August 31, 2010 Thinking “out of the box”
We don’t know how we missed it yesterday, but Warren Buffet turned 80 yesterday. His doctor told him his life expectancy was about another 12 years. Warren wants to work till he is 100, but admits it will take some “out of the box” thinking.
Well we had some misleading good news today from the case schiller real estate pricing report. Prices went up be they at a lower rate BUT (Behold the Underlying Truth), it was June report. That was the tail end of the government buy house program. Next month (July Reporting) is expected to be ugly just as the auto numbers post clash for clunkers.
I was way off on the consumer confidence number thinking it would miss and come in at 48.5, behold it came in at a surprising 53.5. I don’t understand the number, but there it is. That helped the market until Uncle Ben released the minutes from the August 10, 2010 FOMC (Federal Open Market Committee)
As a US taxpayer I get to be lazy and steal portions of the report. You can click the link about to read the whole ten pages. Here are some highlight we felt might be releavnt:
"In the economic forecast prepared for the August FOMC meeting, the staff lowered its projection for the increase in real economic activity during the second half of 2010 but continued to anticipate a moderate strengthening of the expansion in 2011.
Overall inflation was projected to remain subdued over the next year and a half. The staff’s forecasts for headline and core inflation in 2010 were revised up slightly in response to the higher prices of oil and other commodities and the depreciation of the dollar. Even so, the wide margin of economic slack was projected to contribute to some slowing in core inflation in 2011, though the extent of that slowing would be tempered by stable inflation expectations.
Real GDP growth was noticeably weaker in the second quarter of
2010 than most had anticipated, and monthly data suggested that the pace of recovery remained sluggish going into the third quarter. Private payrolls and consumer spending had risen less than expected. Business spending on equipment and software had increased strongly but reportedly was concentrated in replacements and upgrades that had been postponed during the economic downturn. Investment in nonresidential structures continued to be weak. Housing starts and sales remained at depressed levels, falling back after the expiration of the temporary homebuyer tax credits.
The incoming data suggested that economic growth abroad had been somewhat stronger than anticipated and remained solid, boosting U.S. exports and supporting a pickup in U.S. manufacturing output and employment, though a surprising surge in imports in the second quarter widened the U.S. trade deficit.
In particular, consumer spending had contracted more over the course of 2008 and the first half of 2009, and recovered less rapidly, than previously estimated, even as households’ after-tax incomes had increased more than shown by the earlier data. In
combination, these revisions indicated that the personal saving rate had been higher and had risen somewhat more during the past three years than previously thought. Participants recognized that the implications of these new data for the outlook were unclear. On the one hand, the revised data might indicate that households have made greater progress in repairing their balance sheets than had been realized, potentially allowing stronger growth in consumer spending as the recovery proceeds. On the other hand, the revised data might signify that households are seeking to raise their net worth more substantially than previously understood, or to build greater precautionary balances in what they perceive to be a more uncertain economic environment, with the result that growth in consumer spending could remain restrained for some time.
I particularly liked this piece of info about employment as we have suggested this concept for several months here in the blog. Employers don't know how much an employee will cost next year. For someone like PADI this is not a big deal to hire two or three people with that uncertainty. For Ford, who claims they need another 3,000 people, they are not hiring becuase they do not know how much that will cost.
Policymakers discussed a variety of factors that appeared to be contributing to the slow pace of job growth. A number of participants reported that business contacts again indicated that
uncertainty about future taxes, regulations, and healthcare
costs made them reluctant to expand their workforces. Instead, businesses had continued to meet growth in demand for their products largely through productivity gains and by increasing existing employees’hours. Most participants viewed weak demand for firms’ outputs as the primary problem; they saw substantial scope for stronger aggregate demand for goods and services to spur employment in a wide range of industries.
Those minutes created a sell off into negative territory by mid day PST. Then the HFT (Hight Frequency Trades) must have kicked in to balance the market to no where land. Flat again.
I took a shot at the Chicago Purchsing order last night saying it would off its expected 56 coming in at 54. It cam in at 56 and change. I got Dollar General right saying the would beat big and they did. I say 41 the came in at 42 cents a share. It looks like Lebarge reports on the morning on the second of September.
Take the heart out of the trade.
I have had a few people ask me what I spend on trading fees in the course of a year. I spend a bunch, but that is because I remove myself from the trading process once I have made a decision. As we have mentioned here many times, after the homework, (Like I described in painful detail last Sunday.) choose an entry point with a limit order and automatically choose a down side exit point (subject to change) before you place your order. I have on many occasions watched a stock slide through my exit stop limit order
and decide to go back in after re-looking at my homework and bought at a lower price. Yes I took a loss, but I re-establish at a lower price or if I don’t like what I see I am out for good.
For the first 10 years or so of trading, I would hang on to dogs until they turned into the hounds from hell eating away at my investment flesh. I would rather have a few dozen mosquito bites than 3 or 4 hounds from hell. Do yourself a favor and take yourself out of the equation when ever you can. I second guessed this strategy after the Flash Crash of May sixth and it cost me some serious money.
And now from the basement of the Western Whitehouse in San Clemente Califirnia: