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Saturday, July 24, 2010

Weekend Charts and Stuff

EARNINGS
"Record" corporate earnings. What a freaking sham and a Wall Street game.  Change the way the accounting goes and they can feed you any number they want particularly with banks. I ask a simple question: How can a corporation have any "earnings" at all when they are loaded with debt?

Fire a bunch of people, record the "savings" as earnings, don't spend on any equipment or expansion and announce good numbers. Freeze pay wages for 10 years all the same while the top executives pay increased 25 times or more. Or play pension account bookkeeping shenanigans. Or use leverage tricks or, the biggest of them all - pay no taxes (GE) - or better yet get a tax credit!.

All the years  in pushing the manufacturing and services (and tax shelters) to cheaper labor markets  - China, etc - is finally paying off big time.  Well, guess what? Now you big corps are stuck with boatloads of factories and holdings and such in foreign countries that no one can guarantee any kind of political stability.  Think Chavez. He'll take your stuff in a moment's notice.  Do not think others won't follow.

And the CEO's and the crony system is cashing out any leveraged cash they can at a record pace. Increased dividend payments and increased stock buybacks are only good for the people who own massive amounts of stock - CEO's! - it is a backdoor to draining the companies coffers let alone the outrageous bonuses.

Sure thats the way the modern world works but what if the ability to rollover the massive debts the corporations have freezes up again in a worse way? What if short term interest rates rise? How long do you think they will stay at zero?

Yeah I know companies like Apple are supposedly loaded with cash but who cares about that?  What if the market decides Apple is worth $20?   Would you ever see a dime of Apple cash holding its stock at $260? They don't do dividends (yet). The minute they announce a dividend thats the beginning of the end for Apple's stock. The only lure to buying Apple is you plan on selling it to another sucker at a higher price.  Who cares what "book value" they trade at, like I said, you'll never see a penny of it.

What is fair value anyways? Have equity holders ever got anything except a complete loss of investment when a company goes under?  Even the bond holders are getting screwed (GM comes to mind) so who wants to own the debt?

Lets say GE's stock gets hit again. Hey lets suppose its on the verge of implosion. Lets say the government steps back in and screws half the bondholders. Is that a good confidence builder going forward for bonds? I think not.  Bigger and bigger the corporations grow.  Now we have completely created a too big too fail marketplace. Yet that is likely what will happen anyways.

In the end when the government reaches for more and more control, the opposite effect will happen that they intend - confidence will not increase - and people will get madder still.

CONSUMER SENTIMENT AND CONTRACTION
When people stop buying things, the economy contracts.  This is evidence of social mood contraction. Retail and services has grown so huge and refined that they have "taught" the modern consumer to be frugal. Along with the decline in social mood, the modern consumer is way more willing to shop around for better prices. And ironically the biggest players on the block (Walmart) are more than willing to accommodate.  The constant "savings" touted by retail for years will again - in a moment of irony - foretell further contraction in the retail game.

The Consumer Metrics institute has been charting the current contraction. They have recently posted that the upcoming preliminary 2nd qtr GDP numbers should show the economy contracting.  http://www.consumerindexes.com/  (scroll down to see the July 21st commentary) But we all know the numbers game the BEA will play and they will likely not report any contraction. After all as Consumer Metrics points out in their commentary, the BEA uses 1930's methodology so its not that the BEA is "lying" its that its methods are not up to modern standards.  Of course there is no push to do so either.

The current contraction event is very long and appears to have started to accelerate down.  In fact this contraction event is starting to look ominous. This is one reason I think the "P3 up" camp is on the wrong track. If the consumer would continue to show expansion, I'd have to reconsider the wave structure. But it is not by any means.

So a contracting consumer is direct evidence of contracting social mood. GDP will follow.  So far at least this graph does not refute the notion of P3. If anything it reinforces it.

Better you heed these charts rather than the "stellar" earnings reports. Earnings looks in the past anyways.
The green line is the 2006 contraction event. The red line was the 2008 contraction.  The blue line is the current contraction event. The blue line has gone on longer (under the zero line) than the red and it doesn't yet show a sign of a bottom.  The market has started to react to this contraction event after the April peak.  I of course think the declining market is just getting warmed up.

BASE CHANNEL
Likely the market is forming a proper base channel. The DJIA and Wilshire are good at making trendlines.

Technically there is nothing too much on this chart that says the market will decline this coming Monday. Rather everything is still in a bullish configuration more than not.

We need only retrace a little over 50% for this to confirm its the Minor wave 2 even if the June reaction high is not taken out on all indexes. There are a few things to look for: non-confirmations between indexes and loss of momentum in the indicators. So far we are not there yet for either of those things.
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