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Sprott: "It's The Real Economy, Stupid"
hat tip Joel
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Interesting read, until this thing called "investor sentiment". Bots have sentiment?
Mao said,
"A Capitalist must have capital for his business, and he would not be a Capitalist any longer if he went bankrupt. Even a gambler needs money to gamble with, and if he stakes all he has on a single roll of the dice and loses it through bad luck, he will not be able to gamble again..."
CW
Yep... expect industrial output to collapse further. Long-lead industries still haven't been hit by the recession, ignoring the decline in new orders. Large factories are staring down huge holes in their schedules and are pre-planning months of shutdown in 2010. The layoffs haven't even begun.
There's been a relative rebound to somewhat restore short-lead inventory levels, but the revenue / output pain hasn't even started for heavy industries that are still eating through older backlogs.
Kote, can you elaborate or give some anecdotal evidence about the pre-planning of shut downs?
Also, if anyone is interested, in Aug 2005, Sprott wrote a piece titled, "Move Over Adam Smith: The Visible Hand of Uncle Sam". Fantastic.
It's not something companies are advertising... especially since revenues are currently holding due to old backlog. I can't find anything on google, so I can't give much evidence without getting fired or digging through some reports myself. There is no new activity, but revenues haven't fallen off yet in line with the total lack of orders.
Take a look at new order decline vs revenue decline at long lead manufacturers. Or take a look at new large construction projects (hint: there aren't any). Just because a company has a backlog doesn't mean it has work. You can have a backlog for orders you won't have the parts to work on for another year or more.
in most cases backlog orders can be canceled....
and if the cost to cancel is lower than the cost
to take delivery guess which outcome will occur?
many orders can be canceled without penalty...
this is consistent with the guy who keeps talking
about the supply chain melt down although that
thesis is as much concerned about financing
going operations as about order and delivery
activity.
and can we go back to zero captcha??
I actually work for a company that sells fasteners for the industry. You know, the stuff that keeps everything together.
Now, if the industry wants our products, they have to preorder it 3 to 6 months in advance and they do that by giving us their forecasts.
Like that i've seen CAT and GE orders drop like flies. CAT production is now down 82%, so go short on that becaue they work with a 6 months forecast. GE orders are down 65% and for the rest of the industry, it's on average down with 52%.
And for the creepy part: Preorders for september and oktober are nearly blank. Most of our customers want us to keep a low stock on fasteners but have also informed us that they are unable to give us anymore forecast for 3 to 6 months. They can only supply us forecasts for the next 3 to 4 weeks. This because there just aren't comming in any large orders anymore. Everybody expects the worst to come in september/oktober.
And when I visit customers, they all tell me that they are preparing a trimming of their staff if it doesn't pick up in august.
Also, there are a hughe amount of workers working part time for the last 5 months. In august there will be a lot of evaluations on how to proceed with that, because a part time employee performs less then half of a full time employee. they perform about 35%, so by cutting 2/3 of a workforce that works part time, and by letting the remaining workforce work full time and with lower demand, they will be able to save a lot. And if they do so, that will be a turning point in this green shoot theory. Unemployment of 13 to 14% is very realistic this year.
Interesting perspective and comment that adds to the discussion. Thanks!
Also take a look at certain ultra-large mining equipment manufacturers (maybe I can point to them as being daily favorites of some screaming bald guy on TV). Things have gone from bad to worse to worse than any time since early this decade, when commodities equalled zero. Now take a look at their stock action off the March lows. Silly doesn't seem an appropriate word, given the situation. About that backlog...
What I've taken away from my "industrial tourism" is at least the following:
In 2008, you'd be looking at a 12-month lead time for delivery of a 797B. Right now, I'd suggest that the boys in Peoria could ship one in a little over 60 (but definitely under 90) days.
In discussions with a Canadian exec from one of the world's largest principally-electrical-engineering-related heavy manufacturers, it is clear to me that the order book for long-lead items is basically bare for 2010. There are few orders anywhere for steam turbines, transformers and associated gear. The OPEC members are generally demanding a 40% price reduction to even consider placing orders. When you fly a senior global exec overseas for 20 hours to glad-hand during the Stampede, it's a bad situation.
Similar sentiments out of a colleague in Dubai who runs ME/A for a large automation vendor... If it weren't for China continually opening up coal-fired thermal generation plants, the order book would be bare.
Everyone else's mileage may vary...
thank you for the post calgaryschmooz!
Divorces usually increase 30-40% in the 3 weeks after stampede.
All those cows are hot!
A man is forced to reconsider many things...
Another company went public with their news yesterday (since it was earnings release day):
CNH to cut 10-12% of construction equipment work force
http://www.journaltimes.com/articles/2009/07/23/local_news/doc4a67a4cec8f38579313803.txt
... Tuesday CNH had announced it would reorganize its construction equipment division in response to a “an unprecedented decline in the global construction equipment market.” The company’s unit sales of equipment such as skid steer loaders and backhoe loaders is down by 47 percent this year, the company said. And revenue from construction equipment is down even more: 62 percent.
CNH said it idled much of its construction equipment production capacity for the second quarter to reduce inventories and stock with dealers. No construction equipment is built here; CNH builds Case and New Holland tractors in Mount Pleasant.
The company also said it will invest up to $250 million in consolidation and reorganization actions to improve operational efficiency and reduce costs.
See the ABB results in today's daily highlights. Orders declined 3x more than revenues have declined and are down 35% vs Q208.
Haaaaaaaaa Just noticed the logo change! Freakin Love It!
Cmon Charlie, sign up and post for us, we'd love to chat.
Totally.
Maybe Charlie hacked the website... Nah, he probably had some quant at gs do it for him.
Impossi-bluh! Financial engineering--whether public or private--always works out in the end. No need for anything as old fashioned and unimaginative as JOBS these days! Come on, people! There are 26 letters in the alphabet! I'm sure we can come up with some more four-letter acronyms to which we can assign a few trillion bucks, after which we can move the cups around around a little and hope the bankers get some more bonuses as a result (aka green shoots aka inflation targeting).
i was thinking the same thing - we can just pass fiat money back and forth amongst ourselves and call it economic activity. no need to make anything.
Genius!
California is way ahead on this.
The only thing I question in the report is the "real inflation adjusted P/E" stuff. I'm not going to spend time looking into what Shiller says is the real P/E but IIRC the S&P as reported earnings for 2008 was around $7.
We are in a deep recession which in the 20th century was called Depression.
1800's were called panics, last panic 1907
Depressions called Recessions
Undertakers called Morticians
Garbage Men called Disposal Technicians
Bankers called Gangsters
Soon to be called Repression as Obama sends out goon squads to silence his ever-increasing critics.
that is what fema, tsa, dhs, and a host of other
nazi programs were all about....nothing whatsoever
to do with terrorism....the war on terrorism is the
war on america...and the goon obama is the perfect
dictator from kenya.
Just wait until the definition of 'Recovery' is offically changed by the Administration to mean 'less bad GDP loss.' For the record, that is not sarcasm - I just don't know the exact phrase they'll conjure up (they being the dozens of lawyers assigned to this task earlier this year, paid for by stimulus money).
that is the whole basis for the green shoots--looking at the microscopic decreased change in the rate of change on certain indicators...talk about a derivative!
keep it simple stupid - investing used to be about the real economy - now that Hal 23,000,000,000,000 is in service we don't need to worry anymore pesky earnings anymore
"Just what do you think you're doing Ben?... Without your space helmet, you're going to find that rather difficult."
Nice, but unfocused. For example, they don't say anything about the supply chain, which is deteriorating nicely.
Also, we're not in the early stages of a depression--we're in the early stages of a revolution. Too bad they don't see revolution as an economic event.
Wonder what the spark is going to be that finally wakes us great unwashed up. This mutha will burn down, the question is when
The spark will be either of two things: failure to pay the dependency classes to continue their lifestyles (and the newly unemployed to keep them from attending teaparty rallies), or attempting to continue to pay the dependency classes and newly unemployed for the above reasons, by printing up lots of new greenbacks and causing a run for the exits in the Treasury market.
By the way, does anyone know when Turbo Timmy-series greenbacks start hitting the banks? I can't wait to make some notations of them.
i think it will be a currency collapse (which might manifest itself through a bond auction failure - either way it amounts to the same thing).
that, in turn, will lead to a disruption in the food supply chain as energy (which must be largely imported) becomes prohibitively expensive, which will lead to food shortages.
a hungry and armed populace is not a good mix.
Unfortunately, the trigger will be something very bourgeois: a very high rate of unemployment among those with a BA or higher. Remember, Lenin was a law student.
Don't be thrilled by revolution. They're always led by middle class dandies. They're just...revolutions, but they ARE revolutions.
And some heads will roll.
So.... why hasnt anyone gone and picketed/protested in front of the NY Fed?? signs could read, "Down with GOLDMAN", or "no more LIES", or my favorite, "Tiny Tim looks like a cross between Beevis and B*tthead", or whatever.
just sayin...
Pete was close?
http://www.youtube.com/watch?v=g3iuwJBWamM
(old end the fed rally)
It all stops when a critical mass concludes the system is insolvent. What happens next is the big question. Bernanke won't devalue, the President will.
TD and Marla, will you do a limited edition Charlie
Gasparino Zero Intelligence new logo tees and hats.
It would be priceless.
Cheers
The only problem with high unemployment is that govt.'s do have a solution for employment and it's called war. Idle hearts and minds don't look kindly on the govt. in power.
I hope it doesn't get to that point.
great call! when will they start the draft and get rid of the peasants the old fashioned way. . .
"Naturally the common people don't want war: Neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, IT IS THE LEADERS of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is TELL THEM THEY ARE BEING ATTACKED, and denounce the peacemakers for lack of patriotism and exposing the country to danger. IT WORKS THE SAME IN ANY COUNTRY."
--Goering at the Nuremberg Trials. It's a way to turn the focus against internal corruption and grind revolutionists against each other from different countries.
It has to be a really big country coz this sh!t is going to last a long time, probably a generation.
The War on Terror isn't a war on a country. How's the timeframe on that looking?
Yeah baby, looks pretty fucked up. I would so love to be Austin Powers in this messed up shitness that we are in.
[deleted]
This is NOT the place for that noise.
-Marla
[edited] Don't make me take out the broom. - Marla
yes, you are well informed in the ways of the new world order.
Orwell wrote about this in 1984.
"In one combination or another, these three super-states are permanently at war, and have been so for the past twenty-five years. War, however, is no longer the desperate, annihilating struggle that it was in the early decades of the twentieth century. It is a warfare of limited aims between combatants who are unable to destroy one another, have no material cause for fighting and are not divided by any genuine ideological difference. This is not to say that either the conduct of war, or the prevailing attitude towards it, has become less bloodthirsty or more chivalrous. On the contrary, war hysteria is continuous and universal in all countries, and such acts as raping, looting, the slaughter of children, the reduction of whole populations to slavery, and reprisals against prisoners which extend even to boiling and burying alive, are looked upon as normal...
The primary aim of modern warfare (in accordance with the principles of doublethink, this aim is simultaneously recognized and not recognized by the directing brains of the Inner Party) is to use up the products of the machine without raising the general standard of living....
The essential act of war is destruction, not necessarily of human lives, but of the products of human labour. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent. Even when weapons of war are not actually destroyed, their manufacture is still a convenient way of expending labour power without producing anything that can be consumed."
Since your bots have no sentiment and HFT powerhouse has the ability to push highs higher, wouldn't it seem to conclude our lows could go lower?
That's the truth, Ruth.
Well, remember, if you are allowed to go back to 30:1, it only takes a loss of 3.5% to sink the whole ship!
And why is this good, exactly? TD, you often post some good info, but this seems like just garbage. How is posting a few charts showing how the first few months of this crisis are similar to the Depression has ANY bearing on the question of whether the next few years will also be similar. This is not analysis, this is just hogwash with graphs and some scary numbers, without any meaningful comparison.
We must take all the facts posted previously into account along with the statistics on manufacturing capacity, public/private/individual debt, and unemployment. This is the reality not the hope channel and there is nothing "good" about it.
Since mid-2007, have you seen stats get better or worse. When was the last time comparable stat declines were seen? Look here: http://www.federaltimes.com/federal-times-blog/2009/07/16/the-disappeari...
It appears the gummint won't be able to make payroll on the Post Office. Ya think things aren't a little out of whack?
You didn't read it did you?
TEX Reported, -55% sales volume, backlog -75%
http://online.wsj.com/article/BT-CO-20090722-718240.html?mod=wsjcrmain
Prior to any release but still post-mkt the ticker dropped ~10%. Something seems wrong about that...
Watch as all of these order/backlog declines in heavy industry turn into revenue declines, job losses, and further supply chain deterioration. We're also going to have to pay for the base-cost gutting that has propped up profits so far.
Look for a slow industrial recovery as gutted companies discover their niche / sole-sourced suppliers all went broke.
Another wild day for the high-frequency Program Robots.
They had a field day with assorted stocks today, looks as if they are now gaming the stocks which have the absolute worst prospects during a high unemployment depression.
Zale's launched 15% on no news I could find.
http://bigcharts.marketwatch.com/quickchart/qui...
I mean really, how many guys who have lost their jobs are going to shell out their meager savings for a diamond ring?
The the real winner today was SBUX, up 18% on world record volume of 75 million shares traded.
The Robots must have been power jamming that stock all day long. Note how there was not even a slight correction all day long. Every single "profit taker" was met with more rabid buying from the robots.
http://bigcharts.marketwatch.com/quickchart/qui...
Tomorrow, we can look forward to Ebay skying on their report, Cramer's favorite ISRG which is already up 17% in the after-life.
I mean, that stock has already rallied from $140 to $170 in less than two weeks, and they are piling on another $26 after hours?
Don't forget some of the forgotten low-grade hookers in tech land like VMW up 7%.
Probably 12 days in a row for the Nasdaq.
Meanwhile, I took a long position in some of these HMO stocks, while Obama bullhorns his health care program, which undoubtedly is going to fail.
And my guess is that these regional banks, the last short-selling haven out there, is going to get jammed any day now, so I bought some KRE today.
It is very simple. Pick a few stocks each day and run them up. When they all have reached a juicy saturation of mega proportions short them en masse and reap the rewards and mega bonuses.. I say this to every person I talk to. STOP INVESTING, START SAVING. Markets are in tatters and beyond repair without any collective will. Let the government keep bailing out these vampire squids. We basically have the market work like a lotto. It has become an added tax on the already strained and strangulated taxpayer. Stop watching the CNBC BullSh!t. Start watching the classics.
Sure looks like pump & dump to me as well. You might want to let people know which asset class to invest in unless you think paper cash is an investment for savings. I agree, it would actually appear the saying regarding democracy being two wolves and a lamb voting on what to have for dinner is true. The appeals to government are comical since they are in on the scam (not by their words but by their actions which is all that matters since talk is cheap).
robo, email marla (at zerointelligence.com...j/k) about posting charts.
Great to read u again robo.
Keep it coming.
Maybe tomorrow Charlie will refer to Sprott as "Zero Intelligence" as well. Kudlow will certainly be in denial... Even Chicken Little is right once in a while. The sky is indeed falling, and it is going to be a very hard landing.
There is something called a celebrity syndrome. The fartbags on CNBC really believe that the rest of us plebes believe what they have to say without verification, confirmation and deduction. The collective wisdom of the serfs has been elevated since they are the ones getting hurt the most. Not the Charlie Gasbags or the Mega Boob Carusos or the Dennis I Kneel a lot nor are their bosses at Goldman Sachs or JPM.
TD - you (or your guest contributors) should do weekly updates on underlying economic indicators that show the true condition of the economy (like the rail car statistics that Sprott references http://www.aar.org/NewsAndEvents/WeeklyTrafficReport.aspx).
It's hardest to argue against the cold hard facts.
1. freakin' logo change is hysterical....perhaps add a subtitle of "home of the moronic bloggers"
2. the Sprott piece is excellent...i always love to read pieces that talk a lot about P/E ratios
3. good to see robotrader on the new site, his/her daily market summaries are a highlight for me.
You read his junk? I just look at his profile picture .... Over and over ...
Only if you also add a hand with a middle finger pointed up, too.
Where is CAPCHA?
Did you take CAPCHA off for poor little Charlie in case he wants to post?
And a strikethrough on the word 'bloggers' so as not to be redundant. I can't seem to get that to work in comments, though.
Green shoots meet controlled burn.
I have never really posted before. But I just want to say one thing to the shorts: There is no way to win. The majority of Pension funds, 401Ks and others are invested in the stock market nowadays. If stocks crater, a few bears might win, but the vast majority of pension plans will be bankrupt, with large deficits to be made up by increased taxes etc. There will be serious repercussions around the nation. There is no way the US Government will let stocks fall below a certain floor. No way. Call it manipulation, or what you will, but that is a fact. Not saying people have to go long either. Just do not go short. The bear market bottom at 676 has been made. This is obvious to everyone. Listening to doomers and fundamental analysts etc is pointless, at least if you want to make or preserve your money. The market is nowadays driven by political realities.
i agree with you, to a point. but if/when they lose control, and the currency collapses, the stocks of us-based companies will become worthless.
indeed...and it won't do you any good to be short in a currency collapse because when control is lost and it finally all goes poof, there will be no forewarning of the the reset. There are very few promises left to hold at that point worth having and you already should know what that is.
and let's not forget, president obama said on march 3, 2009, something like 'stocks are a good buy'...and so far his 'call' is looking very good. now wouldn't he lose face if markets were to tank again?
Small Business, self employed since 2000. Oct. 2008 business dried up and in free fall since then. Perhaps, two or three months more before bk.
I really wonder if we should believe these kinds of reports. Sprott is the fund manager that didn't know how to use stop-loss orders on their positions last year - check out the performance of their funds.
Isn't Sprott out of Canada ?
yes
and so the great cognitive dissonance of the present crisis continues......fundamentals say no but sentiment says yes to continued high stock valuations and rally.....can market manipulators continue stock market levitation while 2 trillions usd of bad assets float like unflushed shit on company toilet bowls....i mean balance sheets?.....and why such a huge difference in sprot's 16 p/e and other figures claiming it is over 100?
i think that the solution to the conundrum is that the markets will channel sideways for years which nonetheless represents real losses....time is money and if you stand still in an inflating or stationary monetary system you lose ground...
The figures for P/E over 100 only take into account the last quarter, and 16 is an average of the last 4.
Go long bullets
Go long rifles, too
That late night read ruined my tomorrow.
sprott's great. I finally understood the mechanics of US insolvency after reading his last paper. probably basic reading for everybody on this blog, but great nonetheless:
http://www.sprott.com/Docs/MarketsataGlance/June_2009.pdf
All of these comparisons with the Depression strike me as being a bit oversimplified (I would welcome correction)
A few anecdotal differences which I seem to remember
- Foremost perhaps is the amount of the public exposed to equities. I seem to recall that this is much higher today. This seems to be the "money on the sidelines" theme (i.e. amount of money market balances vs market cap) Almost all of that exposure is long-only
- Monetary policy was much more constrictive during the Depression. You can call it manipulation or whatever, but all of that extra money does help. As many have noted, devaluing the dollar (which was not possible during early Depression) stimulates the market
- It would seem that the pre-burst valuations in the Depression were extreme relative to today, making percentage comparisons not entirely genuine. During the dot-com bubble, valuations were indeed extreme, but valuations during 2003-7 were not at Depression levels (see Sprott's graph)
Comments welcome
Nope. It's much worse this time. All the bubbles (inflation) were exported in the form of unsustainable debt and produced an unsustainable overcapacity in the system. While overcapacity is deflating, the debt (inflation) is still doing the whirling dervish and is exponentially increasing and out of control. I would say that 2007- present was a pre-tremor for the coming economic earthquake.
Apocalypse Now-
Man, I see in fight club the strongest and smartest men that men who've ever lived. I see all this potential. And I see it squandered. Damn it, an entire generation pumping gas, waiting tables, slaves with white collars. Advertising has us chasing cars and clothes working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place we have no great war. No great depression (scratch that). Our great war is a spiritual war. Our great depression is our lives (and our economy). We've all been raised on television to believe that one day we would all be millionaires, movie gods and rock stars, but we won't. We're slowly learning that fact. and we're very very pissed off.
interesting someone pointed out that revolutions are started by the "middle class."
actually this revolution has already started.
the "privileged class" just robbed everyone else of their financial future via the massive debt issued to retain the "privileged class's" wealth, which would otherwise have been decimated already.
no, it's not the "middle class" that starts the revolution...
12673, revolution starts in the belly, when the unwashed masses gotta put their kids to bed hungry, desperation and anger set in. That's the reason for gun control. Hillary had gun confiscation in her original universal health care plan, according to congressional notes during Willy's reign.The Nazi's knew how to do it, food rationing. Narc your neighbor off for hiding guns to get more food rations. HRC wanted a 50.00 a box tax on 9mm ammo, the gangsta's caliber of choice. Doesn't it seem that our guvment isn't really representing "the people" or is it just me?