WEEKEND THEATER - THE DEPRESSION NEXT DOOR

I'm a bit torn.  I'm very busy and yet I feel the mounting pressure to post my predictions for 2013 and also do a review of 2012.  If you have a moment read my post, CONFIDENCE LOST - 13 for 2012 where I make a few predictions about how the year would turn out.  I will probably come back and do a formal review, but the truth is, it doesn't matter, the year is over.

The score is that I felt like it would be a negative year in markets and that was wrong, but overall I hit about 8 or 9 of the 13, and especially made some good calls that made money.

It is fun to document what I'm thinking, so I will do a brief bullet point list for 2013 this weekend so we can look back and laugh about how good or how silly I've was in the beginning part of the year.

As we bask in the glory of the financial cliff deal and are joyous about how we'll continue to keep deficit spending rolling for a few more months, I thought I'd give you some weekend viewing pleasure that highlights the wonderful experience of some friends across the pond.  The Spanish were truly folks that were completely swallowed up in the housing bubble and they have suffered greatly from its bursting.

The video is a wonderful one as it really highlights how middle class families and unrelated industries get crushed when markets, investors, governments, and regular people suspend their sensibilities and assume that price increases can go on forever and that they are smart enough to exit before the collapse.

THE GREAT SPANISH CRASH





ENJOY AND HAVE A GREAT WEEKEND.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

THE FACEBOOK ECONOMY

I had an interesting discussion with a friend the other day when he asked me if I spent anytime on Facebook.  I answered that I didn't "do" Facebook since I was too busy.  (There are a host of other reasons of course, but that's another topic).

I asked him why he Facebooked and he suggested that he did it to keep in touch with people and to network a bit.  I told him that I had read an article recently that had stated that research is beginning to show that Facebook makes people depressed.  To my surprise, he totally agreed.

FACEBOOK LEADS TO DEPRESSION

"The researchers who conducted the analysis noted that “for a significant number of users, the negative effects of Facebook outweigh the benefits of staying in touch with friends and family."

"Things like rejected friend requests caused 32 percent of the people who participated in the study to feel guilty -- and 12 percent of the people said that Facebook just made them generally anxious."

When I read these items about Facebook, there is certainly part of me that is relieved that I don't participate!  

As we closed our conversation I also considered something else that might add to poster's stress, that Facebook lives are not real.  Let me give you an example.  

FACEBOOK DISTORTION

During the holiday season, my wife received a wonderful Christmas card from a person we know.  The lovely card pictured a charming couple holding their 1 year-old baby.  The family hugged and seemed happy to be together to celebrate a beautiful Christmas season.  While everything in the photo and card seemed perfect, the truth is that this couple is separated and living in separate homes.  The father never sees the child and has begun a relationship with another woman.  The appearance of the father in the picture is quite odd, since it isn't an accurate depiction of reality at all.  But there you have it, the woman and the man set up a time to create this photo-op and staged a classic Christmas tradition for all of their "friends and family".  

In some ways, I suspect that just like this holiday card, Facebook is represented by this distortion of reality as well.  Sure, you can un-friend your spouse, but my guess is that members of Facebook (in general) don't highlight that they just had a fight with their husband, got fired for being a terrible employee, or have a kid that is abusing drugs in school.  In other words, Facebook probably is a depository of the version of life that we wish we had where all the good things get posted and none of the bad things get attention.   

FACEBOOKED

As I continue to think on this topic, I realized that our economy and the investing markets are very much like a Facebook post.  We are told all the good things like employment is getting better, rail shipping is at highs, consumer spending is rebounding, companies are starting to hire, but all of that seems hollow as we really measure it against reality.  Think about it, our DJIA is nearing levels we haven't seen since May of 2008 so the logic must be that if the market is really improving, then all of the credit issues and insolvency problems we've faced are well in the rear-view mirror.

Unfortunately, we too know there is an another, real reality in our economy.  In this version, we know that job seekers cannot find a great job, that employees work long hours because they feel threatened  that they may be replaced if they don't work more, we know that money is very tight, and our government continues to take more and spend without constraint while promising more benefits.  In addition to that list, Europe is even worse!  

TRADING PERSPECTIVE

Simply look at the last 26 trading days and you'd be hard pressed to discern that there was any problem in the global economy by looking at the stock market.  Its upward march has been a thing of beauty!  Yet, underlying the wonderful performance, we know that there is a lingering, even gnawing sense that there are other issues that must be tackled for real price action to propel markets higher.  Even with my beginning of the year call for higher markets through April, I do believe that markets do need to pause here and even pull back.  Take a look at almost any chart and they are ramming headlong right into previous highs.  Without some sort of new and positive news, there is no chance that they ramp higher.  If you've been in great dividend payers that have made lots of ground, sell them and reload later!  No one ever did poorly by locking in profits.  If you find yourself questioning this notion, at least set stops in case the reversal really gets going.  

The best case scenario for bulls is that we consolidate here and then push higher on great news, however I actually believe we'll pull back 3% to 5% and then hold for another push higher with a few more words from our benevolent leader in the Federal Reserve.

FACEBOOK IPO

Perhaps we started talking about Facebook as a result of the news leak that Facebook is preparing to unleash its IPO on the world in the coming months.  While I have no doubt that the IPO of Facebook will bring billions of dollars of wealth upon Mark Zuckerberg and many others that somehow joined the firm over the years of its infancy, I have to question if the general investing public will be so lucky.  Certainly, recent tech IPOs leave us with feelings of the dot.com era rather than a sense that these firms are long for the investing world.  Friends on Slope suggest that Facebook is different, that the very name Facebook is part of our daily lexicon and therefore it will be a winner like Google.  Perhaps.  We will certainly see, but isn't it interesting that Facebook's timing could be almost perfect as the estimated IPO date may be in mid-May, right where I have indicated that I see the top in the market for the year.  

Before I go, I wanted to check back in on GRPN since I have publicly stated that I think this is the worst of all the new and hot IPOs that hit the market last year.  The business is one that is easy to replicate and unfortunately for many of the clients the results have been very negative.  Have a glance at GRPN's chart.  If we were trying to spin this for a Facebook post, what would we say?

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/ 

CFO SURVEY - LESS GOOD, BUT NOT THAT BAD

Regular readers know that the Goatmug Monthly Macro Updates tend to be comprehensive, (ok long), and as the author of the posts I love it because the data helps me forge a picture of the broad economy and this allows me to craft a longer term view of the direction of the markets.  Usually, I don't miss a beat, but somehow a section was deleted from the June Monthly report last month.  This section covered the latest release of the Duke University / CFO Magazine CFO Global Outlook Survey.  Sometimes these mishaps are to our benefit as I would not have had the chance to review the report as closely, so let's make the most of the fumble!

US CFO OPTIMISM DECLINES

In the latest series of responses from CFO's we find that they are less optimistic about their own firms and less excited about the prospects for the economy.  Before we declare a confidence crisis here it is important to note that these numbers are about the same as last year and simply slight declines from the previous quarter. 

Concerns for the financial leaders of business organizations include; high oil prices, a lack of skilled workers to fill open positions, and a generally soft economic environment.  Overall, CFO's expect earnings and capital spending to grow around 8% next year.  These estimates are down a bit from last quarter, but still quite strong. 

EMPLOYMENT OUTLOOK
There just seems to be nothing that will take us off a 9 handle when looking at unemployment.  CFO's responded that they believe that unemployment in the US will remain at 9% through next year.  Despite the bleak outlook, financial chiefs in energy, tech, and retail/wholesale all reported that they are hiring actively.  So, if you are in sales, accounting, product development, or an engineer, you have some hope!

ASIAN POINT OF VIEW
Asian Financial Officers were more positive than last quarter, however there was one item that we need to note carefully.  For the first time in the history of the CFO Survey, Chinese respondents reported figures that were less optimistic than their counterparts in other parts of Asia.  Chinese CFOs are reporting that they are concerned about government regulations and policies along with the issues of weak consumer demand and pricing pressures. 

EUROPEAN CFO THOUGHTS ON SOVEREIGN HEALTH
Eighty percent of European CFOs think Greece will default on its debt within one year unless additional financial aid is provided. Only one-third think current proposals to extend maturity and reduce interest rates are sufficient. If Greece defaults, 42 percent of European CFOs think it is likely that Spain will need a bailout to avoid default.


Nearly half of European CFOs believe a Eurozone country will experience an economic depression due to recently enacted severe austerity programs.

Wow!  Did you catch that?  If Greece defaults Spain is up.  Well, this is not a surprise, although I think that their attention is misplaced as I think that Greece is frankly a mouse in the room and it has everyone's attention.  Instead these CFOs need to be looking at the huge elephant in the room named Italy that is about to be a big problem. 

Further, if austerity programs gain traction we'll see an economic depression, why haven't we heard this?  Isn't the kindly IMF, ECB, Fed, and World Bank aware that smart business leaders think that financially crushing economies might be bad for the larger economy of Europe?  Don't these bankers have concern for the markets?

In summary, the CFO Survey shows some mild erosion in confidence in the economy.  There is a desire to hire qualified applicants in about 20% of firms, however the trick is that few potential employees are skilled.  I get the sense that this quarter is an indication of just how fragile the situation really is in the USA and abroad.  If high oil and gas prices prove to be "less than transitory" we could see next quarter's outlook by company leadership to drop significantly.  If price inputs fall, there is a chance that companies could gain some traction.  In general, the CFOs are saying things are less good, but not that bad.  Let's hope for less bad and more good, but we need falling commodity prices and a boost in consumer demand now to make a difference.



GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/



ROBERT SCHILLER DISCUSSES THE DOUBLE DIP POTENTIAL

Robert Schiller speaks about the possibility of a double dip recession.   I'm not sure if I can agree with any of his prescriptions for "New Deal" type plans to foster growth since it clearly requires more misguided government intervention.  Haven't they done enough?  About when did they become the solution for anything.  Perhaps Robert should read my take on the government myth here - GOVERNMENT MYTH

I get the sense that like most economists Schiller really doesn't know how to answer the question, "How would you fix it?" because his comment is prefaced with"it is really complicated".  The first suggestion he makes is to spur hiring by the state and local governments with a thought to hire millions of teacher's aides and get them in the classroom.  Interesting idea, but not realistic and not gonna happen.  Also, creating more government agencies to waste money is not the trick.

I think it would be almost cleaner and simpler if all businesses were awarded 100% tax credits for all expenses related to new employees for a year or two.  First, it would not involve a new or another government agency.  Second, it would get businesses focused more on growing and utilizing a "no cost" employee.

Second, I'd keep all the Bush tax cuts in place for at least 2 more years.  This would give us a few more years before uncertainty comes back into play.

Finally, I'd halt the Health Care Reform Act measures.  Just to make things realistic and doable, I'd keep all items that have come gone live already, but would kill the rest of the bill making the 2014 date a non-event.

If a company would be in a position to hire today, they would have no reason to not hire based on uncertain economic times.

At around 8:33 in the video, Schiller discusses an uncertainty with CEOs and he says that they really can't describe why they aren't ready to move forward with growth plans.  Normally I like Schiller, but it seems as though he doesn't want to state the obvious which is the Obama Administration's policies are damaging to business.

We should be worried about Schiller's thoughts on housing prices as he says that there is a real concern that prices could go down for the next 5 years based on the pricing curve that was in place over the last decade.  It seems as though he doesn't agree with forecasters in his Case Schiller Market Survey. (15:45 in the video).

Finally, Schiller discusses Japanese style deflation around 17:25.  My read on his comments here is that he thinks we are repeating the Japanese outcome (he didn't say it, I'm simply trying to discern what he is not saying).  Also, this fits too with his statements about a bond bubble in his closing remarks in 17:40 where he tends to agree that there is not a classic bubble where folks are excited about the potential returns for an investment.  He does seem a bit conflicted here because he does back off from that statement at the end.




There are some good tidbits in the interview overall, I like his analysis, but don't like his "solutions".  I think they involve more of the same that you get from economics professors and Utopians rather than pragmatic business leaders.  Jobs are the key to solving the problem, but government is not the mechanism for the implementation of creation with the exception of the tax legislation to get it going.
Enjoy -   If the video has trouble loading simply click on this link to go directly to the hosted site (ROBERT SCHILLER WSJ)

GOATMUG