Monday, August 31, 2009

Shanghai Surprise

Lou Jiwei, Chairman of the China Investment Corporation (CIC), which controls China’s $298 billion sovereign wealth fund, said: “Both China and America are addressing bubbles by creating more bubbles, and we’re just taking advantage of that, so WE can’t lose.” (Emphasis added by me.)

The great growth engine of the world seems to be sputtering. Mr. Jiwei, can the United States be far behind?

Till next time,

Bill

P.S. – Could the DPJ power sweep in Japan be the first shot across the bow of international protectionism?


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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.

Tuesday, August 25, 2009

An Open Letter to Ben Bernanke

Dear Ben:

Congratulations on your re-appointment as Chairman of the Federal Reserve. I’m sure that as the President pondered your re-appointment, he took last year’s “Looking into the Abyss” (a CNBC quote), and decided you were the man for the job. However, he probably disregarded:

1) Most banks may be insolvent.*

2) 81 banks have failed this year, and the number continues to climb each week. (Some say as many as 1000 over the next 18 months)*

3) Disregarding the S& L crisis, this is the worst bank failure since the Great Depression.*

4) Trade, as measured by shipping and rail, is down 20%.*

5) Foreclosures are not only rising, but accelerating.*

6) One-third of all mortgages are under water.*

7) Unemployment is rising, as real unemployment approaches 20%.*

8) The Federal Reserve continues to buy treasuries, thus monetizing the debt.*

9) Sales are non-existent, except for government giveaways. (How about cash for old washing machines?!)

10) The federal budget deficit just went from $7 trillion to $9 trillion.*

Ben, keep up the good work. I can’t wait to see what you have in store for the next four years. You are definitely the man for the job.

Sincerely,

Bill Tatro


*Source: Bloomberg


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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.

Monday, August 17, 2009

The Yellow Bubble

When the central government of China issued an edict about asking permission before a company may lay off 40 employees or more, it should have raised a few eyebrows.

Why would an edict like this be necessary if the GDP (growth) of China is accelerating, like they said it is, at 8%?

Why would you think about protecting your manufacturing base if the world was embarking on a global turnaround?

Why would you get protective when your stock market is up 90% and real estate prices are soaring?

Why would you even entertain a thought of layoffs if banks lent aggressively to anyone who walked through their front door?

Is it possible China embarked on the same path we traveled in reckless lending and spending and sees the same end result?

If that is the case, what’s to become of the rest of the world which has hitched itself to the Great Chinese growth engine?

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.

Friday, August 14, 2009

Hot Off the Press

According to Standard & Poor’s, the current P/E ratio on the S&P 500 is 145 times reported earnings. This is a record high which is triple the P/E ratio at the top of the 2000 stock market. In addition, the S&P 500 is 15.39% above its simple 40-week moving average, the highest value since April 1999.

Mmmmmmmmmmmmmm…………..

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.

Monday, August 10, 2009

Inflection Point Decisions

Let’s start with what we know. The stock market has been going up. Some of us call it a rally in a bear market, and others say it’s the “start of the new bull market.” (Abby Cohen – Goldman Sachs.) Regardless of who is right; the market has come a long way since the March low. (Notice, I didn’t say bottom.) At this moment in time, the question becomes, “what is the right move going forward?” I say “this moment in time,” because it would appear the rally is showing some fatigue, and could be in the beginning throws of rolling over. However, it could be just catching its breath for an assault on 10,000, 11,000, or even 12,000. How about the old high of 14,000, and beyond? Anything is possible.

But, I said let’s start with what we know. Consumption (the consumer) is 70% of the economy, and the government is the other 30%. During recessions, consumer credit growth rarely goes negative. The exceptions are just after World War II, 1991 through 1992, and right now. This is significant because the consumer always leads the economy out of the recession. It’s the consumer getting jobs, earning money, and buying goods that ultimately creates a cycle that reinvigorates an economy. Government stimulus can help for just so long, but no economy can be resurrected without the consumer consuming. Every recession has been similar in that the consumer has had a large pot of savings, equity in their home, and a revolving line of credit cards to draw from. The key component stimulating the consumer to consume is confidence. Confidence that the consumer has a job, confidence that inflation will be under control, confidence they have a roof over their head, and confidence that tomorrow will be better than today.

As the government cranked up the printing presses in the Spring, people’s confidence level rose, as exhibited by the Consumer Confidence Index. However, real unemployment continued to decline, foreclosures continued to escalate, and confidence came down like a lead balloon. The consumer effectively stopped consuming. Yes, cash for clunkers was a large success, if you consider drawing demand from future auto sales successful, and if you consider adding several billions of dollars onto the balance sheets of people who can’t afford their next credit card payment. But this has been the government’s strategy, to get consumers spending again. Unfortunately, the consumer has, other than what the government doles out, nothing left. They are maxed on their credit cards, upside down on their house, out of a job, and scared to death. Thus, the government’s gambit of lowering interest rates, encouraging lending, and promoting giveaways all in the name of consumer stimulus has failed. Not because of a lack of credit, as politicians would have you believe, but because there is no demand from credit worthy borrowers. The American public has decided to close their wallets, and not take on any more debt.

However, the stock market continues to rise, and continues to ignore manipulated unemployment figures, rising deficits, accelerating foreclosures, P/E ratios not seen since early 2000, and insider selling at all-time highs. “Thus viewed, the stock market is but a mirror, which perhaps as in this instance, somewhat belatedly, provides an image of the underlying or fundamental economic situation. Cause and effect run from the economy to the stock market, never the reverse. In 1929, the economy was headed for trouble. Eventually, that trouble was violently reflected on Wall Street.” (– John Kenneth Galbraith) The real substance of economic life rests in production, employment, sales and personal income. In 2009, as in 1929, all four continue to decline. However, knowing all this, the inflection point says “It doesn’t matter.” The stock market could go dramatically higher; we should be long the market. It also says “It matters a great deal,” the stock market could go dramatically lower; we should be out of the market. Thus were developed hedges to take the guesswork out of a manipulative, frothy, and bizarre marketplace. The end point is known, it’s how to get there is the question.

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.