3 THINGS I THINK I THINK
17 December 2009 by Cullen Roche
3 Comments
- After boosting their guidance just last week, FedEx issued weak guidance this morning which has the market declining. The most important piece of the press release, however, was not the guidance, but commentary:
“Positive momentum in the global economy and continued execution of our business strategy drove volume growth across all FedEx transportation segments, highlighted by increased international shipments.”
FedEx is sandbagging the current quarter. No doubt about it. More importantly, however, they see some traction in the recovery – particularly abroad. This gives more merit to the overweight foreign, underweight domestic trend we’ve been seeing across our strategy outlooks.
- Despite signs of recovery from FedEx it’s likely to be well below trend as we continue to see in the Chinese water torture that is initial jobless claims. Claims once again spiked higher this morning to 480K. Without job creation it’s unlikely that the economy can sustain any sort of trend-line growth. Jobs remain the missing link in the recovery and it’s simply staggering that we are this far into the crisis and so little progress has been made….
- This great chart from Bespoke has me wondering: can any sort of real bull market be in our future without a continued rally in the banks? After all, they are the crux of the problems and they were the leaders of the equity market rebound (recall this rally started when the banks got M2M and began reporting better earnings). If bubble history serves us well, we could be in for years of sideways to down action:
The theme that “financials lead us down and then back up” has been churning in my little brain. I’ve been wondering whether this time it’s different because: (a) the banks are essentially nationalized, (b) the damage is asymmetrically linked to one asset … real estate and related economy. I think the rhyme may be true for the broad market, but maybe the market will really decouple … the old economy (“financials”) will be the new Bethlelem Steel. We now look for leadership from DEC, Wang, Walmart,… One day Michael Moore will make a movie about the ex-Bear Stearns CLO trader who now lives in Poughkeepsie selling rabbits “for pets or food”. Sarah Pallin will be electioneering with the populist them “what does joe trader think”; she will just have enough time by then to learn what the Bush doctrine is.
You just have to wonder. We’ve deemed the system to be one that is based on credit creation. So, if we don’t have healthy growing banks then how can we have a healthy growing system?
I was the system wasn’t this credit based system, but it is what it is. Therefore, the conclusion appears quite simple. Without healthy growing banks the system will not grow. Until the system becomes less dependent on credit creation I think the banks will serve as a drag.
I was taking a slightly different tack, that nationalization of the banks has made their stock a poor indicator. Under the forseeable future the “banks of america” will provide charity consumer financing and working capital credit for mid-caps. VCs amd PE will fund special situations. Fortune 1000 will tap bond markets. Other funding will come from insurance companies as they can’t surivive on 1% TBonds. There is plenty of credit for the worthy and the unworthy. The US will recover, but big banking will go back to the 60-70s as broad banks … others will become/stay bankified hedge funds (backstopped by tax payers).