4th Quarter Fundamentals will point down, Margins vs Volume

I just listened to a guy on CNBC, like many others, stating that based on fundamentals he sees the V shaped recovery. Sure, it would be safe to say that now; companies are going to show great productivity numbers, running lean as ever, but there is very little topline growth. In addition, companies are having to rely on volume at the cost of margin. I'd rather take margin anyday over profit. Furthermore, 4th quarter fundamentals are always based on Holiday Retail Sales. Hence, Q4 Earnings. I hope the chart from shadowstats.com appears below. This is a chart of the unemployment rates.

This, unemployment number, is the big kicker that will affect 4th quarter retail sales. and hence another dip. The rate is currently at 9.8, not including of course non farm, agriculture and those who have stopped looking for work, represented by the BLS and SGS Alternative numbers, according to the chart, brings the actual numbers between 17 and 22 percent. Although, agriculture jobs only represent 2-3 percent of the population or 6-10 million of the labor force, but that is still a large number and still doesn't include fishing industry jobs. Although, in geography class, North America is labeled a continent, in the whole scheme of things, it is pretty much a huge island represented by a good portion by the United States with the 5th largest fishing industry, which as well isn't in the count. Sure these are very regional, but regions end up dragging the rest of the local economies.

Retailers are going to react very interestingly this holiday season. I am expecting that they will go in with low prices from the beginning of the shopping season, only to find that this was the wrong call(go back to the blog SOS Recession). Consumers, "sitting on sideline" again, will wait till the last minute to shop, knowing that prices will drop to attract them. Again, decreasing expected margins of retailers and will be a drag on their earnings. Applying this to everything else, people know that at times of economic distress, the government gets bigger and has to provide more stimuli, to get industries going, trying to get our old consumer spending ways going again. Now, will the decisions of the retailers add to the deflationary pressures? Lowering of prices in everything, except commodities or hard assets these days, such as durable goods, real estate, food and maybe now consumer goods? Add to this the need to increase the money supply multiplying the effect on the weak strength of the dollar and the need to decrease interest rates again? Sound like Japan 2 decades ago? These are interesting times and as a macro and micro economics hobbyist great cases for study. As in Japan, will prices drop as demand drops and form a supply glut causing, in their case, a deflationary spiral, where business were unable to make enough profit, no matter how low they set their prices. Let's hope not, they just "celebrated" their 20th anniversary of economic stagnation. As Nouriel Roubini stated this week, their is a carry trade bubble forming, the Japanese Yen was and still is a carry trade preferred. Now, investors have another option, the US Dollar.

DOW showing signs of overbought

The DOW chart looks to be hitting near the end of the 5th Elliott Wave, could be possible to hit close to 10,800, the next resistance line and looks possibly by Turkey time or a couple weeks before Christmas, so I am expecting retail numbers or something will drive this down or up. Down or up? I am betting bearish signal. Hello! Look at the unemployment numbers. Enjoy the bull momentum now caused by earnings, of course earnings are going to look great, every company is running a skeleton crew, but there is not enough topline growth to sustain the bull run. Also, if it even gets to around 10,800, I will be greatly surprised...it is already starting to bounce below this resistance line, but analysts and CNBC are pumping the market before a good dump.

Too Late for a Green Jobs Stimulus

There was a lot of hoopla of the green movement during elections, but what happened? Sidetracked? You bet with healthcare, also oil prices dropped again, global demand dropped, supply increased and then I could go on about the dollar, just visit my last posts. Furthermore, don't get me started with Van Jones, the former Green Tsar/Csar. Well, too late for an economic stimulus from green jobs for this round that was supposed to be 5 million jobs, but another opportunity is coming. First of all, retraining, if we stimulated a green job market, it would require so much retraining that the economy would not reap the benefits for atleast a year. Second, you always have to bring in the cost to any equation, which is estimated 100K per person or $500 billion. Although I am for clean energy and would be interested in learning more about how solar panels work, right now the timing would not be optimal for the training to change to clean energy, but read on. It is an unfortunate fact that with new technology, especially in energy, which hasn't had a large innovation since nuclear that is in wide use, the efficiency of the new technology is simply that more efficient, which would take away more jobs than there are from the more inefficient older technologies such as hydroelectric and coal, as the Spanish are finding out after 5 years. However, before the economy eventually comes back, probably later next year, this would be the time to introduce that green jobs re-training. The test would be the administrations ability to multi-task, but this would lead to more chaos than anything else.

The New War: Currencies, Shift from Dollar to a Currency Basket

There was a section in an article of UK's Independent pertaining to Arab States using Spot Gold for the interim till a basket of currencies system is formed for oil contracts. They will be changing from the US Dollar to Spot Gold and eventually a basket of currencies, not good for the Dollar. Now the list goes as Brazil, Russia, India(maybe, too many close ties with US), China, Iran, the Arab States and the UN on shifting away from the US Dollar from currency reserves to now oil. Since a couple of days ago, this list has grown. More importantly, the previous listed examples are all emerging or commodity countries. The shift to gold for the interim should drive gold currencies, Australia and New Zealand up. It only takes an example of a system that is better, for everyone else to start switching over; furthermore, you can bet that there are countries playing around or calculating a "basket" of currencies. The reason a basket of currencies would be the best solution for the volatile dollar is kind of like how a diversified portfolio works for stocks and a well balanced mutual fund, the volatility is absorbed in the basket. With a collection of currencies, they will be less volatile, mathematically, since a country could possibly trade via an average value of the total basket of currency reserves and not one single currency that is subject to much volatility. How do I know in the workings of a basket of currencies? Because I practice a basket system and trade it and it is that good in smoothing the jagged edges of the currency market. It will be interesting to see if the Fed's and Geitner try to intervene in the currency markets or what economic policy will come to prevent any more exploration into shifting away from the dollar. This has to be a disturbingly growing subject being discussed in Washington. With the deflating dollar to continue(read my previous post), many shifts of power will come in near future.

This is the Most Horrible Thing in the World!

You all have got to read this article!

http://money.cnn.com/2009/10/01/news/economy/_morgue/index.htm

Are you kidding me? It is so bad that people are walking away from passed away family members like the real estate? I can't believe that the Michigan Governor, the Detroit Mayor or local churches aren't doing anything about this! WTF! It is going on in Florida too? The counties budget for burying the unclaimed dead ran out in June, so they are just letting them pile up in a morgue freezer? That is the worst thing I have ever heard and I must say that this is one of the worst things...I just can't stop repeating this, sorry. I am speechless!

The US and China Pulling The Big Rubberband Issue...Protectionism?

I had a discussion the other day over dinner regarding the US placing tariffs on Chinese tires last week. Well guys, this is protectionism. Danger! This is history repeating itself and probably the second largest factor tied with other bad economic policies that made the Great Depression, well ummm..., "Great". We are treading on thin ice right now. The Obama administration needs to remove this tariff before it starts a chain reaction throughout the world. Protectionism is the straw that broke the camels back and allowed Hitler in power. Let's hope that it is removed this week before the Chinese start placing tariffs on our goods and then other countries start taking sides by placing tariffs on all goods, screaching global trade to a halt, like 66% back in the old days. It would start like kids in the school yard talking about what his dad and that kids dad can do and everyone would come out bruised. I hope you get the picture why the Tire Tariff is not a small issue, and an especially bad idea.

Furthermore, back then we placed tariffs on european goods as a major creditor, unlike now we are going into this as a the major debtor. Who would be going into this as the major creditor this time? You guessed it, China. Back then, the banks in the United States started to fail and started to ask for their money back. Yikes! Let's hope no one does that this time!

Shift of Wealth Eastward, South America the next Asia?

The G7 Summit this weekend is further backing a hunch I have had for a while noticing that the Asian Economies and the BRIC's are now much larger an influence on the global economy. They will help prevent the industrialized, western economies from completely falling apart with strong continued growth and with good economic policing from everyone. This is noticeable from the shift from less future G7 meetings to only G20 Summit meetings. In the 80's and 90's, it was the Emerging Tiger countries, South Korea, Singapore, Hong Kong and Taiwan. Now, these countries are pretty much fully developed economies with a well educated workforce, strong GDP, and the shift of manufacturing away from their countries elseware. The BRIC's are currently the Emerging Tigers, but now and a whole lot larger. Furthermore, these BRIC's are natural resource rich. You would think that China has zero natural resources, but this is not true, they are just growing that fast, although artificially bolstered growth pushed by the big pocket book of their government. Expect, eventually, what happened then to happen similarly to the BRIC's, Brazil, Russia, India and China. Also, expect more woo-ing of the "Emerged" Tigers and the BRIC's by the Industrialized west from this point onward, as this transition of wealth and power continues to shift and the importance of each other is even more apparent, preventing anyone from "flexing their muscle". Being a neighbor to these countries is an advantage for all nations, but especially the countries closest in proximity.

Therefore, it would be safe to say that Russia is following the industrialized nations since it is surrounded by pretty much nothing but the industrialized nations, and will help bolster the EC and England and vice versa. Expect continued phenomenal growth in Asia since China, now the 2nd largest economy, is surrounded by anything but still growing "like wildfire" nations and will bolster Japan and vice versa. So, this brings me to believe that South America will be the next region, where a cool name like Emerging Tigers or acronym like BRIC will be coined. As the world continues to get smaller and smaller, and as Asia keeps growing and buying everything for growth, helping a lot of economies from worsening, especially those closeset to Asia such as Australia and the Kiwi nation. Eventually, it will be the neighboring countries that will "prop up" those that need it and vice versa in this smaller world.

Hehe, let's have a little fun here, Argentina, Chile, Venezuela, Peru, Columbia, Bolivia, Paraguay, Ecuador, Guyana, French Guiana, Uruguya, Trinidad and Tobago(sorry if I missed one or two, not here to anger anyone). Let's come up with a cool acronym, but I tried and it looks like an eye chart. So, good luck and maybe it may become your claim to fame. For now, let's just call them the South American Emergers. You can probably say the same thing for the South American Emergers as people did in the 60's and 70's about the countries in Asia(probably will be another blog).

Africa is a toss up for me. Africa is resource rich, in need of better education, the leaders allow their countries to be carved up by other nations for their natural resources and the corruption often comes from the highest down, causing too much instability. I wish I could be more positive and I hope I am completely wrong, but there is still much needed work there. Until the corruption subsides and the governments get stronger, will Africa become a country most favorable for investments. Although I am a firm believer that the world cannot become better with any country or continent left behind, let's just hope that they get that uplift from their neighbors in this shrinking world.

About My Blogs

The way to use this blog is very simple. However, before I start, these are simply my opinions, projections and ramblings and I am not a licensed broker or analyst, so like all those disclaimers say, please use your own judgement in doing anything. However, in the past my opinions have come into fruition. Now, this blog can be used to position yourself financially. Remember, that for every winner their are losers. Actually, there are normally many more losers than winners. With that said, no matter what state of the economy that I project in the near future, while reading the blogs, keep asking yourself, "who are those that will win out of these situations" as in picking stocks, currencies, bonds and other investment vehicles. I think you will happily be rewarded. Sure, I watch a lot of Bloomberg, CNBC and read the Wall Street Journal, but after all these years I know all the biases, especially CNBC, who tends to sway towards GE, since GE is their parent company. Therefore, they will, of course, push GE and their subsidiaries, Mastercard more vs Visa... Next time GE goes up a whole dollar, watch CNBC, they will talk about it every hour. In addition, normally when you hear about a company's stock going up or down through CNBC, you are getting in too late. Furthermore, their hosts are giving too much false optimism, which misleads, because they are more entertainers and I do enjoy watching and listening to them. The Kudlow's, Bartiromo's, Gasparino's, Faber, Cramer and the rest of the crew, yes, I am a fan. So, I try to cut out all that stuff as a non entertainer and just give you what's really going and hint what to look out for. Hope you enjoy and I look forward to your comments, opinions and questions.  That was written pre-2010.

Now 2020, I am attempting to use this old blog as a possible addition to a trade journal, sharing charts that I share on StockTwits, which is a mess in keeping up with.  I may be adding more to the mess, but I will look back at all this and figure out a system...hopefully.  This will mostly be technical equity(small, mid and large), currency, fixed income vehicles, basically anything that can be charted.  Promising looking charts that I like, using a combination of Elliot's Wave, Wyckoff Method, Patterns and other tricks I have learned along the way with no indicators and charted in a style how I first started charting on the back of the WSJ index charts.  Wow...over 30 years ago.

Unemployment Numbers and the Upcoming Effects

A few hours from now, the US unemployment numbers will be posted and I am betting that it will not be pretty. In addition, what most people don't know about the unemployment numbers is that the numbers do not include those that cannot claim unemployment, the self employed, 1099 employees, those that went back to school and those that have burned through the allowed maximum time to claim unemployment. Now, that's a lot more people than than those figures show. Although anyone who reads this blog is like, "man you are depressing me". I am a realist that follows and knows numbers and trends, geared with those bullets, here is this blog.

Thus, with these "skewed" unemployment numbers at hand, expect another wave of residential foreclosures and even more in the commercial real estate market. Although there are loan modification programs out there for those in the residential market, more loan mods are being turned away than being modified. In addition, although the credit crunch has improved greatly, it is still here as banks need to bolster their cash reserves and improve their balance sheets. Going back to unemployment numbers, as they increase, expect increases in foreclosures, since they have a direct correlation. Furthermore, the past foreclosures are a direct result of subprime borrowers, or those with less than perfect credit, no-doc loans, adjustable rate and interest only mortgages given out at a time when interest rates were at an all time low, where the timing of getting the loan would catastrophically lead to higher rates when the loans reset and as a result of lax credit lending standards that allowed lenders to grant loans at high debt to income levels. Now, the next wave of residential foreclosures will come from the prime borrowers, or those that have decent credit.

Unfortunately, with the increase in unemployment numbers, some of these will be from failed businesses and companies; hence, with failed businesses, that means less tenants in office buildings, strip malls and other commercial real estate buildings. This then translates into less revenue for the owners of all this commercial real estate, which will unfortunately turn many belly up. Like many people and many homeowners, many of the commercial real estate owners have borrowed and built too much for the supply and demand in the past "glory years" of real estate. This will put further strains on many banks, even the ones that are "too large to fail".

For the upcoming holiday season, the direction of retail sales numbers are going to be very interesting as well as the number of seasonal jobs created during normal holiday seasons compared to this year as a result of less consumer spending created from high unemployment. I hope that we start seeing the light at the end of the tunnel by this time and expect more blogs to come.

Stimulus', Unemployment Numbers and Proposal to Alleviate

There is an interesting article released today by the Associated Press regarding what other countries are doing regarding their high unemployment numbers, whether it is propping them up or other creative measures, and the countries current numbers. You can actually check the article through this link, below is the summary and my proposal follows:

http://finance.yahoo.com/news/World-unemployment-rising-apf-23674893.html?x=0&sec=topStories&pos=4&asset=&ccode=

GERMANY -- Unemployment 7.7 percent in July from an annual rate of 7.3 percent in 2008, but down from 8.4 percent in 2007. Employment has been kept in check so far by government financial support for workers put on shorter hours in order to avoid mass layoffs.
FRANCE -- Short-work arrangements and government incentives such as exempting payroll taxes for some workers. The unemployment rate rose to 9.2 percent in July from 7.8 in 2008. It is expected to hit 10 percent by the end of the year.
BRITAIN -- Hit a nearly 13-year high of 7.9 percent in July. The number of people out of work looks on course to pass the three million mark next year. However, the number losing their jobs has fallen from spring highs.
SPAIN -- Spain has gone from being a European model for growth, creating more than a third of all new euro-zone jobs over the past decade, to having the region's highest unemployment rate. This stems mainly from the collapse of a construction boom and a credit-fueled consumer spending spree over the past two years.
IRELAND -- The story is similar in Ireland, where unemployment has surged from 4.6 percent in 2007 to 6 percent in 2008 and 13.3 percent in July.
KOSOVO -- The Balkan nation is one of the poorest in Europe, and not a member of the OECD club. With stagnant growth, its unemployment rate was 46.3 percent in 2007, according to the International Labor Organization. That may include the so-called "gray economy," in which people are paid under the table.
JAPAN -- Japan's unemployment rate actually dipped to 5.5 percent in August after reaching 5.7 percent in July, the highest level in Japan's post-World War II era, amid mounting job and wage cuts. Still, the total number of jobless in August rose 32.7 percent from a year earlier to 3.61 million. The number of temporary workers has surged in recent years, reaching around a third of the work force in the world's No. 2 economy. The plight of these workers, who with little job security have born the brunt of the recession, has stirred emotions in Japan.
CHINA -- The official urban unemployment rate was 4.3 percent for the three months ended June 30 but the actual level could be more than double that because the government system ignores millions of migrant workers and employees who are furloughed by state companies but not recorded as laid off. As of June 30, there were 9 million registered unemployed people in an urban work force of 210 million, according to a spokesman for the Ministry of Human Resources and Social Security, Yin Chengji.
As many as 30 million migrants are believed to have lost jobs in export-oriented factories in late 2008, government officials said. Some are believed to have found work on construction projects financed by Beijing's stimulus but no figures have been reported.
INDIA -- The picture is even less clear in India where the government does an official employment survey only about once every five years. Ninety percent of the work force is in the so-called informal sector.
MEXICO -- Mexico's unemployment rate rose to 6.28 percent in August, the highest rate in more than 13 years, according to The National Statistics Institute. The jobless rate among the country's roughly 45 million workers was up from 4.2 percent in August 2008. President Felipe Calderon has announced reforms to ease red tape and lower costs for investors in public works projects to foster job growth. The government also started paying one-third of the salaries of automotive workers to curb layoffs at the plants.
BRAZIL -- Unemployment in Brazil reached 8.1 percent in August, remaining stable over the last two months. The figure shows a drop in the jobless rate from its peak of 9 percent in March. Brazil emerged from recession in the second quarter of this year and analysts are now predicting the economy will expand slightly in 2009.
SOUTH AFRICA -- The unemployment rate in South Africa hovered at 23.6 percent in this year's second quarter, according to the country's statistics office. That was up slightly from 23.1 percent in the April-June quarter of 2008, as South Africa is mired in its first recession since 1992.
The African continent as a whole was initially unscathed by the financial turmoil that roiled Europe and the United States. But the collapse of Western consumer demand has meant Africans are selling less of the commodities on which many of their economies depend.

In the past couple months, a few programs were introduced to stimulate the economy. Everyone's heard about the Cash for Clunkers program; however, this program is not as hard hitting as programs like the first time home buyer program. Here is why. Although the Cash for Clunkers did show an increase of automotive sales, falsely inflating economic numbers for a couple of months, it is a program that will mainly benefit automotive manufacturing regions such as the midwest. But did it really help stimulate those areas? Not really, since all it really did was decrease high inventories of the automotive industry, which will not require permanent re-hires neither in manufacturing jobs, nor at the dealerships. In addition, the automotive industry does little or not as much in stimulating, I am sure there is an economics word for this, the automotive industries auxiliary markets. In other words, when someone buys a car, they purchase the new car and nothing more is needed, unlike the housing market. Although new home purchase incentives will also decrease numbers in home inventories, as a consumer buys a home, the new homeowner may need new appliances, furniture, maybe modifications to the house, lawn care, linens... which spurs more jobs and lasting jobs. In addition, real estate must be bandaged to help consumer confidence. Furthermore, the home inventories must be decreased and removed off bank balance sheets. However, no stimulus will be effective, unless there are new jobs created. Therefore, it was interesting to read in the above AP release that the German government subsidized lowered worker hours to reduce massive layoffs to France's short work arrangements and no payroll taxes for some workers. Anyone that has worked for a large corporation knows that when business gets tough, they "trim the fat". They eliminate those positions that are less needed and have those that are still working wearing multiple hats to keep the balance sheet and income statements in the black. Therefore, government stimulus' need to be geared toward corporations and especially small businesses in spear-heading unemployment or during these deflationary times, taking advantage of being able to pay less for government sponsored work projects. Why not? Corporations do it. For example, this is an employer's market, so employers are able to re-hire employees in vacant positions for about 3/4 the cost that was paid the last guy. In addtion, cost of goods to maybe, as another example, repair infrastructure like bridges, roads and other public works will cost much less in these times. Now, that would be a stimulus. Should take advantage of being able to do things while it's cheap, although this would add to deflationary pressures. However, I would take the lesser of two evils during these interesting times.