Wednesday, August 17, 2011


NTAP cites weakness and gets hammered after hours.

Venezuelan President Hugo Chavez has announced that he plans to nationalize the gold industry in his country.

My more optimistic view (relative to the bearish cabal) is based on the following factors (among others):

* there will be no double dip;
* interest rates are anchored at zero;
* inflation and inflationary expectations are contained;
* strength of corporate balance sheets and trailing profits;
* reasonable valuations;
* limited investor expectations; and
* the wholesale abandonment by the individual investor.

Apple Insider was out with some worrisome comments on Apple today.

Maybe the Mac weakness is because the consumer is continuing to buy a large amount of iPads!

From BTIG, commenting on the company's conference call this morning:

Management notes that the sales pace month-to-date is within the range of company expectations for the month, though slightly below June/July. Recall the company guided August comps up low to mid single digits on Aug. 4; recall July comps were up 4.1% and June increased 4.5%.

Run, don't walk, to read 'White Picket Fence? Not So Fast,' a New York Times op-ed.

This new housing policy will lead to a different economy. As subsidies to the housing sector are removed, American households will take on less debt and there will be less overconsumption of housing. The private sector will shift its investments from the housing sector to areas of the economy that offer higher rates of return, like human capital, infrastructure projects and capital business projects in other industries. The long-term impact will be tectonic in nature, leading to higher economic growth and a more stable financial system. Why is this relevant now? The budgetary problems of the United States are dire. Economic growth is anemic. Reforming the American housing finance system will improve the budget and stimulate growth and will make a real contribution to our future prosperity.

-- Viral V. Acharya, Matthew P. Richardson, Stijn Van Nieuwerburgh and Lawrence J. White, "White Picket Fence? Not So Fast," The New York Times

We seem to move to extremes in terms of policy.

After decades of overconsumption in housing and a large buildup in mortgage debt, which led to outsized real gains in home prices, academicians and policymakers are now moving in the opposite direction of encouraging homeownership.

Case in point: an op-ed in The New York Times, "White Picket Fence? Not So Fast," which makes the case that our budget load and anemic growth should serve to bring radical tax reform in housing by gradually reducing the tax benefits of ownership and encouraging rentals.

This has important implications for future home prices (negative), household net worth (negative) and the role of housing on the domestic economy (also negative).

Today's outsized PPI is another blow to the corporate profit bulls, of which there are too many.

Slowing economic growth and rising costs of goods are ingredients for profit margin erosion.

As a series, corporate profit margins are mean-reverting, and be prepared for such a regression in the year ahead.

Consensus corporate profit forecasts remain Stephen King-like -- they are books of fiction.

Twelve members of Congress will soon take on the crucial job of rearranging our country's finances. They've been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It's vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

-----Warren Buffett, New York Times