Posts filed under ‘economy’
“Bye Bye Roubini, Hello Abby”
Perma-Bull with Perma-Grin
Bye-bye” Dr. Doom” and hello “Happy Abby.” Abby Joseph Cohen is back in the spotlight with the recent market resurgence and is calling for a sustained bull market rally. The death-like sentiment spread by NYU professor Nouriel Roubini has now swung – it’s time for CNBC to call in the bulls, much like a baseball coach calls in a fresh reliever after a starter has exhausted his strength.
Over the last year, we’ve gone from full-fledged panic, into a healthy level of fear – the decline in the CBOE Volatility Index (VIX) supports this claim. But with cash still piled to the ceiling and broad indices still are about -35% below 2007 peaks, I wouldn’t say sentiment is wildly ebullient quite yet. The low-hanging fruit has been picked and now we need to tread lightly and delay the victory lap for a little longer. Market timing has never been my gig, so gag me any time I attempt a market prediction. Having said that, sentiment comprises the softer art aspects of investing, and therefore it can swing the markets wildly in the short-run. Ultimately in the long-run, profits and cash flows are what drive stock prices higher, and that’s what I pay attention to. Profits and cash flows are currently depressed and unemployment remains high by historical standards, but there are signs of recovery. Cohen highlights easy profit comparisons in the second half of 2009 (versus 2008), coupled with inventory replenishment, as significant factors that can lead to larger than anticipated surges in early economic cycle recoveries. Whether the pending economic advance is sustainable is a question that Cohen would not address.
Investors are emotional creatures, and CNBC realizes this fact. Before investing in that 30-1 leveraged, long-only hedge fund, prudence should reign supreme as we start to see some of the previously bullish strategists begin crawling out of their caves – including perma-bull Abby Joseph Cohen.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
Pinning Down Roubini Requires a Lasso
Pinning down a Nouriel Roubini forecast is like lassoing a frenzied cow. They say a broken clock is right twice a day, and maybe the same principle applies to renowned economist, Professor Roubini (NYU)? Sure, credit should be given where credit is due. He nailed the forecast relating to the housing led financial bubble and subsequent financial collapse – even if the prediction was years early.
Here’s where I have a beef. Now that Roubini has become a celebrated rock star with frequent television interviews and speaking engagements, his touring views are becoming more fluid and slippery as time progresses. Sure it’s more comfortable to ride the fence and lean in whatever direction the weekly economic winds are blowing. I suppose if you throw out enough changing viewpoints, which adjust to evolving moods, you can never be wrong.
Let’s examine some of his views:
- Out of Context: Just last week, Mr. Roubini said the “worst is behind us,” but in order to retain his “Dr. Doom” celebrity status he felt compelled to issue a press release clarifying his statements. He noted his “views were taken out of context,” and added, “I have said on numerous occasions that the recession would last roughly 24 months.” That’s funny, because he just stated last year it would be 12-18 months (Click Here for Video).
- Sweating Out Rebound: Maybe the 41% bounce in the S&P 500 or the 49% jump in the NASDAQ from March 9th lows compelled Roubini to make the “worst is behind us” comments, but why then at the beginning of this year did he say, “We are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst.” Hmmm…excuse me while I scratch my head.
- Alphabet Soup Recovery: Also frustrating are the John Kerry-esque waffling comments relating to whether this economic recovery will be a U, W, or L-shaped economic recovery. Last April he was in the U-camp: “My view is closer to a U-shaped recession as I expect that the economic contraction will last at least 12 months and possibly as long as 18 months through the middle of 2009.” Now, as early as last month Roubini is warning of a double dip or “W-shaped” recovery with the rising possibility of a “perfect storm” in 2010 (Click Here for Video). He sees the expiration of tax cuts, rising oil prices, inflating debt and interest rates leading to another downturn. So is it U or W, or will we hear more about an “L” shaped recovery? Maybe the worst is not behind us? I’m confused.
- Doomsday Earnings Yet to Arrive: Still early in the quarterly earnings reporting season but Roubini’s call for a downside in corporate earnings has yet to materialize. As a matter of fact, Zacks Investment Research reported last week that early second quarter upside surprises are beating downside surprises by a ratio of 7 to 1. So far not too “Doom-full.”
I’m no economist or recovery expert, but what I do know is that I’m having difficulty pinning down Professor Roubini’s ever-changing views. I suppose I will just mail CNBC, Bloomberg, or the bevy of other Roubini media groupies a lasso in hopes they will pin Mr. Roubini down.
Wade W. Slome, CFA, CFP®
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
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California the Golden State Turning Brown
California is facing a significant cash crunch as the state attempts the narrowing of its $24 billion budget deficit. The crisis will come to a head now that the fiscal year, June 2009, budget deadline has passed. Without a budget resolution and in order to fill the budget gap, the California government will need to start issuing billions of government IOUs to contractors and vendors, local agencies handling health programs, as well as some receiving state aid.
Moodys rates the Golden State as the lowest rated state of all 50 at A2. The average rating for all states is AA2 and only two other states besides California are rated below AA. At the beginning of 2009 the state bought some breathing room by delaying cash tax refunds, but that cushion has rapidly deteriorated as the economy and employment outlook have deteriorated. Making things worse for the state, relative to other states, is the state constitutional inflexibility requiring voter approval for deficit borrowing.
Time will tell if Governor Schwarzenegger can gather the votes necessary to prevent bond defaults. President Obama and other states are watching closely as the actions (or inactions) will have a ripple through effect for everyone. At 13% of the nation’s GDP, California’s economy impacts the overall country in a significant manner.
Let’s hope the state maintains its “golden” status and does not get burnt.
Is the Recession Over?
Dennis Kneale, bullish commentator on CNBC presented his case on why he thinks the recession is over:
Positive Technical Indicators: Kneale points out that in recent history when the 50-day moving price average cuts upward through the 200-day moving average there is a positive directional bias for the market in the ensuing months.
Personal Income: +1.4% in May for 2 consecutive months.
Personal Spending: Consumer spending was up again in May, and up more than in April.
University of Michigan Consumer Sentiment: The survey rose again to a reading of 70.8 in the recent measurement period.
VIX Volatity Index: The so called “Fear Index” is down -43% in about 3 months – stabilizing to a more normalized level. He argues this should bring in some cash on the sidelines into the stock market.
Eric Schmidt Positive: CEO of search giant, Google, says the worst is behind for the U.S. economy.
Most of the guests rang a more cautious tone, not the least of which, Peter Schiff sees Armageddon ahead for the U.S. economy. Mr. Schiff goes on to compare CNBC to the Gardening channel with all the talk about “green shoots.” Not to mention, he sees the trillions of stimulus dollars only providing a temporary, artificial boost that will eventually cause a horrible economic hangover. Lucky for Peter, he has perfectly timed the international rebound in 2009…cough, cough.
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