>>>
A disclaimer: None of the content published on BillTatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
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