Mish's Global Economic Trend Analysis

Texas July Home Sales Collapse - Lowest Total Since 1997
Billionaire Ken Fisher Explains His Biases
Lease Accounting and the Corporate "Cash Mirage" - How Corporations Hide Debt
Small Businesses are Not Hiring - Why Should They?

Texas July Home Sales Collapse - Lowest Total Since 1997

Posted: 20 Aug 2010 06:00 PM PDT

Inquiring minds are investigating Texas MLS Residential Housing Activity and home sale statistics.

A tip of the hat to "Rob" who sent the above link.

July 2010 Sales 16,729
July 2009 Sales 22,426
July 2008 Sales 23,636
July 2007 Sales 27,387
July 2006 Sales 27,586
July 2005 Sales 26,147
July 2004 Sales 24,031
July 2003 Sales 21,870
July 2002 Sales 19,660
July 2001 Sales 19,532
July 2000 Sales 17,866
July 1999 Sales 18,653
July 1998 Sales 18,021
July 1997 Sales 15,385

Be prepared for a reported collapse in home sales and for economists everywhere to be surprised by it.

This is a 25.4% decline vs. July 2009.
This is a 22.6% decline vs. June 2010.

June 2010 sales were 21,610.

While not as important as new home sales, think of all the carpeting, landscaping, appliance upgrades, cabinets, etc., that will all go "poof" right along with this decline.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Billionaire Ken Fisher Explains His Biases

Posted: 20 Aug 2010 12:34 PM PDT

Ken Fisher says high levels of pessimism are a reason to buy stocks. Please consider Kenneth Fisher Recommends Stocks as Pessimism Surges.

Rising levels of investor pessimism are a reason to buy equities now, billionaire Kenneth Fisher said today.

"I'm never going to be bearish when people are pessimistic," Fisher, who oversees $35 billion from Woodside, California, said in an interview on "Bloomberg Surveillance" with Tom Keene. "My bias when pessimism is high is to own equities."

Explaining Ken Fisher's Bias

Ken Fisher's bias is to own stocks come hell or high water. Fisher's recommendations have as much to do with optimism or pessimism as the planet Pluto does with an octopus.

Fisher makes money being perpetually bullish on equities. It certainly helps that Fisher peddles advice that people and pension funds want to hear.

It is amazing how much money one can make mismanaging money in conjunction with a remarkably successful advertising program.

Addendum

Flashback February 26, 2007
Housing Boom!

For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007's housing disaster turns out to be. Well, there won't be any housing disaster. We won't have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating.

The consensus forecast is for single-digit S&P 500 earnings growth tied to a slowing economy. Disbelieve it. Experts' forecasts have been too low for four years and will be now. First, the accelerating economy will deliver earnings that exceed expectations.

This is a time to own stocks. Here are some companies that will participate in the prosperous economy of 2007:

Home builder Pulte Homes - PHM
Toll Brothers - TOL
Beazer Homes - BZH

Absurdities

Look - Anyone can be wrong, but quite frankly that is absurdly wrong.

Pulte Homes was $34 then. It is $8 now.
Toll Brothers was $34 then. It is $16 now.
Beazer Homes was $44 then. It is $3.75 now.

Someone let me know if he ever issued a sell signal on those.

Regardless, Ken Fisher is consistently bullish. In fact he HAS to be bullish because you cannot manage $35 billion without being bullish. Ken Fisher's advice is designed to do one thing - make money for Ken Fisher.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Lease Accounting and the Corporate "Cash Mirage" - How Corporations Hide Debt

Posted: 20 Aug 2010 10:01 AM PDT

In new accounting rules proposed by key regulators, businesses may have to start putting leases on their balance sheets. Corporations are howling already because many are up against debt limits right now.

The Economist discusses the "shocking new accounting rules" in You gonna buy that?

WHEN you lease something—a boat, a warehouse, a machine for making ball-bearings—you agree to pay for it bit by bit over time. So it is like incurring a debt, say the International Accounting Standards Board (IASB) and America's Financial Accounting Standards Board (FASB). Therefore, it should be on your balance-sheet. This new rule, proposed on August 17th by the two regulators, has shocked companies everywhere. It is up for public comment until December, but could be enacted as soon as June next year.

A survey by PricewaterhouseCoopers, an accounting firm, found that it would add about 58% to the average company's interest-bearing debt. Not only new leases but also existing ones would immediately be subject to the new rules. On the other hand, since rents will no longer be a running expense, operating earnings could see a bump upwards. But since the downturn, many companies are close to their maximum debt limits, and the new rules could push them over the edge. Small wonder they are howling.

The new rules' effects will vary widely. Retailers, who often lease prime property, will take a beating. Airlines, which seldom own their jets, will suffer too. Some businesses, such as utilities, will barely notice. But others will see their apparent return on capital plunge. Many firms will see their debt-to-equity ratio rise and their ability to borrow fall.

How much Corporate Debt Is There?

I picked this story up from Bruce Krasting on ZeroHedge who asks How Much Debt Does the S&P 500 Have?

The list of companies with Operating Leases is endless. I would imagine that most of the S&P 500 will be impacted one way or the other.

Watch for a big fight over this issue. Look for GE to be the biggest opponent to any changes. I think they have the most to lose in this.

Off the Radar

This is one of those off-the-radar kinds of things, very easy to miss. It also sheds a new light on the question Are Corporations Sitting on Piles of Cash?

Here was my answer.

So, in spite of what most are saying, corporations are not really holding tons of cash, ready at any moment to go on an investment or hiring spree.

Instead, corporations burnt by inability to raise cash during the 2008 credit bust are simply taking advantage of market conditions to raise cash levels now, at attractive rates, while they can.

Corporations raise cash in two instances

1. When they can
2. When they have to

After the corporate bond blowup in 2008, companies are wisely focusing on #1, while they still can. How much longer the market is willing to allow debt financing at favorable rates remains to be seen. When it stops, equities are likely to get clobbered.

Raising Cash While They Still Can

Putting two-and-two together I cannot help but wonder if some of this recent corporate "cash raising" exercise is directly related to the proposed new accounting rules. Certainly rule #1 above applies, and for some corporations the window might close in a year.

Thus, it is highly likely some corporations are "raising cash" now, just to be safe, while they still can. That is one plausible explanation for at least a part of the massive corporate debt issuance as of late.

On the other hand, since when has there been any meaningful changes in accounting rules that were not discarded, ignored, or put on the back-burner for years or decades?

Regardless, we have yet another solid reason for stating that "high" corporate cash levels are nothing but a mirage.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Small Businesses are Not Hiring - Why Should They?

Posted: 20 Aug 2010 12:41 AM PDT

In response to Creating Jobs Carries a Punishing Price, an article about Mr. Fleischer, president of Bogen Communications Inc. and why he is not hiring, I received an interesting email from "David" a reader who disagrees with Mr. Fleischer's stated reasons for not hiring.

One of the items mentioned by Mr. Fleischer and challenged by "David" is the idea that corporations are sitting on cash. On this score, "David" is correct. I have also debunked the idea that corporations are sitting in cash (Please see Are Corporations Sitting on Piles of Cash?)

"David" also challenged Mr. Fleischer's math on healthcare.

However, such arguments miss the entire point of the post.

Actions Matter!

It does not matter one iota if Mr. Fleischer is wrong about corporate sideline cash or anything else. What matters is Mr. Fleischer thinks he has sufficient reasons not to hire.

On that score, I believe Mr. Fleischer is correct. There are numerous good reasons to not hire.

Businesses have a legitimate worry about health care costs, rising taxes, and other artifacts of Obama's legislation.

On the consumer side, this is not a typical recession. This is a credit bust recession with consumers still deleveraging. With savings deposits yielding close to 0% and with credit card rates over 20%, common sense dictates consumers pay down bills rather than make new purchases. The housing bubble has burst and boomers are headed into retirement with insufficient savings.

Given all the economic uncertainties, consumers are reacting in a rational manner by not spending. In turn, businesses have consistently cited lack of customers as one reason to not hire.

Pertinent Facts

That Mr. Fleischer fails to articulate reasons that others agree with is irrelevant. The pertinent fact is he is not hiring.

More importantly, numerous other small business owners think and act just like Mr. Fleischer. How do we know? Simple ...

August 03, 2010: Wells Fargo/Gallup Small Business Index Hits Record Low, Future Expectations Dip Below Zero First Time Ever

August 10, 2010: Small Business Trends - Yet Another Disaster

August 19, 2010: Weekly Unemployment Claims Hit 500,000, Exceed Every Economist's Estimate; No Lasting Improvement for 9 Months

What Can Be Done?

For my thoughts on what to do about small business hiring, please consider Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It.

Here are a couple if interesting charts regarding small business employment from the NFIB Small Business Trends report for August 2010.

30 Consecutive Months of Net Small Business Firings

Note: the above chart represents the net number of businesses hiring vs. firing. It is highly probable actual employment rose in some of those months.

Hiring Plans

The net number of firms planning to hire is barely treading water. Actual hiring is another matter.

Regardless of reasoning, small businesses are not hiring now and have no plans to hire in the next three months.

The logical conclusion is economic conditions are highly likely to deteriorate. One would never know that from overoptimistic economic estimates. Please see 58 out of 58 Economists Overoptimistic on Philly Fed Manufacturing Estimate; Median Forecast +7 Actual Result -7.7, a "Veritable Disaster" for details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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