Corporate Profits: Will the Strong Gains Continue?

The Lehmann Letter (SM) Take a look at the chart and you’ll see why the stock market is at an historic high. Corporate earnings have grown at a furious pace over the past 15 years. Corporate Profits Recessions shaded Will that furious pace continue? Here are the recent numbers. Compare them to the chart. $Billions: 2011 First Quarter          1,399.2 Second Quarter      1,466.1 Third Quarter          1,482.1 Fourth Quarter        1,545.1 2012 First Quarter          1,730.3 Second Quarter      1,724.9 Third Quarter          1,769.4 Fourth Quarter        1,796.4 2013 First Quarter          1,784.8 Second Quarter      1,821.4 Third Quarter          1,868.7 Fourth Quarter        1,904.5 2014 First Quarter          1,879.7 You can Continue reading

Blame It on the Weather?

The Lehmann Letter (SM) The Commerce Department released a weak GDP report this morning: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm The report revised first-quarter growth downward to -1.0%. The release said: “…The decrease in real GDP in the first quarter primarily reflected negative contributions from private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures.  Imports, which are a subtraction in the calculation of GDP, increased….” To sum up: Business investment in plant and equipment fell, as did household expenditures on residential construction. Can we blame bad Continue reading

What’s Wrong With Housing?

The Lehmann Letter (SM) A decade ago housing became the bubble that would lift the entire economy. Now it’s an anchor holding it back. What changed? Kris Hudson had some observations in a Wall Street Journal article published over the weekend (May 24/25): “Housing Recovery’s Missing Link: First-Time Buyers” http://online.wsj.com/news/articles/SB10001424052702304479704579579792502256878?mg=reno64-wsj As the title says, the lack of first-time buyers is key. The article begins: “Economists, real-estate agents and many home builders expected first-time and entry-level buyers to begin returning to the market this year, jump-starting the sputtering housing recovery. So far, that hasn’t happened….” Even the usually bullish Realtors are Continue reading

Consumer Confidence: The New Normal?

The Lehmann Letter (SM) Has consumers’ confidence about the economy and their prospects in it attained a new – and historically low – normal?  The Conference Board publishes consumer-confidence data each month and the chart below reveals the historical record. You can see that consumer confidence over 100 accompanied periods of prosperity such as the late 1980s, late 1990s and mid-2000s. Consumer Confidence Recessions shaded This morning the Conference Board reported May consumer confidence of 83.0: https://www.conference-board.org/press/pressdetail.cfm?pressid=5198 Use that number to update the record below: 2013 March           61.9 April              69.0 May              74.3 June             82.1 July              81.0 August          81.8 September    Continue reading

New Home Sales: One Month Later

The Lehmann Letter (SM Yesterday’s letter examined April’s existing-home sales and reviewed this letter’s comments from a month earlier in the light of the recent controversy over whether or not the Fed or the federal government could have and should have done more to assist housing. Let’s do the same with respect to new-home sales and this morning’s report from the Census Bureau of 433,000 sales in April: http://www.census.gov/construction/nrs/pdf/newressales.pdf New Home Sales Recessions Shaded The chart and table are clear. New home sales revived through 2012 and then began to fluctuate in a narrow range. Revised monthly new-home sales for Continue reading

Existing Home Sales: One Month Later

The Lehmann Letter (SM) One month ago this letter asked you to decide – based on monthly data – whether or not existing-home sales had improved over the past year. It’s a hot topic because of the renewed debate – revived by Timothy Geithner’s Stress Test – regarding the Federal Reserve’s and federal government’s response to the 2008 financial crisis. To wit: Should the Fed and the feds have done more to save households harmless from the mortgage crisis by compelling banks to write-down mortgages as a quid-pro-quo for the bailouts they received? Might that have spared household balance sheets Continue reading

“Bankrupt Housing Policy”

The Lehmann Letter (SM) Those are strong words. But that is the title of Joe Nocera’s op-ed piece in yesterday’s New York Times: “Bankrupt Housing Policy” http://www.nytimes.com/2014/05/20/opinion/nocera-unanswered-questions-on-geithner.html?action=click&module=Search&region=searchResults&mabReward=relbias%3Aw%2C%5B%22RI%3A11%22%2C%22RI%3A17%22%5D&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry786%23%2Fbankrupt+housing+policy Mr. Nocera responds to Timothy Geithner’s book – Stress Test – on the 2008 financial crisis. In Mr. Geithner’s view, saving the banking system was key to saving the world financial order which was key to saving the world economy. That meant that the Federal Reserve and the federal government had to use all means necessary, including a massive bailout, to save the US banking system. Saving American homeowners and mortgage debtors harmless, Continue reading

Earnings, Earnings, Earnings

The Lehmann Letter (SM) This letter’s logic regarding the stock market runs like this: The market depends on earnings, and earnings depend on profit margins multiplied by sales volume, and – since margins have stopped growing – our forecast therefore depends upon sales volume. That’s why a sluggish economy – with its low sales volume – limits the stock market. An article by E. S. Browing in yesterday’s Wall Street Journal expressed matters well: “Lackluster Earnings Leave Stocks On Thin Ice” http://online.wsj.com/news/articles/SB20001424052702304422704579569791675833328?mg=reno64-wsj The opening paragraphs say it all: “Behind the stock market’s anxious ups and downs of late lies the Continue reading

Housing: Still Center Stage

The Lehmann Letter (SM) Take a look at this article by Binyamin Appelbaum in yesterday’s New York Times: “The Case Against the Bernanke-Obama Financial Rescue” http://www.nytimes.com/2014/05/18/business/the-case-against-the-bernanke-obama-financial-rescue.html?action=click&module=Search&region=searchResults&mabReward=relbias%3Ar&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry96%23%2Fcrisis+management%2C+rethought&_r=0 Here are the lead paragraphs: “Atif Mian and Amir Sufi are convinced that the Great Recession could have been just another ordinary, lowercase recession if the federal government had acted more aggressively to help homeowners by reducing mortgage debts. “The two men … argue in a new book, “House of Debt,” … that the government misunderstood the deepest recession since the 1930s. They are particularly critical of Timothy Geithner, the former Treasury secretary, and Ben Continue reading

Debt and Household Balance Sheets

The Lehmann Letter (SM) Household borrowing has fueled the growth in aggregate demand since World War II. As households borrowed more to purchase homes and automobiles, their balance sheets became less liquid and more burdened with debt. Finally, in the orgy of borrowing and spending leading to the Great Recession of 2008, households maxed out. Then, to make matters worse, households saw their balance sheets deteriorate further as home values fell. Household balance sheets have strengthened since the downturn, but tension remains. It’s difficult to borrow and improve your balance sheet at the same time. Neil Shah spoke to this Continue reading