Tuesday, March 16, 2010

Down on the Farm

Spent the last few days driving on I-75 from South Florida to Tennessee. Other than meeting with a couple investors along the way, I spent my time observing and contemplating. My quick take away was that the level of truck traffic had plummeted. This is my 5th Spring with the farm; in 2006 the truck traffic was nothing short of frightening - grumpy, pushy, and speeding truckers surrounded us it seemed. Pretty much the same in Spring 2007 and Spring 2008. We noticed much less truck traffic last year, and this year it was obvious that 20% to 30% of the trucks were missing.

Like I said. We did no detailed, scientific study to measure truck miles traveled. We didn't need to. It was that obvious.


The U.S. equity market has had one hell of a run. I am somewhat surprised at the depth and breadth of this rally. Retailers, as measured by Retail HOLDRS is less than 10% below its all time high. For all I know, it may even set a new high.

The market seems conspicuously unconcerned with the price of Oil.

This is what happens when excess liquidity meets optimism. Anybody on Wall Street think that retailing is in good shape? Not a one. Or that we need 6 times the retail space per capita as Europe? No one on Wall Street thinks that, either. So what's up with the market?


Or Government Sachs.

Ever wonder why those nice folks at Goldman never even had so much as a hint of an investigation blow their way (under Democrat and Republican alike)? They sold the very toxic sh*t that nearly collapsed the system (and could have plunged America into anarchy and martial law), then covered themselves with derivatives, backed by AIG, to cover their a$$, then had their cronies in Congress and Treasury bail them out (both directly and indirectly), with nary a bad word from the U.S.(in) Justice Department.

Most folks cannot comprehend how incestuous the financial markets have become. Clearly, no one in Government can, either. (I wonder if we will ever see the Federal Reserve audited. I would be curious to see if they have no small number of S&P Futures on their books.) I have never been much of a conspiracy theorist, but there are certainly more coincidences here than should be the case.

In the end, even the U.S. Government would fail attempting to control markets. In the mean time the market is always right. Until it isn't. Of course, it would seem that the Fed is willing to do whatever is required...

I need to noodle this some more. Though the market seems to be forecasting better times ahead for the U.S. economy, my bet is that that will not turn out so hot for those coming to the party now. U.S. Oil imports will not be there to support the optimist's case.


Despite bulging U.S. inventories and slack U.S. demand, the price of Oil is once again over $82 per barrel. India has stepped up to the plate to challenge China in the acquisition of Oil assets around the globe. While I think China might, in fact, be the Mother of All Bubbles, that does not mean that that is true when it comes to Oil. Now we have India throwing their hat in the ring.


Donal Lang said...

If you look at the chart for the 1929 crash, there was a huge bear-market bounce. Imagine how that bounce would have looked if there has been this level of Gov't 'Fiscal Easing' or whatever you want to call it. I absolutely think that's what we're seeing. I wait every morning to see if the final act has started yet and, although I too have been surprised how long and high this rally has gone on, I haven't seen any fundamentals which support it other than fiscal stimulus money being pumped in by gambling banks to rebuild their balance sheets (and bonuses!).

I still think China (and to a lesser extent India) are different. They are dollar rich, have high savings rates, and are building infrastructure. But more than this, every one of their citizens wants a house, furniture, a car, an education, a job and everything else right down to a plastic bucket! That's a powerful internal driver.

Imagine in 5 years or 10 years time when China has spent its dollar reserves around the World, captured the oil and resources markets, and repatriated its wealth, and then revalues its currency! It will own the World economy!

Lenny said...

China (and forget India) will never even get close to an OECD level of income or consumption. There ain't enough oil to go around. Also, Chindia would have to be able to get the same deal Uncle Sam has gotten for 40 years: paper for oil. Ain't gonna happen. Think Elvis baby.


As for the equity market, who knows?

Greg T. Jeffers said...

Lenny & Donal:

THe U.S. equity market's multiple has expanded from mid single digits to the 20's over the past 50+ years. Some might say this is because of low interest rates... I don't think so. We have had low rates before absent this multiple.

I think the level of credit and liquidity over the past 25 years or is responsible. Should that be a long term fundamental game changer? It shouldn't = but it has been.

Until its not.

Anonymous said...

No anecdotes needed about Trucking/shipping. My brother worked at logistics company, and even in 2008 with crazy high diesel prices the amount of loads they did was 5x's more than in 2009 when he got laid off. Their company continues to make money mind you, but have laid off half their folks due to the shortage of shipments they can book compared to 2007/08.

Again "optimism" is often just a cognitive distortion named--wishful thinking. Often times not much different than hoping Santa Claus will bring us jobs, cheap oil, and an endless supply of burgers via nano-tech in the years ahead.

The severe disconnect between markets and reality continue to amaze me, its just a big psychological game for the most part, the 90's were a prime example with tech startups selling for more than GE, most all of them never made one single dollar profit.

Best case scenario, involves massive transition/change which requires investments at the macro, and the micro and a system not made on endless growth. Clearly, the math of endless growth is irrational, yet this is what people believe in, this culture if fundamentally flawed and the beliefs it holds its hat on are based on leave it to beaver bullshit from the period we were the number one oil producer in the world and had 150million less people!