Wednesday, December 26, 2012

Do You Have (Economic) Bowl Fever?

While you are relaxing watching the Russell Athletic Jock Strap Bowl and the Located Some Bad Teams Compass Bowl, don’t forget about watching the economy and your investments in 2013.  To help you along, I am again making my “Economic Bowl Picks” versus my economic expert panel (the average of my seven favorite economists whose forecasts are published by the Wall Street Journal). Here is how I did against the panel for 2012 (the actual numbers are current estimates, but should not affect the final results):

CPI (Inflation)
Housing Starts
Crude Oil Price

I'm closer on CPI, Unemployment and Housing Starts, so I’m doing a little victory dance celebrating my second straight 3 to 2 win!  Take note of how close the panels’ GDP forecast was.  You won’t get accuracy like that from those other economic blogs!  My GDP forecast was much too high for the second straight year.  I expected the government to “pull out all stops” to stimulate the economy in an election year because no incumbent president could ever be elected with economic growth so weak and unemployment so high. Uh, well it seems like the political indicators are malfunction as much as the economic ones. 

The 2013 forecast differences between the panel and I are much closer than normal this year which means I must be getting better or they are playing way to much golf!  For the record, I do make my forecasts before calculating the panel average: 

Here are the 2013 Economic Bowl Picks: 

The GDP Bowl: 

Minnesota Moderates vs. Rutgers Recession 

Line: Moderates by 2.2%  Range: 1.3% to 2.9% (The Line is the average of the expert panel.  The Range is the lowest and highest individual forecasts of the panel) 

The economy will start off at a very low rate of growth and then improve modestly all year.  We should be running at 3% by year’s end.  My Pick: Moderates by 2.3%  

The CPI Bowl (Consumer Price Index Bowl) 

Pittsburgh Pricers vs. Duke Discounters 

Line: Discounters by 2.1%  Range: 1.8% to 2.3% 

CPI was 2.2% last year.  There are few factors that should push this much in either direction.  This is why the FED can keep interest rates in check for another year.  I will move it up slightly just because I have GDP going up the same. My Pick: Discounters by 2.3% 

The Unemployment Bowl

Louisiana Laborers vs. Fresno Food Stampers 

Line: Stampers by 7.8%  Range 7.7% to 7.9% 

This statistic has been highly questionable for a year.  Just how many people are leaving the workforce and why?  The retiring baby boomers are a factor, but how much?  And then you have the underemployed and part-time worker/full-time seeker factor.  An economy growing at 2% should not generate enough jobs to reduce the current rate and that is why the panel is forecasting no change.  I am only slightly more optimistic. My Pick: Stampers by 7.6% 

Housing Starts Bowl
Arizona Allotments vs. Virginia Vacants 

Line: Allotments by 980,000  Range: 810,000 to 1,080,000 

The housing market is coming back and gaining momentum on a more consistent basis.  I (and the panel) am forecasting 25% growth in 2013.

My Pick: Allotments by 975,000 

Price of Crude Bowl 

Keystone Pipeliners vs. California Hippies 

Line: Pipeliners by $88 (year-end) Range: $80 to $94 

The price of crude (and gas prices) has dropped sharply in December and some experts say it could fall to $80 a barrel.  I think this is based on a weak U.S. and world economy.  By the end of 2013 I expect the U.S. economy to be rolling forward and hopefully the world economy is in better shape also.  My Pick: Pipeliners by $95.
Bet Big on the Pipeline!

Stock Market Prediction: 

The Model T predicted an S&P 500 Index high of 1435 in 2012 and the index peaked at 1474.  Being 2.7% low is not that bad; however in 2011 the forecast was 2.2% high.   

The Model T 2013 forecast is for a high of 1550, however for the first time since I have been writing this blog the Model T is signaling a definite peak to be followed by a correction.  I will present the details in the next post. 

I hope you made some good investments in 2012 and wish you a very prosperous 2013!

Sunday, December 9, 2012

A Very Ugly Freight Market

In preparation for my year-end economic forecasts and Model T 2013 stock market predictions, I thought it would be a good time to check the current status of the freight markets.  

Because the economy has been slow and needs some motivation, I have enlisted the cheerleaders from Good Shepherd High School to assist me in this endeavor. Excuse me, there has been a change.  These cheerleaders are actually from German Shepherd High School. 
  German Shepherd High Cheerleaders

Here’s what is happening in the freight world:

Truck Freight 

FTR (Freight Transportation Research) FTR Truck Loading Index
Latest Report: Declining 

Trend: Declining.  Index was growing nicely until hitting the wall in Q4. Expected to be at near 0% (year-over-year) at year end. 

Forecast: Skidding at 0% in Q1 before improving.

ATA Trucking Index 

Latestst Report:  Down 3.8%, at the lowest level since May 2011. 

Trend: Decreasing 

Forecast: Modest improvement in Q1

“Okay Cheerleaders, do your thing!”

You ain’t got no alibi. 
You ugly, oh yeah, You ugly 

Rail Freight 

Latest Report:  Carloads – Down 6.1% in October (y-o-y). It’s flat when you factor out declining coal shipments. Intermodal – Up 1.5% (y-o-y)  

Trend: Decreasing 

Forecast: Flat in Q1, before increasing the rest of the year. 

“What do you say Cheerleaders?”

Rickety Rick, Rickety Rack
Your train done run off that track,
You’re Grounded
Yo Mama says Your Grounded!
Port Freight Activity
Latest Report:  Inbound Freight – Up 5% (y-o-y) in October on the West Coast (Chinese imports), flat at most other ports.  Outbound Freight – Up slightly on the West Coast, down or flat for the rest. 

Trend: Declining 

Forecast: Flat in Q1 


You ain’t got nuthin’ to see
Cause you ain’t got no GDP,
You stagnant, oh yeah, you stagnant

Air Freight 

Latest Report:  Down around 0.4% from last year, year to date. 

Trend: Flat/Declining 

Forecast: Very bad Q4, 2013 to be much better 
Baltic Dry Index (measures world-wide shipping freight activity)

Latest Report:  Down 50% (y-o-y) 

Trend: Declining 

Forecast: Short-term, a modest improvement. Long-term, a 50% increase at the end of 2013. 

“Cheerleaders, help me!”

Two, Four, Six, Eight
You is in an awful state

The freight data is consistent with my forecast that the economy is bouncing between 0-2% GDP with no upward momentum.  It appears that we are falling to around 0% (the bottom of this cycle) at the end of the year.  I still don’t believe there we be a recession because the economy is moving so slowly.  It is the difference between hitting a wall at 5 mph versus 40 mph.  You hit the same wall, but the impact is much different. There just isn’t enough downward momentum to cause a significant recession.  

The freight forecasts suggest that this economic malaise will last through Q1.  The good news is that the rest of 2013 is forecast to be much stronger.  Wouldn’t it be great if we were talking about a new plan for economic growth instead of trying to keep from falling off a self-made cliff?  And just a reminder, while raising taxes is an economic plan; it is not an economic growth plan.

“Cheerleaders, do you have any final thoughts about this blog post?”  

You ain’t got no alibi. 
You ugly, oh yeah, You ugly

“You are talking about the economy, right? Well…..? (sigh) Suddenly I feel like I’m back in high school!”

Monday, November 26, 2012

Breaking Up (with your stock) Is Hard To Do

Don't take your love away from me
Don't you leave my heart in misery
If you sell then I'll be blue
'Cause breaking up his hard to do

Two years ago I bought this great stock because I thought it was an outstanding investment at a fantastic bargain price.  But now it is a terrible stock and is down 22%. 

So it looks like I was wrrr … 

I was wroooo…. 

I was wrong. 

And here lies a serious problem for large investors and small investors alike.  When it comes to investing money, we all become like Arthur Fonzarelli (the Fonz), we hate to admit we are wrong.  This denial causes us to hang on to “bad” stocks for way too long. 

Psychologists tell us that it causes great emotional distress to admit that we have made an investment mistake.  Investing mistakes are more agonizing because the loss is financial and quantifiable.  This tendency is much more prevalent in men than women due to the “male ego” effect.  Women dump losers more quickly (just like in single bars) and this is why women investors (both professional and individual) tend to outperform men in studies evaluating gender and investing. 
To admit you made a mistake, you must try to resolve the fact that out of the thousands of stocks, mutual funds, EFTs and commodities available, you actually made the conscience decision to buy this one.  And boy did you screw up this time! 

But you couldn’t really be that stupid, could you?  So you begin to lie to yourself.  It really isn’t a bad stock, it’s just that some bad things have happened to it.  Good things are going to happen soon.  If I just wait, the stock will recover and will even make money just like I expected.  Then I won’t be stupid, no I will be an investing genius, just like Warren Buffet. Oh yeah!   

But it doesn’t usually work that way.  Typically the stock continues to slide until it hits a bottom and then stays down there for a long time.  You hope it comes back, but this hope is not based on reality. Sadly, the Easter Bunny never shows up with any “recovery” candy. 

I am writing this because I just sold off one of my losers.  About two years ago I bought this highly-recommended, popular, utility stock.  It offered solid growth potential with a great dividend.  I got it at a “bargain” because some temporary factors had knocked down the price.  The stock was so good that I bought more than usual (I now have a personal limit on how much I invest in any one stock). 

Initially the stock performed as I expected.  The price went up and I almost bought more when it bounced back a little.  But then the economy slowed and demand for electricity waned.  Natural gas prices dropped which made this particular utility’s cost of production less competitive.  Finally, some  negative internal information about the company leaked out which involved politics.  Of course this bad publicity received much attention in the middle of an election campaign. 

Then stock of course began to slide.  It never dropped much at one time.  But the negative pressures listed above resulted in a slow leak over time.  Of course I told myself that this was just temporary, that the slide was illogical and would stop very soon.  And the dividend, the dividend was still strong so I could afford to wait for the stock to return to profitability. Then the viability of the dividend came under question due to the weaker company balance sheet.  And then I asked myself why major investors weren’t buying large chunks of the stock considering the dividend was even better due to the lower price?

Remember when you held me tight
And you kissed me all through the night
Think of all that we've been through
Breaking Up Is Hard To Do

So I sold the stock.  And even though I believe everything I have written in the post, it still hurt to sell the stock.  It still was distressing to admit I had made this mistake.  The brain says “yes”, but the heart still says no.  But if you are going to become a good investor, you got to know when to “fold ‘em.

Breaking up with your stock is indeed, hard to do: 

Investario: I’m sorry Stockeeta.  It’s over between us, I’m leaving you. 

Stockeeta:  Please, no.  I know my returns are down, but it’s just a cycle I’m going through.  I’ll change and you will be happy with me once more. 

Investario: Look Stockeeta, I was first attracted to you by your high yields, but your returns are sagging and there are other choices available with very attractive profits. 

Stockeeta: But the dividends! I have always provided you with very satisfying dividends!  

Investario: Yes, but word on the street is that your dividends will be much less satisfying in the future. I’m sorry, this is goodbye. 

I beg of you, don't say goodbye
Can't we give our love another try
Come on baby, let's start a new
'Cause breaking up is hard to do

Tuesday, November 13, 2012

Train Wrecks and Washing Off the Slime

You say "Goodbye" (or in my case, “Bye, Bye”) and I say "Hello, hello, hello".
I don't know why you say "Goodbye", I say "Hello, hello, hello".
I don't know why you say goodbye, I say hello

(Since we started with the Beatles, an alternative song could have been “Help” and some people would have even gone with “Back In the U.S.S.R”!)

Well, Hello Mr. President
American has spoken and apparently we are satisfied with economic growth of less than 2% percent.  The good news is that at some point we will exceed expectations, the bad news is the bar has been lowered.
This blog has gotten more political than I want it to be this year, but this was the result of having a presidential election during difficult economic times between two candidates with starkly different economic philosophies.  With that said, here are my final economic/political observations for this cycle:
Economic Growth: Just because Mitt Romney had a five-step plan, it wasn’t guaranteed to work and would have taken some time to implement.  In addition, his tax plan sounded like something designed to get votes instead of solid tax reform.  If President Obama (it hurt some to type that) leaves the economy alone and does not clamp down on the domestic energy boom, there is hope for an eventual stronger recovery.  The U.S. economy has a tremendous ability to heal itself.  Once the “Fiscal Cliff” gets resolved I expect GDP to make it over 2% (woo, woo).
Job Growth:  Romney planned to “create” 12 million jobs in four years.  However presidents can’t actually create jobs, they can only create an environment that is conducive for job growth.  Unfortunately President Obama (ouch again), had problems grasping this concept in his first term, let’s hope for a change in term two.   Even if job growth remains at its current slow rate for the next four years, the economy would still add around 8 million jobs.  This is “only” 4 million less than Romney’s plan, which is still significant if you are currently looking for work.  However, job growth should start to increase (again through self-healing) soon and continue to grow over the next few years.  I would not be surprised if the economy adds the 12 million jobs (without Mitt’s help) over the next four years.
Obamacare:  This is a huge mess.  The system was destined to fail because it costs too much and couldn’t be paid for (without huge additional tax increases).  But now we learn that while many were crying over the Supreme Court ruling on the individual mandate, the court also ruled that states do not have to implement the expansion of Medicaid provision.  The states also can opt out of creating the insurance exchanges.  The federal government is then supposed to set up the exchanges, but there is no money allocated to do this. 
In addition, the economic law of unintended consequences is starting to kick in big time.  Restaurants, hotels and other industries that use many part-time workers plan to cut workers hours to avoid the added cost of Obamacare.  It is also expected that small businesses will stop growing when they reach 49 workers to prevent paying higher healthcare costs.  Businesses (and individuals) will continue to make decisions that circumvent provisions of the law to save money.
Unfortunately, this is a train wreck that we get to watch from inside the train.
Rejecting a Business Mogul as President:  In June I wrote two posts advocating electing a business person as president.  While I still believe we needed someone who understands business running the economy, a business mogul has liabilities as a candidate.  Americans want their president to have core convictions, even if they don’t agree with all of them.
A business mogul only has one core conviction: What makes me money? It is what makes the tycoon successful and requires that he changes direction as conditions change.  Romney tried to use this strategy for political success but in politics this is labeled “flip-flopping”.
President Obama displayed more core values than Romney and core convictions beat no convictions every time.  Sometimes an election comes down to the question of “Who will screw me less?” and many voters decided they couldn’t trust the rich guy.
An Apology:  I apologize to any of my readers who may have been offended by anything that I wrote over the last few months that they perceived as too politically biased. I promise that I will not write anything politically oriented ever again, unless of course somebody does something economically stupid. 
Excuse me, I am now going to take a shower and wash off all this slime.


Monday, October 29, 2012

Will The Economy Ever Get Back In Sync?

I'm doin' this tonight,
You're probably gonna start a fight.
I know this can't be right.
Hey baby come on,

We start off with a little ‘NSYNC because this economy is so out of sync.

In June several key economic indicators were ‘flashing red” and I wrote that I thought the economy was entering into a new recession. Fortunately, this forecast was wrong.   I still believe the economy may have stopped growing for a few weeks around the end of June, but instead of continuing to drop it bounced back to grow weakly in Q3.

Typically when the economy drops to 0% or negative growth, it continues to fall into a recession.  This is why the ERCI (Economic Research Cycle Institute) model has predicted two recessions in the last year that have not happened.  Their model assumes that once the economy stops growing, it continues to fall. However as the economy bounces softly on the bottom of this cycle, this is not happening under current conditions.  Fortunately there is not enough downward pressure to push the economy through the floor, so we are in a holding pattern.

The usually accurate, predictive, economic indicators continue to malfunction.  This is a result of the economy being “out of sync”.  Usually the housing market is a leading driver of the overall economy. However, the housing market crashed much harder than almost all other industries as a result of the Great Recession.  The rest of the economy has been slowly recovering for over two years, but the housing market recovery is less than 8 months old.  Now just as the housing market is picking up steam, the rest of the economy is losing momentum.  This results in the economy bouncing between 0% and 1.7% GDP (I’ll address the most recent GDP report later).

This is the Ying-Yang economy.  We are floating on the ocean, bobbing up and down.  Never sinking, but not really going anywhere either. If this economy was a country, it would be Malaisia.  Just look at the recent data:

Retail Sales – Dipped earlier in the year, but were up 1.1% in September

Industrial Production – Down 1.4% in August, up 0.4% in September

Index of Leading Economic Indicators – Down 0.4% in August, up 0.6% in September

Chicago Fed National Activity Index – Down in August, up in September

Los Angeles Port Activity – Inbound up 3%, Outbound down 2% (latest monthly data). Traffic has basically flat lined for the last several months.

Bank Lending – Very flat for the last several months

Job Growth – July = 181,000. August = 142,000. September = 114,000. Weak and flat.
Inventories – Have outpaced sales, which means manufacturing and freight markets have pulled back

Many Other Industries and Indicators – Are showing a flat pattern with small bounces up and down

What’s Next?

The first Q3 GDP report had the economy growing at 2.0%.  However increased government spending was responsible for a whopping 0.7% of the 2.0%.  Why the government would spend so much money in the quarter before a presidential election, I’ll never know.  It appears that they may have spent the entire military budget in Q3.  This means the Pentagon won’t have any money to buy even toilet paper the rest of the year. But this is the military, so they know how to get out of sticky situations.

I would also bet the farm on the 2.0% number being revised downward  after the election. My guess is the final Q3 number will be no higher than1.8%, which means after factoring out the government spending boost, the “real” growth may have been around 1.1%.

My panel of economic experts forecasts the following GDP growth rates: Q4 = 1.4%, Q1-2013 = 1.5%, Q2 = 1.9%, Q3 = 2.2%.  The good news is the growth increases every quarter.  Of course the bad news is the increases are so small that you have to work your way up to 2.2% growth.  The panel’s forecasts have been very accurate this year so I think this is consistent with this “bobber” economy.  Unfortunately these GDP rates historically have not resulted in a lower unemployment rate.

My guess is the panel’s forecast assumes no change in economic leadership.  So if you keep doing what you’re doing, you’ll keep getting what you’re getting.  But maybe it won’t turn out that way.  The economy is out of sync, but you will know a change is coming if on the morning of November 7 you hear us getting back ‘NSYNC.  

They want better GDP!
I know that I can't take no more
It ain't no lie,
I wanna see you out that door
Baby, bye, bye, bye...
Bye Bye 

Monday, October 15, 2012

We’re Shakin’ Cause The Economy’s Not Bakin’

Good evening, this is Eugene Roush reporting from the World Economic Speedway.  There is much excitement here because in just a few weeks we will find out if there will be a new driver of the U.S.A. car or if people will decide to stick with the current operator.  I am joined today by renowned NASCAR driver Ricky Bobby of Talladega Nights fame.

Eugene: First we are going to talk to current driver Bearleft Orama.  Bearleft, how do you think you have performed as a driver the last four years?

Bearleft: I have driven the car just great.  I’ve put my foot on the accelerator and kept the car on the right course.  I am an excellent driver and absolutely deserve to continue driving for the next four years.

Ricky Bobby: How fast you driving this thing?

Bearleft: I’m doing around a 1.3 GDP.

Ricky Bobby: 1.3! I can go faster than 1.3 riding naked on a tricycle!

Eugene: Now don’t exaggerate

Ricky Bobby:  No really, I have.  Want to see the photos?

Eugene: No! -- Bearleft, why are you going so slowly?

Bearleft: The previous operator of the car ran it into the ditch and caused considerable damage.  Me and my team had to repair it and now this is all the faster it will go.

Ricky Bobby: That sounds like you are making some wimpy excuses.  Are you sure that’s all the faster it will go?

Bearleft: Look, I’m trying really hard and I care deeply about going faster.  I know I’m not driving as fast as the Chinese car, but just give me more time and I know I will drive much faster.

Ricky Bobby: Trailing the Chinese? That’s disgraceful. – Look dude, if you ain’t first, you’re last!

Bearleft: Let me be clear: I am a great driver.  If you don’t believe me, just ask me or anyone on my team. I’m the best there is, plain and simple.  When I wake up in the morning, I whiz excellence.

Ricky Bobby: Hey, that’s my line! (Actual line from the movie: I p*** excellence.)

Bearleft: Not anymore. I’m the king of this track!

Eugene: Now let’s talk to the man challenging Bearleft for the opportunity to drive the U.S.A car for the next four years, Richie Richney.

Ricky Bobby: Those are interesting drivin’ gloves you got there.

Richie:  Oh these aren’t driving gloves; these are my silk driving mittens. They’re from France!

Eugene: Are you sure the people will accept a driver wearing such expensive “mittens”?

Richie:  Why not?  Underneath the mittens, my hands are human, just like theirs, although with a much better manicure.

Eugene: Do you think you can drive the U.S.A. car faster than 1.3 GDP?

Richie:  Are you serious? My grandmother could go faster than 1.3 GDP. In fact all 12 of my grandmothers could drive faster than that!

Ricky Bobby: You got 12 grandmothers? How is that possible? Your grandfather must have been a real tomcat!

Eugene: Why do you believe you would be a better driver than Bearleft Orama?

Richie: I’ve had lots of experience driving smaller cars on other tracks.  I drove the Bain car and had it zooming really fast.  I drove the Olympic car to victory and I once drove the Massachusetts car on the American circuit.

Eugene: How are you going to get the car to go faster?

Richie:  I plan to put high octane fuel in the tank and to take off all the restructure plates.

Eugene: Can you give us more details?

Richie: Uh, no I can’t.

Eugene: How about you Bearleft, what is your plan?

Bearleft: Plan? I don’t really need a plan.  Remember, I whiz excellence.  Just watch me!

Richie: Oh yeah?  I can whiz excellence too! Only faster!

Eugene: Run Ricky Bobby! It’s turned into a giant whizzing contest!

Ricky Bobby: Shake and Bake! I just wish I would have brought my rain coat!

Eugene: Ricky Bobby, what happens if neither Bearleft Orama or Richie Richney can drive the U.S.A. car any faster?

Ricky Bobby: Then it’s time to pray to that little baby, in that little manger……