Former US Federal Reserve chairman Paul Volcker said the rise of China and other emerging economies underscored a decline in the comparative economic and intellectual leadership of the US. "I don’t know how we accommodate ourselves to it," said Mr Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, in an interview with PBS television. "You cannot be dependent upon these countries for 3 to 4 trillion dollars of your debt and think that they’re going to be passive observers of whatever you do," he said.
The Australian Financial Review, 30 September 2009.
I believe an administration – any administration – that ignores business expectations is committing a grave error of judgement. That this is precisely what Obama and his Chicago cronies are doing is supported by rumours that they are ignoring the counsel of Rubin, Volcker and the rest of the White House economic advisers. No one should be surprised at this since left-wing ideologues have never had any real time for economics. For them, politics trumps all, including economic laws – or so they think. Nevertheless, one should NEVER allow personal feelings to cloud one’s judgement. The fact remains that this recession began before Obama was elected just as the last recession began – irrespective of what hard-core Democrats assert – before Bush won the 2000 election.
Gerard Jackson, BrookesNews.Com, 4/10/2009.
Myer is over-valued, even at the low end of the pricing range, possibly as much as $1 a share on my calculations. But valuing the business is not the same as predicting its share price: The stock could rise on the back of sentiment. In the long run however, Myer will need much stronger earnings growth to justify its valuation and I am not convinced it can achieve it. I am also concerned that the owners of Myer are selling out. Better opportunities are elsewhere.
Roger Montgomery, independent share analyst, as reported in the AFR 3/10/2009.
Department stores overseas have been among the biggest casualties of the global crisis and long-term performance has been weak. There are certainly easier ways to make money than department stores. Customers are increasingly fickle and willing to shop around, the stores need lots of floor space in expensive areas, have high inventory costs, high staff costs and fashion sensitive products. It has not been a great industry to invest in globally and the outlook is deteriorating.
Stephen Ogden-Barnes, Australian Centre for Retail Studies, Monash University as reported in the AFR 3/10/2009.
"Too many people believe that today is yesterday," said editor. "I like that," said Compass.
Our editor talking to Compass, an Ecinya Confidant, at 3.50 pm, 6/10/2009
Straws and camels, questions searching for answers
Sometimes analysis is simply a question searching for an answer. Sometimes we are just looking for the straw that might break the camel’s back. After a day off to celebrate Labour Day in New South Wales, the ACT and South Australia, we began the day with a high level of uncertainty and had moved to our number 5 tactical position of ‘ambivalent, uncertain, relatively clueless’. (The other four tactical positions are outlined under the Strategy tab.) What brought this on?
Anyway, to clear his head our editor went for a walk to the bank and to buy some lunch. This caused him to think about the up-coming Myer float, which he considered to be considerably over-priced. He then remembered that he had removed page 45 from the Weekend AFR with a view to reading it at some appropriate time. That appropriate time had, in his view, now arrived as he searched for some clues to what might lie ahead in the markets – the XAO and the S&P 500 in particular.
Looking at some other straws, but the same camels
The stimulus straw: A number of learned economists have asked the question "What happens when the stimulus is withdrawn, what will be the quality and quantity of economic growth post-stimulus?" David Rosenberg of Gluskin Sheff of Canada estimates that 80% of the rebound in US growth has been induced by stimulus measures.
The bull markets are driven by liquidity straw: Much of the liquidity injections provided by central bankers acting in concert around the world, has found its way into equity markets. This has prompted ‘cash on the side-lines’ to join the party. So after about 150 days from the retracement bottoms of March 2009, the All Ordinaries index has hit an intermediate peak of + 49.7% on 29 September, following the peak in the S&P 500 (our global proxy) at 53.4% on 18 September. Averaging these numbers we get a nice bounce of 52%.
The equity re-capitalisation straw(s): Many companies are talking of revised guidance, but not emphasising the earnings-per-share number. They are simply ignoring the dilution impact. David Jones is running full-page fashion look-alike ads talking about ‘growth’, their share price performance from 3 January 2003, dividends etc. But hidden away in the disclaimer are the words: "Past performance is not a reliable indicator of future performance". And no mention of EPS growth or what interest rate rises might do to retail spending between now and Christmas.
The real unemployment straw: In Australia the ‘official’ unemployment figure has stayed below 6%, but the number of people now working on a part-time basis (the under-employed) has not been factored in and the number of people that have given up looking for work is never factored in.
The US banking straw: The number of US banks that are now on the FIDC’s stressed list has almost doubled over the past year from circa 1458 banks to 2256 banks. It seems that accounting changes, government guarantees and quasi-nationalisation has delayed banks having to recognise bad and doubtful debts.
The municipalities in distress straw: Obviously the most notable of these is California, the world’s 6th largest economy, but many Australian councils and even several state governments are short of money.
The regulation solves the problem straw: As Nero fiddled while Rome burned so has the American regulators. The problem has not been lack of laws and regulations, but lack of supervision, oversight and accountability. Australia has been relatively fortunate in this regard as APRA and the commercial banks have performed reasonably well. A few notable exceptions – Babcock & Brown group, Allco, various property groups, Timbercorp, Great Southern, Opes Prime, Storm Financial etc.
The G20 ‘aren’t we marvellous’ straw: Having adopted massive Keynesian type stimulus packages that have not been seen since the end of World War ll, world leaders from developed nations recently basked in the Washington/ New York glory that they had saved the world from disaster. In fact they probably did, but much of the spend has been frivolous and reckless, and taxpayers have not been made aware of when and how they will pick up the tab.
But are we over-reacting?
And "whether or not it is clear to (us) no doubt the universe is unfolding as it should" (The Desiderata) and time will tell. But we have now written on this topic four times if you include today’s issue: ‘Time to pause’ was written on 25 August; ‘Pendulums swing, imbalances ebb and flow, and the band plays on’ was written on 15 September; and ‘On the bus on the road to recovery, transitioning slowly towards sustainability’ was written on 22 September.
Tactically, up until recent weeks, we stayed on the bus. We have just hopped off and decided to wait for the next bus. For us, the straw that has broken the camel’s back has been the pricing of the up-coming Myer float at between 14.3 and 17.3 times earnings when we think a reasonable multiple might be around 12 times. Based on median earnings per share of 27.8 cents, the vendors are targeting a share price/ value of $3.90 to $4.90. Our rough calculation puts us at about $3.35. But perhaps yesterday has arrived again today and perhaps the old Jewish proverb "Ecinya, you are my friend. I would not advise you to buy what I am selling" does not apply today.