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A Peak Under The Hood will be dedicated to providing unique insights into macro topics happening around the world and how these topics may affect financial markets. We will try to provide an entertaining, but informative blog, on subjects ranging from Real Estate, Mortgage Markets, Commodities, Major Stock Indexes, Bonds, and Select Trading Ideas. Our site will contain original posts, charts and also include opinions from outside investors and reporters who furnish original thoughts. We will attempt to dig deeper than what can be found on major network financial news outlets and it is our hope that you will continue to visit the site as we provide intelligent analysis that may be counter intuitive to mainstream ideas.

Sunday, August 7, 2011

Everyone Sucks. A look back on Predictions made in Jan.

S&P says 'Suck it America.'

C'mon.  Wasn't this in the cards?!?  We have tripled our outstanding debt since 1995, spent money on pointless stimulus programs (and monetized our own debt by doing so- MAGIC!) and literally CREAMED the next 2-3 generations with debt levels that will require taxes to be raised 300-400% from the current levels.  Oh yea... and Timothy 'paper tiger' Geithner still has a job.  Guy isn't even a freekin' wizard. 
A story that SHOULD get the same reaction, if it were to be released:  'Barry Bonds Admits to Steroid Use.'  Maybe two people-- one a one-eyed, son of a pirate, 6th grader with learning disabilities, would be surprised about the Barry Bonds headline.  That is 2 more people than should be surprised about the US downgrade. 

I doubt the markets will be down for long on this announcement, but this week will be fun to watch! 

And now... The USA's economy visually presented as a monkey.  

On another blog site I started right before the Peak, I made my 2011 predictions: http://mymarketanalysisworld.blogspot.com/ It was the only post on this blog and I have no intention of writing any more on that site. 

Here is how they are panning out so far:
#1) Q1 2011 Earnings will disappoint and companies will start to firing not hiring— Earnings are already expected to lay an egg compared to 2010.  Q1 Earnings this year will most likely stink, and the market is no longer buying like a mad man when we have ‘less bad’ data (see crappy Dec. jobs report).  I expect that companies will end up doing a ton of the same as they did in late 08 and 09 to try and battle the price deflation—fire more employees.  We all know the biggest cost in a business is personnel, so the obvious answer is to trim the already trimmed staff to compensate (this is an attempt to keep stock prices up and fleece the pockets of the CEO).  I would not be surprised if earning reports are coupled with planned layoffs and very poor guidance.  What are companies supposed to do?  As US consumers get more and more cheap (No pay raises since 1998 will do this), they will only buy Groupon style ‘deals’ for everything from cruises to TV’s.  To keep sales NUMBERS up, PRICES have to stay low and go lower.  There are also a limited number of consumers who are going to buy another high-efficiency washer and dryer, flat screen TV or Blu Ray player (the cost has collapsed up to 70% from three years ago on these products).  And to think that retailers can actually ‘raise’ the cost of these items is just ludicrous.  The only real way to beat 2010 numbers is to have a bigger fire sale with lower prices, lower costs to produce goods and higher sales numbers.  The only way to do this is to cut salaries.   If you thought 2010 had great deals around Christmas—wait until 2011.  It will blow your freekin’ mind!
I must say I was wrong on the date for this prediction, but the action is coming true-- Q2 firing numbers are on the rise as the global slowdown is killing precious overseas profits.  I'll give my self a 50/50 on this one
#2) Europe is a zoo and will be a problem for the market(s) all year—What is going on over the pond?  Portugal, Greece, Italy, Ireland, Spain and Belgium look more roughed up than Jenna Jamison after 300 person orgy.  The Euro is a problem, but the biggest problem is not these hard hit countries—it is the stronger countries—Germany, the UK and France.  Stronger nations are seeing the full picture unfold and are realizing the mounting deficits that come from propping up the red-headed step children.  German’s, as it turns out, only likes Portugal when Portugal isn’t hemorrhaging losses—They also don’t really like Spain when Spain’s property values collapse 50%.  The Brits have never liked anyone else’s shit and I still don’t get why they are even in the EU (are they really in the EU when they still rock the Pound?).  While the US media will make is seem like there is no biggie here, they fail to recognize that Europe, while acting as one nation with a conforming currency, is anything but one nation.  There are different governments and different central banks—not one Fed, like the US.  Each of these countries, until recently, had complete control over their people and banking.  I think the last 12 or so years will go down in Europe’s history as the EU’s financial black plague (or some goofy silly dilly British saying).  The single currency experiment has created deficits, real estate bubbles and spending habits that Europe cannot sustain.  Will the currency break up?  If German’s had their way, Yes (but they have also tried to take over the world twice unsuccessfully).  Regardless of what happens with the Euro, 2011 is going to be an ugly year for the Europe--  and that is going to send money someplace safe… U.S. bonds and the dirty Green Back!
Hit this one on the head, but it was really easy to call... And to think all those analysts cried to get into Europe before the dollar collapsed.  Dollar collapse?  Ha ha-- we are the reserve currency.  That science project, the Euro is about to torched on the Bunson Burner.  
#3) Real Estate markets worldwide will start to collapse—The housing market cannot be sustained at these levels…. In China… or Brazil… or Canada… or Australia… or the US.  Globally, real estate is going to be a major drain on world economies in 2011.  Real Estate bubbles seem to affect economies like Kryptonite to Superman, but what surprises me the most about real estate bubbles is that no one ever sees them coming.  Every county (and citizens) listed above has had fair warning about real estate bubbles (some like the US have already had one collapse), but still it is sunshine and cookies as we watch property values climb by 30-50% annually because ‘there is a housing shortage,’ or ‘affluent investors are using real estate in X country to boost exposure to X country in their portfolios,’ or ‘XYZ country’s real estate market is different than the US because of X,Y and Z.’  Sounds allot like the girl who tells the boy he doesn't need a condom because she can't get pregnant???  And we will watch the house of cards drop each time.  It's hard to call it, but if I was a betting man, I would expect Australia to be 1st, but China, Brazil and Canada will follow very quickly.  The US is already in the beginning stages of a double-dip housing depression and will continue as there are no government interventions this year for housing (and the previous ones are the reason for the double-dip).  Sadly, real estate bubbles destroy the middle class in any economy as the home is the main drain of the paycheck, and if there is no increase in value, middle class members will never get ahead by selling equity gains.  China will have an extremely difficult time with this drop in property value as their culture does not treat real estate like America.  Here in the red, white and blue will foreclose or short sale in a heartbeat and use the reduction in mortgage payments to go to Hawaii thrice a year and buy our grand babies a $1200 Bugaboo stroller while we wait for the FHA’s cooling down period (a couple of years at the most) before we buy another home.  Asian cultures will stick with their properties... all the way down, keeping them out of the market for many, many years.
That's another ding-ding.  Right on-- I plan to see this escalating even more for Australia and Canada into the end of the year.  Canada is right on the edge and will be falling fast. 
   
#4) Market selling will lead to record low mortgage rates-- There is little good news in the markets for consumers in 2011, aside from low mortgage rates (If you missed 2010 or your home doesn't depreciate faster than a Pontiac).  The tide of selling extremely overpriced equities in the US markets will probably start in mid to late Q1 and become very apparent in the middle of the year.  The selling will become extremely intense when people realize that we are not going back to DOW 12,000 and people try to save their butts by shorting before the next guy gets the same bright idea.  As markets see-saw up and down as they try to find some level of equilibrium,  bond yields will experience another dip, which will again drive mortgage rates down to levels never seen.  While the markets are hyping the return to Cadillac Escalades in every driveway, $9 super burritos for everyone and general 2006 prosperity today, the real truth is that the US markets are barely holding on.  Profits are a direct result of slashing jobs and dropping prices (see #1).  World economies are unsustainable and financial institutions will not be able to handle the real estate market crashes.  The kicker to this prediction—QEIII. QEIV and QEV will result from these bond market calamities as the Fed tries to stop the deflation cycle (like stopping a 400lb stoned man from destroying the Chinese buffet).  These interventions will stop mortgage rates from dropping in the short term, but will also create future see-saws in the bond market, which will lead to more mortgage rate volatility in 2012.
The 15 year mortgage rate hit an all-time low last week.  I expect it to fall lower over the next 12 months. 

#5) People aren’t going to buy shit (unless it is Christmas)—  We have created a monster with the US consumer.  The US consumer is now a broke-ass baby-boomer, with no home equity, with the same 401K balance as 1999 (crappy 3% match), living paycheck to paycheck with minimal savings, supporting two 20-something World of Warcraft/ Madden 2012 video game junkie children who moved back into the basement after grad school, sucking the tit of a crappy job ( for health insurance to pay for the rising cost of Nicorette patches and dick pills), that doesn’t give a shit about some mid-year sale… because he/she knows the deals will be better at Christmas.  That’s right—stores might as well shut down on Jan 15TH and re-open in mid November.  The US consumer, unless they have lived on make believe planet Glork in a different solar system for the last 3 years, knows that no matter how good the deal is in May, July or October, the same product will be cheaper at Christmas... and you know what... they are willing to wait. 
This one is still on the table.  Will Christmas even be saved in 2012?  I expect it will... by wizards.  Q1 spending was decent, but Q2 was pretty terrible.  Will we collapse into Q3 or will the consumer stay resilient?  ha ha.  Consumer-- that is you and me!  I still see some BIG deals this year after a pathetic June- November season.  Maybe Bush can tell Obama to send some live checks around Dec 10th.  The ratings agencies would love that.  Make them 2 party checks that have to be signed off on by an employee of Wal*Mart!


I also think the Denver Broncos will start John Elway after the CBA-- You have to be wrong on one prediction...
I still think this has a chance!  There is no way they start Tebow!

Enjoy the Chaos this week! 
 RJK

2011 Market Predictions that make sense but not friends...

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