Friday, December 7, 2012

The Era of American Austerity Is About to Begin

Published: Tuesday, 4 Dec 2012 | 9:52 AM ET
By: Bob Pisani
Though the Republicans and President Barack Obama seem far apart, we can already see the elements of the deal: modest tax raises and some spending cuts.
The bad news: The era of American Austerity is about to begin.
The good news: It will be a fairly gentle austerity, at least in the beginning. Housing and autos are improving. The Federal Reserve will likely continue to expand its quantitative easing operations at the next meeting on Dec. 12, which will provide some cushion against austerity.
And, in the meantime, U.S. corporations are parting with record amounts of cash to pay out dividends early.
1) Toll Brothers: another homerun. The high-end builders like Toll Brothers are really firing on all cylinders. Orders were up 70 percent, well above everyone's estimate. Gross margins also improved. Full-year 2013 guidance for home deliveries (a key metric) were conservative.
The U.S. housing recovery has fueled builders and building materials this year as prices for single-family homes have increased since February. "Pent-up demand, rising home prices, low interest rates, and improving consumer confidence motivated buyers to return to the housing market in FY 2012," said Toll Brothers CEO Doug Yearley.
But there's a big problem with Toll Brothers: It's really expensive. Really expensive. Trading for close to 30 times 2013 earnings. Really. That's expensive, and even though other home builders are trading in the 20s as well, Toll Brothers is at the top.
2) The bidding may be heating up for Knight Capital Group, which last week was the subject of two offers, from Virtu Financial and Getco. According to The Wall Street JournalCerberus may come in to join Virtu's bid for Knight.
Why does Cerberus need to step in? No one has said, but the obvious answer is that Virtu does not have the cash on hand to close the deal.
It's a lot of cash. Depending on who you talk to, it has to come up with roughly $1 billion for the company, plus another $500 million to cover debt, so it needs at least $1.5 billion, plus enough money to run the operations, so figure maybe $1.8 billion or so.
That's likely where Cerberus steps in.
Speaking of deals, how about telling us exactly how much you (Virtu) plan to offer for Knight? We still don't know exactly what Virtu is offering, only that it is above $3. This makes it pretty difficult to figure out which firm is offering a better deal.

Apple’s Jaw Dropping Flop

What a flop!
Apple’s $37 plus, 6.43 percent sell off was surreal. The world’s largest and most profitable company giving up almost $40 billion of market value while the rest of the market basically yawned? That doesn’t happen often.
The Apple selling on big volume could have been used to finance a move into the financials.   Bank of America was up over 5 percent and Citicorp tacked on over 6 percent.
Apple sits right at its .618 Fib retracement of the $88 bounce from $505.75.  We still think they will be blow out this quarter’s earnings, but the stock is over owned and the bears know it.
Thus technicals will dominate Apple in the short-term, especially with the Vampire Cross (death cross) staring traders in the face.  The 50-day moving average looks to crossover the 200-day in the next week.
Note Apple peaked two days before the big market sell off began in September and we think today’s action in the stock does not bode well for the overall market.   Could be wrong, but that’s how we see it.
(click here if chart is not observable)


  1. The amount of mail/ads/offers that I am receiving via e-mail, snail mail, tv, radio, etc. for dining out, discounts, freebies, etc. seems to have increased to a 'blow out' level this year. Even the grocery store is now selling a bag of bows for $.69. Why is this a big deal, you may ask?

    Because they are undercutting the dollar stores. Same with wrapping paper, etc. Now it is all cra* paper, but...

    Lots of ads and discounts and seemingly (IMO) pretty early. Then again, I shop all year and very early in the season as I'd rather pay more to avoid the lines of sneezing, irritable, long-lines. I am done wrapping, however. Maybe one gift each but as my grandkids will be 8 and 11 next year I figure I can opt out. It is simply too hard on our backs, knees, and bones in general.

    The golden years are a fallacy. They should call them the 'rusty' years! As for Apple...I think the mini-tablet is a mistake. And how many of these people can continue to buy all this tech with no jobs?

  2. CL, as long as there is credit available, people will continue to buy, buy, buy.

    Good for you on getting your presents all wrapped. I haven't wrapped the first one, although I have bought most of them.

    Including a bag of chocolate Gold coins to give my daughter. It the spot price increases right after she receives them, that will mean she is the anti-Contrary Indicator.

  3. "The Era of American Austerity Is About to Begin"
    - - - - -
    Right. What they are debating in the hallowed halls of Washington D.C. right now can easily be defined as, 'Too Little, Too Late.'

  4. At the top of the comments list is a nice SPAM for Victoria Secrets. But since they probably do not have anything in a men's size big enough to fit a Mammoth, I will not bother following the link to their website.

  5. Hey Shaza, that Australian radio station's prank sure p!ssed off a lot of people, not to mention the one who killed herself.

    Let's see if their advertisers do not immediately pull all of their ads and send that station into bankruptcy.

    But sadly that will not happen, as those advertisers worry they might just lose a sale if they - heavens forbid - show some principal.

  6. Well I have not been feeling well all day and missed the VS spam, but it's gone now. Google does a good job at catching most of it as I can see them behind the scenes.

    CL I just don't want to generalize so I will say that some just don't get it and when they do it will be too late.

    Mammoth the gold chocolates are a great idea for kids.

    I am hoping that all the morons that think AAPL will go up forever hold that paper until it is back to around 80.00 which is probably the real and not inflated value. It lost 14% today. I think you can safely short that stock for a year, but I am not giving advice.

  7. Well I have not been feeling well all day and missed the VS spam, but it's gone now. Google does a good job at catching most of it as I can see them behind the scenes.

    CL I just don't want to generalize so I will say that some just don't get it and when they do it will be too late.

    Mammoth the gold chocolates are a great idea for kids.

    I am hoping that all the morons that think AAPL will go up forever hold that paper until it is back to around 80.00 which is probably the real and not inflated value. It lost 14.00 today. I think you can safely short that stock for a year, but I am not giving advice.

  8. Also keep in mind that most people have jobs. Ergo they will spend to their income and credit card limits. As for all the discounts the stores consider them loss leaders. So what if they sell bows at a loss as long as you walk out with a hundred dollars worth of groceries. The dollar stores are booming this year regardless. Also outlets stores selling junk no one would buy if it weren't 50% off. I always wonder 50% off what?

  9. I think that on our blog we have people on fixed incomes i.e. CL and me that are concerned with inflation, healthcare issues and money. We have some who worry their employment could end at any time. On the other side we have those who are climbing up the ladder, they have plenty of money saved, are paid well and are secure in their lifestyles. This is not just in America, but all over the World. Not everyone lives in quiet desperation. In the US 90% are employed and happy. They see no reason not spend until they can no longer spend. They don't want to pay taxes and they think entitlement plans are bad. The happiest people are those who live for today and do not fear tomorrow as tomorrow may not come. Good or bad that is the way life is.

  10. queen---I often think of my father and BLESS him for teaching me the art of patience and FORESHADOWING (as we call it in the book business!)

    I inherited money...but rather than spending it all, I knew that I should save some for a rainy day, so while I did spend (some might say a LOT ) on travel, I never spent it carelessly on 'stuff' but on experience. Travel is a true teacher for how else are you to learn that there is more to the world than the USA? And different ways of doing things?

    After hubby lost his job we went through a LOT of money to keep our medical and keep us going. The fact that we'd also used money to pay off our house also led us to be mortgage free which was a blessing.

    My daughter (young as she is in her late, late thirties, has learned from ME. Her job is in jeopardy. Her boss knows how bad it is BUT, get this cause it is giving me FITS---her boss wants to open a line of CREDIT TO GIVE CHRISTMAS BONUSES...because "some of the people here depend on them." Okay, this blows my mind, big time!!!!! My daughter tried to gently inform her, "I don't think anyone is expecting that the way things are." But her boss doesn't care. SHE wants to pretend. SHE wants to be Lady Bountiful. SHE wants to 'party on' while the ship sinks. She's not thinking that these people would rather have a job for a bit longer to put bread in their children's mouthes--not a one-time gift.

    The way I figure it, this is a perfect example of the mind set of most people. People like Mammoth, myself, Queen, etc.--we know what we CAN do and what we CAN'T do. It's like my making breakfast today. I'm making cinnamon muffins for the girls. I really, really, really LIKE cinnamon muffins--but I know I shouldn't eat them. So, much as I might want to I will resist. I'll save enjoying them until Christmas Day as a special treat. They will taste all the sweeter. I'll make do with almonds and yogurt.

    Hope everyone has a nice weekend. It is foggy and supposed to be in the mid-60's again here which will only stir up more air problems for Paulsboro. They STILL haven't got a handle on getting those tankers out of the creek. It's been a disaster with 'no one in charge'. I'd hate to see a MAJOR disaster around here after seeing this!

  11. Hope you are feeling better Queen.

    Even in the last Great Depression, 75% of the people had jobs, and some businesses still did well. Things seem like it is The End when you are unemployed, while for those with secure jobs (like say Federal Government) the Depression is something they read about in the newspaper.

    Regardless, it is YOUR OWN mental attitude that will make all the difference, don't let the Depression get you depressed. These cycles of the economy can take decades to play out, but our lives go on regardless.

    People who try to have a more positive attitude will simply survive better than the rest.

  12. Our attitude seeps into everything in our lives, and the words we use depending on the attitude are important too.

    Story on the radio today about how use of positive sounding words in almost any task can make it easier.

    People who thought of something as difficult, using negative sounding words to describe the task, found it was indeed very hard. While those who described the same task with positive sounding words found it was doable.

    Words have power, and they affect our attitude. And your attitude guides your life to better or worse outcomes.

  13. I think I have shared this before. Thanks for the great comments as no new thread until tomorrow. What time I do not know, but I am feeling much better thank you all. I had this framed and hanging behind my desk or in a cubicle to remind me every day.

    by: Charles Swindoll

    The longer I live, the more I realize the impact of attitude on life.

    Attitude, to me, is more important than facts. It is more important than the past, than education, than money, than circumstances, than failures, than successes, than what other people think or say or do. It is more important than appearance, giftedness or skill. It will make or break a company... a church... a home.

    The remarkable thing is we have a choice every day regarding the attitude we will embrace for that day. We cannot change our past... we cannot change the fact that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play on the one string we have, and that is our attitude... I am convinced that life is 10% what happens to me and 90% how I react to it.

    And so it is with you... we are in charge of our attitudes

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