Financials

Financials have definitely not participated in September's rally like other indices. Here is what the charts say.

*Long ETFs related to banks and financials in client and personal accounts.

The Coming Political Tsunami Part III

Bespoke Investment Group looked at the impact of consumer confidence on elections.  Their analysis is not good for Democrats.  Actually I'd say it's not good for incumbants as I think a few Republicans are going to get turned out in this cycle as well.

"{Tuesday's} weaker than expected Consumer Confidence report for the month of September certainly isn't welcome news for Democratic members of Congress. As George Bush I learned in 1992, it's the economy stupid, and with Democrats in control, voters are likely to take out their frustrations on the party in power. The table below highlights the results of US mid-term elections since 1970 and summarizes how many seats the party of the President gained or lost in the mid-term elections. For each year, we also highlight the most recent Consumer Confidence reading ahead of that year’s mid-term elections.

As shown, no matter what the Consumer Confidence reading is leading up to the mid-terms, it is common for the President's party to lose seats. While one would think that lower readings in Consumer Confidence would have some correlation with the number of seats the party in power loses, the reality is that voters have been just as prone to 'throwing the bums' out no matter what their mood. True, in the two other periods where Consumer Confidence was in the 50s leading up to the mid-terms (highlighted in grey), the party in power lost an average of 37 seats in the House. However, back in 1994 when Democrats lost 54 seats in the House, Consumer Confidence was at 89.1 (67% above current levels), and in 2006 the Republicans lost 30 seats in the House when Consumer Confidence was at 105.1 (98% above current levels). "

The table below was originally published in an August report for Bespoke Premium clients where we analyzed market returns during mid-term elections. To view that report, or any of our other client reports, subscribe to Bespoke Premium today.

Link:  Consumer Confidence & Elections.

Oil

*Long certain ETFs related to Oil in some client and personal accounts.  Long ETFs related to oil exploration and oil discovery in client and personal accounts.

College Graduates

24/7 Wall Street on the fate of the current crop of college seniors looking to graduate sometime in 2010/2011.  All I can say is that I'm glad I don't have anybody graduating this year.  {Excerpt with my comments at the end.}

 

Attention college seniors: it’s an awful year to graduate college. Anyone with a brain knows that given the state of the economy but the Brookings Institution recently spelled it out in frightening detail.  For these young adults just entering the labor market for the first time, the impacts of the recession will last well into the future. According to one study (Kahn 2010), young people graduating from college during today’s severe recession will earn approximately 17.5 percent less per year than comparable peers graduating in better labor markets. This lower wage effect is highly persistent, fading away only after 17 years of work.

What does this mean in terms of lost income? For the average college graduate this year, this translates into approximately $70,000 (in today’s dollars) in lost earnings over the next decade.....The projected losses are even larger for graduates who cannot find a job upon graduation.

It’s even more depressing when you consider that graduates with student loans carried an average debt of $23,200 in 2008.....Graduates of professional and graduate schools often have six figure debt loads.

Young people have been hit especially hard during the economic slowdown. Unemployment among workers aged 16 to 24 is at record levels.......More attention than ever is being paid to the rising cost of higher education. Students at public four-year colleges pay average, $7,020 per year in tuition and fees for schools in their state, according to the College Board. Out-of-state students at these institutions pay $11,528.....

Given the uncertainties surrounding the economy, it makes less sense than ever for anyone to go into huge debt to earn a 4-year college education because graduates may not be able to earn it back. Employers are also taking less notice of fancy college brand names. A recent survey the Wall Street Journal of recruiters surprisingly ranked Pennsylvania State University, Texas A&M University and University of Illinois at Urbana-Champaign ahead of their Ivy League counterparts.

“Recruiters say graduates of top public universities are often among the most prepared and well-rounded academically, and companies have found they fit well into their corporate cultures and over time have the best track record in their firms,” the paper says.

My comment:  I believe that this generation of college students is likely to be the last to experience the traditional four year liberal arts experience.  Here's why.  Incomes have stagnated over the past 15-20 years but college costs have appreciated at something like 7-10% annually.  A state school like the University of Illinois all in is close to $17,000 for in state residents.  Private universities are in the $38,000-$50,000 a year range!  Parents have been willing to pay for this, believing it gives their children a leg up the economic ladder.  That propostion is becoming increasingly questioned.  

You are starting to see the first instances of colleges offering three year education programs.  I think this will begin to accelerate in this decade and I think you are going to see more concentrated degree programs beginning at the freshman level for kids who have a pretty good idea what they want to do with their lives.  Colleges will have no choice because parents are increasingly unable to afford what they offer. 

Link:  College Graduates Are Really Screwed!

an tSionna {Gold}

Higher on inflationary concerns world-wide, economic conditions and concern over Western democratic government's spending.  A pause may happen at some point but it's long term direction still looks higher.

*Long gold via ETFs in certain client accounts.

The Coming Political Tsunami Part II

Peggy Noonan with another insightful column in the Wall Street Journal about the upcoming elections.  Noonan, I think perhaps better than most, has captured the mood of the voters right now.  Whether this translates into a Republican majority or a complete repudiation of President Obama is too soon for anybody to guess.  We can guess though that the incoming Congress will be less progressive and more concentrated on the economy regardless of political affiliation.  Excerpt with my highlights: 

.....It is Monday, Sept. 20,.....CNBC is holding a town hall for the president. A woman stands—handsome, dignified, black, a person with presence. She looks as if she may be what she turns out to be, an Obama supporter.....The president looked relieved when she stood. Perhaps he thought she might lob a sympathetic question that would allow him to hit a reply out of the park. Instead, and in the nicest possible way, Velma Hart lobbed a hand grenade.

.......'I'm exhausted of defending you, defending your administration, defending the mantle of change that I voted for, and deeply disappointed with where we are." She said, "The financial recession has taken an enormous toll on my family." She said, "My husband and I have joked for years that we thought we were well beyond the hot-dogs-and-beans era of our lives. But, quite frankly, it is starting to knock on our door and ring true that that might be where we are headed.'

What a testimony. And this is the president's base. He got that look public figures adopt when they know they just took one right in the chops on national TV and cannot show their dismay.....

...But it was the word Mrs. Hart used that captured everything: "exhausted." From what I see, that's how a lot of Democrats feel. They've turned silent, too, like people who witnessed a car crash and can't talk anymore about the reasons for the accident or how many were injured.  This election is more and more shaping up into a contest between the Exhausted and the Enraged.

.....But Rep. Marsha Blackburn of Tennessee suggests I have the wrong word for the Republican base. The word, she says, is not enraged, but 'livid.'.....There are two major developments, she says, that are new this year and insufficiently noted, but they're going to shape election outcomes in 2010 and beyond. First, Washington is being revealed in a new way. The American people now know, "with real sophistication," everything that happens in the capital. 'I find a much more knowledgeable electorate, and it is a real-time response,'.....The Internet isn't just a tool for organization and fund-raising, it has given citizens access to information they never had before. "The more they know," Ms. Blackburn observes, "the less they like Washington."

Second is the rise of women as a force. They 'are the drivers in this election cycle,'.....

....Why would more women be focusing more intently on politics this year than before? Blackburn hypothesizes: 'Women are always focusing on a generation or two down the road. Women make the education and health-care decisions for their families....and so they have become more politically involved.....'

.....Ms. Blackburn suggested, further in the conversation, that government's reach into the personal lives of families, including new health-care rules and the prospect of higher taxes, plus the rise in public information on how Washington works and what it does, had prompted mothers to rebel.

.....How does 2010 compare with 1994 in terms of historical significance? Ms. Blackburn says there's an unnoted story there, too. Whereas 1994 was historic as a party victory, a shift in political power, this year feels more organic, more from-the-ground, and potentially deeper. She believes 2010 will mark "a philosophical shift," the beginning of a change in national thinking regarding the role of the individual and the government.

.....The media, Ms. Blackburn says, do not fully appreciate 'how livid people are with Washington.' They see the anger but don't understand its implications. 'They're getting right that people want change, but they're wrong about what that change is going to be.' The mainstream media famously like the horse race.....But if Ms. Blackburn is right, the election, and its meaning, will be more interesting than the old, classic jockeying. And the outcomes won't be controlled by the good ol' boys but by those she calls "the great new gals."

Link:  The Enraged Vs. the Exhausted.

an tSionna {09.27.10}

We're updating this link to a chart we posted earlier this month showing our now year long trading range in the S&P 500.  The market in a short period of time has now traded back to the high end of this range.  We'll need to now monitor this to see how investors react.  We are now over bought in all three of the time frames we measure so some period of consolidation should be expected {See here}.  On the other hand a market that breaks out from these levels could be expected to at least attempt to reach the next line of resistance which currently resides around 1170 on the S&P 500.

*Long ETFs related to the S&P 500 in client and personal accounts.

How September Has Fared!

Bespoke Investment Group posted this week on September's performance so far. 

 

"....{T}he S&P 500 is still on pace to have its best September since 1939. With a month to date (MTD) gain of 8.1%, the S&P 500 is still well behind the 15.6% MTD gain from September 1939, but still ahead of the 7.6% MTD gain we saw back in 1998. As shown in the table, strong Septembers seem to come in clusters. This is the second year in a row where the S&P 500 has been up more than 5% on a MTD basis, as the index was up 5.0% at this time in September 2009. The S&P 500 was also up more than 5% at this point in the month for three years in a row back in 1996, 1997, and 1998, and back in the 1950s, both September 1954 and 1955 were also up more than 5% as of September 22nd....."

Link:  Best Septembers

*Long ETFs related to the S&P 500 in client and personal accounts.

Answering a Question

Regarding yesterday's Net Market Negative short term rating, please understand that simply reflects that for strategies that are more aggressive and willing to have shorter term tactical assets shifts we have simply sold more securities this week than we have bought.  Our work shows us that we have reached an over bought reading in the shorter term.  Probability therefore suggests either some sort of pullback soon or at least a period where stocks simply mark time in place.

This may not happen right away or at all.  As I'm writing this futures are indicating tomorrow's open will be higher.  But experience tells us, and probability suggests,  that over bought conditions are worked off either by time {a period where stocks churn back and forth}, or by price decline.  We need to respect that possibility and therefore have raised modest amounts of cash where stated above.

I still think stocks have the potential to be higher by year's end and low cash positions in many client account and strategies reflect that.  However, money flows are reaching levels where they are becoming more problematic short term and we have reacted accordingly..

an tSionna {09.23.10}

We will move our shortest term rating to Net Market Negative, our intermediate rating to Market Neutral and keep our longest term rating at Net Market Positive.  You can click here  for a definition of these terms.  Please note that if you are a casual reader of this blog that you need to go back and understand what these terms mean.  This is not a market timing model or call.  It is meant to reflect what our net money flows and tactics look like in the aggregate across different time frames and strategies. 

*Long ETFs related to the S&P 500 in client and personal accounts.

The 10 Biggest Companies of Today

Yesterday we excerpted 24/7 Wall Street's list of the 10 largest companies in 1955. Here's their list of the largest companies today. Note the large retail and services component today. Of course we don't know what this list will look like in 2055, but I'd be willing to bet that retail won't be as large a component then as it is today!

According to 24/7:

"Today, four of the ten largest companies by total employees are Walmart (NYSE: WMT), Target (NYSE: TGT), Sears (NASDAQ: SHLD), and Kroger (NYSE: KR). Americans are drawn in huge numbers to retailers with low prices. The industry is dominated by companies which can source cheap goods, run them though efficient supply chains, and market them at low prices. Two of companies on the list from this year are IBM (NYSE: IBM) and Hewlett Packard (NYSE: HPQ). They are the tip of an iceberg comprised of dozens of large tech companies with high margins, rapidly growing sales, and well-paid work forces. This group includes Dell (NASDAQ: DELL), Google (NASDAQ: GOOG), Cisco (NASDAQ: CSCO, and Oracle (NASDAQ: ORCL). With almost no exceptions, these companies did not exist five decades ago."

1. Walmart {Employees today: 2,100,000-Employees in 1955: N/A}

Walmart was not started until 1962. A local store chain in Arkansas, it expanded across the nation and outflanked rivals founded years earlier using intelligent product sourcing and low prices. Walmart is now the largest company in America.

2. International Business Machines {Employees today: 410,830-Employees in 1955: 46,500}

The company was primarily a provider of high end and expensive computing machines. Over a period of 50 years it has added large software, IT consulting, and server businesses to become one of the world’s largest tech companies.

3. United Parcel Service {Employees today: 408,000-Employees in 1955: not on Fortune 500}

The global mail and freight carrier used the growing movement to transport packages by air and a huge network of trucks to capture the lion’s share of the industry and effectively helped ruin the profitability of the US Postal Service.

4. Target {Employees today: 351,000-Employees in 1955: not on Fortune 500}

The No.2 US retailer opened its first store at about the same time Wal-Mart did. It has never been able to match its larger rival’s size but has still built a $65 billion a year business.

5. Kroger {Employees today: 334,000-Employees in 1955: not on Fortune 500}

The company was a relatively large chain fifty years ago but has aggressively grown through M&A and entry into the private label business.

6. Sears Holdings {Employees today: 322,000-Employees in 1955: not on Fortune 500}

Sears owes much of its size to the merger between K-Mart and Sears that created it in 2004. The two retail brands are not as successful as rivals like Wal-Mart but the company does operate at many locations.

7. General Electric {Employees today: 304,000-Employees in 1955: 210,151}

GE operates large energy, health care, finance, and media businesses in addition to several operations tied to its older industrial base. {My note: it is also the only company to appear on both lists!}

8. Hewlett-Packard {Employees today: 304,000- Employees in 1955: not on Fortune 500}

Now the world’s largest tech company based on revenue, in the 1940s and 1950s, HP concentrated on making professional and industrial testing tools. The company is now a major force in PCs, printers, servers, software, and IT consulting.

9. Bank of America {Employees today: 283,000-Employees in 1955: not on Fortune 500}

The bank existed in 1955, but did not look anything like it does today. B of A was based almost exclusively in California in 1955. It is now a global bank with commercial, institutional, and investment banking arms. Two years ago, it bought Merrill Lynch and mortgage banking firm Countrywide.

10. AT&T {Employees today: 272,450-Employees in 1955: not on Fortune 500}

AT&T has been dissolved and rebuilt since the government decided to break it into several pieces in 1984 because it was considered a monopoly. Most of the operating businesses have been reunited under the original brand and the company is primarily a provider of cellular, landline, and home entertainment.

*Certain of these companies are included in ETF's that our clients hold. In addition we have one client that holds a legacy position in British Petroleum {BP} and customers of our firm hold legacy positions in General Electric {GE}

Link: America's Biggest Companies, Then and Now.

The 10 Biggest Companies of Yesterday.

24/7 Wall Street did this profile of the 10 largest companies back in the 50's and now. Today we'll show the 10 largest companies in 1955. The list is dominated by old smokestack industries that today account for an increasingly smaller share of our GDP.

Tomorrow we'll give the top 10 of today:

"Among the ten largest employers in 1955 were GM, Chrysler, US Steel (NYSE: X), Standard Oil of New Jersey, Amoco, Goodyear (NYSE: GT), and Firestone. None could have existed or been nearly as large as they were without the insatiable appetite for American-made cars. What caused appetites and businesses to change will continue to be a matter of debate between business historians. Did the Japanese make better products? Did spikes in oil prices in the 1970s, 1980s, and two years ago knock the life out of the car business? Or, did the UAW and other large unions bleed the companies through high wages, rich pensions, and health care funds?......

....The decades-long movement away from a United States dominated by smoke stacks to one dominated by computers and malls has also caused a shift in the geographic placement of the country’s better-paid workers. In the 1920s, they migrated to the North – places like Pennsylvania, Ohio, and Michigan – where blue-collar jobs were abundant. Eight decades later their descendants are out of work in numbers that total well into the millions.

Many workers could not be retrained to move from the old economy to the new, and those who could not afford to move from areas with poor employment prospects to those with better ones saw their standards of living decline. As new industries emerge to replace those which are dominant today, these issues are likely to remain."

The Biggest Employers in 1955

1. General Motors {Employees in 1955: 576,667-Employees today: 204,000}

The No.1 car company in the US used to be the No.1 car company in the world. In 1955, GM had more than 50% of the American vehicle market and, between direct employees and those at suppliers, it was responsible for more than 3 million US jobs. GM has emerged from bankruptcy, but has fewer than half as many people, and its US market share is only 20%.

2. U.S. Steel {Employees in 1955: 268,142- Employees today: 43,000}

US Steel was the largest company in its industry worldwide and was among the Fortune 50 in 1955. A large portion of the steel manufacturing business has moved offshore, first to Japan and then China.

3. General Electric {Employees in 1955: 210,151- Employees today: 304,000}

General Electric is one of the few companies that has grown significantly over the last five decades. It was largely an industrial firm in 1955, and now makes a large amount of its revenue and profits from financial services.

4. Chrysler {Employees in 1955: 167,813-Employees today: 58,000}

Another car company that benefited from a very limited number of imports. The firm nearly went out of business during the 1980s recession and was rescued by the US government. It moved into Chapter 11 nearly two years ago.

5. Standard Oil Of New Jersey {Employees in 1955: 155,000-Employees today: 102,700}

Standard Oil of New Jersey was part of the original Standard Oil trust created by John Rockefeller. The company was merged into what eventually became Exxon Mobil.

6. Amoco {Employees in 1955: 135,784-Employees today: N/A}

Another piece of the Rockefeller trust, the company was merged into BP America and is now part of BP plc.

7. CBS {Employees in 1955: 117,143- Employees today: 25,580}

The dominant force in both national radio and TV, the company also owned several large stations. As media has broken into more forms of delivery, including cable and Internet, CBS has grown smaller.

8. AT&T Technologies {Employees in 1955: 98,141- Employees today: N/A}

This division of AT&T handled the telephone company’s R&D was was spun out of AT&T completely in 1984.

9. Goodyear Tire & Rubber {Employees in 1955: 95,727-Employees today: 69,000}

The largest tire company in the world in 1955, Goodyear had large plants around the world. As competition from Japanese companies grew, the company went through several restructurings including a move into energy.

10. Firestone Tire & Rubber {Employees in 1955: 90,000- Employees today: N/A}

The second largest tire company in the world in 1955, Firestone was at one point the exclusive supplier to Ford. The company was sold to Bridgestone of Japan in 1988.

Tomorrow we'll look at 24/7 Wall Street's list of the 10 largest companies today.

*Certain of these companies are included in ETF's that our clients hold. In addition we have one client that holds a legacy position in British Petroleum {BP} and customers of our firm hold legacy positions in General Electric {GE}

Link: America's Biggest Companies, Then and Now.

The Coming Political Tsunami Part I

This is the first in an occasional series on what I believe is going to be a great political backlash at nearly every level of government that could last through much of the rest of this decade.  I'm going to cover this at some length between now and the election but today I thought I would excerpt Peggy Noonan's editoral  from last week's Wall Street Journal as I think this in an excellent starting point for some a deeper look into what I think is coming in early November.   {Dark Green denotes my highlights.}

Why It's Time for the Tea Party

The populist movement is more a critique of the GOP than a wing of it. 

By PEGGY NOONAN.

This fact marks our political age: The {political} pendulum is swinging faster and in shorter arcs than it ever has in our lifetimes.....It all moves so quickly now, it all turns on a dime.

...{A}t this moment we are witnessing a shift that will likely have some enduring political impact. Another way of saying that: The past few years, a lot of people in politics have wondered about the possibility of a third party. Would it be possible to organize one? While they were wondering, a virtual third party was being born. And nobody organized it....

....So far, the tea party is not a wing of the GOP but a critique of it. This was demonstrated in spectacular fashion when GOP operatives dismissed tea party-backed Christine O'Donnell in Delaware. The Republican establishment is "the reason we even have the Tea Party movement," shot back columnist and tea party enthusiast Andrea Tantaros in the New York Daily News.....Everyone has an explanation for the tea party that is actually not an explanation but a description. They're "angry." They're "antiestablishment," "populist," "anti-elite." All to varying degrees true. But as a network television executive said this week, "They should be fed up. Our institutions have failed."

{Noonan} see{s} two central reasons for the tea party's rise. The first is the yardstick, and the second is the clock. First, the yardstick. Imagine that over at the 36-inch end you've got pure liberal thinking—more and larger government programs.......Over at the other end you've got conservative thinking—a government that is growing smaller and less demanding and is less expensive. You assume that when the two major parties are negotiating bills in Washington, they sort of lay down the yardstick.....Each party pulls in the direction it wants, and the dominant party moves the government a few inches in their direction.

But if you look at the past half century or so you have to think: How come even when Republicans are in charge, even when they're dominant, government has always gotten larger and more expensive? It's always grown!.....Democrats on the Hill or in the White House try to pull it up to 30, Republicans try to pull it back to 25. A deal is struck at 28. Washington Republicans call it victory: "Hey, it coulda been 29!" But regular conservative-minded or Republican voters see yet another loss. They could live with 18. They'd like eight. Instead it's 28.

For conservatives on the ground, it has often felt as if Democrats (and moderate Republicans) were always saying, "We should spend a trillion dollars," and the Republican Party would respond, "No, too costly. How about $700 billion?" Conservatives on the ground are thinking, "How about nothing?..... What they want is representatives who'll begin the negotiations at 18 inches and tug the final bill toward five inches. And they believe tea party candidates will do that.

The second thing is the clock. Here is a great virtue of the tea party: They know what time it is. It's getting late. If we don't get the size and cost of government in line now, we won't be able to.....The issue isn't "big spending" anymore. It's ruinous spending that they fear will end America as we know it, as they promised it to their children.....

....That is the context. Local tea parties seem—so far—not to be falling in love with the particular talents or background of their candidates. It's more detached than that.....What they want is someone who will walk in, put her foot on the conservative end of the yardstick, and make everything slip down in that direction.

Nobody knows how all this will play out, but we are seeing something big—something homegrown, broad-based and independent....A movement like this can help a nation by acting as a corrective, or it can descend into a corrosive populism that celebrates unknowingness as authenticity, that confuses showiness with seriousness and vulgarity with true conviction.

But establishments exist for a reason. It is true that the party establishment is compromised, and by many things, but one of them is experience. They've lived through a lot, seen a lot, know the national terrain.....{Noonan} wonders if tea party members know how fragile are the institutions that help keep the country together.

One difference so far between the tea party and the great wave of conservatives that elected Ronald Reagan in 1980 is the latter was a true coalition—not only North and South, East and West but right-wingers, intellectuals who were former leftists, and former Democrats. When they won presidential landslides in 1980, '84 and '88, they brought the center with them. That in the end is how you win. Will the center join arms and work with the tea party? That's a great question of 2012.

Link:  Why It's Time for the Tea Party

Rallies After Bear Markets.

From Chart of the Day: 

"Today's chart illustrates rallies that followed massive bear markets. For today's chart, a 'massive' bear market is defined as a decline of greater than 50%. Since the Dow's inception in 1896, there have been only three bear markets whereby the Dow declined more than 50% (early 1930s, late 1930s until early 1940s, and during the very recent financial crisis). Today's chart also adds the rally that followed the dot-com bust during which the Nasdaq declined 78%. The current Dow rally has followed a path that is fairly similar to that of post-massive bear market rallies. The initial surge of the current rally lasted nearly 300 trading days and has been trading flat/choppy ever since. If the current rally were to continue to follow the post-massive bear market rally pattern, the current choppy phase would continue for another 200+ trading days."

Link: Rallies

*Long ETFs related to the S&P 500 & Nasdaq Composite in client and personal accounts.  Long ETFs related to the Dow Jones Industrial Average in certain client accounts.

British Austerity

Interesting article about economic changes in Britain. Excerpt with my comment at the end.

For the U.S., Britain's austerity is a foreign concept

By Anne Applebaum, Tuesday, September 14, 2010

"Vicious cuts." "Savage cuts." "Swingeing cuts." The language that the British use to describe their new government's spending reduction policy is apocalyptic in the extreme. The ministers in charge of the country's finances are known as "axe-wielders" who will be "hacking" away at the national budget. Articles about the nation's finances are filled with talk of blood, knives and amputation.

And the British love it. Not only is "austerity" being touted as the solution to Britain's economic woes, it is also being described as the answer to the country's moral failings. On Oct. 20, the government will announce $128 billion worth of spending cuts, and many seem positively excited about it. Okay, the trade unions are not so excited, but Nick Clegg, deputy prime minister and leader of the Liberal Democrats -- the smaller party in the governing coalition -- is overjoyed. Recently he gave a speech in which he explained that tough choices had to be made, so that "we will be able to look our children and grandchildren in the eye and say we did the best for them."

Clegg went on to explain that his own generation, born in the 1960s, had got things wrong. "We have run up debts, despoiled the planet and allowed too many of our institutions to wither." By contrast, his government's forthcoming austerity budget will value "long-termism" over "short-termism" and eliminate "the dead weight of our debt and our failings," so that future generations could flourish....

Austerity.....has a deep appeal {in Britain}. Austerity is what made Britain great. Austerity is what won the war. It cannot be an accident that several British television channels are running programs this year with titles such as "Spirit of 1940," all dedicated to the 70th anniversary of that "remarkable year" of rationing, air raid sirens and hardship. One series, "Ration Book Britain" is even devoted to that era's parsimonious cooking. "With bacon, eggs and sugar rationed, wartime cooks had to be jolly resourceful," explains an advertisement for the show. Its host promises to "re-create the recipes that kept the country fighting fit."

Sometimes the depth of the Anglo-American cultural divide reveals itself in unexpected ways, and this is one of those moments: No cooking show featuring corned beef hash and powdered eggs would stand a chance in the United States. Perhaps for similar reasons, nobody is talking about "austerity" in the United States either. On the contrary, Republicans are still gunning for tax cuts, and Democrats are still advocating higher spending. Almost nobody -- not Paul Krugman, not Newt Gingrich -- talks enthusiastically about budget cuts. Instead, our politicians use euphemisms about "eliminating waste" or "making government more efficient," as if no one had ever thought of doing that before.

Despite the deep shock the United States supposedly experienced during the banking crisis of 2008 and the resulting recession, we are, in other words, still far from Clegg's "long-termism." Hardly anyone in America is talking about cuts in Medicare, Medicaid or Social Security, for example, the biggest budgetary items (even though "private" pensions now look a lot safer, even when taking stock market fluctuations into account, than those who will depend entirely on a bankrupt federal budget 20 years hence). In Britain, by contrast, everything is on the table: pensions, housing benefits, disability payments, tax breaks.

Politics explain some of this difference, but I reckon history explains more of it. The last period of real national hardship Americans might remember is the 1930s, too long ago for almost everyone alive today. But rationing in Britain lasted well into the 1950s, long enough to color the childhoods of many politicians now in power. Nostalgic Brits, longing to re-create their country's finest hour, remember postwar scrimping and saving. Nostalgic Americans in search of their own country's finest hour remember postwar abundance, the long consumer boom -- and, yes, a time when even instant gratification wasn't fast enough.

applebaumletters@washpost.com

My Comment: I'm not so sure Applebaum is right about this. If what is happening with the "Tea Party" is any indication, then a vast majority of Americans might just go for the British example. I think most people are fed up with the exorbitant and wasteful spending by governments at all levels in this country. I've said before that I believe the final act of this crisis will be taxpayers forcing cuts and efficiencies on government and I think we're only in the 1st or 2nd inning of this process.

Link: For the US, Britain's austerity is a foreign concept.

an tSionna {09.14.10}

Market is now short term over bought.  I think we still move higher into year end and also believe that there is a lot of positive momentum beginning to build for stocks as we head into year end.  However, I also think given the extent of the advance we've seen in the last two weeks, it is likely that we could see some profit taking or at least a period of backing and filling settle in here for a bit.

As such I will move our shortest term rating to Market Neutral. I will not change the intermediate or longer term Net Market Positive rankings we've had in place for some period of time.  You can click here  for a definition of these terms.

*Long ETFs related to the S&P 500 in client and personal accounts.

Market PE's

From Chart of the Day:

Today's chart {shown below} illustrates how the recent rise in earnings as well as the recent stock market correction has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1900 into the mid-1990s, the PE ratio tended to peak in the low to mid-20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s), surged even higher during the dot-com bust (early 2000s), and spiked to extraordinary levels during the financial crisis (late 2000s). As a result of the recent spike in corporate earnings as well as relatively lower stock prices (e.g. the S&P 500 currently trades 9% off its April 2010 highs) the PE ratio has dropped to a level that has not existed since the end of 1990.

 
*Long ETFs related to the S&P 500 in client and personal accounts.
 
Link:  Market PE's

an tSionna {09.09.10}

*Long ETFs related to the S&P 500 in client and personal accounts.

Job Losses

From Chart of the Day:

"Today, the Labor Department reported that nonfarm payrolls (jobs) decreased by 54,000 in August -- the third consecutive decline. Today's chart puts the latest data into perspective by comparing job losses following the beginning of the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-1999 (dashed blue line). As today's chart illustrates, the current job market has suffered losses that are more than triple as much as what occurs at the lows of the average recession/job loss cycle. Also, today's decline in jobs provides further evidence that the current 'economic recovery' remains sluggish at best."

Link:  Job Losses.

an tSionna {9.02.10}

Middle of a trading range.  Stocks remain statistically cheap and are over sold enough that a rally is possible.

*Long ETFs related to the S&P 500 in client and personal accounts.

Fare Thee Well Pup!

Tess:  Gone West!

"The dog is a gentleman; I hope to go to his heaven, not man's."

-- Mark Twain

I suppose we are drawn to dogs because they are the uninhibited creatures we might be if we weren't certain we knew better. They go through their lives with no fear or shame, and for all their marvelous instincts, they appear to know not about death. Being such wonderfully uncomplicated beings, they need us to do their worrying.

--Doug Kass

God Speed Pup!