We are heading out early today after suggesting a new market adage...
"Sell on Friday and go away
Don't buy again til next Tuesday"
Wishing you all a none too terrible month/quarter end and hoping that your Octobers not be red.
We leave you with the commisioner for EU policy -
"Sell on Friday and go away
Don't buy again til next Tuesday"
Wishing you all a none too terrible month/quarter end and hoping that your Octobers not be red.
We leave you with the commisioner for EU policy -
27 comments
Click here for commentsIf you stick your head far enough into the sand, you finally emerge in Uranus.
Replyshurely China?
ReplyJL
Might be a silver long looking for his profits...?
ReplyECRI now calling a recession... such genius! Now, we all know that we will see a 0.0% or slightly worse GDP by Q1, we have been saying that for ages.
ReplyThe big question for the market is, what will this do to earnings? The chart below shows how badly analysts missed earnings estimates during prior recessions.
Earnings Estimates and Past Recessions
LB wonders if this is going to be one of those little "echo" or "double dip" recessions, where they miss - but only by 5-10% - like 1985 and 1991. This is where we get our $92 EPS x 13 = 1196 for SPX.
We haven't really have much real growth to dip from, after all, during this "recovery" and corporations have been hoarding, not hiring. You'd have to screw up badly to miss by 20-40% unless your business model is six feet under.
Here is the whole post, Barry a bit über-bearish of late, one must say.
Huge Earnings Miss Coming?
A lot of the people I read forecast any recession to be relatively 'garden variety'. Ie earnings fall 15% or whatever the historical norm for recessions is.
ReplyWith the level of leverage out there in developed economies, it strikes me that the business cycle will display more downside volatility, as debt cannot be used to paper over changes in income (or revenue in the case of governments), which leaves me concerned that the aforementioned forecasts are somewhat sanguine.
Japan's experience may be instructive in this regard. My understanding is that their recessions have been much sharper of late, but I am quite sure those are probably nominal figures.
Thoughts?
I don't agree this time, Well Red. I know that others like cpmppi don't see a collapse in US earnings, sans a total credit freeze/bank crisis in Europe that stops everything dead.
ReplyThere isn't the kind of evidence yet from credit markets that there will be the sharp monetary tightening that normally accompanies normal or deep recessions. We are, after all, in ZIRP.
There will be a few companies that find themselves short of cash and having to borrow at steep rates and will be punished, indeed spreads are already quite wide for some of the worst. But some corporations have more cash on hand than the EU combined and business is steady.
The Japanese recessions were relatively mild after the initial shock and deflationary crash, simply deviations around zero - except for the one major attempt by BoJ to raise rates. Not that the Nikkei undulations were always small, mind you....
My guess is earnings disappointments will be mostly priced in by Monday 10th or so. Which means there may be another dump ahead....
"Sell on Friday and go away" LOL! Sounds like "Sell in May and Go Away" but on a shorter time horizon...it's all compressed now.
ReplyIt also sounds like 2008...
No European Solution + China hard landing + US austerity = A worse than expected recession
ReplySPX to 1000 or 850
Anon 12:54
ReplyHead of Unicredit predicting collapse, hobbytrader on BBC announcing apocalypse, SPX 650, ... the reverse of a DOW 36000 ... we still need some more doomsayers to emerge as a sign of a bottom
LB,
ReplyYou clearly have been doing this for longer than me, so I have to defer to you on Japanese economic history.
While I agree that we will not have 2008-type credit market freeze for higher-rated corporates, there also clearly is not much/any room for the cost of financing to decline, which will do nothing to change incentives re: business investment (more hoarding of FCF). Further, my suspicion is that business capex figures over the last couple years have been boosted meaningfully by the ~$600B in high-yield issuance we have seen over the last two years (still searching for data to confirm or deny this relationship - any ideas?). If I am correct, as HY issuers continue to be locked out of the market, this will have a considerably larger effect on corporate investment than people are modelling.
Combine this with a retrenching consumer, and a government too paralyzed to pass any marginal stimulus (government expenditure is currently huge, but the marginal change will be down), and I see a sharper than forecast recession.
Granted, I am not calling for 2008/09 here, just something deeper than is currently being modelled, with the inevitable flowthrough to earnings. No magic number yet, but let's say 5-10% worse than currently forecast. So SPX 900-950 when it's all said and done. No timeline attached to that, but it will take a while for the market to figure out what's going on.
Wow when did I get so bearish?
Might be worth pointing out here that there is a lot of lobbying now to have a tax holiday for bringing cash onshore.... largely to buy back stock per bloomberg. There are a few conclusions one could draw from this:
Reply1) Apple and Google are pretty cheap, certainly cheap to their marginal investment opportunities and cost of (debt) funding. Nemo's take: pretty clearly the case on returns vs treasuries.
2) US corporates are finding less investments in EM and are looking to use more marginal cashflow to invest back in the US. Nemo's take: depends on what business but it would appear that there is a bit of EM skepticism / reality checking setting in.
Needless to say this is all pretty bullish US equities. Maybe not this week, but by Q4 end I think.
C says'
Replyi don't really see it that way at all.
If US corps are holding their cash ooshore and it is in anything ,byt dollar form then a significant wave of cash returning onshore will strengthen the dollar and put downward pressure on future B?S translation of global earnings. IF it held offshore in dollars and repatriating does not imply conversion then that would be more bullish ,but I still weigh the entire process against the larger picture of difficult topline growth which does not appear to be becoming any easier without some major macro turnarounds in policy.
In other words at best it creates the notion of some relative strength in a poor topdown outlook.
Without knowing how funds are dispersed to begin with it's difficult to make any meaningful analysis of the consequences of such a reversal in cash holdings.
What I find for the most part is that people find some analysis that fits' their preferred outlook.
C says'
ReplyIt's all moneyflow when it comes to price I will agree that much.
So we have two potentials for creating any meangingful price propping.
One is translation of corp cash to investement taht we have discussed.
The other would have to be a significant move away from holdings in govt debt. Re the latter I can only see one thing that would lead to that and that would be a believable resolution to the core issue driving this year .The Euro debt.For as long as that remains hanging over the market like a sword of damocles then cash will remain in cash or govt debt of 'safe haven' status.The result of that is tight credit and resulting falling economic activity that depends on credit for it's existence.
C' depends on what happens in Europe but I'm inclined to think this is going to be another kick of the can down the road or a possible big bang resolution and transfer of Greek public assets to some Euro RTC. The amount you get paid for taking Europe corporate credit risk right now is pretty hard to turn down.
ReplyC says'
ReplyDo the Greeks have any income generating assets? Or are they all of the income poor history rich variety.
Forgive the cycnicism ,but when the Turks besieged Constantinople and the Greeks were in dire need of funds to raise defence the 'govt' asked the rich "bring half your wealth so we may defend ourselves against the unbelievers".
Of course the rest is history and in fiction written that Greeks "have pockets as long as their beards and arms as short as their cocks ".
What I am saying is that unless the Germans are fools and I do not believe they are then culturual differences will out and the Greeks will write again theirown dismal history as the future we now await.
From the Private Eye , couple of months ago :
Reply"The financial affairs of Greece seem to be in a state of hopeless bankruptcy. The kingdom started on borrowed capital, the three great powers of England, France and Russia having guaranteed a loan of 60 million francs, partly to indemnify Turkey and other creditors of Greece, and partly to assist agriculture and manufactures and their early struggles. The expenses of the court and government, the carelessness of officials, and the non-receipt of the taxes, have added to the embarrassment of the exchequer, so that at the present time the Greek treasury owes upwards of 300,000,000 dr., a third of which is due to the three powers and the remainder to capitalists, principally in England."
- Chambers Encyclopedia, 1868.
ISM this morning was pretty much what you would expect if we were teetering on the edge of a recession. We may have numbers like this for a while. Still watching SPX 1100 and DAX 5000.
ReplyDraghi clearly violates TMM's STFU policy:
ReplyDraghi Violates STFU
All you ever wanted to know about EFSF possibilities, courtesy of TMM's mates at Nomura:
ReplyNomura on EFSF
A retest of the SPX 1101 area would appear to be imminent. DAX 5000 area to be tested tomorrow, presumably. Welcome to Q4, friends.
ReplyAnything vaguely related to borrowing short and lending long is being beaten with a stick today, apparently independently of credit quality or asset allocation strategy, suggesting lots of stops triggered as somebody started liquidation.
The patient and the brave will find some excellent bargains laying around among the corpses this week. It's a decent market for methodical non-emotional types who can fade the hysteria.
LB feels like the office junior left to cover a big story while the bosses are out.... great headline here, TMM would be proud of this effort:
ReplyDexia's Midnight Run?
Dexia a candidate for the role of Bear Stearns, perhaps? LB thinks we are at the Bear stage of the Eurobolleaux saga, but not yet at the Lehman stage. Greece is subprime and Dexia is Bear Stearns.
Italy plays the role of Alt-A liar loans. One of the big French, Spanish, Italian or German banks would play Lehman. But really, we don't want to see that play again, do we?
We bought bonds last Thursday and now we feel that we are very clever chaps....
We are putting on a few small punts from the long side today. Technical levels intact (intraday SPX low of 1101 in August), so probably a decent risk/reward ratio here. Nothing very substantial. After all, tomorrow could be TEOTWAWKI.
ReplyThe flight to safety in Treasuries continues to amaze, astound and astonish....
Correction, "were intact". New low 1099.08.
ReplyUgliness in store for the morning, no doubt.
AMR playing the old airline game of threatening BK so they can restructure/renege on pilot retirement obligations.... how many times have we seen that. If you ever feel like buying an airline stock and holding it more than 24 hours just shoot yourself instead.
Thanks for stopping by the blog today..... TMM and the regular crew will be back tomorrow.
:-)
Thanks LB , watching from the sidelines.. you wear the prefect's tie so well !
Replyyes love the dexy's link .. If they looking for chinese bail out would it be "come on Irene" ?
Nah. tomorrows tuesday ... and what do we do on Tuesday? Remember Toora Loora Toora Loo-Rye-Aye ..
( bet that last bit has lost a few folks)
back soon ,.,.
Pol n the gang
Soros supports protestors. Hilarious.
ReplyGeorge will be sitting on the Brooklyn Bridge next with some young totty, getting arrested, maced and tased, and blaming the Evil Speculators.
Soros Backs Protests
You have to larf TMM....
C says,
ReplyThe good old days of protest are back at last just a shame I don't hae enough hair left to put a flower in !
Never mind,in the spirit of support I'll provide the music and here we go ;
"If you're going to Wall Street be sure to wear a Kevlar vest today,
If you're going to Wall Steet you're sure to meet some greedy people there"
Scott McKenzie did it so much better !!
Point an Figure support was more like 1120 on S & P anyway and the Dow was also the wrong side of a big round number.
The question is what holds it up when the next Euro singalong with Greece is not until 13th ?
Sooner we move on down to cross market supports sooner we can look for some seasonal buy points.
curious to see if asia follow through from yesterdays sell. might be tempting to take off the EM FX shorts but still on wait and see here.
ReplyStay safe guys,