Stabilizing?

Greetings good citizen,

I’m getting sick of repeating myself good citizen but they ‘did it again’ today (although I think the ‘day traders’ have wised up and started selling into the end of the day buying frenzy.) The ‘tape’ once again shows a near vertical ‘spike’ right at the very end of the trading day.

There is no known advantage to holding (decidedly crappy) positions overnight, the only thing we know for sure is the markets closed higher than they otherwise would have for the third straight session.

This naturally begs the question as to whether or not the financial numbers are being ‘politicized’ because CG is right, if the economy doesn’t improve, the Democrats are toast come the next election.

Not that this means the Republicans will enjoy a ‘walk away’ victory. The public may have a short attention span but they won’t forget who actually caused this train wreck.

Which begs a different question, if the economic results are being ‘massaged’ how is this any different from what Bush did?

The people don’t want ‘fairy tales’. They want results they can see with their own eyes and prosperity they can actually take part in! This making rich people richer shit is for the birds! Yet every move to curb the free spending on Wall Street has been blocked with almost stunning ease by these same criminals.

This isn’t how elections are won…not that there is strong evidence that proves such contests are legitimate in the first place…but one again I digress.

At issue good citizen is whether or not the economy is turning around or ‘stabilizing’ as they put it in tonight’s offering .

Fed Sees Signs That the Economy Is Stabilizing

By JACK HEALY
Published: July 29, 2009

The recession is losing force in most parts of the United States, the Federal Reserve said Wednesday in a snapshot of economic activity from across the country.

But the picture remains grim in other sections, with retail sales down in the Midwest, loan demand falling in New York, commercial real estate weakening and manufacturing activity stumbling in many regions.

The assessments were part of the Fed’s beige book, a regular assessment of economic conditions from 12 Fed districts nationwide. Since the spring, the various Fed districts have reported that things were still bad, but not hurtling downward at an accelerating pace.

Despite stabilizing conditions over all, few businesses or industries are girding for a rebound. Manufacturers anticipate a modest and uneven recovery. Some retailers are bracing for a long, slow recovery; the job market remains dismal and is likely to stay that way for some time.

“The weakness of labor markets has virtually eliminated upward wage pressure, and wages and compensation are steady or falling in most districts,” the Fed said.

While the broad arc of the economy tracked a similar course, this time there were a few more glints of hope. In four districts, health care companies were hiring. Information technology jobs were opening up in the Richmond and Minneapolis districts. And there were signs that New York’s labor market was stabilizing. [Huh?]

Also on Wednesday, the government reported that new orders to factories for durable goods fell sharply in June as demand for commercial aircraft and motor vehicles declined from a month earlier.

The 2.5 percent drop in manufacturers’ orders was the largest decline in five months, but economists said the picture was brighter than it might seem. Excluding volatile orders for transportation equipment, manufacturers’ orders rose 1.1 percent for the month, a larger increase than analysts had forecast. [Excuse me? Overall orders were down 2.5% yet somehow ‘non-transportation’ orders were up 1.1%??? Sorry but that doesn’t make sense! Unless these are the same ‘economists’ that are constantly having their ‘expectations’ beat. We already know ‘down’ is ‘up’ to them…]

Economists said the numbers reflected more stability in the manufacturing sector after months of declines that came as factories shut down, cut their inventories and scaled back production as they confronted the worst economy in decades. Now, manufacturing seems to be finding its footing, economists said. [As a thirty year manufacturing professional I’m here to tell you unequivocally that manufacturing is the first sector to be hit by a downturn and the last sector to recover. That said, our manufacturing sector is now so tiny that it never ‘recovered’ from the 1991 economic downturn. Most manufactured products in this country today are ‘imported’.]

“It tells me we’re on the cusp of a very slow and gradual recovery,” said Tim Quinlan, an economic analyst for Wells Fargo. “Businesses have been in absolute lockdown all year. Everybody has been scaling back and saving money. Orders seem to be in a bottoming process.” [Naturally, nobody knows for sure how long that ‘bottoming process’ will take, seeing how most folks don’t have any money, you can be sure that this process is going to take a considerable amount of time.]

Still, new orders for all durable goods — products that last several years — were down 26.7 percent in June from a year earlier, the Commerce Department reported, and shipments of goods fell 19.5 percent.

In June, there were more new orders for metals, machinery, electrical equipment and appliances. Orders for military aircraft rose by 30 percent in June from a month earlier, the Commerce Department reported. [Okay, do these people look like idiots now or do they just think we are? What they reported makes no sense but that doesn’t mean they are ‘lying’…what it means is orders for June are ‘up’ compared to May but still down (considerably), year over year.]

But declines in automotive orders, coupled with a double-digit decline in orders for commercial aircraft, weighed on the sector, demonstrating the volatility of the government’s figures on durable goods orders.

New orders for motor vehicles and parts fell 1 percent in June, reflecting turmoil caused by the bankruptcies of General Motors and Chrysler in addition to sagging demand for domestic automobiles. Orders for civilian aircraft plunged 38.5 percent, one month after they shot up 60 percent.

So what do you think good citizen? Is our economy ‘on the mend’ or would the report be more understandable if it were written by people whose primary language was English?

How this report ever got past an editor (never mind into the NY times) absolutely baffles me.

Like back in March, this appears to be yet another regurgitation of the popular ‘less bad’ meme pundits have been using to build consumer confidence in a pretty much ‘totaled’ economy.

If this report ‘boosts your confidence’ in either the US or the global economy then it doesn’t take much to make you happy.

Thanks for letting me inside your head,

Gegner

Beat it!

Greetings good citizen,

Much of the ‘optimism’ behind rising stock values is being driven not by increased sales but by merely ‘beating expectations’. Roughly half of all market participants reporting so far have ‘beat expectations’, while overall sales are down roughly 30%.

Worse, many companies are ‘beating expectations’ by slashing costs, a perpetual exercise in ‘right-sizing’ that will damage the company’s profitability once demand returns…not that anyone honestly expects that to happen anytime soon.

Naturally, there is a limit to how much a company can slash and remain viable. If the vendors you’ve wrung price concessions out of don’t start seeing orders, sizable ones, pretty damn soon, they’re likely to re-price before accepting a smaller order. Smart vendors will include retroactive price increases if the order quantity drops once the order is placed.

Sadly, most vendors are ‘captives’ of large producers and those large producers know it. The vendor may have dozens of other customers but most of their ‘capacity’ is devoted to the ‘major customer’…which is to point out that the vendor (usually) cannot survive on the volume of work sent in by their ‘minor’ customers.

Most vendors ‘try’ to diversify their customer base but few succeed. Resources are too scarce and commit dates too unyielding.

Here lies purchasing agent hell but I digress…

Onward to tonight’s offering

Earnings solid but profits are soft

Positive earnings have helped stock markets rally this year despite the recession.

By ROBERT CYRAN and FIONA MAHARG-BRAVO
Published: July 26, 2009

If the key to happiness is low expectations, then stock investors must be over the moon. More than a third of the companies in the Standard & Poor’s 500-stock index have reported second-quarter earnings. While overall profits were down by about a third from a year earlier, more than three-quarters of the companies beat analysts’ expectations, according to Thomson Reuters. That is on track to be the highest ratio ever. [This begs the question of if we are dealing with nitwit analysts or nitwit investors…or both!]

Investors should not get ahead of themselves, however. Optimism that companies are handling tough times better than many had predicted has helped lift the S.& P. 500 index by more than 20 percent since late March. Yet the foundations of a sustainable recovery look shaky. Nonfinancial companies have managed to increase earnings mostly by sharply cutting costs. Manufacturing and trade inventories have been falling all year, according to the Commerce Department.

The relatively quick and easy fixes of the last quarter will be harder to replicate as time goes on. If companies cut too deeply, eventually nobody will be there to answer the phone. Inventories sink to the minimum levels required to do business.

What companies will need is revenue growth, which is closely tied to economic growth. This is where the news is worrisome. At the S.& P. 500 companies that have reported so far, revenue shrank 2 percent, on average, from the second quarter last year.

A rise in spending by American consumers and businesses that might increase revenue does not look imminent. Companies are planning further cutbacks in both employees and capital expenditures, according to a recent National Association for Business Economics survey. That probably means lower sales of everything from clothes to power plants. Also, consumers and businesses are squirreling away cash, so even when spending does turn up, the rebound will be slow.

Combined with more optimistic forecasts from analysts, all this suggests that expectations will be much tougher to beat the next earnings season. Unless businesses and consumers open their pocketbooks soon, the stock market rally could easily falter.

Backed-Up I.P.O.’s

When will European initial public offerings bounce back? The market for new stock issues has been virtually shut for over a year. Companies raised just 465 million euros ($661 million) in the first half of 2009 — a pittance compared to the billions in recent years. Yet bankers are back on the marketing trail, pitching furiously. Investors, they say, are warming up to risk. Add to the mix a backlog of companies waiting to go public, and the stars are aligning for a return of I.P.O.’s after the summer break. [Bizarrely, brokers are no longer constrained to make sure a given company/business plan is viable before offering them for sale to the investing public. ‘Buyer beware’ is the new watchword of the street as the now publicly traded investment houses have lost their concern for protecting their clients.]


European companies are taking their cues from the United States, Brazil and Asia, where the market has already thawed. Brazilian companies, for example, raised $6 billion in the first half of the year. In Europe, asset managers have so far concentrated on handing money over to already-listed companies in secondary offerings.

On the supply side, there is a backlog of companies waiting to go public. Private equity companies are looking to exit investments in companies via I.P.O.’s. The pipeline is slowly filling up. Yoox, an international online fashion retailer, wants to list at the end of this year or next. In theory, no industries are off limits, say bankers, as long as companies have powerful brands or are market leaders — and provided they can demonstrate that their earnings have bottomed. In practice, regulated and less cyclical sectors, like renewable energy, might have an easier time.

The biggest problem seems to be valuation. Investors will be cautious at first, and will scrutinize new issues carefully. For highly indebted companies owned by private equity firms, this may be a problem. Low valuations could make it difficult for existing owners to turn a profit.

That said, the market seems likely to reopen in the fall. If history is any guide, as soon as a window opens, companies will try to dash through it. Given that it typically takes three to six months to ready a company for an I.P.O., the real flood may not arrive until early next year. At that point, the risk could be a glut of I.P.O.’s. But that is not a worry for today.

Once again we encounter a ‘typical’ MSM piece that starts off with ‘doom and gloom’ and transitions to ‘happy talk’. A lot of economies have their hopes pinned to ‘alternative energy’ but there aren’t enough buyers of these products to keep even the best capitalized manufacturer in a steady income stream.

Let us turn our attention for a moment to the bone-dry I.P.O. markets. While there could potentially be an economy saving innovation waiting to go public, it’s not likely in our highly inter-connected world.

One of the most fleeting things in the world these days is a ‘secret’ and this is especially true of business secrets.

That’s not to say that something won’t be held out to the public as ‘the next big thing’ but somehow I don’t think a next generation I-Phone or another computer operating system is going to ‘save the global economy’.

So consider the ‘closing argument’ here as an ‘advertisement’ for a pending flood of I.P.O.’s that will surface around the first of the year and serve as additional ‘eyewash’ for a still foundering global economy…

Thanks for letting me inside your head,

Gegner