Sunday, March 04, 2007

business week cover story: what the market is telling us..and bw isn´t...

to be honest i´m a little bit disappointed with this story. this is because i know they have done some really good stories in the past like "nightmare mortgages" or " What's Really Propping Up The Economy " i think they are too optimistic and a little bit too tame.... click on the headline to read the full piece without my "noisy" comments

i have made a piece yesterday called "the cheap market spin...relatively speaking..... " not knowing that the bw story is out today.

in retrospect it looks like a response to this bw cover story. lots of spin and the biggest bet is that private equity will safe the market and relatively speaking the us markets will do fine.....

here is my "response" what business week isn´t telling us (covers almost every "bullish" point from bw )

ich habe gestern was geschrieben ohne zu wissen das diese geschichte heute raus kommt. das teil sieht nun so aus als wenn eine reaktion auf die bw geschichte ist.

bw setzt darauf das private equity den markt retten wird und beleuchtet überwiegend die positiven dinge und erklärt das der us markt sich relativ zu anderen toll entwicken wird. bitte den link oben zu meinem gestrigen post "the "cheap" market spin...relatively speaking....." klickt bitte auf die überschrift um den unkommetierten bw bericht zu lesen.

Volatility is back. Ominous signs loom. But the outlook for U.S. markets is surprisingly upbeat

In the parlance of Thomas Friedman, the world never looked flatter than it did this week. A 9% stock market sell-off in China on Feb. 27 prompted sharp drops almost everywhere else around the globe. Suddenly, money managers and traders, lulled into a trance by seven months of steadily rising share prices, felt like they'd been hit over the head with a best-selling hardcover. With one big thwack, they were reminded that stocks are risky and that emerging markets are riskier

In hindsight, no one should have been surprised. China surged an amazing 130% last year and 13% in the week ahead of the plunge, as millions of newbie day traders punched in buy orders on rumors about shares they'd never heard of. Stocks zoomed in other overseas markets for half a year; U.S. shares, which have lagged the rest of the world since 2000, rose steadily and with little volatility. Something had to give.

The question is what happens next. This latest episode of jitters could be the opening shock-and-awe campaign of something more lasting. The U.S. economy is suddenly looking weaker than it has in a long time. Fears are mounting that troubles in the mortgage market could spread to other sectors. And profit growth seems to be slowing markedly—a troublesome sign, to be sure.

But a stronger case can be made that Feb. 27 will turn out to be more of a tremor than an earthquake. Notably, U.S. indexes gained on Feb. 28. That's in part because powerful forces are undergirding stocks now in a way they weren't in earlier bear markets ( too bad that after the minor bounce the market tanked further..../dumm nur das nach dem kleinen rebound die talfahrt unvermindert weiterging.....)

The last bear came on the heels of a long bull market that included the biggest five-year run-up since the 1920s. Share prices are only now beginning to revisit their 2000 levels. The amount of cash sitting on the sidelines is at a record. Individual investors haven't jumped into the market en masse.( worse could be said when you look at the debt....and the margin debt etc.../ das gleiche könnte extremer noch über die dahinterstehenden schulden gesagt werden....und natürlich auch über die kredite zum wertpapierkauf) thanks to

What's more, private equity is now a major factor. Buyout firms have raised billions in the past two years. Furious dealmaking is keeping asset prices buoyant and also cutting the supply of shares available to investors. That squeeze is being magnified by activist hedge funds, which are badgering companies into stock repurchases like never before. With the inventory of equities down and so much money already on the sidelines, the market appears to have a steady floor underfoot. (heaven help!!!! when their main argument is that insane deals like txu and eop are the floor for this know the end is near.../ wenn diese waghalsigen deals das hauptargument der bullen sind...dann gute nacht. (utx), (eop)

One thing is for sure: Volatility is back. Bulls and bears will battle it out over the next few weeks and months, not only in the U.S. but also abroad. That could actually be good news for U.S. stocks, at least relatively speaking. As fund managers and traders recalibrate their risk appetites, U.S. stocks stand to look more attractive than their overseas counterparts. In fact, the riskier those markets, the safer the U.S. will seem. In short, the world could seem a lot less flat—in a hurry.( here we go again....relatively speaking..../ hier kommt das (un)wort "relativ gesehen" wieder zu spin ehren....)

The biggest support for the U.S. market has been, and will likely remain, private equity firms and hedge funds. The $45 billion privatization of utility TXU announced on Monday—the biggest of all time—was the second record-setting deal in three months. Eight of the top 10 LBOs in history have been inked since June; in 2006 alone some $420 billion in leveraged buyouts took place, a record. And yet private equity firms still wield as much as $2 trillion in combined buying power, enough to take out fully a 10th of the entire U.S. stock market.

The fuel for all the buying—low long-term interest rates—remains in the tank. In fact rates have been falling in the past few weeks and fell even more Tuesday, making the debt, or leverage, that private equity firms wield even cheaper. "The difference between cost of capital and return on equity is so enormous that if you're a leveraged player you just have to buy," says market watcher Jason D. Trennert of Strategas Research Partners. (who is this guy?) he is no comedian...was my first thought. here is his call for 2007
Jason Trennert, who maps strategy for Wall Street research firm
Strategas Research Partners, likes the wild-rally scenario.Fear of losing money
in stocks, he says, has kept many U.S. investors too cautious since 2002, when
the current market upturn began. But the natural progression of a bull market,
he says, is "fear giving way to greed
."It's easy to argue that that already has
happened in many foreign markets. Could it be the U.S.' turn?"I think the
higher-octane stuff, the riskier assets are going to be the best performers" in
, Trennert says, mentioning biotechnology and software as two potential
standout sectors
. (Both lagged in 2006.)

He goes so far as to suggest that the Standard & Poor's 500-stock index
itself, if it could be packaged into a single entity, would be a screaming LBO candidate
Hence what veteran market strategist Edward E. Yardeni has taken to calling the "private equity put"—for put option, a floor price under a security. In this case it's under the whole market. ( what about the spreads?!? when nobody wants to finance this with no premium lots of deals will fell apart...../ dumm bloß das hier der entscheidende punkt der risikoaufschläge ausgeklammert wird. sollten diese steigen und der risikoappetit generell zurückgehen passiert hier deutlich weniger )
At the same time activist hedge funds are helping to reduce the supply of shares available to investors by "engaging" companies with lengthy lists of demands that usually include buybacks. They've helped compel 29 of the 30 members of the Dow Jones industrial average to repurchase shares in recent years. According to Thomson Financial, last year's $370 billion in buybacks was more than four times the total of 2003. All told, Strategas calculates that a record $600 billion in U.S. shares were removed from the public market just in the first nine months of 2006. (thats right. today we have a shareholder value oriented management. in a economic downturn we can and will see a bondholder friendly management. like 2001 to 2005....and they fail to mention that often the buyback is financed with new issued debt./ z.zt. geben die manager den aktionären den vorzug. in wirtschaftlich schwachen zeiten geht der fokus eher zugunsten der bondinvestoren. siehe die zeit von 2001-2005. leider wird hier auch unterschlagen das ein gewichtiger teil dieser rückkäufe durch neue schulden finanziert wird.)
here's another important reason why the bulls aren't sanding down their horns: Mom-and-pop enthusiasm for the U.S. stock market has been anything but overwhelming, sparing the market from retail-driven froth. While the so-called smart money is gorging, ordinary investors are only nibbling. .... ( the same smart money that was investing in the subprime market and doing the crazy buyouts........?

Meanwhile, individual investors are sitting on mounting cash. Year-end Federal Reserve data showed just under $5 trillion is stockpiled in savings and money market accounts and retail certificates of deposit, a record stash. (funny how you can read statistics... i have two charts that show a different picture. it seems ok to ignore the debt side of the picture...../ traue keiner statistik..... ich habe 2 andere charts aufgetan. schon lustig wie es in den usa üblich ist einfach mal eben die schulden auszuklammern....)
Contrast that with China, India, and other emerging markets where the equity culture is spreading like locusts. Day trading, a distant memory in the U.S., is surging in exotic locales.

To the extent that U.S. mutual fund investors are interested in stocks at all, they're interested in foreign ones. According to fund-flow tracker TrimTabs Investment Research, last year saw U.S. funds draw just $20billion in inflows, compared with nearly $150 billion dedicated to hot foreign investments. If there are excesses in global markets, they're far more pronounced overseas than they are in the U.S. And if history is a guide, the U.S. market is where investors will run if and when emerging markets get choppier. ( this remains to be seen. is there any wonder that us investors want to invest outside the $!? das wird sich zeigen. ich kann jeden us bürger verstehen der sein geld ausserhalb des $ raumes anlegen will)

There's also a good old-fashioned valuation argument to be made for the U.S. Stocks are trading at 17 times earnings—roughly what they changed hands for in 1995. ..... "It tells you that there are reasons why value investors will step in on rough days at these levels. oh yeah! read this from hussman

Expectations for future operating
earnings assume that current, record high profit margins will not only be sustained, but will expand further

The resulting illusion of cheap valuations, fairly
early in the next bear market, is likely to keep a great many investors holding on deep into the decline

I cannot emphasize enough that price/earnings ratios,
especially those based on “forward operating earnings,” are unusually poor metrics of valuation at present.

"That's not to say Feb. 27 wasn't frightening. ...... The Dow's one-day plunge of 416 points was its steepest point loss since the market opened after September 11.

The bears, emboldened by $583 billion in evaporated U.S. market wealth—which wiped out gains for the year—came out of a prolonged hibernation to growl a chorus of I-told-you-so's. "It was a wake-up call from the complacency of a mature economic expansion,"

Over the years there have been far bigger market drops in percentage terms. In 1987 the S&P 500 plunged 21% in a single day; it dropped just 3.5% this time. And the U.S. market is still far from an official correction, much less bear market territory: Through Wednesday, the s&p 500 was down just 4% from its recent high. A full-fledged correction is defined as a 10% slide; a bear market, a 20% drop. (relatively speaking it wasn´t so bad....the decline would habe been bigger when the nyse hasn´t changed the rules for big dropps. to compare it with the ziemlich dreist ode. diesen fall mit dem 21% absturz zu vergleichen. demnach ja nicht weiter schlimm.....seitdem hat die nyse übrigens regeln eingeführt die solche stürze verhindern...wie gesagt das (un)wort relativ gesehen ....)

Nevertheless, Tuesday's rout shook investors from a cocoon of complacency. It ended the longest stretch in 107 years that the Dow had not declined by 2% or more in a single day. The last time the market fell 2% was May 19, 2003, two months after the U.S. went to war in Iraq. .....

Much more troubling for the bears was Greenspan's speech. The R-word isn't thrown around lightly in market circles; coming from Greenspan (even in retirement) it sounds thunderous. Now the idea that the U.S. is about to fall into recession—...Peter D. Schiff, author of the just-released book ......: "We've been like heroin addicts; a recession will be cleansing."

this is just another spin attempt (thanks to barry ritholtz).

His comments were made early Monday morning over satellite to a group of Hong Kong investors. As noted above, Chinese markets rallied, and the US markets were flat on Monday.

So to blame what happened Tuesday on Greenspan's comments hardly makes sense.

There's no doubt, for example, that the multiyear U.S. housing boom is over. Stock prices certainly seem to augur trouble. Shares of subprime lenders such as New Century Financial Corp. and NovaStar have crashed in the past month. ..... And many major U.S. banks are quietly increasing their loan-loss reserves ( and with record lows they should......)! ..... There's growing fear that the subprime rot will spread.


Even if you don't subscribe to this systemic worry, market fundamentalists stand next in line to warn of an earnings slowdown. Corporate profits have increased by double-digit percentages for 19 consecutive quarters. But Deutsche Bank points out that first- and second-quarter earnings for U.S. companies are expected to grow by less than 5%, year-over-year. And according to TrendMacrolytics, forward earnings growth could clock in at less than 4%. The last time that kind of decline happened was April, 2000, a month after the start of the bear market and 11 months before the economy fell into recession.

What's more, this bull market is getting long in the tooth. The 48 months it has gone without a 10% correction is the second longest in at least 78 years,.....

Still, the bulls are hardly ready to repent—and apparently with good reason. Expect a two-front war in the coming months. In the U.S. it'll be a contest between recession-spooked worriers and stockpickers with visions of high-priced buyouts. A parallel fight will pit the freewheeling global markets against the safety of the U.S. Indeed, the events of this week just might spark a resurgence in U.S. shares. "Tuesday could be the shot across the bow for the end of the flow of funds to overseas markets and back to the U.S.," says Bernie Schaeffer of Schaeffer's Investment Research Inc. One market- agnostic growth fund manager says he just got those very marching orders from his supervising investment committee: "We're in the process, even if it doesn't necessarily finalize next week or next month."

And that would show that the world might not be so flat after all

thank you greenspan......! besten dank greenspan....

compare this to my "anti" spin post from yesterday that paints a complete different picture...

vergleicht das mit dem gestrigen post und man kann ein komplett anderes marktbild bekommen...



Anonymous Anonymous said...

Man your economic blog is mazing. I just dont understand why there are so little comments around. Keep up the good work.

4:43 AM  
Blogger jmf said...

thanks for the kind words.

indeed the comment section is often very light.

i think some comments are spread around varoius blogs like ben´s and mish´s.

5:19 AM  
Anonymous Anonymous said...

Watch out New Century down 66% overnight over criminal probe & insider trading

Fremont following closely

6:14 AM  
Anonymous Anonymous said...

Stock markets bearish price action + no fear=very bearish

6:19 AM  
Blogger jmf said...

the last week was really the turning point.

now the media has realized what the market cannot longer hide

no way to spin this :-)

12:48 PM  
Anonymous Anonymous said...

You have the best cartoons!

8:42 AM  
Blogger jmf said...

i hope no one sues me :-)

10:02 AM  
Anonymous Anonymous said...

great stuff JMF

keep up the good work

I see that BR "steals " your stuff quite a bit

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