AfterShocks Roiling Us All
Nov 16 2008 - Mike Williams - Weekly Focus
Good Morning:
Afraid is the New Normal
For those looking for immediate short-term good news, I am afraid there is none right now. The airwaves and the internet sites are drowning us in nothing but more bad news. The consumer has frozen in time as the phophecies are now all on our own shoulders.
Long-term, this will be seen differently than it is now.
The tumultuous roller-coaster ride continues as mountains of cash exit the marketplace. This weekend, the G20 met in Washington and has produced a 20-point plan that will now be the global focus to build around as all major economies reel from the negative loop creating a self-fulfilling prophecy around the world.
The investor crowd is now well on its way to shattering all records ever created for outflows into "safe" investments ranging from t-bills to notes to money market accounts. LIBOR has receded in recent weeks but not as fast as the avalanche of money has left the markets. TrimTabs tells us on Friday that the small investor has once again set new records for selling their mutual fund shares. Having driven over $70 billion in fund liquidations during the month of October, we see that there was an additional $31 billion liquidated in just the last week alone.
I will state as I always have: when panic and self-fulfilling actions take over, there will be a period where there is no control over outcome or strategy. These events are usually short-term in nature but that does not make them any easier to stomach.
Broken in Detroit
The Big 3 are all in DC looking for capital to once again try to fix what has ailed American car manufacturers for years. They do not make the right cars. They spent the last 10 years making the idea of low gas mileage look sexy. They have not created a business model that works in the new world and they are hampered by union structures that began decades ago in a world that no longer exists. This will NOT be fixed by $25 Billion in uncontrolled new "loans".
The only way you fix this is by forcing management to actually begin building the facilities that will produce the cars that a) are extremely fuel efficient and b) Americans want to buy.
The money we loan them will be paid directly to the companies building the new facilities. It will create jobs and focus in on the issues that will really help. We hand over $25 billion to present management and we can assure ourselves it will be good money after bad. The problem? They must be fixed. They employ half a million people and they pay retirements for another million-plus. There are far too many GM bonds in the system to suddenly suggest they be bankrupt. In all reality, they have been effectively bankrupt for years.
The car buyers of today are not being served--were they, we would not see all the hot-rod Toyotas and Hondas flying around driven by young people.
This is a Generational Shift...and Opportunity
Speaking of young people. There is a book you MUST read: "The Age Curve" written by Ken Gronbach. We had the honor of spending the day with the author on Friday and let me tell you, his research is very enlightening. Read this book and you will see just how much of this change is already defined. This change is required, the cleansing of one generation and the building for another--even larger and more profound set of opportunities is significant in scope and will drive events for decades to come.
You will be seeing much more research about these larger issues soon and some very exciting things we will build together with Mr. Gronbach. You can also visit his site here to learn more about generational change: www.kgcdirect.com
The problem with massive change?
Massive panic often results as too much money finds it has been in the wrong place. The "new understanding" creates "capitalquakes" that cause very little to work while the upheaval is taking place.
Time Remains the Major Enemy
I have deliberately sent out fewer notes in the last two weeks and tried to focus only on the major events and chart updates. I am concerned that the frustration felt by many could be hampered by some who may be watching things too closely...and it is very likely to continue.
This frustration is being lived out in further self-fulfilling actions.
The odd thing about it is this: the run from the markets is being done, presumably, due to the fear of perceived risk in equities. One, however, can logically and safely argue that the risk in equities has been dramatically reduced given the poundings of the last 6 weeks. It is very easy to forget that all of this demolition has spanned roughly 25 to 30 trade days.
Rest assured of one thing: the fundamentals of many companies are still very sound. As we all fear the next Depression, we presume, wrongly, that all companies and all stocks will be worthless. This is now resting at the level of foolish. The element we cannot any longer allow for seems to be time. Patience is lost and every fiber in your body is telling you that the world will stay bad for a very long time now.
I merely ask how you felt about $147 crude oil 120 days ago? Were you afraid $4.40 gas was only going to be $5.00 gas? Was $200 oil a concern? Did you think $56 and $2.00 or less a gallon was around the corner?
From simple contrarian analysis and decades of history we can glean two things from the current malaise: First, the item currently perceived as ultra-safe (bonds) will not be safe sooner than you think. In fact, many areas in the government bond market are now likely approaching significant levels to short over the long-term. Second, those areas that have been pounded into oblivion have some companies now priced in the mid-single digit P/E range.
Forget the fancy lingo--some of this has officially entered the realm of good, old-fashioned common sense.
The Immediate Risk
Our immediate risk remains the illogical, uncontrolled risk associated with runoff panic. These very volatile swings of hundreds of points intra-day or at the close are wearing out even the strongest in the crowd.
- This is really simple...Illogical, fear-based waves of selling trigger one thing: More illogical, fear-based waves of selling.
- I do not have an answer as to when this stops.
- I do guess that it will come from something all have ignored. Something, once again, from left field.
Like it or not, the same 2000-point price range has been traveled now since October 10. See your charts inside.
In other words--though angst, fear and trepidation are increasing at a rapid pace, prices are still spanning the same range. The Dow's close on Friday was a bit over 8400. It's intra-day low (for now) was nearly 600 points lower.
We will surpass this challenge but not without many new lessons learned. Many layers of battle remain ahead. This most significant will be with yourself.
There is more inside that will be posted now and into Monday morning...charts going up next.