Hello Martin, I am not convinced by Jeff, because he said
Barron's: You're extremely bullish. Why?
Gendell: This recovery, in my view, is no different than any other recovery. If you have been asleep for the last five years, wake up. If I told you that interest rates were 1¼%, GDP growth is 3% to 4%, the CRB (Commodity Research Bureau Index) is rising to new highs and inflation is 2%, you would probably say the market multiple is 30 or 40. I have never seen so many people whining about a recovery with GDP growth at 3% to 4%.
Dissection:
<<Gendell: This recovery, in my view, is no different than any other recovery>>
There is no hope for consumer recovery because they never got terribly ill, at least not yet.
There is no hope for housing recovery, because housing is in perfect health, at most still is so.
There is no incentive for capital spending recovery, because there is no profitable outlook. This is a consequence of global equalization of cost, to the lowest level, and thus revenue, to the same low level. Some call the process globalization, others term it productivity increase. I see bad news, and march of hundreds of thousands on Capital Hill in 2003.
Just for example, the big three auto are selling more cars than ever, at zero margin, and their stocks trade at multi-year lows, with bloated unfunded pension liability, so why do capital investment?
The traditional levers to recovery are missing, and so what is Jeff talking about, other than his trading book?
<<If I told you that interest rates were 1¼%, GDP growth is 3% to 4%, the CRB (Commodity Research Bureau Index) is rising to new highs and inflation is 2%, you would probably say the market multiple is 30 or 40>>
Interest rate is manipulated down, GDP growth is hedonically adjusted, profit is zero, cost is about to go up (overall tax burden, pension shortfall plug, commodities, war premium), people are losing high paying jobs and stuck with low compensation ones, retirement pot is polluted, and stock prices are way too high for what is coming, namely deflation of business profit, devaluation of currency, default of credit, and debasement of faith in officialdom
<<I have never seen so many people whining about a recovery with GDP growth at 3% to 4%>>
Hedonically calculated profitless growth at the precipice of massive cost increase and at the cusp of fiat asset value dilution should be priced at 5-8 x earnings, 5-10% yield, 50-75% of book and not a cent more.
Having chewed on what Jeff had to say and spitting out same, I do welcome the likes of Jeff and their participation in the market, because the cleansing process will be that much more complete with their help during the coming Year of the Sheep:
Soft, woolly, endearing. These creatures epitomize the gloomy outlook. They know where they are being led. Docile, submissive, never kick-up a fuss in hopes (vain) of being given a reprieve. It is said that wars end and peace is found in the Years of the Sheep. Anybody want to make a wager on that? Attractive odds are on offer.
Chugs, Jay |
