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Home“My Mama Told Me . . .
Posted by Larry Doyle on February 28th, 2009 2:20 PM |
. . . You Better Shop Around.”
What does that wonderful song from Smokey Robinson and the Miracles have to do with our economy? I’ll tie that in a bit later.
More and more people are inquiring of me how and why banks are making credit tighter both in terms of availability and in terms of rates charged.
This tightening of credit is due to the “crowding out effect” from dramatically increased government borrowing along with the actuality and likelihood of increased defaults across all consumer and corporate loans. In the face of those defaults, banks will set aside more capital in reserve to cushion those losses.
What is a consumer to do? There are two tactics:
1. Everything’s Negotiable which I highlighted in a post dated December 23, 2008. Talk to your bankers and/or credit providers. Put your banks and other credit providers in competition. Where does one start and how does one easily comparison shop? I’m glad you asked because that leads me to point #2.
2. Shop around (thank you, Smokey)! Sense on Cents provides links via our Primers (in the right sidebar) for a look across the market to virtually every consumer credit need. Remember I have NO professional relationship with any of these entities. From borrowing needs to investing, with many stops in between, I hope these primers help you navigate the economic landscape going forward!!
And now, a trip down memory lane . . .
February 2009 Market Review
Posted by Larry Doyle on February 28th, 2009 10:13 AM |
Prior to going to the comments section of my son’s report card, human nature dictates that I first look at the grades. In that same vein, let’s see how the markets performed for the month of February:
Let’s review my specific projections from the January 2009 Recap: (more…)
Shake Hands With Uncle Sam
Posted by Larry Doyle on February 27th, 2009 5:30 AM |
When trading bonds on Wall Street, I always wanted to know what the largest accounts were doing. A handful of these accounts were so massive that in order to make a meaningful change in their portfolio they had to execute trades of monstrous size. In executing trades with these clients, there was enormous risk. That said, if I did not provide enough liquidity to the accounts then we would stop seeing their inquiry. Information is everything, so not seeing their business was even more dangerous than printing some of it. Given this balancing act, I would try to pick and choose my spots. Amongst these clients is the largest bond manager in the country, Pacific Investment Management Company, otherwise known as Pimco, headed by the legendary Bill Gross (one of our Economic All-Stars highlighted in the lower left sidebar).
Bill offers his thoughts on a monthly basis. Anybody with even passing interest in the markets should read his remarks. I will offer an overview: (more…)
Ceteris Paribus
Posted by Larry Doyle on February 26th, 2009 2:01 PM |
Economic and budgetary analysis by their very nature often employ a “ceteris paribus” approach or similarly base line assumptions. Ceteris paribus, translated as “all other things being equal,” or base line assumptions are necessary given the fact that economic analysis has so many variables. Well, let me share with you that ceteris are NEVER paribus and base line assumptions are almost always skewed to bias the results in a desired direction.
***UPDATE: I was not aware at the time of my writing but it is reported that the Obama administration is projecting the economy will grow at a 3.2% GDP in 2010. That assumption is wildly optimistic. No respected economist would project that figure. Consensus has it in the 1.5-2% range. What does this mean? Well, lower growth means lower revenues, means higher deficits, means greater funding needs, means more borrowing, means higher government interest rates, means more “crowding out”, means slower growth for the economy going forward!!
There was little doubt about President Obama’s social agenda and economic platform during his campaign. While markets will somewhat discount campaign rhetoric, they do not discount economic reality. The markets are sending a strong signal that Obama’s economic proposals and proposed budget are anything but pro-growth. Obama Delivers $3.6 Trillion Budget Blueprint runs the risk of raising taxes at a time of economic distress. Raising taxes was a prime factor that increased the economic malaise in the 1930s. Obama is willing to take that risk as he sticks to his campaign plan and is pressured by the liberal wing of the Democratic Party. (more…)
Cerberus Revisited
Posted by Larry Doyle on February 23rd, 2009 10:33 AM |
With so many dramatic events happening so quickly in the global economy, it can be daunting to keep things straight. Banking, housing, autos, regulatory structure, global trade, employment. The stream of dramatic developments is breathtaking. In times like these, I think it is critically important to remain very focused and disciplined. The ability to compartmentalize is vitally necessary.
In that vein, I find it very interesting that the lead editorial in today’s New York Times, Why Can’t Cerberus Foot The Bill, addresses the topic I broached on December 11th, Who and What is Cerberus…?.
Private equity is not supposed to benefit from taxpayer bailouts!!
Our public representatives need to work a little harder on the taxpayers’ behalf.
It’s called capitalism. Let it work.
LD
Tune In to Larry Doyle’s “Dollars and Sense” on No Quarter Radio
Posted by Larry Doyle on February 22nd, 2009 5:22 PM |
Please join us this evening from 8:00 to 9:00 p.m. ET on No Quarter Radio for LD’s Dollars and Sense. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere!
We have two very interesting guests joining us. Lynn Marshall has one of the most unique backgrounds in the world of finance today. How does one develop a background that includes senior level experience in investment banking, agriculture, and community banking? Think Lynn has some amazing perspectives on the economy and markets? Don’t miss him.
Additionally, in light of the developments at Stanford Financial, we are very happy to have John Moynihan return to our show to discuss the dynamics in the world of offshore banking. Find out more than you could ever imagine by talking to these enlightened experts on LD’s Dollars and Sense, starting at 8 p.m. ET.
What are your questions and comments for me? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins!
(more…)
Let’s Get a First Down
Posted by Larry Doyle on February 21st, 2009 9:10 AM |
Football fans know that ball control and time management are two very critical factors in determining outcome. While a coach may at times “go deep” in order to catch the opponent off guard, victory is determined by the hard work in the trenches and grinding out first downs. I know of no team that has ever established a winning discipline by “throwing Hail Mary’s.” The same can be said of investing. In the midst of these challenging markets, do not lose sight of your long range goals and the disciplines necessary to achieve them. Leave the “Hail Mary’s” for the gridiron entertainment.
The Wall Street Journal provides us with an excellent piece on this topic:
Desperate investors do desperate things.
A few months ago, most people were too terrified to do much more than wring their hands while sitting on them. But now, as the stock market takes another bullet every day and the yields on cash dwindle away, some investors seem to be flinging caution to the winds.
You can read the rest of the article at your leisure. Enjoy your weekend. – LD –
As Stock Losses Loom, Don’t Throw a ‘Hail Mary’
by Jason Zweig
illustration by Heath Hinegardner
The Wall Street Journal; February 20, 2009
The Fed Speaks
Posted by Larry Doyle on February 18th, 2009 2:53 PM |
Fed chairman Ben Bernanke spoke at the National Press Club this afternoon and offered revisions for the Fed’s economic statistics for 2009. What do the numbers mean? Here’s a recap:
— the Fed expects GDP for 2009 to end up between -.5% to -1.3%, revised from -.2% to +1.1%. The Fed obviously is expecting a contraction in our economy for all of 2009 and further added it does not see much of a pickup in 2010.
— the Fed is setting a long term inflation target of 2% but does not expect to see a pickup in inflationary pressures for a protracted period.
— increasing its expectation for the unemployment rate in 4th quarter of 2009 to 8.5% to 8.8%.
— the Fed has seen no indication of stability in residential housing markets in January 2009.
— some Fed governors have increased concerns about defaults and foreclosures in the commercial real estate markets.
— the Fed believes long term growth potential for GDP is 2.5% to 2.7%.
— the Fed realizes that at some point it will need to contract the growth in its balance sheet to mitigate chances of increased inflation.
What does all this mean?
In summary, the Fed is publicly acknowledging that the economic recession will be longer, deeper, and more painful. They are also offering that they are determined not to let deflation or the threat of deflation impede the economy.
I see no reason to rush into adding risk assets (equities or speculative credits) on the heels of this report. It is actually very interesting to see that some high profile individuals and institutions have actually been selling assets:
T. Boone Pickens
Pickens Reduces Energy Investments, Holdings Fall 97%
Warren Buffet
Berkshire Reduces J&J Stake, Turns to Fixed-Income
Harvard University
Harvard Retreated From U.S. Stocks as Market Tumbled
LD
Economic/Market Highlights 11/12/08
Posted by Larry Doyle on November 13th, 2008 1:31 PM |
Markets trade down another 5% and close within spitting distance of October’s closing lows seen on Oct 10. I remain decidedly negative on the market and the economy despite every effort made by global governments. In fact, the pace of the economic slowdown is quickening. It’s all about delevering and liquidity.
We have much to address, so let’s get after it.
Retail….
1. Best Buy comments that they see a “seismic slowdown” in 4th quarter projected sales. Expect to see significant sales and price cuts on electronics going into the holiday season.
2. Survey of credit card holders indicates the following: 53% have more debt than they are comfortable handling. Of that group 73% indicate that they will likely spend less this holiday season….lots of regifting….
Economy
1. Julian Robertson, one of the most highly regarded money managers of the last 40 yrs, indicates that “we have not seen the capitulation in our economy and that the foreseeable future will be a long, tough period for the American people. He also offered that Nancy Pelosi wants to throw money down the toilet to save the automotive industry. (more on this later)
2. Moody’s ratings expects defaults on distressed debt situations to almost quadruple in the next year to north of 10%. This expected level of defaults is why high yield debt is trading near a 20% yield level. Lots of RISK! Companies will be severely challenged to refinance their debt.
3. Jamie Dimon, CEO of JP Morgan, indicates that the economic recession will be worse than the credit crisis.
Auto Situation
1. Pelosi, Frank, Obama and team clearly want to see a bailout for the automotive industry with GWB’s signature. The package being discussed is $25bln but with no specifics highlighted as of yet. Expect hearings next week in Washington on this issue. From the standpoint that Uncle Sam has already committed north of a trillion dollars to the financial system, a 25bln capital injection is a drop in the bucket but it goes a lot deeper than that. First off, the cash burn rate for the Big 3 at the anemic pace of auto sales is currently 5+bln per month, so 25bln gets us to next March. Big deal.
IMO, I would not give this industry $20 without an agreement to restructure. (more…)
