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Caught myself meandering through the 1932 League of Nations World Yearbook tonight. Check the following figure to get a sense of the collapse in global trade during the early years of the Great Depression:
Staggering stuff, especially considered in historical context.
Tonight I was trying to get a sense of what signals were missed earlier this year, so I got to reading comments from various well-known buy-side sorts. Here is a sample from March of 2008:
Economic growth may remain fairly tepid until spring, but we still believe the U.S. will avoid recession and second-half growth will prove stronger than most expect. Even if economic reports stay tepid or “recession scary” for the next few months, investors should try to think “recovery!” Focus on overweighting stocks relative to bonds and economically-sensitive stocks rather than defensive sectors. Small caps over large caps! Emerging rather than developed markets.
This was wrong. Dead wrong. And wealth-destroyingly so. Why are people like this never taken to task? Maybe I should learn my lesson and stop beating myself publicly for my many screw-ups. Apparently it's not necessary.
I'm on Squawk Box tomorrow (Tuesday) morning talking Q3 earnings. One focus will be Apple, which I'm expecting to do decently in the quarter that just finished, but, if it's being forthcoming, to give unhappy guidance going forward. Granted, analysts have been hacking like lumberjacks at their AAPL 2009 fiscal year earnings forecasts, taking us down from $6.05 to $5.75 in the last 30 days, but I think there's room for more cutting.
John Mauldin has a useful slide of the cuts to analyst S&P 500 forecasts for 2009. They're coming down faster than in any six month period I've seen, and there are more cuts coming:
Some unsurprisingly dire comments from Marc "Gloom, Boom and Doom" Faber on CNBC just now:
On Asian demand bailing the U.S. out ...
ASIA IS THE PRODUCER FOR THE UNITED STATES, AND IT IS ALSO THE REGION THAT HAS VERY LARGE CAPITAL SPENDING. SO WHEN THERE IS A SLOWDOWN IN THE U.S., IT'S NOT GOOD FOR THE U.S., BUT IT'S BASICALLY A DISASTER FOR ASIA, AND THEN, BECAUSE OF REDUCED DEMAND IN ASIA, IT'S AN EVEN GREATER DISASTER FOR THE RESOURCE PRODUCERS OF THE WORLD: THE MIDDLE EAST, RUSSIA, BRAZIL. SO THE WHOLE WORLD GOES INTO A VICIOUS DOWNCYCLE ECONOMICALLY AND THE U.S. IS RELATIVELY BETTER OFF.
On China.....
I DON"T BELIEVE THE CHINESE ECONOMY HAS BEEN GROWING AT 9%. I THINK IT'S BEEN DEACCELERATING VERY RAPIDY. BUT THE CHINESE, THEY LEARNED ONE THING FROM THE U.S. GOVERNMENT. IT'S HOW TO DOCTOR ECONOMICS.
And when you say all this stuff with Faber's Swiss/German accent it sounds ... well, worse.
There is no stopping the CDS crackup chatter. While credit default swaps could do with a great deal more transparency, one data point we all need to deal with is the non-world-ending consequences of the Lehman bankruptcy.
Today is the last day for money to change hands as a result of default swaps being triggered related to the Lehman filing, and it looks like the market handled it in a surprisingly orderly fashion. Collateral was adjusted and traded on a regular basis from the bankruptcy filing date forward, and, as a result, while a great deal of money still changed hands -- somewhere between $6- and $60-billion, depending on who you ask -- it currently doesn't look like any counterparty was made insolvent by its CDS-writing actions.
Does that make credit default swaps a non-issue? Far from it. But in my never-ending search for disconfirming data, the Lehman non-event -- so far, anyway -- is a useful data point to keep in mind the next time a default event triggers an unwinding.
More here.
Some quick links to items of interest:
Sheila Blair at U.S. deposit insurer FDIC was a guest late last week on Charlie Rose:
The OECD has out a new report on widening income gaps worldwide. The general view is that this will continue to widen as the economy weakens, but what will it look like on the other side of the current weakness? You can make a strong case that it narrows again, perhaps speedily -- especially if you consider what happened in the U.S. after the Depression.
A quick reminder that we have two days of must-see credit crisis TV coming up on C-Span:
Credit Rating Agencies and the Financial Crisis
Committee on Oversight and Government Reform
Wednesday, October 22, 2008, 10:00 AM at 2154 Rayburn House Office BuildingThe Role of Federal Regulators
Committee on Oversight and Government Reform
Thursday, October 23, 2008, 10:00 AM at 2154 Rayburn House Office Building
While the first session will including endless pillorying of credit rating agency heads, the second one might be the surprise. My hunch is that Alan Greenspan will wish he called in sick instead.
Wal-mart is like the Bureau of Economic Analyst of retail: It has all the data you wish you had about what's going on in the economy, plus more -- and it has it all in realtime. With that in mind, here are some alternately choice and concerning nuggets from a speech today by the company's president in Los Angeles:
More here.
U.S. Treasury Secretary Henry Paulson was on Charlie Rose tonight.
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