That the Michigan consumer sentiment survey.....
...the Conference Board measure....
....and even the OECD index of US consumer sentiment...
...all agree, and are wrong.....or that US consumers all have spreadsheets where they can input their fuel costs in real time, assess their disposable income and compare it with their forecast income based on wages and energy price assumptions, and immediately tailor their spending habits to the forecast disposable income stream (along with any shift in savings preference), thus rendering the retail sales figures an accurate rendering of the current state of the consumer and a useful signpost to future economic activity (or lack thereof)?
...the Conference Board measure....
...all agree, and are wrong.....or that US consumers all have spreadsheets where they can input their fuel costs in real time, assess their disposable income and compare it with their forecast income based on wages and energy price assumptions, and immediately tailor their spending habits to the forecast disposable income stream (along with any shift in savings preference), thus rendering the retail sales figures an accurate rendering of the current state of the consumer and a useful signpost to future economic activity (or lack thereof)?
80 comments
Click here for commentsdid not know that macro man now got his brain replaced by that of a fed-sponsored sell-side-analyst. did you check inventory to sales Ratio recently or Corporate profits...
ReplyGood point, I see what you mean. Perhaps we need to wait for people to find they've got a bit of extra dosh left in their bank accounts at the end of the month?
ReplyMaybe one month then or 3 at the very most.
apparently when fuel cost goes down Americans just drive more
Reply"the US arm of HSBC treated HSBC Bank Mexico, which transported seven billion US dollars (£4.5bn) in cash in armoured vehicles to the bank in 2007 to 2008, as a "low risk" client"
Replyor as Hunter Thompson would have put it,
'generation of swine'
when it comes to helping out banks, QE was nothing compared to the amount of narco dollars that rushed to their balance sheets, greeted with open arms and closed compliance departments.
Nico ,
Replymy question for the day.
Given that the banking system has become the go to essential intermediary for transmitting policy do we accept misdemeanours and bad behaviour has the cost of getting policy done? A cost of doing business just like any other? The question being one of questionable morality in a situation where clear criminality is virtually impossible to prove anyway. Much like the client who stiffs you on your billing :)
"Given that the banking system has become the go to essential intermediary for transmitting policy do we accept misdemeanours and bad behaviour has the cost of getting policy done?"
ReplyWell, . . .
"Washington is the most important node of the Deep State that has taken over America, but it is not the only one. Invisible threads of money and ambition connect the town to other nodes. One is Wall Street, which supplies the cash that keeps the political machine quiescent and operating as a diversionary marionette theater. Should the politicians forget their lines and threaten the status quo, Wall Street floods the town with cash and lawyers to help the hired hands remember their own best interests. The executives of the financial giants even have de facto criminal immunity."
http://billmoyers.com/2014/02/21/anatomy-of-the-deep-state/
how do they deal with chopping out gas sales at places that arent gas stations - metrics have not altered but shopping habits have - some 20% of gas sales done at places like costco, wawa etc...?
Replyhttp://img.pandawhale.com/post-5678-cat-Dafuq-was-that-FtAc.gif
ReplyI bet the rough back of the envelope budget the oil workers put together every month has shifted slightly over the last six month. Shame they don't know how to program in Excel VBA to MM's satisfaction.
this really isn't hard to figure out. All you need to do is realize that people are happier buying the same volume of gasoline at a lower price (hence the overall retail spending slump) and taking the leftover money and going to dinner at a casual dining venue. Please take a look at the year over year sales minus gasoline and you will see a very steady expansion trend.
Reply@Gee
ReplyHow much more can the US consumer sqeeze out?
http://research.stlouisfed.org/fred2/graph/?g=10HC
Anon @ 1.53, they are counted as shitty sales.
ReplyAnon @ 1.58, OK, there are 200,000 people doing that math...what about the other 118,180,000 workers?
Of course, not all of the money not spent on gasoline has to be spent on something else. Rising saving rate could account for this.
Reply@anon - dont know what that nsa chart is supposed to tell me
1.58 speaking. Sorry to get fiesty -- its really the coffee speaking. Its meant in good spirits.
Reply118M workers? You mean the derivative restaurant workers and so on and so forth that rely upon the FIREO (Finance, insurance, real estate, and Oil workers) incomes? Or perhaps its the office construction workers in Houston that are insulated from this growth pillar being knocked down? What about the banking fees? What about the wealth effect?
http://finviz.com/quote.ashx?t=SDRL I know more than a few who got a good buggering here.
Telling me what is not correlated to the widespread income distribution of the oil and gas bubble may be the best way to really begin this dialogue.
And don't say its Amazon.com. What exactly about those valuations are sustainable?
http://www.forbes.com/sites/greatspeculations/2014/02/07/amazon-valuations-remain-beyond-lofty/
http://money.cnn.com/2014/08/27/technology/innovationnation/snapchat-valuation/
Hubble bubble oil and trouble.
ReplyHow far does it have to go up to undermine the belief that it is going down?
Anon @ 1.58- my estimates are that it is not enough to offset the positive income shock to the vast majority of the populace that do not rely, directly or indirectly, on energy extraction for its living.
ReplyFair Enough. Sounds as though you can quantify an oil price at which the positive windfall from lower oil prices does breakeven with the net reduction in incomes of oil works. That price may be negative.
ReplyWhat if there are more than 200k Oil and Gas jobs out there?
Reuters: Banking sources say Greek deposit flight intensifying.
ReplyThe peasants are not fools.
IIRC Fed bought ~70% of net Treasury issues in 2014
ReplyLadies & Gentlemen, as forecast on Monday, we'd like to welcome you to 'Dax 11k' & 'All Time Highs in US Equities'. Your pilot this week was FM; our flying time approx 5 days, at an altitude of +5%/wk.
ReplyWe'd like to thank you for trading our centrally-planned markets & wish you a pleasant journey to your onward destination.
Please remember that the short thesis has been invalidated, and take great care on anticipating a rate hike anytime before 2020. Have a pleasant w/e.
MM, I thought this community generally agreed that US consumer confidence means d*ck - other than "gasoline prices have been low for a bit"?
ReplyFurthermore just b/c some PhD model suggests that lower gas prices leads to increased spending doesn't mean that it actually happens in the real world. Let's think about why...
Joe and Josephine Sixpack don't live in a textbook, and they don't make rational economic decisions, b/c they live in a crappy economic world (partly of their own making) where they accumulate debt at 19% APR b/c they spent too much on emotional impulse purchases and also decided they needed a Mercedes SUV, even though they get food stamps.
Trust me on this, LB sees this on the streets of Plugtown USA every day as he drives by in his (paid for in cash) 10 year old motor. Right now, things are tight for the profligate Sixpacks, the overtime is going away after the holiday season as usual, and so they are paying down debt on cards that are maxxed out.
What the upper classes are doing with their Fed-driven and largely ill-gotten gains is another (happy-clappy, rumpy-slappy) story but that segment isn't most of the economy.
Take another look at Inventory/Sales, and compare with last Q1. Looks like we have another "winter in America" on our hands. I am sticking with my prediction, no hike in 2015 and it's even money that Dame Janet announces a new QE at Jackson Hole in August. Once Mr Market catches on to the weakness in US macro, it's a long way down for Bucky. The 2010 DX peak reversed very sharply.
checkmate
Replyit is already moral game over as soon as people raise your question
most banks shut their compliance eye and ear in 2008-2011 and everyone knows their balance sheet was saved by criminal money, Italy being the most flagrant example
so let us rephrase the whole 2002-2012 decade:
- bankers worldwide take unreasonable risks with unreasonable leverage and questionable ethics, and get paid so well until bonus 2007
- shit finally hits the fan and all the drug dealers, human traffickers, kidnappers and tax avoiders are invited to park their cash safely back in the banking system to remedy hardened capital constraints
in this great world everybody wins you see, and it makes me sound bitter like a Mish, enjoy that amazing president week end
FM - very funny, and inarguable.
ReplyI would add to the peanut gallery that comments here don't have to be extraordinarily intellectually complex to be effective. I know that FM was guilty of taunting a bit, and might get a yellow card for the excessive celebration, but some of that should be permitted, no?
You forgot to add:
"You are now free to move about (the equity markets) in many countries..."
Dalio: “risk of a downside is material” because fed doesn't have capacity to ease
ReplySo now we go into a three day US holiday, with the Greek business still not settled. This means we will likely see a few US punters take some risk off the table into the close today, but that doesn't affect Tuesday's opening prices, which will no doubt deliver the verdict on this Binary Event.
ReplyOn balance, LB believes that next week will be OK. It does seem as though the new Greeks have been running rings around intellectual dumplings like Dijsellbloem. Playing the Russia/China card was a master stroke as it deployed the US paranoia weapon on the side of Greece and allowed France and Germany to find enough common ground to be able to stuff the Dutch and the Finns back in the stupid box where they belong.
All in all, we find it unlikely that the Greek banking system will lie in ruins on Tuesday, and believes it is more likely that any remaining shorties of Brent crude, DAX and the € will be severely violated for a few days, while recent buyers of safe haven bonds at negative interest rates will watch their recent purchases exsanguinate over the remaining months until maturity, unless they can whip up another crisis in short order.
Next week features an options expiration Friday that will be a lot more interesting than most of late.... get your popcorn now...
Dalio: “risk of a downside is material” because fed doesn't have capacity to ease.
ReplyCome on, that's daft. Bridgewater probably has short Euro on still, so talking his book. But Ray knows as well as we do that the above statement is bollocks. Fed has two ways of easing:
1) Announce that "due to persistent deflationary pressures", they are not in fact raising rates "for some considerable time" and/or if necessary:
2) Announce (if things really really go tits up) that they will purchase "additional securities" to expand the balance sheet as necessary.
Japanese playbook. It hasn't failed yet... I would warn punters once again that the belief that the US is exceptional, special, or virtuous in any way and that "it can't happen here" is misguided and will cost you loads and loads of Wonga.
If he means, short-term "downside risk" in GDP, US equities and rates, then I agree with him, however.
ReplyThis is why one doesn't use Twitter. It's hard to state one's case in very few characters, although Funny Money does it quite well.... ;-)
CV, enjoying your european energy longs? Good times :-)
LB, no, I think you've just said it over and over again! Yes, inventory/sales rations have crept up....as they've been doing steadily for 3 years. Is it something of a concern? Yes. Would it be more of a concern if all ancillary indicators pointed the same way? Yes.
ReplyFrankly I think many people on this board are too bearish on the economy and too sanguine on the Fed standing pat.
They clearly weren;t alone, which is probably why rates markets got to such silly levels before NFP.
LB, if you think the US is following the Japanese playbook you're smoking crack.
ReplyJapan is Japan because nominal GDP growth has been shrinking since 1997. After the crisis, US nominal GDP growth has been steadily positive, albeit at lower levels than pre crisis.
This is such a fundamental difference as to render Japan analogues to be worse than useless.
MM, I have so much respect for your experience and insight that it does make me somewhat uneasy when we are on different sides of the same trade/s (in this case EURUSD), but I've thought this one through for a long time (and as you noted, I was wrong for a long time, to my cost).
ReplyApologies therefore for the apparently endless and tediously long-winded self-repetition on my part, but economies are slowly moving ocean liners, so these things take a while.
Btw, rates got silly b/c of fear factors (Grexit and Ukropalypse) and we jumped off fixed income before the lows in US10y. At some point we will get back on, but not until the fear trades have been beaten senseless.
I know you like the 1994 analogy and I have looked at it and just don't buy it. GDP, housing, wage growth and M2V measures are so different here, that there's no real similarity. Surely better models are to be found in 2010 or in one of the several Faux recoveries during Japan's ZIRP era?
Where did I proffer the 1994 analogy? I certainly don;t recall doing so- think it may have been Pol.
ReplyI suspect that we will get a grinding normalization, and I would suspect that, his correct short term JPTFO view notwithstanding, I'd happily bet FM that the Fed is more likely to sell treasuries than not raise rates by 2020.
perfectly normal that Dalio is talking his book like you are talking yours and i am talking mine and anyone who would talk the 'opposite' book is a fool or a zen monk
ReplyFunnymoney reminds me of those classic Facebook updates you read sometimes 'i am sipping a cocktail in airport first class lounge' or 'enjoying a perfect holiday on my friend's yacht'
i always remind the FB egos that their status serves no purpose: the ones with the same lifestyle are not impressed, now the ones who can not afford such luxury are probably pissed jealous and hating your guts
haha
Betta er ekki vÃsindaskáldskapur...
ReplyIceland jails former Kaupthing bank bosses
http://www.visir.is/iceland-jails-former-kaupthing-bank-bosses/article/2015150219597
MM, in every way, I hope that you are right about Japanese analogies, but I am just not sure. Our population demographics are phase-shifted to the right by 10-15 years w.r.t. Japan, so we are just getting started collectively paying for Grampy and Nana (who omitted to save more than a few hundred bucks for their Golden Years) of obesity-related and mental deterioration ailments as they move into old age, while also digesting their homes into a market in which there is no price discovery and no-one wants to buy. All good, right?
ReplyThis is why Obama wants to welcome immigrants from anywhere with a pulse, I guess.
Nico, LOL. In trader speak FM translates as:
"I am killing it. I am on my yacht, surrounded by babes in bikinis, while your options are about to expire worthless".
Of course, the other eleven months of the year, the boot's on the other foot. In general, no one is on a yacht, there are no babes, but lots of expirations.
Back to smoking crack, yo!
From Zervos
ReplyOf course how the game plays out from here is still very much in flux. Greece may be forced to leave or it may get a lifeline to stay a bit longer. In the end however I will stick with my initial view that it doesn't really matter - this is just "a storm in an ouzo glass". The real story in Europe is EuroQE and its amazing reflationary power. That said, I still hold out hope that the Greeks do in fact leave and we see some misplaced panic. I would love to do a little "rent-seeking" (and BTDD'ing) down between 10,000-10,500 in the Dax. But for now it appears the market may have already figured out that EuroQE is far more powerful than this little OM circle of Neo-Libertrain Marxists.
Yes LB, well everything in Europe seems to be working now :) ... Even the banks!!!!
ReplyUS story is off the front burner. Key is Europes turn or not. So nfps et al not as key as eurostats.
ReplyYes it was me re 1994. Premise is that bonds cant unwind in an orderly fashion. So when the flip comes from extreme deflationista mood to normailty there are going to pink, or even punk, flamingos c4apping on everyones lawns. Eqs up until a bond schism worries the yield diff equation.
Night night. Too big a friday night for yours truly.
Pol
Yes MM - you are correct and uber bear LB is wrong on Japan to US comparisons. As someone who has lived and traded several asset classes there, the lazy comparisons from people who know Japan only from Fed studies or BB's "Making sure it doesn't happen here" are missing the factors that make Japan unique.
ReplyAs you say nominal GDP hasn't budged since 1997 and depending on your deflator, since the bubble burst in 1990. Second, imagine the .com and subprime bubble on larger scales bursting at the SAME time, and that was Japan in the early 90s. Third, it's a cash based society and high holdings of cash are deflationary, particularly the corporate sector. Google how much cash was found (and returned) after Fukushima. Fourth, immigration has not and is not happening and that is a choice for only the Nihonjins to make/evaluate, not gaijin. Finally, demographics are destiny and Japan is the classic example of that. You have a huge drag on growth when your population is not growing, and geriatric power bases in the boardroom and Kasumigaseki resist reforms that spur productivity and risk-taking.
And LB, 'Japan playbook, it hasn't failed yet'. Are you alluding to a prediction that central bankers will again lean on that crutch or are you talking about the efficacy of QE programs? I wouldn't say Japan and QE has been a paragon of kickstarting growth via LSAPs and zero-bound rates.
That said these are all long term views, and Japan + more broadly East Asia look ok the next 6m-1y IMHO. You have cheapened currencies, low import/energy prices, low rates all putting stimulus to the system and in many cases you have low base effects with weak economic data from mid 2014 rolling off soon.
FT says:
ReplyI think we can rationalize our views ad nauseam with quantitative arguments but at some point, a little bit of "gut feeling" can't hurt.
If any comparison should be made re equities in terms of investors psychology, I would say we are going to live in a half end of .com / half end of subprime bubble for the next (aproximately) 7 months.
Yes, retail sales and GDP growth won't be stellar but it doesn't matter. The fear of missing out will take hold again for the third time in 16 years.
However, dark clouds are already gathering on the horizon....
The US is intent on stirring trouble in Eastern Europe and the Middle East;
In Greece, the real challenge is not THIS negociation (of course Europe will fork out, although reluctantly, a few billions to keep the greeks quiet). The next negociation in Q4 will be the one that fails.
China will have its 1907 moment in 2016 / 2017 and might divert the attention of the population with a little spat over a few Islands.
Brazil will have some very difficult times as a consequence.
By 2020/2022, at least 3 countries will have left the Eurozone.
In short, after a last leg up this year in the stock market, we will witness some interesting times, as the chinese would say.
Austria Down graded (again) Bloomberg....................question is does anyone really care anymore?
ReplyAnon-sensei @9:33. "Ohayou gozaimasu."
ReplyI'm not an idiot, and have visited Japan multiple times. There are clear differences, but the fact is both Japan and US had a demographic bulge, experienced an asset boom/bust and both entered ZIRP. Japan has yet to emerge after 20+ years, but no doubt our beloved Captain America will again prove exceptional and thrust skyward later this year with Dame Janet strapped to his back.
I'm not (and never have been) any kind of "permabear" (Albert Edwards would be an example of such, as I understand the term). I just call it like I see it, which is really rather dull, as the US economy has become a "permabore". We are seeing prolonged slow growth (1-2%) due to reduced aggregate demand, which is itself of demographic origin. Why is this so simple yet tedious concept so hard to communicate? In any case, as any good Marxist economist will tell you, most of the "growth" in modern economies is not organic but generated by currency devaluations.
Domo arigato (bowing), Soredawa mata!
LB-san
@LB - Kochirakoso arigato gozaimasu.
ReplyTo be clear I am not the anon you replied to earlier.
I do think that the biggest demographic upside the US has vs Japan is via immigration. I suppose I should say "potential upside", since we have enough knuckleheads and xenophobes here to get in the way of progress.
- Whammer
This guy has tended to be on the right side of the US equity trade so should you be thinking ,hello ?
Replyhttp://www.bloomberg.com/news/articles/2015-02-13/appaloosa-reduces-u-s-equities-by-40-cuts-s-p-500-exits-citi
Ray Dalio chimes in...
Replyhttp://imgur.com/mQx32qX
No arguments with any of those Dalio statements, but in the next week or so we don't see an imminent apocalypse, except maybe for Mr Shorty and Mr Silly Safety Trades.
ReplyCan someone explain Sen. James Inhofe to me? I see that the Ukrainian "right sector" (Neo-Nazis) are having so much fun they don't want to stop. No doubt there will be plenty of US goons trying to encourage them to break the agreement.
RE: Whammer... "knuckleheads and xenophobes here to get in the way of progress"
ReplyWho or what are you talking about? Who are the "knuckleheads and xenophobes".
The U.S. has taken in over 1 million plus "legal' immigrants a year since 1989:
http://www.dhs.gov/yearbook-immigration-statistics-2013-lawful-permanent-residents
Name me the "knuckleheads and xenophobes" who have called for a reduction in that rate of " legal " immigration ?
Was President Roosevelt a " xenophobe " when he shut down immigration to a trickle during the Great Depression?
The U.S. has over 92 million people of working age who do not have a job and another 10 million people of working age who are actually labelled unemployed. Of those Americans who do have a job, only 37 percent have a full time job.
So as not to be labelled a "xenophobe" by you, must one favor the U.S. taking in:
2 million
4 million
8 million
unlimited
" legal " immigrants per year"
The BLS reports that "23.1 million adult (16-plus) immigrants (legal and illegal) were working in November 2007 and 25.1 million were working in November of this year — a two million increase. For natives, 124.01 million were working in November 2007 compared to 122.56 million in November 2014 — a 1.46 million decrease."
"More than 5.46 million foreign nationals have received work permits from the federal government since 2009, according to a new report from the Center for Immigration Studies. Data uncovered from the U.S. Citizenship and Immigration Services agency reveal that approximately 982,000 work permits were given to illegal immigrants and other foreign nationals unqualified for admission, most of whom crossed the border without inspection."
"Southern California Edison's plans to lay off hundreds of employees and hire foreign workers..."
I guess you cheer and wet your pants when you read headlines such as these. Flood the US with millions of extra workers driving down the price of labor, then suddenly peoples wages are being cut and guys like you wonder where all this deflation is coming from and what happened to our diminishing middle class.
Is this your so called "progress"
Corporate profits highest ever:
http://research.stlouisfed.org/fred2/series/CP/
or is this your "progress"
http://research.stlouisfed.org/fred2/series/MEHOINUSA672N
http://cis.org/all-employment-growth-since-2000-went-to-immigrants
INSIGHT 2015 Investment Themes
ReplyA. Gary Shilling
January 28, 2015
http://www.ritholtz.com/blog/2015/02/2015-investment-themes/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
"US Demographic focus
ReplyThe chart below shows the size of the US 25-54 year old population and total jobs in this group over time…it’s clear to see this group (which is responsible for driving the US economy) peaked in total population in ’07 and has fallen since…and jobs within this group also peaked but have fallen about 4x’s more than the groups population decline. The peak and fall of this group in the US and likewise globally, particularly in advanced economies, soon sent the markets into a tailspin. And the government has made up for the falling demand by taking on debt…lots of debt. This crisis (aka, the Baby Boom bust) was entirely predicted and foretold. But for some reason the subsequent birth dearth and it’s economic impacts in the US and globally are not being discussed and rather the Fed speaks of insufficient demand being overcome by simply offering more and cheaper debt??? As you consider the US charts, remember these same issues impacting the US are not just domestic but very global and feeding on one another in global lockstep.
- See more at: http://charlesbiderman.com/2014/12/22/demographics-likely-the-trigger-event-that-began-the-great-recession-and-the-reason-it-wont-end-anytime-soon/#sthash.9gG29Yco.dpuf
@Anon at 6:36,
ReplyApologies for the "Knuckleheads and xenophobes", I am most likely guilty of painting with too broad a brush.
That being said, I know that Michelle Malkin and Victor Davis Hanson are both fans of the Center for Immigration Studies, and if they aren't knuckleheads I don't know who is.
That being said, you raise some interesting points. None of your points make me wet my pants, though, to be honest.
I still don't see how you can claim that the current state of employment difficulties is "caused" by immigrants. Since 1992, we have not had a year where we had more legal immigrants than we had during 1907. Yes, the country has changed since then, but the population was less than 95 million, vs. today's population of 313 million. So our current immigration/population ratio is considerably lower than it was 100 years ago.
Anyway, I need to quibble with a few of your points. The Socal Edison article specifically refers to outsourcing, which I would suggest is a much bigger contributor to our "troubles" than immigration itself. And not just outsourcing, but the overall carving out of our manufacturing base.
On the per-capita income chart, you would need to overlay some kind of immigration metric to make that persuasive that there is any kind of causality.
Corp profits being the highest ever may have something to do with immigration, but they also have a lot to do with many other things that have weakened the power of labor vs. capital since the '80s.
If you want to say that some of the folks who are pro-immigration are not on the "side of the angels" w/r/t labor in the U.S., I will agree with you.
Back to the original point of demographics -- if we have a huge overhang of people who are going to drop out of the workforce, which we do, then one handy way to address that is to increase the total working age population. The only way to do that quickly is via immigration. The debate rages in Silicon Valley about H1-B visas, but one thing is very simple. If I have a choice of having someone work on the H1-B visa here in the U.S., vs having a person do that work in India, I'd rather have him/her in the U.S.
The point you are making is that there are no jobs to be had, so increasing the working age population won't help. I prefer to think that there are many other things that could be done which would help in that department, and I would contend that there are a lot of knuckleheads getting in the way of that. I guarantee you that some of them are xenophobes too ;-)
-- Whammer, complete with dry pants
Watch Lehman the rat trading gold futures:
Replyhttp://rt.com/news/232427-rats-humans-train-trade/
Central Banks on the bid already in Dax and Nasdaq this morning. What's interesting is how you see the Fed buying one day, BOJ the next, then others follow. It's clear there is a coordinated attempt by governments to keep a permanent bid under equities.
Replyback to Tepper reducing of US equities
Reply"The moves came as Tepper, who manages about $20 billion, made bullish comments about U.S. stocks in interviews during the quarter. "
...while he stuffed your face at 2080 for BIG size
muhahaha gotta love the guy
I can understand the arguments that the U.S. or Europe is becoming Japan from a macro perspective. And they matter a lot with regard to FX, interest rates et cetera. But as a value investor, I would like to point out two important differences with regard to equities:
Reply1) There is zero long term correlation between GDP growth and total return of equities
2) The U.S. and Europe are not at all like Japan with regard to corporate capital allocation. They are shareholder friendly markets driven by activists, private equity and corporate M&A. They are not Japan with legions of zombie companies with pathetic returns on capital, entrenchend management holding onto unprofitable divisions or hoarding cash instead of paying dividends and buying back stock.
Overall it is still quite easy to build a solid portfolio of U.S. and European equities with a FCF yield to EV of 6-8%. And that's in a low growth environment. Of course capex could go up, but then we will also see more growth.
So even if we all turn Japanese with zero growth for the next decade or two, I am happy to take 6%+ FCF yield with plenty of volatility but also some growth optionality instead of anything else.
Hmm the Japan analogy works for Europe I think, but not for the U.S. In principle, I agree with the "phase-shift" argument by LB, but velocity matters too. The U.S. will not experience negative(!) working age population growth in the next 20 years, but its dependency ratio will of course increase. This matters. The U.S. and perhaps a few other Anglo Saxon societies are some of the only countries where you can conceivably say that the demographic transition "stabilises" with fertility near replacement levels, even if migration matters hugely too. In the rest of the world, it simply continues as fertility plummets and stays below 1.5. This is a big difference when compounded over a couple of decades.
ReplyWhether US consumers are saving enough(!), well then that is just a completely different debate. I am sure they aren't. I suppose we can also ask whether it is possible for us to move back to happy days of 2000s where the US current account deficit acted as a spending buffer for the rest of the world's export needs. I doubt it.
Gnome saud: "Overall it is still quite easy to build a solid portfolio of U.S. and European equities with a FCF yield to EV of 6-8%. And that's in a low growth environment. Of course capex could go up, but then we will also see more growth.
ReplySo even if we all turn Japanese with zero growth for the next decade or two, I am happy to take 6%+ FCF yield with plenty of volatility but also some growth optionality instead of anything else."
Concur with every word here. Not very permabear ish of me...
Gnome is correct about point 1 (zero correlation between GDP & equity return), but his investment thesis is sorely lacking.
ReplyUS equities have risen on the back of a huge asset bubble & current equity prices are maintained only via aggressive share buy-back programs funded by structurally damaging cost cutting.
Looking at a continued 6% yield is the ultimate picking of pennies in front of steam-rollers.
When asset prices collapse that 6% yield will go hand-in-hand with a 60%+ capital loss.
So-called value investors will then pray that we do turn Japanese, such that the government can print forever and monetize all debts & losses.
From Gary Shilling's investment themes:
ReplyObvious but important..imo.
" Virtually all currencies are being devalued against the dollar, which, as the world’s reserve and major trading currency, can’t really be devalued. It’s a matter of other currencies falling against the greenback, the established norm, not the buck rising against them".
"the dollar, which, as the world’s reserve and major trading currency, can’t really be devalued"
ReplyI love Gary, but this is obviously bollocks.
German minster Michelbach is tonight demanding that payments to Greece cease... but he is really part of the CSU's loony wing, so this is just optics for the Mangler's conservative Bavarian base.
The deal is done, they are just wrangling over the semantics of the communique.
LB - Shirley the Germans will use this to assert themselves after having their hand forced with QE.
ReplyWe had the test run on bank deposits with Cyprus. They're in a position where they think can let Greece go to put frighteners on France, Spain &:Italy.
Steve Ricchiuto, Chief U.S. Economist at Mizuho Securities, went on a little fast-talkin' rant on the economy:
Replyhttps://www.youtube.com/watch?v=wk6QBqRWvEc
Good for a laugh ...
Gnome said: "Overall it is still quite easy to build a solid portfolio
Replythis was easy in 2009, and that easy thing was hard to do. You know what i mean?
reverse situation now, that easy thing you mentioned will hit you very hard
such late certainty, almost dogma-like after 6 years up... makes me feel terribly worried
most folks seem to have gone from complacency, to religion
"with plenty of volatility" includes the possibility of a 50% pullback. Especially the U.S. stock market looks overdue for a correction. But I don't try too hard to time it.
ReplyA 6%+ FCF yield is historicaly still very attractive. And Anon 8:37, buying back stock to prop up EPS is one of the advantages that comes with high free cashflow.
I still like today's market much more than the one in 1999/2000 where we had a huge capex bubble and almost no free cashflow overall. Even the glamour stocks of today like Apple or Facebook have decent free cashflow yields. So the downside looks much more limited, i.e. we propably won't stay down for too long.
The greater fool trade of today is buying long-term bonds at minuscule or even negative yields. That looks more like picking up pennies in front of steamrollers to me.
Very quick and strong recover from the low today. The market is treating Grexit as the perfect JBTFD opportunity.
ReplyGrexit is probably good for everyone. MM, watch out for EUR rebound - seems it just wants to go up from here no matter Grexit or not.
LB, it's true that there are obstacles to the devaluation of the USD esp considering how much of us debt is domestically owned, as much as a weaker USD is much needed for better exports and foreign investment income
ReplyVery true, not sure if market is to complacent about grexit or to take it as a bullish divergence of risk appetite vs newsflow
ReplyAnalysis of the Grexit situation by your friend, FM:
ReplyScenario 1: Sudden Greek exit, capital controls, banking sector collapse, general EU collapse, global Armageddon etc (0.5% prob)
Scenario 2: Germany forgives all Greek debt, pays war reparations, exports of aniseed drinks restore Greek curr a/c surplus etc (0.5% prob)
Scenario 3: Some inane, EU 'agreement' reached; summary: kick can down road for another 6-12+mths (99% prob).
Outcomes:
Scenario 1: Panic, CB bid, stocks go higher.
Scenario 2: Jubilation, everyone bids, stocks go higher.
Scenario 3: Resignation, nothing else to bid, stocks go higher.
I maintain an overweight long equity exposure.
Tsipras: "From Thursday morning, we will submit 1st bill to protect homes from foreclosures and prevent sell of NPLs to distress funds."
ReplyThese guys are slow learners. Killing their banking system by starting a lot of vicious circles even before ECB cuts off ELA. Contrary to my hope, Syriza was not the usual bunch of turncoat socialists...
Grexit probability now climbing above 50% IMHO. But to the doomsayer's surprise, EUR and Euro Stoxx may go up the week after... buy the fact.
Agree with @Gnome of Zurich's logic and FM's gut.
ReplyGrexit is unimportant as I read the market reaction.
the next leg higher in equities, brought to you by macro funds!
Replyhttps://pbs.twimg.com/media/B-Dqt9qIEAAQxUi.png:large
Djiesselblom and other respectable EZ representatives are virtually begging for Greece to ask extension, lol. Guess when the going gets tough for real, those hundreds of billions in debt actually do matter.
ReplyNo politician wants to be the clown who was always jabbering about how safe and profitable it would be to grant those loans.
People talking about complacency regarding the Greece/Euro situation I think are missing the bigger picture, which as I see it is that there is effective leadership in place to remove any perceived impediments towards economic growth. Maybe the ECB is not the bumbling mess its seen as?
ReplyBears will say that we are in the midst of a giant experiment with the hypothesis that "we can create economic growth through asset inflation". I don't think anyone really knows the answer about if it will work or not, but so far the policy response to the cake not baking is to turn up the heat. It seems crazy to be leaning against this - if you are right and the growth never comes lots of assets are probably vastly overpriced - enough that there is no need to catch the first 10% of the downside.
Getting specific I think NDX is gonna tag a new all time high before we see any kind of pullback. Apple alone could probably get us there as the $1T cap crap seems to becoming a self fulling prophecy. I don't see how yields stay this low - euro in particular, in a manic bull market, which is the only way to describe whats going on in equities.
Mr T: "there is effective leadership in place to remove any perceived impediments towards economic growth"
ReplyYes. Absolutely.
FM: "Scenario 3: Some inane, EU 'agreement' reached; summary: kick can down road for another 6-12+mths (99% prob)."
Yes. Absolutely.
"Djiesselblom and other respectable EZ representatives are virtually begging for Greece to ask extension"
Yes. Absolutely.
Bond markets have already delivered the verdict on Greece. No Grexit, hence the slow exit from a variety of safe haven trades (gold, bunds, USTs).
US10y yields have backed up 50 bps since Peak Panic over Grexit or whatever it was all about. Once the (inevitable) Greek deal is actually announced, that move will be completed, perhaps to 2.25% and then we will all go back to handicapping the Fed v the US economy. The retrace higher in bunds will be much more painful for longs, however.....
Dijsel- blow-em to Varoufakis: "Yanis, I'll kneel down and s*ck your d*ck if you agree to an extension".
ReplyVaroufakis: "Get in line, Jerome. You're behind the French chick, that hot translator and Schäubele."
We have an entry for the coveted Stating The Obvious award here at MM, and the (repeat) winner is Robert Peston of the BBC. Not only is Peston soooo boring and predictable, writing only about what was on Bloomberg last week, but he is a dull writer, who lacks the angry and slightly nasty rabid tone often adopted by the fulminating Ambrose at his best. At least AEP can write a convincing Euroscare, whereas Peston is about as frightening as a white helium balloon with a ghost face on it...
ReplyPeston on (yawn) Existential Threat"
Peston is an "existential threat" to anyone who wants to think that the media actually understand the events that shape markets...
MM, can we have a new page please to write comments on as this one is nearly full!
ReplyFM- Can i please allocate you a load of my money to manage. You've earned it.
Well, what can I add. Not much . Whip day in oil. It looked at eh US open s though it ws about to do a 'let's whip down within the 20% slack of speculator noise' to a price wich you roll a dice to forecast. But its back up. Punchy.
the one obvious theme is that whatever the ups and down of Greece the tide of money is returning to EU assets and the idea of growth. US -> Europe. A LOT left over the past few years and last October was pretty much the Battle of Evermore ( Go look up the lyrics oh young ones who don't know Led Zepp) for Europe.
Since then it's been a rearguard action for the Euro growth bears. So its just a matter of how fast the tide is coming in rather than if.
Still hate bunds.
Peston is twat.
ReplyFor transparency, just wanted to say that I have been reducing my position during this session (particularly on Nasdaq & Dax). I feel we may pull back some before moving higher.
Reply@Pol - Thanks.
MM's Short US10y was a GREAT call. I was in that trade for a bit, but sadly I bottled (shakes head sadly).
ReplyWe've all been there, eh?
Still holding long NBG calls. Nothing like holding an option on a country's economy continuing to exist.....
C'mon MM, smoking crack is sooo 1980s.
Replylong time reader, first time commenter...
Replyone of the reasons I've been fascinated by this blog for so long is not just the quality of the content, but also the consistent quality of the comments... no disrespect to MM here, I'm sure he realises good content makes blogs good, good comments make blogs cult...
and to that extent commenters like Leftback, Mr. T, Polemic, and all the others add immense value in their own ways...
FunnyMoney, I daresay, is an amazing addition to the comments section... he takes KISS to an entirely different level altogether... like that geeky nerdy kid in college who reads comic books while you're struggling with the concept of triple-integration... and you know he's still going to score straight As...
@kbong: lol. Fully agree there are some excellent posters here (not including myself in that list; my role is just to point out the craziness of the 'omnipotent CB paradigm').
ReplyPosition update: reduction in Nikkei. Folks, as mentioned yday I am banking some profits, ready to buy the next dip.