Hummer Sales Down 85% YoY
Who woulda thought the Hummer loophole would end badly? Another example of what happens when the government meddles in markets.
Lots of other food for thought in this chart by Jake from Econompic.
Household Survey Says…
The “current population survey”, aka the household unemployment survey, released today was ugly. Real ugly:
In his newsletter this morning, David Rosenberg of Gluskin Sheff summed it up well:
To say that the Household survey was horrible would be an understatement. This survey showed a net job destruction of 589,000, bringing the decline to 1.8 million over the past three months — more than what was lost in the entire 2001 tech-wreck-recession. All of the decline was in full-time employment, and while the bulls out there will undoubtedly point to the fact that temp agency hirings are on the rise during the last three months, finding placements for part-time workers is not a cause for celebration. Certainly not when the number of those
working part-time “for economic reasons” jumped 105,000 or at a 15% annual rate, as was the case in October.
U6, the broadest measure of unemployment, hit 17.5%. That’s an all-time high, signalling that 1 in 6 Americans is unemployed or underemployed.
Somehow markets are up again today, despite the fact that they were up 2% yesterday on supposedly rosy new unemployment claim data. Whatever. Fundamentals continue to mean little… for now. As Tyler of ZH says – good news is good, and bad news is even better.
VIX Jumps 35% From Lows
VIX is spiking. Rally might actually be done (yes, it’s been said before). I sold most of my remaining AAPL today, from a lucky grab @81.86 here. Also shorted WFC on Monday @28.59.
chart via ZH
Has the US Reached The Hyperinflation Tipping Point?
Economist Peter Bernholz is an expert on the subject of national hyperinflations. He has studied all the major cases of hyperinflation since 1980. His conclusion: The tipping point occurs when a government’s deficit exceeds 40% of its expenditures.
Guess what? The U.S. will hit the 40% mark in 2009:
Hayman Advisors provided a good summary of Bernholz’s research in their October letter (via FS):
There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations – all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government’s deficit exceed 40% of its expenditures.
It’s important to note that the dollar does have some built-in protection as the world’s current reserve currency. That lets us get away with a higher debt-load than we should be able to. The question is, how much protection does that offer?
Also, how long will the dollar remain the world’s reserve currency? As Bloomberg noted, the world’s reserve banks are shifting away from US dollars. They’re shifting to currencies from countries with sound(er) monetary policy and less debt. We’re really in uncharted economic territory.
“It can’t happen here”
Hyperinflation in the US is hard to imagine. It could never happen to us… right? Well, fiat money has always collapsed eventually. I wonder if people in those countries ever saw it coming. My gut says the vast majority never saw it coming, but every case is unique.
Hedging Against Hyperinflation
If we are on the road to hyperinflation, you’ll definitely want to be in commodities. Stocks may do OK, but generally don’t keep up with inflation during hyperinflation. The exception would be commodity producers, such as gold miners. Foreign currency funds are another way to play it. I did a writeup on two mutual funds I like as inflation hedges here.
Jim Rogers likes agriculture plays better than precious metals: Cotton, sugar, etc. I’m mostly using metals to hedge against inflation, but Mr. Rogers’ suggestions certainly warrant a closer look.
If you’re looking to read more on the topic, Peter Bernholz’s research is featured in his new book Monetary Regimes and Inflation: History, Economic and Political Relationships. Looks interesting, I’ll probably pick one up with my next Amazon order.
Hat tip to Michael Panzner. He has an excellent writeup on the risks here.
Rosie weighs in on valuation
David Rosenberg and his firm, Gluskin Sheff, just published a special report on earnings and valuations. It’s a great read, lots of historical data. He also touches on one of our favorite topics – the operating vs. reported earnings issue. See this telling chart:
Earnings manipulation, or “scrubbing” as Mr. Rosenberg calls it, is clearly out of control. Look at the charts. The real P/E ratio for the S&P 500 is currently around 140. David notes how everyone is ignoring this blatant fact. They’re in denial, dismissing huge losses as a meaningless blip, a one time event.
While we will not belabour the point, when all the write-downs are included, the trailing P/E on “reported” earnings just widened to its highest levels in recorded history of nearly 140x, which is three times the levels prevailing during the height of the tech bubble…
It is interesting to hear market bulls talk about how distorted it is to be using trailing multiples that include ‘recession earnings’ (even though using ‘forward’ earnings means relying on consensus forecasts on the future and these are rarely, if ever, correct).
I’ve been harping on this subject for a while. We’ve had recessions before, and nothing has come close to these levels of corporate losses, ever. The only thing holding this market up are loss-hiding measures, government intervention, and accounting changes.
Back in August I graphed just how big the difference between “headline” and “real” earnings has become:
I added:
Some might say, “but wait, look at Q1 2009! Looks like they’ve cleaned up their act” Nope. That is the result of mark-to-imagination accounting. This change by the FASB “eased” mark-to-market rules just in time to make Q1 bank earnings palatable. The change boosted Citi alone’s bottom-line by $3b. Why again, are we so dismissive about Chinese accounting? Yes, they’re up to some tricks of their own. But you know what they say about glass houses. Well, we’re in one.
To get Mr. Rosenberg’s research, you have to sign up at their website. You’ll receive the PDF links via email. Unfortunately they aren’t publishing the reports on their site. I advise signing up now, as it may not be free forever.
Past Related:
10.9 Unemployed For Every Job Opening
If you use the broadest measure of unemployment (U-6) there are 10.9 unemployed workers per job opening in America. That’s ugly:
Anecdotal evidence – GE recently got 10,000 applications when they posted 90 factory jobs paying $13/hr.
In the latest sign of weakness in Louisville-area employment, about 10,000 people applied over three days for 90 jobs building washing machines at General Electric for about $27,000 per year and hefty benefits.
Chart via Econompic, data from BLS.
