An observation...

[basl1]

I have made several trips to the USA over the last few months. 3rd week of Jauary to Vegas - business was not bad, very bad.

3 weeks later to Florida - things were still bad. Spring break traffic was down.

A month later to San Francisco - the city had no traffic on a Friday, no one was at the conferences. Hotels were down 40%.

Now - 2 weeks ago Las Vegas - business had returned. The Encore was full, night clubs full.

last weekend - San Francisco - restaurants, hotels, cabs, again busy.

 

There appears to be a shift in psychology. Confidence is returning.

 

 

[Carvel46]

I am highly suspect of these types of anecdotes... for example last November my friend told me that things can't be that bad because California Pizza Kitchen in Miami was packed! Give me a break... since when is CPK representative of Main St America?

 

Doesn't seasonality account for this....  I just sold my second car but it seemed to be "spring enthusiasm" type purchase rather than cyclical.

 

 

 

 

 

 

[Guest kawikaho]

Prior to 2000, in SF, it used to be SO busy, it reminded me of NYC on a busy summer day.  When the dot com era was collapsing, I noticed around SF that the things had slowed down quite a bit.  In 2001, the place was a ghost town.  I've never seen anything like it before, but the difference in the local economy was night and day.  That persisted till 2002, and by 2003, things had gotten better.  It had never got to the way it was prior to 2000, though, and I don't think it ever will.  It's probably similar to what happened in Houston in the early 80's after the oil industry collapsed there.  I heard it never recovered.  I look at anecdotal evidence, and also with my experiences with the local economies, but that's usually a poor indicator.   

 

Anyways, during the summer of last year, I noticed SF was looking quite dead for its usually bustling tourist season.  I think the area is still the same as it was last year.  No real change. 

[Parsad]

Some business is returning simply because deflationary forces are providing opportunities and good deals.  But we are in a whack of serious trouble that will be very painful.  We've only begun to see the peak unemployment numbers.  I would not be at all surprised to see 12-13%.  

 

As Prem said, 20% is trying to support 80%...just not gonna happen.  Eventually all of it is going to have to work its way through the system, and it will be tough.  What we are watching right now is a normal rebound as efforts are made to stabilize the system, but the system's losses are far too big.  It will take years and years to rebuild asset bases and allow the average consumer to build enough equity to start spending freely.  Good time for bargains, but not a time to spend willy-nilly.  Cheers!  

[basl1]

Yes, I feel that's true. But, consumer confidence has a huge effect on driving the system. Big purchases will likely stay depressed but consumer spending for small items appears to be improving. When gamblers return, the gambling mentality must be back!

 

Part of the rebound in the market we are seeing is likely due to this.

 

The unknown in all is how the government spending will affect all of this.

 

[Viking]

basl1, my guess is what we are seeing is the natural ebb and flow. Extreme pessimism followed now by some optomism. But are we out of the woods (i.e. actual recovery in 2H)? My money says no. When realization sets in that this recession (asset deflation) is far different than past recessions and will likely take years to play out I expect more fireworks on financial markets (October?). For now, enjoy the rays of sunshine (afterall, its spring)! I continue to be cautious about the near term outlook for the economy and markets in general.

[basl1]

That may very well be true. I hope not, but it may. There's a tremendous amount of money building in "coffee Can" portfoloio's.Plus, there is a reluctance for rich to spend. The key is to get them to spend.

I'm just making a humble observation - in my area - the BMW dealer is having a great month, after several bad months. I do prefer the sun to the snow and remain cautiously optimistic. zBut I'll peddle like hell to stay afloat.

 

 

[scorpioncapital]

It will take years and years to rebuild asset bases and allow the average consumer to build enough equity to start spending freely.

 

Things could turn around much quicker than people think. 2009 so far has been one of the best years in stock market history. Many stocks have gone up 100% from their lows. It would take 5-6 years of 15% annual returns to achieve what has been achieved this year.

 

 

 

[Guest Broxburnboy]

I hate to rain on the bull parade, but fundamentals in the general economy are pointing to a deepening recession..more unemployment,  more huge government deficits.

In order for the house market to stabilize (recovery of prices to previous highs is completely out of the question), the foreclosure rate must normalize, and existing inventories

of listings must be reduced, which presupposes that there are willing buyers, albeit at much lower prices. The market however is still going down, the moratorium on foreclosures

has ended, unemployment is up and consumer spending is way off.

The current enthusiasm for equities and feel good predictions are typical of rallies.. this current wave is no different and has been well orchestrated. I believe that this disconnect between

enthusiasm and economic reality will soon resolve itself in a stock market correction (perhaps a viscous one).

[scorpioncapital]

"The current enthusiasm for equities and feel good predictions are typical of rallies"

 

They are also typical of bull markets.

What you say is true, but as has been demonstrated many times in the past, a bad economy does not mean the stock market can't do well.

 

[Mungerville]

Parsad,

 

That's right.  That's the likely framework for the macro environment so you got to buy cheap, you got to understand that prospects for growth in earnings are low, deflationary forces will likely overwhelm although we can not be certain.  That's why I like ORH's large muni position - no brainer at below book moving to well below book as the muni bonds soar.

 

 

 

 

 

[Mungerville]

Scorpion,

 

Achievement?  Maybe I am going senile but last time I checked the S&P 500 started the year at 900.  And 873 is lower than 900 so its down so far this year.  Now you might say that many small caps rallied.  I would say the Russell 2000 is also down in 2009 thus far.  So what's the achievement?  Many stocks rallied and many sank?

[Mungerville]

Scorpion,

 

Maybe its your portfolio rallying like crazy in '09!  If so, congratulations!

[scorpioncapital]

Mungerville, in my original post I said from the "lows" not from the beginning of the year. That would put it from March when the S&P was hovering just over 600. It's true that from the beginning of the year the market is roughly unchanged so far.

[Guest kawikaho]

It's not practical to use the "low" as a reference point for stock gains.  I don't know anyone who times these things that accurately. 

[Parsad]

It's just not possible for the deleveraging process to complete so quickly.  If this was a patient, this wasn't a mild heart attack...this was catastrophic.  The patient will take several years to recover. 

 

What we are seeing is just a normal sense of optimism after a period of severe pessimism.  And the optimism is there for good reason...significant stimulus has been injected, financial institutions stabilized, capital available for credit, inventories that were liquidated are slowly stabilizing and some purchasing is occuring, and home prices are stablizing as alternatives to foreclosure are made available.  But it will take a long time to rebuild capital bases, savings, credit and restore venture capital.

 

It doesn't mean we are going to see the lows of November or early March, but going forward, investment valuations will grow based on economic recovery and a restoration of global equity.  This will take considerable time, and it will be a great period for active investors who do their own research and seek bargains.  But it will remain volatile as the economy goes through various growth spurts and purges...it just isn't a linear line of growth and what we've seen so far is investors slowly coming to their senses that things have stabilized.  Cheers!   

[basl1]

thank you for your clarification and sharing your wisdom, Prasad. On a personal basis, what is best to do - keep your money in the things you,ve bought, or take some profits for the next downturn?

 

[Uccmal]

On a personal basis, what is best to do - keep your money in the things you,ve bought, or take some profits for the next downturn?

 

Basl, seems to me you answered your own question - when I cant decide something I do nothing.  If the companies I have bought are common stock positions (i.e. no time value), and they are still trading below some estimate of their probable worth, that I have worked out then I would stay put. 

 

From here:

1) Stocks may continue to go up for awhile - the retrenchment may occur after the S&P 500 reaches 1000 and then comes back to 870 - if you sell here you will kick yourself repeatedly

2) Stocks may do absolutley nothing at all - heres hoping some dividends get reinstated, although steady state doesn't appear to be a normal market condition.

3) Stocks may go down and test previous lows in which case you will be happy you sold.

If you can determine the scenario that will unfold I will give you all my money to invest as well. 

 

Since no one can actually know the behaviour of the markets in advance Ben Graham came up with a few strategies he called Margin of Safety so we could try and ignore the market behaviour except when beneficial. 

[basl1]

;)

Thanks UCCMAL

hope to meet you in Omaha

 

[Parsad]

thank you for your clarification and sharing your wisdom, Prasad. On a personal basis, what is best to do - keep your money in the things you,ve bought, or take some profits for the next downturn?

 

You know, I really think this is where what Sam Mitchell commented on comes into play...you cannot avoid the macro view.  We were very bullish on stocks in November and then again in early March, simply because we think they were completely oversold based on fundamentals.  But at the same time, I don't think the market's manic optimism is warranted either.  We reported a 6.1% annualized decrease in GDP yesterday...how is that something to be optimistic about.  Unemployment numbers look like they've been increasing exponentially over the last few months...I don't see a slowdown in unemployment.  If the countries production is decreasing and unemployment is increasing, how will that benefit the economy in any manner.   This will be long and painful with bouts of optimism and pessimism.

 

So, we buy when things look cheap and sell when they look closer to fair value.  I don't want to comment on specific investments, but we are paring back again on investments.  Cash is increasing in the fund again, although we remain very long on stocks over the long-term and the bulk of the fund's capital remains in our core holdings and ideas.  But the one thing I've always found is that ideas eventually always show up.  Cash gives you tremendous flexibility until those ideas appear.  I think investors should be mostly invested going forward, but a significant amount of capital should be in cash and distressed debt.  Cheers!

[ubuy2wron]

Re the observation ,the mkt has just gone up 30% its called the wealth effect. I for one belive the mkt rising is the thing that causes the economic upturn ,its not the mkt. anticipating the economic upturn it actually initiates it  , it is at least an interesting theory. I think Soros calls it reflexivity

[basl1]

and I suspect, it's confidence in the economy, in your earning ability, that gets you to spend. That's what I was pointing out in my observation - confidence has returned, albeit maybe "only for now". I appreciate Parsad's thoughts - it is not possible to time things - but the difference betwwen salad and garbage is timing. It is also true of the market

 

[Parsad]

but the difference betwwen salad and garbage is timing

 

I've never heard that quote before in my life!  Where the heck did you come up with that one Jim?  ;D  Cheers!

[basl1]

;D

too bad I won't be seeing you in Omaha. If I'm in Vancouver I'd love to drop in and see you

Go Canucks go

 

[Mungerville]

OK.  The stock market is back to still under where it started the year at 900 and still down more than 40% from the peak.  Housing is down every month.  Credit is has rallied to October levels after Lehman collapsed.  Job losses are mounting every week.  I don't know what you should make of it.  I don't start jumping up and down that's for sure.