Skip to main content

Why are markets so depressed?

The truth is that earnings have been very good (both in the US and in Canada), sales in the 3rd quarter (reported) have been softer than their profits (which exceeded expectation -- they always do) but the real kicker has been guidance -- where North American companies look at the future and don't see anything good. On the retail front one has to wonder, with Black Friday sales already in full swing --- a few days earlier than usual.  What is strange is that for America at least, the consumer has been pulling the economy, with savings falling to fund consumption.  But there is a bad feeling in the air!

The gloom is based on a perception maybe that there are some big events out there -- but on the North American front there is nothing really threatening until after the election (Nov 2012) in fact any automatic budget cuts in the US federal budget will not take place before 2013 -- almost two years from now.  Europe has only limited impact on North America -- since few of our good go there anyway (Europe is a big, closed economy -- as for as North America is concerned). Still unease rules!

Now don't get me wrong I am not personally bullish on stocks, I've actually been out of the market for several weeks now. As a Canadian things are looking good, oil prices are around the $93-97/bbl range, although zinc and copper prices are off their high, they are still in a "good place" for Canada's exporters.  Gold prices are not moving much, but its still around $1,700/oz -- hardly a depressed level.

What is threatening is a "end of empire" feel to the the global economy.  A few weeks ago a graph (here) showed the level of OECD countries overall debt burden, Canada was the lowest but hardly a star performer.  Kyle Bass was on British TV last week, explaining that the reality that is Europe is unsustainable. In the past the outcome as ALWAYS been the same -- sovereign default, why would this time be different?  Maybe that's the problem; everyone who is informed knows that this problem has only one outcome -- default, and the worry now is that with the excessive bank leverage the risk of contagion across the globe is massive.

I've said it before, when one banks has $5 trillion of derivative gross exposure, it doesn't take much, in a crisis situation, to cause terminal damage!  A few weeks ago MF Global went bust, where now $1.2 billion in client segregated cash has disappeared without a trace!  Rumors are that the EU authorities are working with Switzerland to force repatriate Eur 60 billion in cash that Greeks have "stashed away".  Safe harbors are difficult to find in these situations.  As one commentator mentioned earlier this week:  The sale of mattresses is bound to rise as a way of storing cash!
  
After a 1.7% correction yesterday in North America (around 4% in Europe) one would expect a pull back! Not really, markets are flat this morning.

Comments

Post a Comment

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b) ground beef requires process
Post a Comment
Read more

21st century milk parlour

When we first looked at building our farm in 2018, we made a few money-saving decisions, the most important is that we purchased our milk herd from a retiring farmer and we also purchased his milking parlour equipment.  It was the right decision at the time.  The equipment dates from around 2004/05 and was perfectly serviceable, our installers replaced some tubing but otherwise, the milking parlour was in good shape.  It is a mature technology. Now, we are building a brand new milk parlour because our milking cows are moving from the old farm to the new farm.  So we are looking at brand new equipment this time because, after 20 years of daily service, the old cattle parlour's systems need to be replaced.  Fear not it will not be destroyed instead good chunks will end up on Facebook's marketplace and be sold to other farmers for spare parts or expansion of their current systems. All our cattle are chipped, nothing unusual there, we have sensors throughout the farm, and our milki
Post a Comment
Read more

So we sold surplus electricity one time last summer...(Update)

I guess that we will be buying an additional tank for our methane after all.   Over the past few months, we've had several electricity utilities/distributors which operate in our region come to the farm to "inspect our power plant facilities, to ensure they conform to their requirements".  This is entirely my fault.  Last summer we were accumulating too much methane for our tankage capacity, and so instead of selling the excess gas, that would have cost us some money, we (and I mean me) decided to produce excess electricity and sell it to the grid.  Because of all the rules and regulations, we had to specify our overall capacity and timing for the sale of electricity (our capacity is almost 200 Kw) which is a lot but more importantly, it's available 24/7, because it's gas powered.  It should be noted that the two generators are large because we burn methane and smaller generators are difficult to adapt to burn unconventional gas, plus they are advanced and can &qu
Post a Comment
Read more