I guess this means the DOW should be up 1,500 tomorrow?

Maybe up 2K!

Tis but a flesh wound...

ades writes:
Looking at the details, I think the "just awful" scenario is possible (with consumer spending off 5%), but the worst case is very unlikely. We will know more as PCE is released monthly. ~CR

I can see consumers paring down more than this. Anecdotal but I know a few people who have severely cut back spending and they are still quite gainfully employed

Nades, I hate to admit it, but I look like Scrooge right now and Christmas isn't going to be pretty, either, and I am gainfully employed.

Me and the wife and kids refuse to keep economy going on our earnings.

Too bad.

Invent something I really need, not want. Maybe I'll buy.

Also, with deflation setting in and lack of credit for most, assests are slowly showing their "real" value, not some inflated pile of stinking filth.

Only if you give up on Seattle and the sexpots there.

"Could we monetize by floating new money thru China?"

The buildup of Chinese reserves is pretty much tyhe opposite of monetization.

Think about what is happening: private sector importer takes USD cash, buys stuff from China. Chinese exporter turns over USD to central bank. Central bank buys Treasury paper.

What has happened: the U.S. private sector loses cash, and the cash ends up in Treasury paper (with Chinese ownership). I.e., the private sector is drained of liquidity.

If monetization was actually going on, the private sector would be gaining liquidity.

Is any one going long low end grocery stores outside of Walmart ? I was in one tonight and it was packed . Restaurant business is getting killed any trade ideas ?

Craig,
30% is derived form these factors:
-increased credit costs eating into bottom lines
-As almost all companies (hence stocks) have exposure to credit through credit cards, loss reserves come into play
-at GDP negative 2-3% for 2 or more quarters, real earnings MUST decline by at least 10% across the board
-The best reason is that estimates for S&P earnings are still firmly POSITIVE for 2009, obviously a joke. That by itslef will blow P/E type thinking and there are plenty of funds that manage cash by those structures.
What do you think?

Invent something I really need, not want. Maybe I'll buy.

Doesn't seem like a very high bar, given that you apparently "need" to buy internet to post on blogs.

Comrade V: I work for the State of California, right now, the Governor is speaking with the Legislature, which is in special session, about ways to deal with a ballooning deficit, and he has proposed a furlough and the takeaway of two holidays, among other measures, like an increased sales tax

but, state workers are not dumb, we know that the economy is going to get much worse before it gets better, and that the Governor and the Legislature are going to always be behind the curve in responding, hoping that the recovery will arrive before they have to take measures that will really anger people

this time, that won't work, and we expect that the situation will be so dire by late spring that layoffs will be unavoidable, as the budget analyst is already saying that the state is facing a 28 billion dollar deficit next year

but, silly me, I forget that TARP is going to save us

The coasts are homeless central. Driving up memorial drive in Cambridge (Massachusetts near Boston) every morning it cracks me up all the homeless bums sleeping in clear window view of the Harvard and MIT dorms. Those smart guys have yet to find a way to help those outside thier window. Classic.

Pavel, to clear up a loose thread, you asked about what I meant in regard to a reference to Godard's film Weekend

"(shun)"

?

Pavel: . . . Weekend in regard to your car poem

my understanding is that bourgeois couple gets trapped in traffic on holiday outside of Paris as bourgeois society collapses

hope I'm not violating the anti-chatter rule here, just trying to catch up

"my understanding is that bourgeois couple gets trapped in traffic on holiday outside of Paris as bourgeois society collapses"

Thanks.

I've seen traffic like that in the DC area, and nothing has collapsed yet. It's too jammed together to fall.

Trance writes:
@OCDan
"Invent something I really need, not want. Maybe I'll buy."

I think Nature took care of this a long time ago. That's why there's oversupply everywhere, oversupply of things we don't really need. What I would say we really need is more human interaction within the society, behave like the social animals we were meant to be. But I guess this cannot be bought.
Trance | 11.17.08 - 10:14 pm | #

No argument here. I work with the public everyday. Some good and some bad interaction. I think, however, this will be tough for many because many don't know how to interact with others, for many varied reasons.

When all we have left is each other, it will be VERY tough for some. I think I could get used to chewing the fat with people while watching the grass grow.

When I was a wee laddy my grandfather would take me to the town park and I would get to play and use my imagination while he chatted with about 5 or 6 guys his age. If we gor there early enough in the evening, I got to see the 6 o'clock Tuxedo Express almost fly by on the railroad tracks.

Sometimes, life's and nature's simplies pleasures are free and are the best.

"Sorry - Discussion about expensive beverages, at the G20 there was expensive beverages, you were not there, therfore not of the same noble class therefore shunned.

my try at a bit of dry english humour"

Not at all. I'm out of it culturally, so often I don't understand what people are saying.

Tasty facties:

In London, contracts on the Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings increased 25 basis points to 860 basis points, the widest since Oct. 27, JPMorgan Morgan Chase & Co. prices show.

The number of U.S. companies at risk of running out of cash reached the highest level since 2002 in October as job losses and tightening credit weakened consumer spending, according to Moody’s Investors Service.

As of the end of October, 72 companies had an SGL-4 ranking, Moody’s lowest level of liquidity rating, the report said. The percentage of companies in this category rose to 14 percent last month from 12.6 percent in September, the highest since the index was designed in 2002, analysts led by John Puchalla wrote in a report yesterday.

Banks and brokerages worldwide have announced more than 166,000 job cuts since last year as the global credit crisis intensified.

JJL:

here is what i'm thinking. SPX EPS has grown peak-to-peak at 6% for 75 years. PE on peak EPS has averaged 14x but has sold as low as 8-10x in deep bear mkts.

last Peak EPS was 2Q07, LTM EPS on SPX was $85. Financials were $40 of that. Estiamte 50% of that goes away for ever. So the adjusted Peak EPS was closer to $65.

assume next 2 yrs of SPX EPS are ugly but then recover and grow the next 3 yrs such that the 6% LT growth still holds true and EPS is about $88.

put a 12x on that future EPS to estimate where SPX is trading at 5 yrs from now about 1,100.

Given today's SPX of 850, getting to 1,100 in 5 yrs gives about a 6.5% compund return for the 5 yrs (includes a 2.5% div yld)

6.5% per annum for 5 yrs is a bit too low rel to historic returns closer to 8-10% range.

end of bear mkts typically price in more than 10%+ 5 yr expected returns.

If that is the case, the SPX has to drop to about 650 (down another 20-30%) to set that up.

just my 2 cents. YMMV.

Cashier at a Krogers today showed me a Indian Head Penny someone had paid her with.

Craig,
that is a bunch of data, and I have partaken in a few of the drinks mentioned here! 20-30% seems about right to me. The biggest obstacle is those technical fools that will defend the triple bottom that they think exists.

As I understand the problem Pavel many of the homeless could stay in a shelter but shelters have rules and a lot of street people don't like the rules ergo they prefer lying in some
merchants doorway.

Last year I was walking from my hotel
in Belltown in Seattle down to the Amtrak station. I wanted to stop for a rest at, was it Pioneer Square, but I couldn't because every bench was occupied by a reclining derelict!

model-based.
bond guy | 11.17.08 - 10:13 pm~

Even the US must come to terms with what it means to not posses a "risk-free" model base.

thats what this whole 5 course meal is all about.

a waif(er) thin mint condition.

SHUN ME !!!!

I saw a man dig in the trash can open a cup and smell it before he continue to drink it.Because of seeing that I always buy extra food for the food bank .

No one need be hungry or homeless. One need only look in the right places. Not cities of course.

Get out into farm country and be willing to work 6 or 8 hours a day in return for a warm bed, used clothing and decent food. Call us halfway houses but working will keep body and soul together and redeem self respect until economies improve.

I've got room for up to 3 families and I'm a small potatos outfit. Got lots of painting, fence repair and a myriad odd jobs to be done.

Problem is that most expect hand outs or Gummit freebees to get by.

Hate to say it but Arbeit Macht Frei.

JJL, Craig - If you're interested in some of that SPX data with EPS and PE built in and lots of charts, let me know and I'll throw one of my spreadsheets up on some file service like box.net.

I've been watching this for awhile and have been refining/revising my outlook.

"Pavel @ 9:41 re sleeping on the sidewalk @ Lafayette Park.

Were you beating a drum?"

I hesitate to even try to describe the circumstances. To convey just how bizarre they were, those involved directly or tangentially included the chief correspondent for Soviet television in the US, his cameraman, three nuclear weapons protesters (one of whom was on a hunger strike, supposedly), the man who was a prominent US nuclear weapons designer in the 60s, later chief target designator at the DOD, all the other demonstrators on the sidewalk in Lafayette Park (including one lady who actually did wear a tin foil helmet), me, and a few bronze statues. And the Park Service Police. And tourists.

No drum.

tomorrow: test the bottom again: say 7800 on the Dow, expectation of at least 5C into green to hold below 9000. looking for breakdown into the 7 handle.

Anecdotal but....

In office this morning: secretary announced that her brother had just lost his 200K mgt. job.

Day On the train: Crew talking about how they never borrowed on their houses and couldn't sleep if their credit card balances were high.

Conversations around the hotel bar tonight were: "I better have a job when I get home" and "We all just need to calm down." These were guys in workboots.

Good luck getting that group in the middle to spend/borrow.

Anyone who uses the word "gummit" should be nominated for the annoying posters block.

God bless his soul.

Rich

Your son is fighting his devil, just as you are fighting yours. As someone who fights that devil daily all I can say is fight it one battle at a time.

Pav,
The reason I loved Sasha Lebed was that he was Sozlhenitzn with a helmut.

He was no politician to be sure. That's why I loved him.

AC, Doystoi was a GOD. There is a painting of him in the Trechekov that is revealing in my opinion. He had hands all rough and veined that belies a great artist...

Two more fingers of john barlycorn and I'm off to Valhalla. Finishing up "The Hunchback Of Notre Dame" on TCM Laughton's closing line sums up my life.

"Why was I not made of stone like these?"

There is an ominous feel in the air lately, economically, culturally. It can't be denied.

My wife's family goes back to the 18th century on this continent. One of her ancestors, Captain Edward Ricketts, was the first white settler in Clearfield County, Pennsylvania in the 1790s. Some of her 19th century forebears floated timber down the Juniata River and trekked back home over the mountains. Her Dad was a fire control officer on a destroyer in the north Pacific. He grew up on a small family farm in coal country, took the GI Bill after the war, received a doctorate in Education, and became a high school superintendent.

She has great confidence in the basic strength and good sense of the people in this country, and I follow her lead. If tough times come, it won't be anything new.

And your father-in-law's "pioneer" upward mobility was the result of a war, a free-gov't ride through college followed by public employment.

"climate change is nothing new" which is true, except there weren't 7 billion people on the planet the last time it happened.

WTF? Climate change is occurring on a daily basis and has been since there were oceans and continents.

One day it will sink in that the alternative to global warming isn't the status quo (ignoring for now that "status quo" weather is a freakin' disaster for a couple of billion people). Nature hates stasis - the alternative to global warming is global cooling.

Get that? The climatic "Kondratieff" is a global cooling trend. That would screw us infinitely worse than thawing some tundra in Canada and Siberia...

Mr. Sparkle,

I'd love to see your modeling & numbers. Could you please put up the spreadsheet somewhere?

Thanks.

RCAW

Barley writes:
Oh, and we're still on track for triple digit unemployment according to my calculations.A year ago I was saying 9% unemployment (and was throughly buggy-whipped, I might add) and I cant, now, figure out a rate going forward. The losses are huge and wholesale and rapid. The bright side if there is one is that a lot of announcements will be losses overseas (India I suspect will be hardest hit)
Barley | 11.17.08 - 9:49 pm | #

barney recruitments have not stopped in india.Just yesterday companies have announced recruitment of 10000 peoples( L & T I think)
You should know india only takes capital from western countries.The exports from india are negligible compared even to malaysia or indonesia or china or brazil.
India will be hit but not like U.S.A. or U.K.And we dont have social security programes like west.If there are no jobs peoples will go back to villages and stay afloat somehow.

my prediction is for an initially decent sounding decline, like, say around -3%, revised to around 5% to 6% after the fact

I work in the government sector in CA, and all the talk is about furloughs, lost holidays, and, of course, eventual layoffs

needless to say, this does not encourage spending among a group of workers who possess pretty good job security

Plantagenet | 11.17.08 - 9:26 pm |

Area by 66 and 495 near Vienna metro.

You want exact locations? Woods across from Pan Am Shopping center.

Woods across from Circle Towers apts - Rt 50

Behind 7-11 and church near Cedar Rd.

Woods and tunnel by Sth side Vienna metro

Area on 50 west into Fairfax is county run homeless shelters using the low rent motels, plus there is a Christian help the Homeless org at Fairfax Circle by the 7-11.

"Well, I have homeless encamptments springing up like mushrooms in the woods around us now. "

Is that in northern Va.?

Richard Estes writes:
"my prediction is for an initially decent sounding decline, like, say around -3%, revised to around 5% to 6% after the fact"

That's a pretty good guess.

It's not purely the result of eevil guvmint types trying to deceive people; the fact of the matter is that GDP is reported too early.

Believe it or not, it's rather difficult to measure the sum total of all economic activity in a large economy. But people want data real quick. So they put in whatever legitimate data they have, and then estimate the rest using mechanical rules. Those rules consist essentially of keepin the previous trend going in the estimated subcomponent.

This works in an environment of steady growth. It doesn't when the trend changes. This is why Sebastien was foolish to base his arguments on real GDP; those initial reported numbers will be revised out of existence over the coming years.

GDP is only of use to economic historians, who want to explain past cycles using a summary measure.

The possible GDP negative numbers combined with the "Peak Earnings" idea fleshed out by Mish (banks with less leverage = less profit) shows that the whole earnings estimates for the markets going forward are just wacked. In all fairness the DOW and S&P are prbably 30% over priced for the environment going forward. The mythic "triple bottom" at DOW 8100 as called by many is a joke of technical analysis. If you remember the Nasdaq crash, all that "head and shoulders" and "retest" crap was flushed down the line pretty easy. Reality is coming to a theater near you, get your popcorn ready!

Is this how it works???
Bank needs to maintain capital reserve.
Bank trades bad paper for good dollars from FED.
Bank deposits good dollars with FED and gets paid interst equal or greater to the loan rate on the dollars.
Credit is monetized because value of bad paper is kept at model value.
What breaks this cycle?

Q4 is gonna be so bad,

Im gonna take myself off ignore.

and move myself to irratating.

"Hi Pavel,

I have 7 guys that sleep in front of my office building every night in NW DC. I would say there are at least 30 people sleeping at night with a 1/2 mile of my office

NW 7 and C"

Hi nova,

To see what it was like I slept - hardly - for one night on the sidewalk, in January, in Lafayette Park. I never want to do that again. The concrete draws all the heat out of the body, and of course it has no give.

I remember one christmas when I was a kid. My Dad had been laid off from his railroad job and the hospital my Mom was a nurse at cut back her hours. We kids (4 of us) got I.O.U's for christmas for gifts at tax rebate time in the spring. I remember that year because we all spent the holiday together just talking and spending time, real time, with each other. Economic recessions are NOT the end of the world. Our government would do well to stop trying to spare anyone anywhere any inconvenience whatsover. This country needs a "timeout" to grow up.

JJL:

i'm thinking something very similar about a large percentage of past earnings going away for a very long time (financials, low cost of debt in capital structure, much lower G going fwd as consumers pay down debt).

I'd like to see how you get the 30% dowside estimate. any details?

again. The concrete draws all the heat out of the body, and of course it has no give.
Pavel Chichikov | 11.17.08 - 9:41 pm |

Cardboard is the key. Funny, I used to steal food to eat. I had a pair of baggy pants, and the pokets were slit. I tied them off at the ankle.
Never busted, but I knew they knew.

"The survivalist bubble happened in September/October and it is dying off now

Don't think so, Pavel."

That wasn't me. But there are people up in the hills in Pennsylvania who have been survivalists for 200 years. That's how they've always lived. Upstate NY too, if they're still there.

-Jason
Jason | 11.17.08 - 9:51 pm

Car campers? Families yet?

Isn't GS running a net deficit on credibility?

Cracker
Credit is monetized because value of bad paper is kept at model value.

Yep, except when the REO process is complete, the original mortgage no longer exists. The loss has to be accounted for. I'm sure they'll try the model value for as long as they unethically can.