Wednesday, April 27, 2011

Are We At The Peak?

 I am crossposting here and on Davian, the technology and marketing partners for my inflation-focused product for retail investors.

Forecasting is difficult, especially when it is about the future, someone quipped. So instead of pretending that I can look through the windshield, I am looking through the side windows at the scenery passing by. From what I am seeing, there are signs that we are either at peak or post-peak economic expansion.

Here are a few signs:
- Big earnings by a lot of the cyclical names: Ford, Whirlpool, Cummins, Electrolux, VW, Volvo, etc.
- Inflation acceleration (surely there are many reasons here but at least some of it is bonafide demand growth)
- Big resource mergers: there was a bidding war over an iron ore producer, lots of consolidation in fertilizers, large gold miner buying into copper
- Other marquee volume deals happening: JNJ doing a $20bn buy, T + T-Mobile, etc.
- PE is back in the game buying riskier companies: retail, chip makers, software.
- We have not seen the balance sheet impact of Japan and euro-peripherals restructuring
- Actual and planned IPOs of weak companies (as in "never profitable/does not expect to be in the near future")
- Very speculative mood in certain equity sectors (i.e. China and India internet companies)
- Very speculative mood in private markets for "social media" companies
- Emerging markets trying to confiscate (vs. attract) foreign capital (Bolivia, Venezuela's new windfall tax)
- Pronounced recent strength in defensive sectors (XLP, XLV)
- US residential rents have been strong for a year
- Modern Chinese art hitting record prices, Ferrari introducing its first 4-seat model, law school applications down
- No discoveries of massive NEW frauds (the prior set of whales beached a while back, some are in jail already, others- Mozilo, Fuld, Raines, etc.- are roaming around free)
- Pretty much everyone who could have written a book about the crisis has already done so

What we are not seeing/non-confirmation of my opinion:
- Actual improvements in total employment (not rate but number of people working)
- Rates marching higher in developed markets (not yet at least)
- Single-family housing not recovering (though there is a case here that mean reversion + weak labor are the primary forces)
- Retail stocks (XRT) closed at all-time highs yesterday: not indicative of a peak

What are you guys seeing real-time? Missing anything major pro/con from the list?

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