Are They Smarter Than You?
Courtesy of Karl Denninger at The Market Ticker
Aug. 10 (Bloomberg) — Two years after credit markets seized up and caused the worst financial crisis since the Great Depression, companies are hoarding the most cash in at least a decade……
Even as government reports show that the first global recession since World War II may be easing, corporate treasurers are raising cash as fast as they can, wary of losing access to capital. Corporate defaults reached 10.7 percent worldwide in July, the highest since 1991, according to Moody’s Investors Service. Credit markets that started to freeze in August 2007, have now triggered more than $1.5 trillion in writedowns and losses at the world’s biggest financial institutions.
Do you really think the crooners on CNBC and in other parts of the media are smarter than the CEOs and CFOs that run our largest corporations?
But never mind Bloomberg, they’ll try to plant "green shoots" through misleading reporting:
The recession may have ended in July, said Jeffrey Frankel, a member of the committee at the National Bureau of Economic Research that dates business cycles. The median estimate of 60 economists surveyed by Bloomberg is for growth of 2.10 percent in 2010, after a contraction of 2.50 percent this year.
A member? This is what NBER’s Hall had to say yesterday at 2:30 this afternoon:
National Bureau of Economic Research’s (NBER) Hall: May wait until economy moves past prior high before deeming recession over; could take 18 months – Comments that the upturn could in fact be part of a larger decline.
How come that comment wasn’t part of Bloomberg’s story? Oh wait – they have it in a different story!
Aug. 10 (Bloomberg) — Declaring the U.S. recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived, according to the head of the group charged with making the call.
Ah. And what have I said?
Complicating a recovery call is the possibility that renewed declines in financial markets or home prices will cause the economy to shrink again, Harvard University economist Martin Feldstein, former head of the NBER and a member of the committee, said in an interview this month.
“There is a risk that we will have a couple good quarters and then suffer a temporary setback at the end of 2009 or start of 2010,” said Feldstein.
Exactly. Home prices are not done going down and the S&P 500 is currently priced at a P/E of 140 – a level never before seen in the index, ever, at any time in American history.
Never mind the latest from China:
Exports fell 23 percent from a year earlier, the customs bureau said. Industrial production gained 10.8 percent, the statistics bureau reported. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of June’s level, the central bank said.
But but but but…. I thought stimulus would fix everything? That demand hadn’t really fallen off a cliff? That the economy was turning, and final demand was in fact bottoming and starting to re-accelerate?
Was that all a pack of lies? Maybe.
Does the stock market reflect irrational exuberance? Maybe.
If not, however, the S&P is pricing in a nearly 5% GDP growth for each of the next four quarters. Note that there is absolutely nobody in the economic community with any sort of credibility that is actually forecasting that sort of meteoric rise in production. Nobody. But that’s what the stock market at today’s price, never mind any advance from here, has "priced in" on a forward basis.
Follow what people who have their ear to the ground do, not what they say.
What they’re doing is raising cash, spending prudently if at all, and avoiding leverage.
Sounds like a good plan to me, and these are not the actions of a bunch of cowboys doubling their bets into the recent stock market euphoria.
