Spring of Discontent
By the looks of the first few high profile Q1 earnings reports & warnings... the next few weeks will probably be chock full of more earnings misses & lowered guidance from all corners of the economy... Not just the banks, brokers, & builders. In fact... The big writedowns have become boring... Now a writedown has to beat UBS' $31 billion before it will even make the newsbug. What will be most disconcerting to the market will be the reports from the big diversified multi-nationals that will begin to show the slowing & contracting effects of the ongoing howzing & credit crisis. By the recent retail snales data, there can be no doubt that the US consumer is being impacted (even at the upper end, the rich... As lots of the wrenching financial distress is hitting lots of high earner areas... Banks, brokers, builders, financial engineers (masters of the universe)... Consumer confidence @ 26 year low confirms the sales data... or vice versa. Howzing pretty much has no hope anymore... So the earnings reports & incremental new bad data points will be basically ignored... Unfortunately for the rest of the mkt... especially financials & banks.. The continued bad howzing, as well as commercial real estate(CMBS... learn it) data due to come... will force more multubillion $ writedowns as the credits deteriorate with the asset values... as Paulson & Bernanke have said "a necessary & painful adjustment", it will continue. some signs also appeared in the last few weeks that CC & auto will deteriorate with the overleveraged consumer further straining the credit derivative mkt. Liquidity will remain dysfunctional until the financial system heals itself...read "unwinds the 30x leverage". Most Mngt will be well served to lower expectations &/or guidance for the Q2 earnings as well as talk down 2H guidance... If for nothing else than to set up a potential for a beat going into 2009. M&A has been all but dormant(except for msft/yhoo, and that starting to get weird)... and deal after deal has been abruptly or gradually called off... undoing billions in mkt cap & upcoming liquidity events. The unusual & herculian efforts being put forth by the FED & the federal govt(haven't seen congress cooperate & get more legislation passed ever) have helped to control & slowdown the adjustment in leverage & price, but both those adjustments will still take place, just slower & over longer period of time. The best part of the interventions is that it has taken systemic breakdown risk off the table. There will still be more hugely dilutive capital raising transactions as well as some reasonably high profile bankruptcies but no total financial collapse... and for what it worth that is a good thing. Unfortunately, as this process plays out, growth will be constrained as credit contracts & companies downsize(repair balance sheets & recover from losses), adjust cost structures, & resize for a slower growth enviroment. Difficult economic & corporate news will continue through this environment. Many taxing authorities (local municipalities, counties, cities, states, & federal coffers) will see, & start to whine about, a marked decline in tax reciepts as economic activity stalls. In some places... NYC tax revs could drop by 20% due to the high concentration of tax revs from investment banks. It is very obvious that Inflationary pressures have & will persist, whatever the causes, and there are good causes, commodity prices, soft, hard, & energy have stayed persistently high... No sharp spikes & dropoffs... just high & higher, as the slowing of the adjustment process allows for the economic activity to stay moderate, rather than a more sudden & abrupt slowdown. A stagflationary economic period could lead to an even more difficult enviroment for business & the consumer, but that wouldn't be seen till into the 3Q. If that developes 2009 will look to be worser... but lets not go there. For now the focus should be on the next few weeks... I know this isn't fashionable, but I don't think the "bottom" is in place. As a stream of bad news comes out the mkt will herk & jerk lower... In hopes of setting up a possibility for a year end rally... albeit from lower levels but rally nonetheless. The market has its best rallies on the heels of bad news events...so we should hope for more of those as it spurs the FED & govt to attention.
As we get there investors should raise cash, hedge longs positions, buy inverse index etf's(speculative), buy Gold & energy... Green & Agritrade.
By the looks of the first few high profile Q1 earnings reports & warnings... the next few weeks will probably be chock full of more earnings misses & lowered guidance from all corners of the economy... Not just the banks, brokers, & builders. In fact... The big writedowns have become boring... Now a writedown has to beat UBS' $31 billion before it will even make the newsbug. What will be most disconcerting to the market will be the reports from the big diversified multi-nationals that will begin to show the slowing & contracting effects of the ongoing howzing & credit crisis. By the recent retail snales data, there can be no doubt that the US consumer is being impacted (even at the upper end, the rich... As lots of the wrenching financial distress is hitting lots of high earner areas... Banks, brokers, builders, financial engineers (masters of the universe)... Consumer confidence @ 26 year low confirms the sales data... or vice versa. Howzing pretty much has no hope anymore... So the earnings reports & incremental new bad data points will be basically ignored... Unfortunately for the rest of the mkt... especially financials & banks.. The continued bad howzing, as well as commercial real estate(CMBS... learn it) data due to come... will force more multubillion $ writedowns as the credits deteriorate with the asset values... as Paulson & Bernanke have said "a necessary & painful adjustment", it will continue. some signs also appeared in the last few weeks that CC & auto will deteriorate with the overleveraged consumer further straining the credit derivative mkt. Liquidity will remain dysfunctional until the financial system heals itself...read "unwinds the 30x leverage". Most Mngt will be well served to lower expectations &/or guidance for the Q2 earnings as well as talk down 2H guidance... If for nothing else than to set up a potential for a beat going into 2009. M&A has been all but dormant(except for msft/yhoo, and that starting to get weird)... and deal after deal has been abruptly or gradually called off... undoing billions in mkt cap & upcoming liquidity events. The unusual & herculian efforts being put forth by the FED & the federal govt(haven't seen congress cooperate & get more legislation passed ever) have helped to control & slowdown the adjustment in leverage & price, but both those adjustments will still take place, just slower & over longer period of time. The best part of the interventions is that it has taken systemic breakdown risk off the table. There will still be more hugely dilutive capital raising transactions as well as some reasonably high profile bankruptcies but no total financial collapse... and for what it worth that is a good thing. Unfortunately, as this process plays out, growth will be constrained as credit contracts & companies downsize(repair balance sheets & recover from losses), adjust cost structures, & resize for a slower growth enviroment. Difficult economic & corporate news will continue through this environment. Many taxing authorities (local municipalities, counties, cities, states, & federal coffers) will see, & start to whine about, a marked decline in tax reciepts as economic activity stalls. In some places... NYC tax revs could drop by 20% due to the high concentration of tax revs from investment banks. It is very obvious that Inflationary pressures have & will persist, whatever the causes, and there are good causes, commodity prices, soft, hard, & energy have stayed persistently high... No sharp spikes & dropoffs... just high & higher, as the slowing of the adjustment process allows for the economic activity to stay moderate, rather than a more sudden & abrupt slowdown. A stagflationary economic period could lead to an even more difficult enviroment for business & the consumer, but that wouldn't be seen till into the 3Q. If that developes 2009 will look to be worser... but lets not go there. For now the focus should be on the next few weeks... I know this isn't fashionable, but I don't think the "bottom" is in place. As a stream of bad news comes out the mkt will herk & jerk lower... In hopes of setting up a possibility for a year end rally... albeit from lower levels but rally nonetheless. The market has its best rallies on the heels of bad news events...so we should hope for more of those as it spurs the FED & govt to attention.
As we get there investors should raise cash, hedge longs positions, buy inverse index etf's(speculative), buy Gold & energy... Green & Agritrade.
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