August 18, 2010 Where Do I Go From Here?
BAGAKOAA; August 18, 2010 Where Do I Go From Here?
It was March of 1972 when Elvis went into RCA’s Studio C in Hollywood and cranked out Separate Ways, a song written for him by his buddy Red West (who you might remember as the mechanic on Bah Bah Black Sheep), a Kris Kristofferson song called “For The Good Times” (Which I had the pleasure of recording with a great group of musicians in 2004 just a few blocks away from where Elvis recorded his rendition), and a song written by Paul Williams I am sure you never heard because I think it sold 8 copies. It was called “Where Do I Go From Here?”
I mention it today because there was a significant story today about a guy named Stanley Drukenmiller. He is not a household name, but his former partner George Soros is much better known. Soros and Druckenmiller made huge bet against the British Pound and in 1992 almost brought the Bank of England to its knees. They made a cool 1.2 billion on the deal. Stanley took his money and formed Duquense Capital Management, a firm now worth 12 Billion. Stanley had been averaging a 30% return for his clients up until 2007. Since then he had been batting about 11% a year, not too shabby for what has gone on the last couple of years.
Well Stanley is hanging up the abacus at the end of this year. He says he wants to spend more time with the family and is tired of the stress of handling OPM (Other People’s Money). Rumor has it a couple of his managers are doing better than he on their returns, but I have a feeling that Stanley must have listened to the old Elvis song. Here is the refrain from that lackluster song:
Tell me where
Where does a fool go
When there's none left to listen
To a story without meaning
That nobody wants to hear
Tell me where
Where does a fool go
When he knows there's something missing
Tell me where
Where do I go from here
Where do I go from here
That refrain does a great job of summing up the current market. No one is listening, there is no meaning to a lot of the press about what is going on, and there does seem to be a few things missing, like volume and direction. Today was another day of no direction, no volume, and it ended up no where.
Besides today’s results, there was an article last week in the Wall Street Journal called “Could Wall Street be about to crash again?”
It was followed by an article in Barron’s last weekend by Alan Abelson that had me so down, I wanted to kick my neighbors dog. (I would never kick my own dog as I would no longer be married and recuperating in some hospital.) It took Jim Cramer yesterday (Tuesday) to set things right.
The Journal article listed 10 reasons why we should be worried about the DD, double dip. I will list them and Cramer’s retort plagiarizing as little as possible.
1. The market is too expensive. In the article most of the reference points were trailing quarter and trailing year Earnings Per Share, we only care and you should only care about future earnings. The trailing numbers are comparing agains some of the worst quarters since 1929 so P/E ratios will look a bit rich. Future P/E ratios at at 12 whis is not too expensive.
2. The Fed is getting nervous. The Fed just authorized the purchase of 300 million (Not lot of money) for 10 year US treasury notes. They are doing that to keep rates lower as they are being cautious and want balance a deflationary trend agains an inflationary explosion. They are betting on future growth.
3. Too many people are too bullish. Even without Cramer’s help I did not get this one. Every week I look at the investor sentiment data in Barron’s and follow the money flow. YTD, there has been almost 400 billion gushing out of stocks and into bonds. Brett Anders, the author is using squishy numbers for this point. I agree with Cramer when he says “Nonesense”
4. Deflation is already here. OK he might have a possible point. However is you look at the bond yields, it looks as though there is still a small worry about inflation more so than deflation. Anders cites a three month trend of lower consumer prices and I would say look at Walmart. They have done a great job of managing costs, their cost of goods is flat or lower, they are choosing to pass those savings on to customers to take market share from all other retailers in several categories, and when they lower prices other retailer have to make in kind adjustments and you have lower consumer prices. Its good management not deflations. If the fed was really worried about deflation they should just give Walmart a tax incentive to rasie prices by 2%. Problem solved
5. People still owe way too much money. Anders mixes personal debt with corporate debt and government debt. People are saving more now than since anytime after WW II. Personal deliquincies are declining and there is more than 1.2 trillion on the balance sheets of US publicaly held companies. Sorry, this one makes no sense.
6. The jobs picture is much worse than they're telling you. I am going to include Ander’s verbiage supporting this comment: “Forget the "official" unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now. That's the lowest since the early 1980s—when many women stayed at home through choice, driving the numbers down. Among men today, it's 66.9%. Back in the '50s, incidentally, that figure was around 85%, though allowances should be made for the higher number of elderly people alive today. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job. This is bullish?”
I left it there because he is absolutely 100% correct. Its about the only data points I could verify from his whole article. BUT SO WHAT! Don’t get me wrong it is tragedy that so many people are out of work, but we have know this for more than a year and Cramer again is the voice of reason, this data is already built into the current price of equities today. It is a none issue in so much as we know it. We also know if it gets better that is good thing. If it gets worse, it is a bad thing.
7. Housing remains a disaster. Cramer makes the argument that housing prices bottomed a year ago. A recent study of the 150 largest municipal statistical areas showed 65% improving in price.
8. Labor Day is approaching. Anders does some tea leaf reading and Cramer tears him to shreds. Most of you know I am not a chartists and I am confident you can use charts to confirm or deny almost any data point. This was a weak point.
9. We're looking at gridlock in Washington. OK this can be good and it can be bad. After the 3 trillion dollar stimulus, health care, auto bailout, banking bailout, yeah there is gridlock and this administration will have a challenge getting any significant legislation passed (Excepting a watered down energy bill which is shaping up nicely. Think LNG) Explin to me why that is bad thing?
10. All sorts of other indicators are flashing amber. I would say and I believe Cramer did say, on any given day you can find green data points and Red data points.
So when you have Stanley choosing to head for the beach, its not because he fears a downturn, its because its is hard and not much fun to figure this market out. Drukenmiller is 57 years old and has been at this game for more than 30 years. So the only question you might ask is:
Tell me where
Where does a fool go
When there's none left to listen
To a story without meaning
That nobody wants to hear
Tell me where
Where does a fool go
When he knows there's something missing
Tell me where
Where do I go from here
Where do I go from here
And fresh in from fun at the White House:
It was March of 1972 when Elvis went into RCA’s Studio C in Hollywood and cranked out Separate Ways, a song written for him by his buddy Red West (who you might remember as the mechanic on Bah Bah Black Sheep), a Kris Kristofferson song called “For The Good Times” (Which I had the pleasure of recording with a great group of musicians in 2004 just a few blocks away from where Elvis recorded his rendition), and a song written by Paul Williams I am sure you never heard because I think it sold 8 copies. It was called “Where Do I Go From Here?”
I mention it today because there was a significant story today about a guy named Stanley Drukenmiller. He is not a household name, but his former partner George Soros is much better known. Soros and Druckenmiller made huge bet against the British Pound and in 1992 almost brought the Bank of England to its knees. They made a cool 1.2 billion on the deal. Stanley took his money and formed Duquense Capital Management, a firm now worth 12 Billion. Stanley had been averaging a 30% return for his clients up until 2007. Since then he had been batting about 11% a year, not too shabby for what has gone on the last couple of years.
Well Stanley is hanging up the abacus at the end of this year. He says he wants to spend more time with the family and is tired of the stress of handling OPM (Other People’s Money). Rumor has it a couple of his managers are doing better than he on their returns, but I have a feeling that Stanley must have listened to the old Elvis song. Here is the refrain from that lackluster song:
Tell me where
Where does a fool go
When there's none left to listen
To a story without meaning
That nobody wants to hear
Tell me where
Where does a fool go
When he knows there's something missing
Tell me where
Where do I go from here
Where do I go from here
That refrain does a great job of summing up the current market. No one is listening, there is no meaning to a lot of the press about what is going on, and there does seem to be a few things missing, like volume and direction. Today was another day of no direction, no volume, and it ended up no where.
Besides today’s results, there was an article last week in the Wall Street Journal called “Could Wall Street be about to crash again?”
It was followed by an article in Barron’s last weekend by Alan Abelson that had me so down, I wanted to kick my neighbors dog. (I would never kick my own dog as I would no longer be married and recuperating in some hospital.) It took Jim Cramer yesterday (Tuesday) to set things right.
The Journal article listed 10 reasons why we should be worried about the DD, double dip. I will list them and Cramer’s retort plagiarizing as little as possible.
1. The market is too expensive. In the article most of the reference points were trailing quarter and trailing year Earnings Per Share, we only care and you should only care about future earnings. The trailing numbers are comparing agains some of the worst quarters since 1929 so P/E ratios will look a bit rich. Future P/E ratios at at 12 whis is not too expensive.
2. The Fed is getting nervous. The Fed just authorized the purchase of 300 million (Not lot of money) for 10 year US treasury notes. They are doing that to keep rates lower as they are being cautious and want balance a deflationary trend agains an inflationary explosion. They are betting on future growth.
3. Too many people are too bullish. Even without Cramer’s help I did not get this one. Every week I look at the investor sentiment data in Barron’s and follow the money flow. YTD, there has been almost 400 billion gushing out of stocks and into bonds. Brett Anders, the author is using squishy numbers for this point. I agree with Cramer when he says “Nonesense”
4. Deflation is already here. OK he might have a possible point. However is you look at the bond yields, it looks as though there is still a small worry about inflation more so than deflation. Anders cites a three month trend of lower consumer prices and I would say look at Walmart. They have done a great job of managing costs, their cost of goods is flat or lower, they are choosing to pass those savings on to customers to take market share from all other retailers in several categories, and when they lower prices other retailer have to make in kind adjustments and you have lower consumer prices. Its good management not deflations. If the fed was really worried about deflation they should just give Walmart a tax incentive to rasie prices by 2%. Problem solved
5. People still owe way too much money. Anders mixes personal debt with corporate debt and government debt. People are saving more now than since anytime after WW II. Personal deliquincies are declining and there is more than 1.2 trillion on the balance sheets of US publicaly held companies. Sorry, this one makes no sense.
6. The jobs picture is much worse than they're telling you. I am going to include Ander’s verbiage supporting this comment: “Forget the "official" unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now. That's the lowest since the early 1980s—when many women stayed at home through choice, driving the numbers down. Among men today, it's 66.9%. Back in the '50s, incidentally, that figure was around 85%, though allowances should be made for the higher number of elderly people alive today. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job. This is bullish?”
I left it there because he is absolutely 100% correct. Its about the only data points I could verify from his whole article. BUT SO WHAT! Don’t get me wrong it is tragedy that so many people are out of work, but we have know this for more than a year and Cramer again is the voice of reason, this data is already built into the current price of equities today. It is a none issue in so much as we know it. We also know if it gets better that is good thing. If it gets worse, it is a bad thing.
7. Housing remains a disaster. Cramer makes the argument that housing prices bottomed a year ago. A recent study of the 150 largest municipal statistical areas showed 65% improving in price.
8. Labor Day is approaching. Anders does some tea leaf reading and Cramer tears him to shreds. Most of you know I am not a chartists and I am confident you can use charts to confirm or deny almost any data point. This was a weak point.
9. We're looking at gridlock in Washington. OK this can be good and it can be bad. After the 3 trillion dollar stimulus, health care, auto bailout, banking bailout, yeah there is gridlock and this administration will have a challenge getting any significant legislation passed (Excepting a watered down energy bill which is shaping up nicely. Think LNG) Explin to me why that is bad thing?
10. All sorts of other indicators are flashing amber. I would say and I believe Cramer did say, on any given day you can find green data points and Red data points.
So when you have Stanley choosing to head for the beach, its not because he fears a downturn, its because its is hard and not much fun to figure this market out. Drukenmiller is 57 years old and has been at this game for more than 30 years. So the only question you might ask is:
Tell me where
Where does a fool go
When there's none left to listen
To a story without meaning
That nobody wants to hear
Tell me where
Where does a fool go
When he knows there's something missing
Tell me where
Where do I go from here
Where do I go from here
And fresh in from fun at the White House:
OK, I'll have a Health Care Reform Grande, a Banking Regulation Grande, a
Triple Stimulus Grande, and a Mortgage Bailout Grande.
Salve Lucrum
posted by J.J. Phineaus at 11:23 PM
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