Posted by Joseph Y. Calhoun, III

Here’s what capitalism is really all about - solving problems:

New Heinz Ketchup Packet

HT: Cafe Hayek

Posted by Joseph Y. Calhoun, III

February 1st Ticker Sense Blogger Sentiment poll shows 43.75% Bearish, 37.5% Neutral and just 18.75% Bullish. Follow the link for a chart and history.

The American Association of Individual Investors poll has also now flipped to show more bears than bulls.

Bullish 35%

Bearish 36.7%

Neutral 28.3%

It didn’t take much of a selloff to flip sentiment to bearish. Investors are nervous and itching to sell. That’s good news for contrarians with the guts to buy the dips.

Posted by Joseph Y. Calhoun, III

The employment report today, despite a negative headline number, actually showed some quite positive data. The unemployment rate dropped to 9.7% and there were other positives as well:

• Employed rose by 541,000
• Unemployed fell by 430,000
• Labor Force rose by 111,000
• Employed part time due to economic reasons fell by 849,000
• Employed part time due to slack work or business conditions fell by 580,000
• Manufacturing jobs rose by 11,000
• Motor vehicles and parts employment rose 22,700
• Retail trade rose 42,100
• Professional and business services rose 44,000
• Temporary help rose 52,000
• Average weekly hours rose by 0.1
• Average hourly earnings up $0.04

The negatives

• Construction employment dropped by 75,000
• Transportation and warehousing dropped by 19,000
• December was revised from -85,000 to -150,000
• Benchmark revisions showed 617,000 more jobs lost over the last year

I have contended for some time that this recovery would surprise people for its strength. That isn’t based on some new fangled economic model but on common sense and history. When we’ve had deep recessions in the past, we’ve also had big recoveries and one thing I’ve learned in over 20 years of doing this is that it most likely isn’t different this time. This recovery is gaining steam and if you’ve been a seller over the last month on double dip fears I suspect you will be disappointed with that decision a few months from now. As Barry Ritholz put it:

Ask yourself what outcome would surprise the most people — the economy sliding in a double dip recession – or a stronger than anticipated recovery?

Reading through the comments on Barry’s site is quite the surreal experience. It almost seems as if the commenters are mad that there was good news. They look for reasons why it can’t be true. They blame the government for putting out bad numbers. Anything but acknowledge that the recovery is gaining steam and will be better than they expected.

One thing though; the recovery should be even stronger than it is. Based on the depth of the recession we should be getting some +7 or 8% GDP growth quarters. We might still get them but because of our debt levels and the fiscal policy uncertainty, I have my doubts. We’ll see.

Posted by Joseph Y. Calhoun, III

From the Reed Conner and Birdwell quarterly letter written by Jeffrey Bronchick:

The one thing that we do feel very comfortable stating is that equities as an asset class will outperform investment grade bonds of almost any stripe over the intermediate and longer term using January 2010 as our starting point, and we would be willing to take side bets on the near term. “An investment operation is one which upon thorough analysis promises safety of principal and a satisfactory return,” states value father?figure Benjamin Graham. It is extraordinarily difficult to argue that Treasury bonds fit that bill in almost any maturity, and the continuing contraction in spreads in the investment grade and the higher quality non?investment grade world have diminished their attraction as well.

On stimulus, fiscal and monetary:

There is a massive experiment being conducted around the globe in fiscal and monetary policy, the scale of which is simply unprecedented. Speaking first of our great nation, we have thrown money at admittedly very serious issues over the past year in forms and sizes that are unprecedented in scope. The spending, which includes any variety of guarantees, credit?backstopping, insurance, and the out and out torching of taxpayer dollars was hatched in the darkest nights of fear and political expediency, an environment which is not normally associated with wellreasoned strategic plans. It can be argued that it was necessary in some form, but it still left the sticky issues of what will follow and how it will play itself out, and, as articulated every week in a contradictory fashion by any number of branches and departments of our elected and appointed officials, there simply is no exit strategy to wean the patient off life support. Given the historical propensity of government officials in any political system to concoct elaborately incorrect plans to address financial issues, it does not seem like an outlandish statement to suggest that there is a very small chance that our federal officials will be able to neatly extricate the largest sum of money ever thrown at a non?military problem without some form of market instability. And we will make the brave leap and say that the direction of interest rates in this transition period is unlikely to be lower.

That is just a damn fine paragraph and some really clear thinking. Read the whole thing.

reed-conner-quarterly

Here’s a link to RCB’s website. I don’t have any business connections to RCB.