Latest Hoisington Quarterly and Sprott says we are beginning a Depression

[Mungerville]

Latest Hoisington remarks: 

http://www.hoisingtonmgt.com/pdf/HIM2009Q2NP.pdf

 

 

Latest Sprott remarks: Start of a Depression?

http://www.sprott.com/Docs/MarketsataGlance/July_2009.pdf

 

And the certain central bankers are saying the recession is ending.

 

So, who's right?

 

 

 

 

 

[benhacker]

I find some of his (Sprott's) comments so obviously wrong, that i can't quite tell if he's blinded by something, or if he is really just trying to sell pretty hard...

 

His comments on inflation and how it effects earnings were spurious at best, and his continued conflation of economic activity with the stock market is a bit heavy handed.

 

Regarding sentiment and earnings, he is correct and anything is possible, but his entire essay seems dedicated against having an intelligent discussion, and leans more toward attempting to scare his clients.

 

Perhaps he truly believes what he says, but I doubt it.  

 

Ben

[Guest kawikaho]

I think economic recovery will be here by year end in the US.  Based on LEI statistics, we've hit the bottom and are heading up. 

[Guest Broxburnboy]

I think economic recovery will be here by year end in the US.  Based on LEI statistics, we've hit the bottom and are heading up. 

 

There is a lot of talk about recovery and green shoots, but they are never specified.

What is it you expect to recover by year end in the US? And what level to you expect them to recover to?

 

Prices of stocks?

Consumer spending?

Employment?

Tax revenues?

Home prices?

Corporate profits?

Inflation?

Commodity prices?

 

 

[Packer16]

I agree that the data seems to be pretty sparse.  The only data I have seen is some earnings reports (lower or expected revenues with higher earnings due to cost cutting) and improved home sales.  The LEI includes stock price changes but the prices have come off multi-year lows.  If there wasn't such an overhang of homes or about to be defaulted mortgages, I would be more optimistic but I think home sales numbers may be misleading.  The consumer debt issue has not been resolved and the current US admin doesn't seem to get it that we can't spend like crazy on health care and rack up more debt.  However, the recent rally may be a reaction to the will of most that the public option change as currently proposed may not go through.

 

 

Packer

[Parsad]

I think they are both correct, but Sprott is probably selling it harder due to his stance.  I think we are in for several tough years.  We will probably see the theoretical end of the recession by year-end, but that doesn't mean the economy has recovered.  It's only a statistic that it would have ended.  This morning the Bank of Canada reported that the recession is over in Canada...phhhppphttt! 

 

Consumers will be strapped.  The psychology will change for a while.  Budgets need to be balanced, debt repaid, jobs created.  We'll go through months where things will look great, and then months where we will lose ground.  And it will go like this for several years.  But while that is happening businesses will become healthier, economies will strengthen.  We'll come out great in the future, but the heart patient now has to go on the treadmill and lose some damn weight.  Cheers!   

[Crip1]

"We'll come out great in the future, but the heart patient now has to go on the treadmill and lose some damn weight."

 

Agreed in full...just concerned that the heart patient after years of cupcakes and curly-cheese-fries may not have the huevos to get on the treadmill and re-examine the diet.

 

Not professing to have all of the answers, but am concerned that we are not dealing with the issues in the best way possible...

 

-Crip

 

 

[Guest Broxburnboy]

I agree that the data seems to be pretty sparse.    The consumer debt issue has not been resolved and the current US admin doesn't seem to get it that we can't spend like crazy on health care and rack up more debt.  However, the recent rally may be a reaction to the will of most that the public option change as currently proposed may not go through.

 

 

Packer

 

The problem is accumulated debt and unrealized losses (frozen and non performing assets). Yes more spending like on health care is not a great idea right now, but the amounts involved are a pittance compared to the debt accumulated by previous administrations and the outright destruction of wealth (wars on terror, drugs, personal morality) engendered by the spending.

The problems are systemic and not partisan and the blame (if that is what you wish to fix ) ultimately must be put where it belongs.. on the voter/taxpayer who demands government spending and tries to seek personal advantage by refusing to pay for it (borrowing).

[Parsad]

Hey Crip,

 

Maybe a better analogy would be a large group of obese heart patients that need to lose weight.  They are all trying to lose weight together.  They are trying to provide support and encouragement to each other but it may not be enough.  You probably will have many that succeed and put themselves in better shape...some will fall off the wagon and start putting the weight back on...sadly a couple may succumb to a heart attack or stroke while trying to reduce the weight. 

 

In the end, things will be rosy, but that doesn't mean there won't be casualties or that the weight can be lost overnight...it will take time...probably a hell of alot longer than it took to put the weight on in the first place.  No cupcakes for a while, or at least in moderation.  ;D  Cheers!

[bargainman]

The thing I wonder about is if this is going to have a huge effect on the American psyche or not, the way that the Great Depression did.  The Great Depression stayed in the American psyche for a very very long time.  People were frugal when they remembered how hard it was to get food on the table.  Apparently even though overall unemployment was 20% (or 25?), the unemployment in the cities was 40% or so. The thing is that over the last 20 years Americans have had it beat into them that they need it now, they deserve it now, they should spend money now!  I wonder how long it's going to take to reverse that effect.  2 things I see having a serious effect are 1. housing - both people losing their houses, and their kids/kids friends remembering how it was to default and foreclose and be forced out of the american dream; and also people who bought in too high who just honestly thought the most things would fall would be 10% or something since "it's never happened before", and seeing their life savings or more demolished for a long time even if on a 30 year fixed.  and 2. the baby boomers who basically saw their equity vanish and their 401ks get destroyed with conservative companies like AIG and Freddie etc.  That of course assumes that the boomers don't get pulled into the market again as it keeps going up and htey get afraid that 'they'll miss the boat".

 

I think the first has the potential to have a very large ongoing effect on the american psyche. I'm not sure if it will have the same degree of severity as the great depression where people had to wonder from city to city looking for work (still remember the haunting pages of "Grapes of Wrath")...

 

On the other side of the fence it's probably going to be a long time before companies and creditors are willing to lend so freely too...

 

Just some random thoughts...

[Guest kawikaho]

http://www.safehaven.com/article-13886.htm

 

It's from Paul Kasriel, the senior economist at Northern Trust in Chicago.  He's about the only economist I listen to, since he's not full of hyperbole like Krugman and Roubini; he just states the facts and data.  I believe we will keep surprising towards the upside until Bernanke and crew decides to tighten.  Home prices are stabilizing, inventories are coming down, ISM index is heading above 50, the weaker dollar is helping trade deficits, stock market is up, initial unemployment claims are heading down... we were at the brink, but now we're reversing.  I don't put much faith that the economy is going to be robust next year, but I think it will surprise. 

 

Regardless of where the economy is heading, the stock market has an irrational unsustainable feel to it.  The gravy is out, but it keeps going higher.  I'm biased towards shorting the S&P.  Probably in the AM.

[Packer16]

Bronxburnboy,

 

I wasn't trying to lie a blame only pointing out that the proposed solutions of spending more and taxing business and individuals for an undefined plan whose details are not defined is not good policy.  It seems like there is less change in the underlying behavior (more spending and debt) only a change on what it is being spent on and by what means (gov't control/subsidies versus individual control/tax cuts).

 

Packer

[Guest Broxburnboy]

Packer:

 

Sorry to pick up on your fairly inoccous remark about health care spending. I'm a bit owly these days as the media is full

of partisan hacks bickering over whose fault the mess is. One of the leading indicators of an economic stabilization will be a change in the tone of the chattering class. I say stabilization, because it is impossible (yes impossible) for corporate profits to recover to pre-meltdown levels, as those profits represented someone else's debt, a good portion of which is now unrecoverable. Delevering of balance sheets will continue at least until previous debt levels are sustainable by current cash flows..

[ubuy2wron]

The US economy is about to get decidedly better for the simple fact that the two most important parts of the economy housing and the auto industry are not going to get worse. The production of new autos and new homes are currently at post WW2 lows if consummers are not purchasing homes and cars the US has no economy as pretty much everything else other than agricuture is imported. I am in the Bernanke camp in that depressions are caused by policy errors (central governments stepping on the brakes instead of the gas in periods economic contraction) while the debt levels the US treasury is incurring take your breath away they are no larger than those incurred in WW2 which eventualy ended the great depression. I see the history books labeling this as the great recession and yes it will sear itself on peoples psyche and change behaviour but it should result in investment opportunities that are frankly perfect for Buffet followers.

[Uccmal]

It strikes me that while everyone is prognosticating over the impending depression or whatever, the stock market is doing it's customary climb up the wall of worry.  There are way too many datapoints to make any kind of reasonable analysis.  Recall all the predictions before the crash - I wont list them but the most bizarre was the one about the west becoming economically disconnected from Chindia. 

 

I am always amazed by the capacity of people to assume that the present circumstances are going to be the future circumstances.  That is not usually the case.  A couple of years with 30% returns in global stock markets could set alot of things right including personal debt, gov't debt, corp. earnings,  and even the sour housing markets. 

 

I am in the rare camp that thinks that this recession is going to come to an abrupt end, and we are going to enter a period of rapid growth.  Governments have tossed the fuel on the fire and ignition is at hand. 

 

The western world is just like a company that got overextended and is trading real cheap, the kind us Graham and Dodder's love so much. 

 

[Parsad]

Backlog, backlog and more backlog...no demand, no decrease in supply.  Even with low rates, it will take a long time as demand is thin!  Cheers!

 

http://www.bloomberg.com/apps/news?pid=20601109&sid=aqJxfnOv5tIA

[Parsad]

Interview with Bob Shiller on residential and commercial loans.  We just sent out the MPIC Fund I, LP's letter a couple of days ago, and in there we commented that we think there will continued pressure on residential home prices, but we think we will see significant pressure also from commercial loans which won't make things any easier.  Cheers!

 

http://money.cnn.com/2009/07/24/news/economy/banks.commercial.fortune/index.htm?cnn=yes

[scorpioncapital]

The Depression of 2008? More like the Panic of 2008, a one year event, a blip in the grand scheme of one's investment program.

[Packer16]

Sanjeev,

 

I agree there is little attention paid to the supply side of the equation.  The attention has been focused on reviving demand rather than slowing down supply.  Given the low barriers to entry and the excess supply of resources to build housing the supply will continue to grow.  This is what happened in 1930 as the first reaction to the Crash (increase capital spending) which increased supply above the already low capacity utilization.  I find the opposite problem with health care.  There appears to be a shortage of supply of health care services and most of the discussion is about decreasing demand with few proposals about increasing supply.  Some interesting game changing ideas can come from focussing on supply (most importantly the reduction of costs).

 

Packer