Thursday, April 10, 2014

Nasdaq a victim of gravity (Schoolhouse Rock)



The meltdown in biotechs and high tech firms with P/Es over 200 has been picking up momentum in the last couple of weeks. This is sort of how the 2000 stock meltdown started. This Schoolhouse Rock video captures the mood.

Sunday, April 6, 2014

Peak SNAP?



The total number of people on SNAP has started to decline and the percentage of the US population receiving food stamp benefits appears to have peaked at 15.2% in March, 2013. Since then, it has declined to 14.7%. I don't look at data with a bullish bias, but this is a positive development. It is still very high by historical standards, but this is the first significant reversal in the SNAP program since the recession.

Saturday, March 22, 2014

XIRP forecast



Using the premise that the US is copying, Xerox style, the interest rate history of Japan after their bubble busts, we can make some forecasts on when and how effective Fed efforts to raise short term interest rates might be.

After Japan's rates fell below 1% in April, 1995, they stayed near zero until May, 2006, despite a little noise in 1999. That was 11 years of ZIRP, suggesting a serious Fed effort to raise rates in November, 2019.

Japan did make an effort to raise short term rates to 0.5% in 2006, and rates got as high as 0.639% in September, 2008. After about 2.5 years of half-percent interest rates, they crashed back to zero during the global recession caused by the US bubble bust and today sit at 0.05%. Based on that timeline, when the Fed finally does make a serious effort to raise rates, they may hit a wall at 0.5% and be unable to maintain it for more than a couple of years.

This is all conjecture based on the US following the Japanese lead, unable to stop "it" from happening here.

Monday, March 3, 2014

XIRP


source: Federal Reserve Bank of St. Louis (http://research.stlouisfed.org/fred2/graph/?graph_id=163564&category_id=0)

This chart shows the US is following a Xerox Interest Rate Policy: an almost flawless copy of the interest rate policies of Japan, delayed by about 16 years. The blue line is the Japan T-bill rate and the red line is the US T-bill rate. Japan had a last gasp interest rate hike in the early 1990s, while the last gasp in the US came in 2007. Since the mid-1990s, Japan has been at zero, with the corpse twitching a couple of times before coming back to rest at zero. The US has been at zero since 2008 without even a twitch, but we might expect a small one if we are maintain XIRP. Based on the theory that Japan has led all western nations into the financial abyss, we can expect at least another 15 years with the US T-bill rate at zero.

This is not investment advice, but it might be interment advice.

Sunday, March 2, 2014

Crimea River

S&P 500 stock futures are down about 1% right now. The Nikkei is down about 2.5%. Maybe central banks have absolute control over world events and have eliminated all risk forever. Or maybe they haven't.

Wednesday, February 19, 2014

Rate hike in 2015?

Dennis Lockhart, the president of the Atlanta Federal Reserve, said Wednesday that he still thinks the central bank will first hike short-term interest rates in the second half of 2015.
I am not convinced. Six years after the great mortgage fraud recession, we are still sitting at ZIRP. It seems more obvious in hindsight that we are following Japan's path of ZIRP forever. Why do I think that? At least four reasons...

1. The world is awash in overcapacity. Where is the demand for expansion that would require raising interest rates?
2. With 17+ trillion in debt to roll over forever, can the US government afford higher interest rates?
3. With housing still in a weak recovery and plenty of houses left over from the crash, can the housing market afford higher interest rates?
4. With official inflation below the Fed target of 2%, why would the Fed raise rates?

What might change these conditions?

1. A world war that destroys a lot of manufacturing and service capacity. I hope not!
2. A huge government surplus that is used to pay down the debt. I doubt it.
3. Razing millions of existing homes. Not likely.
4. An unexpected spike of inflation or loss of faith in US currency. With real median family incomes still declining, inflation looks like a low risk. A loss of faith in US currency, maybe, but I hope not since that will usher in many worse things than a rate hike.

Wednesday, February 5, 2014

Twitter Fritter v.2


sources: http://twitter.com, http://finance.yahoo.com

It seems like only yesterday that Twitter left the nest in a big $24 billion IPO. Now, they are a grown up public company and have filed their first earnings report. Behold the mighty net loss of $511 million on $242 million in revenue. They found a way to lose two dollars for every dollar in revenue. Now, they just need to ramp up the volume!

Meanwhile, investors frittered the stock price from $26 at the IPO up to a closing price of $65.97 today, raising the market cap to $35.93 billion. It will take a lot of $511 million losses to match that market cap. I am not sure how many, my guess is the same as the licks to get the center of a Tootsie Pop. Probably 3.

I may not be the only one to notice that something is amiss with the business model, since after the report, the stock price lost 17.5% down to $54.39. I guess the people that bought today got frittered and then some.

I am very tempted to make some extrapolations based on this one data point, but I want to give Twitter a chance to prove me wrong. Let's see what kind of earnings they tweet next quarter.

see also: Twitter Fritter v.1