US Economic history, is turning the pages day to day now on what we could conceivably look back on as the largest onslaught that the post World War II US banking system has ever faced... regulating Access to Credit/Capital and breaking down the securitization function of the US economic system are as serious a set of fundamental matters as any you should be considering.
After the market close of Wednesday December 12th, i downgraded the MCM Trade and the MCM Trend to negative.
In US Trading this week, the broad indices weakened, again. Stylistically, Small Caps continued to underperform, and instead of seeing the 'Tech' laden Nasdaq outperform the S&P, they traded down together in parity:
Week of December, 10th, 2007: Dow (2.10%), S&P (2.44%), Nasdaq (2.60%), Russell (4.02%).
Month of December to date: Dow (0.24%); S&P (0.89%); Nasdaq (0.95%); Russell (1.80%).
YTD 2007: Dow +7.03%; S&P +3.50%; Nasdaq +9.13%, Russell (4.28%).
This week's aggressive Wall Street and US Government led Populist offensives, ostensibly supporting the Fed Centrist Bull Batalion, proved to be unsuccessful. The Fed Centrists came at the 'Consensus Bears' with nothing short of a multiple front President Bush, Hank Paulson, and Ben Bernanke 'Surge': more Fed rate cut "shock & awe", a surgically timed free money air raid via the newly minted 'Term Auction Facility' (TAF), and the ongoing subprime 1-888-995-HOPE line bailouts.
This long standing Bull market in US Equities is under siege. The Republicans and the Fed are running out time, and out of bullets. Its going to be a long, hard, road to the next Fed meeting on January 30th, particularly for those managing levered long businesses.
MCM Trade (Immediate) = DOWN: after a low volume short covering runnup to start the month, the S&P 500 is breaking down again; the heart of the US Economic system (Financials and Consumer related companies) continue to lead decliners, and it will take brave portfolio managers to step up and buy these sectors for real into year end...
MCM Trend (Intermediate) = DOWN: 1489 was support, and thats gone... as the facts change, i do - this isnt my religion, its my process... if the S&P500 closes below 1464, watch out below...
MCM Themes (Longer Term): all eight of my Themes remain... i had wavering conviction in my US$ call, but thats been fortified by price stability/appreciation - the US$ had another big week, outperforming US Equities and Bonds by a wide margin, +1.7% on the week to 77.44, and +3.2% since i thought this idea was fit enough to print.
-Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
-Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
-Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
-'US$ Bottoming is a Process, not a Point' -November07'
-'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
-'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
-'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
-'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
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MCM Macro Strategy Considerations...
Being a "Consumer" analyst for the better part of my career, i hear and read enough on the topic of the US Consumer's health to make you numb...
For the better part of the last 10 years, you can be sure that i would not have had the early success i've had in my investment my career if i wasn't, on balance, bullish on the US Consumer. This has been an unprecedented long term rally in consumer spending that i, and the US stock market, should be thankful for.
The easiest way for an analyst, portfolio manager, banker, or executive to look "smart" in this business is to be long a trend that moves up into the right, for an extended
period of time, like this one has.
That period of time, in US Consumer spending, dates back to the early marriage of Ronald Reagan to the Rainmaker of cheap money, Alan Greenspan. The latest super child born out of their cooperative has provided the US economy with an all time record of 62 consecutive QUARTERS of successive growth in US Real Consumer Spending. Yes, that = 186 months... and a protected environment for that duration of sameness can even make a snow man in Thunder Bay, Ontario, numb.
All the while, the "Trade" off has been leverage. The US Personal Savings rate has been drawn down from 10-12% in the early 1980's, to basically zero today. And theoretical US Household "Net Worth" has increased to a record $58.6 Trillion dollars at the end of Q3 of 2007 (per the Federal Reserve). In the last 5 years, "net worth" was buoyed by Greenspan's biggest US$ sales events, and cheapest money years, inflating the total US base by $21 Trillon alone. Yes, $21 of the $59 Trillion in theoretical "wealth" in this country was created since 2002, and almost 40% of the $21T came from guess where? Yes, you got it, Real estate...
No wonder why people call him the "Maestro"! Alan Greenspan had the easiest lending standards in the history of US Banking - he was the ultimate US Consumer bailout banker!
But what are they going to call Ben Bernanke? the "Bailiff"?
Bernanke's decision to opt for 25 basis points... and not politically pander to Washington and Wall Street this past week (remember Reagan advisor, Art Laffer, calling for a 150 basis point cut!?) stands in stark contrast to what the Fed Centrists have been trained by Greenspan to expect. Ring the Pavlovian alarm bells, and the Rainmaker would print you money.
Perhaps the US Dollar having 3 successive up weeks, outperforming nearly all global asset classes over that time span, reflects the fundamental sobriety of Bernanke's decision to not expedite a complete devaluation of the US currency, as the 'Reaganite Rainmaker' would have... Perhaps Ben Bernanke is a pseudo objective US Economic Cycle analyst, and not a US Consumer easy money banker? Perhaps...
Do we believe in economic cycles? do we believe in capitalism? or do we believe we should have neither, and stay the 'Reaganite Rainmaker''s course, open up the ATM kegs,
and smooth every American Consumer's worries away? Afterall, as some of my old hockey friends would attest, 62 QUARTERS of successively positive US Consumer Spending is one heck of 'Quality Party'!
Speaking of those ATM kegs, David Rosenberg at Merrill broke down the US Mortgage Equity Withdrawal (MEW) stats quite succinctly this week... and they are starting to look "kicked":
"Mortgage equity withdrawal (MEW) continue to slow in the third quarter, falling at
a near 20% annualized rate (or $36 billion) to just under $637 billion (annualized),
the lowest since 4Q03. Gross cash outs were especially soft, plummeting 55%
(annualized) sequentially in 3Q. As a percent of personal disposable income, the
slowdown was even more pronounced falling to 5.2% from 6.3% in 2Q, the lowest
since 4Q06. Active MEW (which consists of refinancing and home equity
borrowing) continued to be very weak, declining another $70 billion to $332 billion
– well off the $575 billion peak set in mid-04, when consumers were actively
using their home equity as ATM machines" -David Rosenberg 12/07
When the ATM's are "kicked", where do you go? How about home to the fridge?, or better yet, to someone else's and use the credit cards? Well, unfortunately, according to Capital One's November #'s, US credit card stats are starting to break down as well... so get in line.
The objective US Economic Cycle analyst would have a hard time disagreeing with Rosenberg or I on this important point as well, and that's quite simply that the Credit Card business is also susceptible to the ups/downs implied within a cycle.
Although, one of my good friends is quite correct in suggesting that I'm moonlighting as a 'Scribe', I'm also working hard on becoming an analyst of cycles... after 186 months, the "US Consumer" spending gig is getting stale...
Best of luck out there this week,
KM
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MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
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