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Feels like 2003


rick_v
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Hello Board, I have been away for a bit but have had some time to reflect on the current economic environment. I had dinner with friends this weekend who are entrepreneurs in the frozen food business and they mentioned to me that one of their businesses just got bought out while they were seeing same store sales increases year over year. I asked them if they were actually generating net cash again and they said "yes... definitely". It made me want to re-evaluate whether things are getting better or worst.

 

Getting back into the office and looking at some of our daily scans, I noticed a bunch of dry shipping companies on the lists I receive from our analysts. I haven't started to dig but it is interesting to see the bulk shippers generating a good June quarter. I also noticed freight loads were ok...

 

I don't know why but it almost feels a bit like 2003... I know unemployment was lower, but there are certain elements to this environment lead me to feel that we are in a 2003 type economy... Things are quiet, slow, but still beating, market is sideways but building a base, and business is happening... its hard to make money but its possible.

 

The next big headwind I see is November as the political issues could change some of these trends, but if we see things continue this could be the last great opportunity to buy stocks. Also, we need to see how the global economies function with normalized interest rate environments. I know 1% is still nothing, but its more than 0.25% and so that incremental change should be felt in the market.

 

 

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The difference is that in 2003 there was still a huge bubble waiting to be blown, and from 2003 to 2006 we saw real estate prices escalate on a scale never before seen.  An awful lot of everything else that appeared good in the economy was just caught in the updraft, particularly consumer spending on the back of HELOCs.

 

That ain't happening again.  Employment numbers are down, wages are stagnant or falling, and the home equity ATM has long since disappeared in the rear view mirror.  Demand was pulled forward for a while with cars by Cash for Clunkers but that's over and last month's auto sales were dismal.  Demand was pulled forward for a while with houses by the first time home buyer tax credit but that's over too.  Banks are sitting on huge and growing numbers of foreclosures and even bigger numbers of delinquencies they've not yet taken action on for fear of having to book the losses, and sooner or later that massive shadow inventory is going to hit the market dragging real estate down further. 

 

Maybe there's another bubble we can blow to make next year look like 2004 but I'm not seeing it.

 

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