Mish's Global Economic Trend Analysis |
- Not Satisfied: First Time Ever, Majority in U.S. Now Dissatisfied With Security From Terrorism
- Full of Bull: Wall Street Analysts' S&P 500 Predicted Gains vs. Actual Gains 2001-2015
- Hollande Declares "Economic Emergency" to Save Jobs - His; Mish Proposal to Create French Jobs
- Rumors on Mark-to-Market Accounting and Loan Loss Provisions: What's the Real Story?
Not Satisfied: First Time Ever, Majority in U.S. Now Dissatisfied With Security From Terrorism Posted: 18 Jan 2016 04:43 PM PST Here's a Gallup Poll headline that plays straight into Donald Trump's hands: Majority in U.S. Now Dissatisfied With Security From Terrorism. Trends in Satisfaction
I have played this before but it's an all-time classic hit. I can't get no satisfaction. Can you? Mike "Mish" Shedlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Full of Bull: Wall Street Analysts' S&P 500 Predicted Gains vs. Actual Gains 2001-2015 Posted: 18 Jan 2016 12:02 PM PST Analyzing the Forecasters How overoptimistic are Wall Street forecasts year in and year out? Salil Mehta, business statistics professor at Georgetown University addresses that question on his "Statistical Ideas" blog: Strategists Full of Bull. Mehta collected 186 public forecasts from 1998-2015 of the annual ritual of making market projections for the year ahead. Firms included JPMorgan, Citigroup, Goldman Sachs, Merrill Lynch, Bear Stearns, Lehman, Morgan Stanley, Prudential, UBS, AG Edwards, Bank of America, etc. Not every company made a forecast every year. Some of the firms are now extinct. Data primarily comes from Barron's as far back in time as continuously available. For a couple years, when Barron's data wasn't easily available, Mehta used market prediction made in USA Today's or similar surveys. Forecasters Full of Bull Results were no better than a coin toss as to whether the S&P came in above or below the average forecast. Nonetheless, every year had one thing in common: Not once did a consensus predict a down year. On average, forecasts were wildly bullish, even with the gains in recent years. In his analysis, Mehta focused primarily on distribution and standard deviations. Some may find his dispersion charts confusing. To his credit, Mehta made his Analyst Forecast Data available for others to analyze and I took him up on it. Data prior to 2001 was for the Dow. I used years 2001-2015 in my analysis so the numbers are consistent line to line. In the table below, S&P 500 projections are the average of all the analysts making calls for that year. S&P 500 Predicted Gains vs. Actual Gains
15-Year Results
2016 Projections
2016 Analysis For 2016, five out of ten companies predicted the S&P would end the year at 2200. Is that the magic number? Goldman Sachs dared to be significantly different on the low side with a +2.74% forecast. Federated Investors projects a whopping +22.31% gain. As typical, no company forecasts a decline. Results year-to-date through January 17: -8.02%. Don't worry, it's early. Mike "Mish" Shedlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hollande Declares "Economic Emergency" to Save Jobs - His; Mish Proposal to Create French Jobs Posted: 18 Jan 2016 10:46 AM PST Emergency Effort to Save Hollande's Job With a national election 15 months away and unemployment not falling, a crisis in France emerged: French president Francois Hollande's own job is at risk. Having promised to step down as president if unemployment in France fails to drop this year, Hollande took the necessary action. He declared a state of emergency to save jobs, namely his. Hollande Declares State of Emergency Please consider Hollande Outlines Jobs Plan to Tackle Economic 'Emergency' François Hollande has returned to traditional leftwing tenets for a last-ditch plan to cut persistently high unemployment and salvage his chances of re-election next year, saying France is in an economic "state of emergency".Training Schemes Nicolas Lecaussin, head of Institute for Research in Economic and Fiscal Issues, a liberal think-tank, described the new measures as "old recipes". Mr Lecaussin added: "Training schemes are controlled by unions and efforts to boost apprenticeships have failed repeatedly over the years. As always when presidential elections loom, we're entering a phase of public spending increases." How to Create Jobs The primary reason French companies will not hire workers is that it's so damn hard to get rid of them later if they do. Add to that mountains of regulations including inane laws that tell businesses when they can or cannot open the doors. If Hollande wants to create jobs, this is what he needs to do.
Points number one and two would be a good start. But even if Hollande stopped with those two points, the socialists would fire him. Hollande's proposals prove he is not really interested in doing what it takes to create jobs. Rather, he only wants to do what is necessary to save his. Mike "Mish" Shedlock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rumors on Mark-to-Market Accounting and Loan Loss Provisions: What's the Real Story? Posted: 18 Jan 2016 12:54 AM PST Energy-Related Losses Mount Bank loan loss impairments related to the energy sector are set to rise rapidly. Banks have made drilling loans to companies that are only profitable at oil prices above $50. And the price of oil just closed under $30 for the first time in about 12 years. Diving Into Rumors Zero Hedge has an interesting post on Saturday entitled Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears. In his post, ZeroHedge claims "The Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated 'under the table' that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches." Mark-to-Market Accounting History You cannot suspend what has already been suspended. On April 3, 2009, the Wall Street Journal reported FASB Eases Mark-to-Market Rules. Suspension of mark-to-market account was one of the factors that ignited the stock market in Spring of 2009. Wikipedia has these notes on Mark-to-Market Accounting.
No Subsequent Mark-to-Market Changes There have been no subsequent changes. And here we are, back in bubble land, with hidden losses mounting again. By, how much? Who the hell knows because mark-to-market accounting has already been effectively suspended. We do have some facts, however. More Banks Take Energy Hits The Wall Street Journal reports More Banks Take Hits on Energy Loans. Months of low oil prices are starting to take a toll on banks. Large U.S. banks reporting earnings Friday said they saw more energy loans go bad in the fourth quarter. Many lenders also added millions of dollars to reserves in anticipation that more oil-and-gas loans will sour.J.P. Morgan Builds Loss Reserves for the First Time in Six Years On January 14, The Wall Street Journal asked: Turning Point? J.P. Morgan Builds Loss Reserves for the First Time in Six Years J.P. Morgan Chase & Co. built up its reserves for bad loans, a shift that spotlights Wall Street's mounting concerns about the fate of oil and gas companies.Bankruptcies Coming Regardless ZeroHedge's initial rumor the "Dallas Fed members had met with banks in Houston and explicitly told them not to force energy bankruptcies and to demand asset sales instead." could very well be true. There's not much shocking in that statement actually. ZeroHedge concluded "The Dallas Fed, whose new president Robert Steven Kaplan previously worked at Goldman Sachs for 22 years rising to the rank of vice chairman of investment banking, has not responded to our request for a comment as of this writing." Regardless of what Kaplan instructed the banks to do, bankruptcies cannot be avoided by selling assets. Sell what assets? At what price? The assets in question are rigs, land, and drilling rights. What demand is there for used rigs? And what near-term value do energy properties have at current energy prices? Oil reserves and the value of those reserves have both collapsed. Bankruptcies are coming and with them so will loan losses. Either loan loss provisions rise now, or bankruptcies impose unannounced losses in the not so distant future. Wells Fargo Is Bad, But Citi Is Worse In an update on Sunday, ZeroHedge posted Wells Fargo Is Bad, But Citi Is Worse. Earlier we reported that Wells Fargo may have an energy problem because as CFO John Shrewsbury revealed, of the $17 billion in energy exposure, "most of it" was junk rated.Citi Math and a Bit of Realism Citi refused to provide its loan loss provisions on energy. But it did provide exposure information. Funded exposure is $20.5 billion. 68% of that is investment grade. That makes $6.56 billion junk. I am not here to defend Citi. I am here to inject a bit of realism. Losses related to energy, whatever they may be, will be much smaller than losses related to the housing bubble crash. Let's explore that idea with a series of charts. Loan Loss Reserves to Total Loans Loan loss provisions kept rising in spite of mark-to-market suspension. The market imposed losses, but admission was at a "pace that was measured". Loan loss reserves as a percentage of total loans hit a record high 3.70% in first quarter of 2010. Loan losses for the Dallas region peaked in third quarter of 2011 at 2.11%. Let's now investigate loan loss allowances in dollar amounts, starting with the Dallas region. Allowance for Loans and Lease Losses, Dallas The allowance for loans an lease losses in the Dallas region peaked at $4.412 billion in the third quarter of 2010. It is currently at $3.08 billion. Allowance for Loans and Lease Losses, All Commercial Banks The allowance for loans and lease losses for all commercial banks peaked in April 2010 at $235.8 billion vs. $4.4 billion for the Dallas region alone. Even if fears over energy-related oil losses are a bit overblown, problems are beginning to mount and it's highly likely to spill over into many other sectors of the economy. The consumer is not doing all that well. Home prices are once again well beyond affordable. Manufacturing is in an outright recession. The rest of the economy is poised to follow manufacturing, or already has. Turning Point Declining loan loss provisions are net accruals to earning. Rising loan loss provisions are subtractions from earnings. Between April 2010 and December 2014 loan loss provisions shrank by $126.8 billion, directly padding bank bottom lines. In 2015, the decline in loan loss provisions was a mere $2.4 billion. The real story is not the alleged suspension of mark-to-market rules. Rather, the real story is rising loan and lease loss provisions, across numerous segments, not just energy. I expect loan loss provisions for housing, construction loans, subprime autos, credit cards, malls, and of course energy, will all rise. This is a significant turning point. Loan and lease losses have only one way to go: Up. How high remains to be seen, but the effect on earnings won't be pretty. To top it off, Iran About to Unleash Tidal Wave of Oil Into Depressed Markets. Mike "Mish" Shedlock |
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