Thursday, September 23, 2010

Happy Anniversary Model "T"!

Happy anniversary baby
Got you on my mind

Hey everybody, I am excited about a big upcoming anniversary. If my wife is reading this, of course I’m talking about my 30th wedding anniversary. For everyone else, I’m referring to the one-year anniversary of the Model T Stock Trends Blog.

I started the blog a year ago to share the Model “T”, which attempts to predict the highs and lows of stock market cycles using data primarily connected to the commercial transportation industry. It also helped me keep my skills sharp as a looked for employment.

My friend Robert who helped me set up the blog page, asked me a year ago, “Who is going to read this?” I said maybe the 15 people who already know about the model and whoever else is interested. But the blog has a readership larger than I ever expected. It is read by people who want an understandable explanation of the economy. It is read by financial professionals in New York who remain curious about the model’s potential. I have received e-mails from readers in India, Sweden and other countries.

After presenting and explaining the model in my initial posts, I delved into factors that impacted the economy and made many predictions and forecasts along the way. The interesting thing about blogging is those predictions “go on the record” and can be reviewed at anytime. And it is now time for a review. So what did readers of the blog get over the past year?

The Losers

Let’s start with the failures. The Model “T” predicted the S & P 500 index would bottom out at around 580 in September or October of this year. So the model has not been accurate the past 18 months. The main reason for this “miss” is that the economic conditions are very unique and the government has injected an enormous amount of support and stimulus to stabilize the economy. I have been critical of Timothy Geithner, but the one thing he has been very successful at doing is stabilizing and strengthening the stock market. And don’t dismiss this. It was a very important factor in controlling this crisis.

The Model “T” has not been accurate in predicting the recent stock market, but none of the other sophisticated models developed by your PhD in Economic experts have worked either. As I have stated before, even some very accurate economic indicators have been rendered useless in this Redression (my new term for the Recession/Depression) So as a marketing person, I can honestly say that the Model T has been as accurate as many of the models developed by respected economists.

The Winners

Don’t focus so much of the content, much of which is obvious now, but when the predictions were made.

- In October 2009 you read that the economic recovery would not be a V-shape, a U-shape, an L shape or a W. It would be a “UL” with a slow, sluggish growth rate after riding the bottom of the cycle. (Almost a year later, this one has been spot on).

- In October 2009 you read that the unemployment situation was unique and pervasive. The number of displaced skilled, white-collar, workers meant that that unemployment would remain high for an extended period of time (some government officials still don’t understand this).

- In November 2009 you read how lack of credit availability was choking the economy and would not improve much until well into 2010 and would not fully recover until 2011. (Count it)

- In November 2009 you read that 2010 GDP would be below 3% and that the housing market despite the government stimulus efforts and low interest rates, would not recover in 2010. Housing starts were predicted to be below 700,000. (GDP is forecast at 2.7% for 2010 and housing starts at 590,000 (Wells Fargo))

- In November 2009 you read that the recession ended in July 2009 (NBER just announced this week that it ended in June 2009. (Okay, one month off but 10 months ahead of the experts).

- In December you read that the government programs to stimulate the economy were not working. In February 2010 this issue was addressed in more detail. (No comment necessary)

- In January 2010 you read that the economic indicators predicted slow, choppy, economic growth in 2010. (Slow and getting choppier)

- In January 2010 you read that this was not going to be an economic recovery as much as it was going to be an economic “healing”. Also, there would be no “double-dip” recession. (The “recovery” hasn’t really happened)

- In March 2010 you read that there was a structural unemployment problem that a typical economic recovery would not solve. (Several economists agreed with me several months later, but the government still doesn’t get it.)

- In May 2010 you read that the recovery was it trouble and there was an economic slowdown ahead. (Swish)

Of course there were other predictions made earlier in 2010, but it is too soon to determine the accuracy of those. The Model “T” would still indicate that the stock market will see a significant drop to compensate for the rally that has taken place the past 15 months, but the market continues to show surprising strength.

I am tempted to boast about the accurate predictions, but my Pennsylvania Dutch upbringing prevents me from doing so. Proud Pennsylvania Dutch boys get sent to bed without any cheese and birch beer! So I will just quote Walter Brennan’s character from the 1960’s western The Guns of Will Sonnett: “No brag, just fact.”

Happy anniversary baby
Got you on my mind

Thursday, September 9, 2010

What is This Thing Called, Love?

I've been through the desert on a horse with no name,
It felt good to be out of the rain.
In the desert you can remember your name,
'Cause there ain't no one for to give you no pain. (America)

I have previously stated that economists are having a difficult time explaining the current economic situation due to the unusual conditions that exist. In is interesting to note that economists and the government have underestimated the current downturn at almost every point in the process. If you go back and read some of the 2008 quotes of FED Chairman Ben Bernanke and former Treasury Secretary Henry Paulsen about the economic conditions at the time, you find the analyses faulty and the forecasts laughable.

This is not your father’s recession. Unfortunately the government has viewed this as a typical recession and has responded accordingly. Remember that the first economic stimulus program from the Bush administration. Talk about p***ing on a forest fire. Then the Obama administration follows that up with a stimulus package that is less about creating jobs as it is about solidifying and rewarding voting constituencies (never let a crisis go to waste). I really believe they expected the economy to recover regardless of how poor the stimulus package really was. Similarly, Cash for Clunkers and the housing tax credit programs were “gadget” plays to prop up these industries until the economy improved. It’s hope and change all right --- you keep stalling and you hope that things will change.

This downturn is more than just a recession. If it wasn’t, The Great Recession of 2008-2009 would have been followed by the Great Recovery of 2010 and we would all be partying to the music of Kool & the Gang right now. It is not a depression, because the economy did not drop far enough for that designation. Some economists have noted that this is not a depression because the unemployment rate during the Great Depression was 25%. I say be careful here. If you take the unemployment rate, add the underemployment (part-time wanting full time) rate, plus the people not counted because they have given up looking, you are up to over 20%. Obviously this is not as devastating as the 1930’s, but that was The “Great” Depression, not just any depression.

Our current situation has characteristics of both a recession and a depression (See excellent article “You Say Recession, I Say Depression”). So what do we call this thing? If you have lost your job or taken a pay cut during the last two years, you want to call this the **#**x!!!! Recession, but that doesn’t translate well in civilized discussion. So here are my suggestions:

The Great Repression

Psychologists define repression as excluding painful or disturbing memories from the conscious mind. You put uncomfortable thoughts in inaccessible areas of the mind. And what uncomfortable thoughts do we need to repress?

- That one major political party blindly led us into this mess and now the other major political party is pathetically attempting to blindly lead us out. Different clowns – same circus. Who do we vote for now?

- That CEOs of some major financial institutions were removed from their posts, but not before received receiving seven-figure bonus checks as a reward for their fine efforts. They now make difficult decisions about whether to order the quiche or the croissant before tennis at the club.

- That the government’s response to the banking crisis was a 2,300 page financial reform bill that somehow never got around to fixing many of the things that went wrong. The banks are bigger than ever – Too tremendously big to fail! The reform bill concentrated more on your credit card bills and bank fees. Darn, it was my credit card bill that caused this mess.

- That the current administration has enacted healthcare legislation that will increase business costs and possibly personal costs at a time when we can’t afford it. Introducing this burden and uncertainty into this weak, unstable, economic environment is sheer lunacy. Even if the new healthcare system works wonderfully (a very big “if”) down the road, it is not worth the damage that it is doing right now. Ditto for Cap and Trade.

The Great Redression

To redress is to set upright, restore, to make up for, to repay. As I have stated before, we are now paying for a credit, housing, and cheap import, binge that started around 1995. It is payback time and you know what they say about paybacks. I think this term is perfect.

After two days in the desert sun
My skin began to turn red
After three days in the desert fun
I was looking at a river bed
And the story it told of a river that flowed
Made me sad to think it was dead

You see I've been through the desert on a horse with no name
It felt good to be out of the rain
In the desert you can remember your name
'Cause there ain't no one for to give you no pain

Horse With No Name Video

Benny Hill Video that explains the title