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HomeApril 2009 Market Review: Brave New World
Posted by Larry Doyle on May 1st, 2009 5:00 AM |
Does the economic activity in April 2009 represent a turning point in the recession which started in December 2007? Does the continuing rebound in the equity markets represent a bright light at the end of the tunnel or merely a rebound from a very oversold market? Have global risks abated or are they being masked by massive government intervention? Let’s get after it.
In my opinion, we are in the early stages of transition to a new global economic dynamic. That process includes:
1. Strict discipline in underwriting. Banks are forced to underwrite to own as opposed to underwrite to sell. The shadow banking system (loans originated to be securitized and sold) is dead as we knew it. Banks have certain assets marked way too cheaply while also carrying plenty of fraudulently underwritten loans worth far less than their mark. Growth potential for the economy as a whole will remain constricted by a lessened flow of credit. There will be a clear distinction in companies which are winners and losers in this process.
2. Lessened consumer demand on a going forward basis.
3. Challenges for companies relying on debt financing and opportunities for companies generating free cash flow. The model based on leveraged finance is dead and not soon to return. Automotive companies need a 13 million rate of unit sales to break even. Without a shadow banking system, I don’t see this happening.
4. Opportunities for consumers buying homes. Don’t expect a rebound in home price appreciation as foreclosures, which were forestalled by banks and Freddie and Fannie, will add supply to the housing market. Housing may stabilize, but I do not think it will improve given the glut of unsold homes.
5. Continued increase in unemployment will keep consumers cautious.
6. Many analysts focused on inventory drawdown in the latest GDP report as being a positive for future growth. Why didn’t analysts highlight the fact that consumer spending was actually a positive 2.2%? Does that statistic represent a return of the consumer? In my opinion, NO. The positive consumer spending was primarily focused on massive price discounts offered in January and February to move product after anemic holiday sales. Personal spending for March was released yesterday morning and came in at -.2%. March retail sales were a surprisingly weak -1.1%.
7. Government intervention in markets may be viewed as necessary in the short term, but a persistent government presence in markets and industries comes with unknown, and in my opinion, very high costs. We are seeing heightened challenges in banking, insurance, automotive, and soon health care, energy, and education. Companies, consumers, and investors will be forced to adapt to a regular presence of Uncle Sam. He is not a good business partner.
8. There is a very distinct shift in economic power towards China and with it a shift in political power, as well. I believe it is a question of when – not if – in terms of a major European country defaulting on its debt and requiring a rescue from the EU and/or IMF.
9. I still see a steady dose of analysts and economists forecasting future economic activity based on past models. I think they are missing the big picture. I believe we need to forecast economic activity based upon traditional bank lending. If the government persists in trying to fill a void which naturally is not there, the risk involved in that undertaking is hyperinflation.
Again, I am happy the markets have rebounded from the lows of early March but in looking forward I see a dramatically different economic landscape than our recent past. People who are able to adjust to that will do fine. People who are trying to maintain a lifestyle predicated on the economy of 2003-2007 will be very frustrated.
As far as my market call, I remain very concerned about the prevailing level of interest rates. I think the market will test the resolve of the Fed to continue to effectively overpay for mortgage and government securities.
In regard to the equity market, we are only 3-7% away from the S&P and DJIA being unchanged on the year. If we do get there, I think it would be a good opportunity to sell positions. I believe the next 10% move will be to lower prices.
In short, I think the delevering process has been given a significant breather due to Uncle Sam’s checkbook but that it is not yet over.
What do you think? There is plenty here for everybody. Please share your thoughts.
LD
Tune in Sunday Evening to NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on April 26th, 2009 9:25 PM |
UPDATE: The show has concluded, but you can listen to it in its entirety by clicking on the Play button on the audio player below. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
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Please join me Sunday evening from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. 
I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and what does that mean for the weeks and months ahead? We will address a wide range of issues, including: Hank Paulson blindsiding Ken Lewis, 1st quarter earnings (their transparency and quality), market performance this week, month, and year to date, the outlook for our financial regulatory structure, and upcoming bank stress test results.
These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? 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.
Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA blog for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
LD
Is The Economy Turning The Corner?
Posted by Larry Doyle on April 21st, 2009 7:05 AM |
Markets correct by price (both up and down) and time (extended). Despite the 3+% price declines in equity markets yesterday, the markets are up approximately 20% since the market lows seen on March 6th. Some analysts believe this upward move signals an improvement in the economy largely due to the fiscal and monetary stimulus provided by Uncle Sam. I am not in that camp.
A few emerging economies, specifically China, have improved. Can the rest of the world, including the U.S., expect those economies to be the engine for a global turnaround at this juncture? I do not think so. I still see the following issues on our domestic horizon:
1. continued deterioration in loan performance on bank books
2. a banking system woefully capital deficient
3. an automotive industry which must downsize
4. municipalities which are faced with the predicamant of capital shortfalls and underfunded pensions
5. commercial real estate just starting to experience real defaults
6. a housing market with increased foreclosures pressuring prices
7. an unemployment rate clearly headed toward double digits
Earnings reports for the first quarter have been mixed. I view the recently reported bank earnings as largely “managed” via accounting gimmicks. Meredith Whitney believes the earnings for major money center banks will turn negative in the 2nd quarter. The regional banks, without the benefit of large capital market activities but facing credit writedowns, report earnings today. Key Corp just reported a loss of $1.09 eps (earnings per share) versus an estimate of -.21. I suspect we will see losses from other regional banks of a similar magnitude. (more…)
Audio Recording of NQR’s Sense on Cents with Larry Doyle for April 19, 2009
Posted by Larry Doyle on April 19th, 2009 9:09 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
Larry’s special guest was Chris Lowney, author of Heroic Leadership: Best Practices from a 450-Year-Old Company that Changed the World
Join us NOW for Sense on Cents Central Station
Posted by Larry Doyle on April 16th, 2009 8:20 PM |
***UPDATE: The Live Chat event has ended, but you can scroll through the topics we discussed by clicking on the “Replay” icon on the chat window at the end of this post.***
Join us right now for a few hours of written Q/A and live chat with your resident host, Larry Doyle. We can address a wide range of issues, including: transparency and quality of earnings, Goldman’s initiative to pay back TARP, the April 15th Tea Parties, market performance this week, month, and year to date, developments overseas, the outlook for our financial regulatory structure, issues of personal finance, career planning, or anything else on your mind.
Sense on Cents Central Station
Posted by Larry Doyle on April 16th, 2009 3:15 PM |
Join me this evening beginning at 8:30 p.m. ET for Sense on Cents Central Station. This endeavor is a few hours of written Q/A and live chat with your resident host, Larry Doyle. I like to utilize the theme of a ride on the rails, so please allow me to elaborate.
With so many cross currents at play in the markets, economy, and world of global finance, where can one go to develop a framework of understanding, enjoy the company of friends, and make sense of the madness? Welcome to Sense on Cents Central Station. Our ride departs at 8:30 p.m. with an expected return at 10:30 p.m. (I’m hoping this time frame allows our West Coast friends to join in). While we traverse the curves along our track, we can address a wide range of issues, including: transparency and quality of earnings, Goldman’s initiative to pay back TARP, the April 15th Tea Parties, market performance this week, month, and year to date, developments overseas, the outlook for our financial regulatory structure, issues of personal finance, career planning, or anything else on your mind.
Our ride is most productive with as many people participating as possible. Please bring not only your questions, but also your views. Invite friends, neighbors, and colleagues along for the ride as well. Together we can collectively navigate the economic landscape.
I look forward to chatting with you beginning at 8:30 p.m. All Aboard!!
LD
Economic Update April 14
Posted by Larry Doyle on April 14th, 2009 12:57 PM |
We received a mixed bag of economic news this morning. The WSJ provides a quick but fairly comprehensive analysis, U.S. Retail Sales Show New Weakness; Producer Prices Drop
In regard to the wholesale prices, the WSJ reports:
The Labor Department’s producer price index for finished goods fell 1.2% on a seasonally adjusted basis in March, after rising 0.1% in February. Core PPI, which excludes food and energy costs, was unchanged last month from February.
The PPI data showed energy prices sliding 5.5% last month, after rising 1.3% in February. Food prices were down 0.7%.
Prices of passenger cars fell 0.2%, while light truck prices declined 0.4%.
“Today’s PPI report emphasizes that deflation rather than inflation remains the primary risk for now,” IHS Global Insight economist Nigel Gault said.
On the retail sales front:
Retail sales fell 1.1% compared to the prior month, the Commerce Department said Tuesday. Economists expected a 0.3% increase in the key indicator of consumer spending.
The big drop followed increases in January and February that had ended a freefall in spending during the second half of 2008.
“It’s disappointing,” said Hugh Johnson, chairman of Johnson Illington Advisors in Albany, N.Y. “It tells us quite clearly that consumers continue to retrench, or are doing less borrowing and spending and more saving.”
Audio Recording: NoQuarter Radio’s “Sense on Cents with Larry Doyle” April 12, 2009
Posted by Larry Doyle on April 12th, 2009 9:06 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
It was a wonderful show with special guest George Rieger, Chief Investment Strategist of Greenwich Investment Management.
In 30 Minutes, Join NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on April 12th, 2009 7:30 PM |
Join me from 8:00 to 9:00 p.m. ET on NoQuarter Radio for Sense on Cents with Larry Doyle. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is truly going on in the economy? Where are markets headed? What is happening in Washington and how is that impacting Wall Street? So much to cover.
The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances?
Tonight my guest will be Louis George Rieger, Chief Investment Strategist at Greenwich Investment Management. Following graduation from Yale Law School, George accepted a position at T. Rowe Price Associates LLC, where he became an officer and stockholder. In 1984, George founded RRH Capital Management, Inc. At RRH, George established the firm’s record in the management of not-rated, tax exempt bonds and high yield equities. George founded Greenwich Investment Management in 2006. George’s legal education has proven valuable in structuring municipal bond issues. He brings over 35 years of experience in the securities industry.
(more…)
Tune in Sunday Evening to NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on April 11th, 2009 6:45 PM |
Please join me Sunday evening from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. What is truly going on in the economy? Where are markets headed? The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances? So much to cover.
My guest will be Louis George Rieger, Chief Investment Strategist at Greenwich Investment Management. Following graduation from Yale Law School, George accepted a position at T. Rowe Price Associates LLC, where he became an officer and stockholder. In 1984, George founded RRH Capital Management, Inc. At RRH, George established the firm’s record in the management of not-rated, tax exempt bonds and high yield equities. George founded Greenwich Investment Management in 2006. George’s legal education has proven valuable in structuring municipal bond issues. He brings over 35 years of experience in the securities industry. (more…)
