|
|
楼主 |
发表于 2009-5-2 03:27 AM
|
显示全部楼层
本帖最后由 Dolphin 于 2009-5-2 04:31 编辑
11# dividend_growth
Analysts' Off-the-Wall (Street) Expectations
There are three fundamental reasons why Wall Street is dead-wrong on a quick turnaround for our economy and the stock market:
1. The Street sees a bottom in housing prices in early- to mid-2009.
If you do third-grade math on publicly available information for mortgages, housing inventory, the population and credit standards, you will see this will happen in mid- to late-2011. With this disconnect comes unreasonable assumptions about future bank write-downs and future consumer spending.
2. The Street sees a slowdown in write-offs and thinks the credit markets are already healing.
This is the reason it was surprised by Wachovia’s (WB) write-offs and why the talk is uneasy when it comes to Citigroup (C), the book of business Morgan Stanley (MS) got with Washington Mutual (WM) and what exactly Bank of America (BAC) is finding as it sorts through Countrywide’s balance sheet.
The Street is also in willful denial about the coming sharp acceleration in bad credit card, home equity and auto loan debt due to the recession. And, as long as write-offs continue and eat away at bank capital, lending will continue to contract.
3. The Street says the consumer is tapped out and will be for at least three quarters.
Consumers are not just tapped out – they are only beginning to suffer and will soon go into hibernation. The $800 billion in home equity draw-downs that supported spending in past years has nearly evaporated down to a few billion.
Consensus estimates now put future unemployment at 8% – I see it a couple of points higher – which means even less consumer spending; Our proprietary ChangeWave Research network surveys show some of the worst consumer and business spending plans in the past seven years.
Businesses are not getting the credit to expand or even stay afloat; they see fewer consumers spending and more cutting back; and export markets are imploding due to the credit crisis and the rapid rise in the dollar. GDP is contracting and will continue to do so faster than Street estimates.
The bottom line: We are not near the beginning of the end of this crisis; we are at merely at the end of the beginning.
Reality Has a New Definition
Over time, equity markets will face reality and come way down. But even if the market stays where it is right now, this does not mean we cannot make money through this crisis .
It’s all about establishing positions based on solid fundamental research and reasons, not panic or momentum.
So, let’s take a hard, fundamental look at the crisis – without ideology or willful optimism – and from there, you will see how profits can head your way once you join us at ChangeWave Shorts.
The Epicenter – Housing
The epicenter of this crisis – as I have been saying since February 2007 – is the U.S. housing market and declining home prices. The overhang of inventory and continuing foreclosures will continue depressing home prices.
Analysts see a bottom in a couple of quarters – I see it in a couple of years. Here is why:
•In the past, the magic number that signaled a bottom was a decline in housing starts below 1 million per annum. Current levels are well-below that – but foreclosures, most of them of relatively new homes, are at stratospheric levels. If you add new housing starts and while number of foreclosures above historical norms, you have a "synthetic" housing start rate that’s not too far from the days of the bubble.
•Why am I so certain that foreclosures will continue apace? Third-grade math – I looked at when subprime, Alt-A, option Adjustable-Rate Mortgages (ARMs) and other funky and less-than-creditworthy mortgages were granted and when these re-set.
We are nearing peak defaults among Alt-A and subprime mortgage holders – foreclosures will follow in around six months – but are about to be hit by a giant wave of defaults and foreclosures from option ARMs and the recession.
Option ARMs are those crazy mortgages that let you pick what kind of payment you make in a month and you can roll over interest into your principal. Then you hit a loan-to-value ratio and – boom!
Further, housing inventory of 1.5 million units, or 10 to 11 months, is going to stay at least that high for another year.
But markets are local, you say?
Fewer Buyers, Bigger Problems
The market for a specific house is local, but the dynamic that drives mortgage credit standards and lending is national. This translates into a 40%-50% reduction in the number of qualified buyers compared to 2006, independent of the impacts of a recession.
You can look up the data and do the math yourself – between 36% and 45% of buyers at the peak of the housing bubble had either subprime or Alt-A loans, and default rates for prime borrowers are more than triple what they were before the crisis. And standards have now overshot – a 50% reduction in eligible buyers may be generous, though it is probably more.
So, do the math – excess inventory facing a market at least half as big as it was just two years ago means continuing inventory issues and a continuing fall in home values. Defaults will peak in 12 to 15 months, foreclosures will top in 6 to 12 months after that, and inventory will hit the ceiling 6 to 12 months after that.
This puts us in the middle or end of 2011 when things get truly stable and prices see a bottom.
The Banks and the Credit Markets
If all banks had to sell their assets today, the U.S. banking system – using conventional accounting methods – would be technically insolvent, as are most banking systems around the world.
The situation is far worse than the during the banking crises of the 1930s – it is just that the government and the Fed have learned some, if not all, lessons from that disaster and have kept the system afloat by essentially printing money and injecting it into the system.
Several things are currently at work within the system and all aim at one goal – reducing the leverage among banks.
What is leverage? It is a measure of how much a bank lends (i.e., the assets it acquires) compared to the amount of its core capital fund or equity – pick your pleasure – of that bank. Traditional banks typically have a buck in a deposit account and lend out 11 or 12 bucks.
At the time Bear Stearns fell, though it was not a traditional bank but an investment bank, it was leveraged almost 35-to-1; the other investment banks were in the same neighborhood. And some foreign banks – notably the Germans – were leveraged at almost at 50-to-1. Over time, this is going to fall to in the range of 11-1 to 15-1.
How will this happen?
1. Banks will increase their equity and core capital, which will increase the denominator, and …
2. Banks will reduce lending and the assets they acquire, reducing the numerator.
This is well under way – but it’s the primary reason we are only about one-third through this mess.
And this is why we still have a long way to go:
Bank capital is actually decreasing due to write-offs. Despite Uncle Sam’s best efforts to raise more capital, core and equity capital will remain stagnant at best for quite a while.
Foreign investors have been badly burned by previous investments in the banks – and now Uncle Sam is in line ahead of the banks to get paid back for the preferred shares, as well as private investors such as Warren Buffett.
The banks, by de-leveraging, are reducing their ability to generate future profits – not to mention the end or reduction in many profitable activities, such as mortgage securitization, IPOs, mergers and so on – and their ability to internally generate profits to increase capital is virtually nil.
This lack of operating profits also reduces their abilities to pay dividends and attract capital. It is very possible that the banks will not be able to generate more than 25% of the operating profits we saw at the peak of their previous peak for at least five years.
How does this affect us?
The impact comes in the form of significantly less business and consumer lending. This process of de-leveraging will take time and there will be fits and starts as the banks get hit with higher-than-expected write-offs and a sharp recession.
We were down more than $3 trillion – with a T – in 2008. Expect more next year, as we could see a cutback as steep as $5 trillion. This cutback could make the recession longer and deeper and the recovery more difficult than at any time since the early 1980s.
Don’t shoot the messenger – I didn’t sell anyone a subprime mortgage. I’m just doing simple math.
The Recession
We have been in a recession since Q4 of 2007 and it is accelerating rapidly as credit contracts for consumers and businesses. Does this really matter?
I bumped into a Wachovia guy recently and he told me it is not doing any commercial lending greater than $5 million. Even applicants requesting less than that are probably wasting their time.
Minimum credit card payments are doubling, home equity lines are being cancelled or pulled in, and a regulatory change in credit card markets next year could end up killing more than $2 trillion in consumer credit lines. The recession is evidenced in both consumer and business behavior.
The consumer is going into hibernation – Go to a department store and check it out for yourself. The lines are shorter everywhere except Costco (COST) and Wal-Mart (WMT). The holiday season could be the worst in two decades, from stores to restaurants to travel.
Three months ago, while booking hotel reservations for a trade show, Mandalay Bay in Las Vegas was offering upscale suites (I am generally a Hampton Inn kind of guy, but my wife was traveling with me) in its new tower for about $375. I checked last night and those same rooms are going for $176.
My favorite hotel (because of smoke-free poker room) is the Mirage – and its rooms just broke below $100 on Expedia (EXPE).
As a consumer yourself, which deal would you choose?
Incidentally, my subscribers made some nice returns – 92% and 150%, respectively – by shorting Expedia last year. When you’re looking to make short-side trades, always be sure to look around and see what else stands to get dragged down with whatever you’re playing.
In this case, with consumers vacationing closer to home (if at all), the hotel industry scrambling to fill rooms, and checked-baggage charges scaring customers away from air travel, we started looking at companies that would feel a peripheral pinch. As it happened, our ChangeWave survey research indicated that fewer people were using online booking sites like Expedia and opting instead to book directly through hotels and airlines.
The moral to the story: What looks like a no-brainer can turn out to be a big gainer!
Business is contracting – Speaking of the ripple effect of bad news and bad business, we’ve seen the mortgage industry – which is down by about 80% – lay off countless workers. Investment and big banks are also conducting huge layoffs. Residential construction is down two-thirds, automakers are laying people off, and so on.
But, you may ask, isn’t all the money that Uncle Sam and the Fed have pumped into the economy and the reduction in interest rates going to help?
No – the money has been pumped into the financial system but has not made its way into the economy. Why? We are in what is called a "liquidity trap" – money is being pumped into the financial system and banks are sitting on it to rebuild their balance sheets. The money is going into the front-end of the pipe – read: banks – but not coming out of the pipe at the other end (into the economy).
Until de-leveraging is at least two-thirds complete, this money will be sucked up and sat on. That means the recession will be long – until at least early- to mid-2010 – and deeper with 9% unemployment or more – than Wall Street expects.
This means sharp downturns in corporate profits that are much lower than even lowered expectations. As they come down, individual stock prices and the general market will come down.
The Equity Markets
Massive market movements have recently been described as the result of panic and massive liquidations by hedge funds. (Remember that bridge I wanted to sell you?)
Standard & Poor’s earnings estimates are down 30.5% since September and the market was down 38% in 2008. I don’t believe in this kind of a coincidence – but I do believe general markets will continue to drop. Let’s look at recent changes in estimates for the S&P 500 (SPX) for 2009:
•March 2008 – estimates of $80-$82
•September 2008 – estimates of $64-$67
•In the past few weeks we’ve seen estimates of around $50. This puts the S&P 500 at a multiple of around 15 times future earnings, which is historically the high end of the range for the S&P.
Now let’s do some math:
•In the higher range of S&P earnings multiples – 15, or an S&P 500 index of 750 in 2009
•In the middle range of S&P earnings multiples – 12, or an S&P 500 index of 600 in 2009
•In the low range of S&P earnings multiples – 9, or an S&P 500 index of 450 in 2009
This is all based on the assumption that earnings forecasts – and actual earnings results – are not lower.
Back to the now – the current market is trading at roughly 15 times 2009’s latest consensus forecast for S&P earnings. If the market adjusts to longer-term historical norms, we could see a trading range of 450-750 on the S&P 500, or declines ranging from 15% to 50%. |
|
狗仔卡
发表于 2009-5-1 03:31 PM
发表于 2009-5-1 09:25 PM
