Just Wishing and Hoping - 08/14/09

August 14, 2009

Just Wishing and Hoping
By Doug Kass, The Edge

We all breathe a sigh of relief, since the 'experts' on Wall Street say that the recession is over. Yeah ... right!

Just wishing and hoping
Wishing and hoping and
Thinking and praying,
Planning and dreaming
Each night of his charms
That won't get you into his arms,
So if you're looking to find love
You can share, all you gotta do,
Is hold him and kiss him, and love him
And show him that you care.
-- Dusty Springfield, "Just Wishing and Hoping"
Phew, I am now relieved!
I am comforted in the knowledge that on Tuesday a CNBC poll revealed that 90% of Wall Street economists believed the recession had ended and that a Bloomberg survey (also this week) showed that the consensus sees real U.S. GDP expanding at annual rate of at least 2% for the next four quarters.
That's the same group of economists who failed to recognize the consequences of a bubble in stock prices in 1998-2000, the meaning of a three standard deviation event in rising home prices (and affordability), the fallout from a bubble in credit, the broad ramifications of a derivative market gone wild and an imminent recession several years ago.
And that's the same group of economists who interpret a statistical recovery as a self-sustaining economy that is incapable of double-dipping under the influence of numerous nontraditional headwinds.
The economists' conclusions must also be comforting to those Americans without jobs that don't count as unemployed because they have been dropped from the labor force, and all the people getting foreclosed on in a housing market that has "bottomed?" (As an aside, can unemployment ever exceed 10% given the fact that apparently jobless folks don't count as unemployed after some point?)
Yesterday's retail release was punk -- in the aggregate and at Wal-Mart (WMT) -- though the markets, again ignored it. Consumption remains weak, even with savings at lower levels than many feared at only 4%to 5%. I have wondered on The Edge what the downside to cost-cutting and productivity gains are as the paradox of thrift (and its implications) could haunt us in 2010. One also has to wonder how far into the inventory re-stocking process we stand as jobs, income and consumption continue to move in a southerly direction. And one has to wonder what the downside to productivity is and how large the permanent reduction in employment will be as companies begin to realize that they can run on less.
Those surveyed economists apparently don't recognize the abnormality of the last cycle's leveraged and credit drivers, which occurred amid weakened job and income growth, and that their conclusion that the U.S. economy faces a normal or routine recovery seems more of a wish than reality (even in spite of the magnitude of the monetary/fiscal stimulation).
With the earnings-reporting period almost over, the cheerleading surrounding such a great earnings season has reached a crescendo, but in reality, with so many companies missing their sales guidance, there was not, as Gertrude Stein once said, all that much there there. The paradox of earnings is that an economy cannot cut its way to prosperity. From my perch, a more objective middle-ground in reaction is necessary.
While the market participants once again wear their rose-colored glasses, the current conditions reading, which shows pretty clearly that, nine months after it happened, CEOs absolutely feel worse than they did in the immediate aftermath of the Lehman debacle. And confidence among CEOs weakened to 63.0 in July from 74.3 a month earlier, according to the Chief Executive Magazine's Confidence Index which surveys 266 executives.
In the current bull market for complacency and cheerleading, investors are increasingly embracing almost any news in a positive if not promotional manner. Speculation, which always sows the seeds to its own destruction, is all too obvious over there, in China, as there are more day-traders than Carter has liver pills and as IPOs triple and quadruple on their opening trades, which is all too reminiscent of the U.S. equity market in the late 1990s.
I just can't get Dusty Springfield's "Just Wishing and Hoping" out of my mind this morning.
Show him that you care just for him,
Do the things that he likes to do,
Wear your hair just for him,
'Cause you won't get him
Thinking and a praying
Wishing and a hoping.