At popular request I'm going to do a special on mish,
mish: part 2.
Mish's Fearless Forecast for 2006
...2. The widely expected capex boom of 2006 will not happen.
It has been happening for 6 months and is accelerating. That's why FED won't be able to stop rate increases for long.
No one realizes it but we already had that corporate capex boom with tax credits that expired at the end of 2004.
Huh? The tax cuts were positioned to stimulate final demand. The effect of the small cut in tax on capital won't be seen for many years, if at all.
There is no compelling reason for companies to increase capex in the midst of a consumer slowdown.
What consumer slow down?
Instead they will blow a lot of that "sideline cash" on stock buybacks at absurd prices in an attempt to support the market.
Buybacks aren't done "to support the market". They're done because a company can't find a better investment at that risk that they know how to handle.
By the end of the year, that strategy will fail.
This claim shows mish bases his views on his internally generated myths instead of on ANY data.
3. The long anticipated consumer slowdown finally hits.
This would be a first in history. Something long anticipated finally arrives. It is without exception that anything long anticipated never arrives, because so many try to adapt to the arrival and thereby undo that which presumably would arrive.
The FED acted to prevent that slowdown in 2000.
If mish would spend ten minutes investigating ANY DATA, he'd find FED was still raising rates in 2000.
It will happen now. In fact the FED will be facing their worst fears of 2000, a turn down in capex spending and a turndown in consumer spending at the same time.
How can there be a "turndown" in consumer spending when GDP is strongly on trend? It would take a whole year of rate increases just to slow GDP a little. Why should consumer spending slow? Because mish so commands?
Worse yet will be turndown in housing at the same time. Expect a triple whammy.
Start with false assumptions and you end up with a moon made of green cheese.
4. Housing prices will pullback but possibly not as much as people think (initially). Housing activity, however will fall off the cliff and long term that matters more. Some buyers late to the party will be executing the 2003 playbook and there will be a multitude of soft landing calls as housing prices find some temporary support. Housing bears will be laughed at one final time right before "The Big Plunge". That plunge may be late in the year or delayed until 2007. Whenever that big plunge comes, Bernanke will likely start to panic.
Why does housing need to plunge? If house turnover slows tremendously, why does that necessitate a median price fall? People don't need to sell houses and mortgagers can modify terms to accommodate them.
5. Everyone seems to expect oil to do something dramatic. Given geopolitical factors it certainly is capable of blasting to 100. On the other hand some expect the bottom to fall out of oil in the upcoming slowdown. I suspect that barring a geopolitical accident, oil will stay in the 50-70 range. 45 is not out of the question, but if we get there no one will like it much as the global economy will then be in a clear freefall.
Unbelievable. Starts with a benign assumption about oil, and then under a lower price for crude assumption, ends up with the Great Cullapz.
6. Some commodities, especially copper should take a big hit. Given copper's extreme backwardation, it will not be easy to take advantage of the slide. Agricultural commodities are more likely to have a good year than industrial metals. That is probably the opposite of what people expect.
Can't take advantage of copper's slide given copper's backwardation?! My father keeps his horses in the cowshed.
7. Gold will do OK but the big move will come later in some sort of Bernanke panic.
Gold is rising due to total supply being lower than total demand after 20 years of a bear market that undermined the ability to supply. This is a situation similar to that of oil and other basic commodities. It has NO increment of investment demand in the trend.
8. Some hedge funds will blow up over CDOs, the YEN, and short option strategies used to "generate income". Some mutual funds may blow up on put shorting strategies as well.
Mutual funds with shorting strategies? Obviously the guy has no idea about which institutions are allowed to short by charter.
9. The stock markets may be supported for a time with leveraged buyouts and buybacks
LBOs support the market? The tail wags the dog?
but pension funding obligations and the like are going to hammer companies later in the year as they burn thru their cash just as they did in 2000.
Pension funding obligations had nothing to do with what happened in 2000.
GM is a good example of pension funding stress. They've already been hammered. If there truly was that much stress, the unions would make sufficient concession until the stress disappeared. The stress is solely due to union money grab. Rick Waggoner knows this well, but he can't admit that, just as FED can't come out and admit that unions are the driving force behind inflation.
The big problem may very well be on debt rollovers in 2007.
?
10. The US$ should resume its downward slide as the FED puts an end to rate hikes. However, the bottom may already be in for a long time. There will not be a quick plunge back to the February March 2005 bottom as central banks everywhere are in a complete mess.
At first this paragraph started out ok, but then mish had to get his illiteracy in the way. Had to! CBs are a complete mess?? Dollar won't fall because CBs are in a mess? Well, I guess there's some kind of sense somewhere there. Question is, doesn't mish assert above that the dollar will fall?
11. Unemployment will rise to 5.6% officially but "alternate measures" taking into account disgruntled workers etc, will push it close to 10%. Unemployment hits 6.4% in 2007 with alternate measures over 10%.
All workers are disgruntled.
12. Bernanke uses his bullets slower than anyone thinks (at least initially). If so, that will lend a lot of support to the US$. He will be out to prove he is an "inflation fighter". Sometime over the next few years (but probably not 2006) he will be in a panic over deflation. Panic will come after he uses up several rounds of bullets.
I don't get it. Do bullets refer to pumping or rate increases? mish does not know and obfuscates in order to hide that fact.
13. Longer term treasuries may initially revolt on a pause by the FED or perhaps on the first cut. If that happens it will be an excellent buying opportunity.
QED. Proves mish does not know.
14. The sweet spot on treasuries will be between 2-5 year duration.
In a true deflation Tpaper does not do well. Tpaper is paid by taxes and tax receipts decline during a deflation or aren't paid at all. What does government do then? Borrow? Nope. They cut tax rates. They have to. The government then can no longer play the socialist engine, and risk on Tpaper rises which undermines the deflation premium. Hmmm. Idiots never thought of that in their Cullapz scenarios.
15. Treasuries will outperform most other asset classes with the possible exception of gold.
Contrary to Zardoz's Professor Jastrow claims that gold does good during deflation, gold does poorly in either deflation or inflation. It only does well during good times. This is borne out by history with no exceptions. And if I hear one more illiterate quote about the Homestake gold stock rise due to government conveyance of monopoly status during the depression as contrary evidence while 90% of gold mines were going broke, I will throttle the idiot who makes it.
16. Fixed mortgage rates will disconnect from the 10yr treasury.
What? Not possible to any significant degree.
They will rise on default risks
Inconsistent with his previous claims.
even as the FED starts lowering rates. I do not think anyone sees this possibility coming and the impact could be enormous.
Is FED lowering or raising rates in mish's view? Depends on the aspect. Many aspects require both to occur simultaneously.
17. Bankruptcies soar in spite of and perhaps even because of legislation designed to prevent that from happening. People will find a way around the "means test". That way will likely be to somehow lose their job.
Not coherent.
18. Earnings have peaked this cycle.
We're not in a cycle.
19. The ECB gets in at most two more rate hikes, possibly just one.
The sky is blue.
20. The rate hike cycle for the UK is over. There will be two or more cuts by the BOE in 2006. Those cuts may help support the US$ for a while.
In a deflative world the effect of rate cuts is opposite to what it is in an inflative world. BOE rates cuts would strengthen the pound against the dollar, but the effect would pretty much be lost due to cross rate forces.
21. The US will drag Japan back into deflation one last time.
The US had nothing to do with the development or continuation of Japan's deflation.
22. Junk bonds will get hammered.
Junk bonds won't do anything.
23. The deflation threat will pick up but few will see it.
Deflation isn't a threat. Inability to inflate is a blessing.
24. Bernanke will not be a happy man at the end of 2006 and even more miserable in 2007.
Very true, but not because of the economy, but because he will have to deal with Congress. |
