College Football Analysis Week 1

What Recovery? What economic downturn?

In early November were the talking heads breathlessly presentation Report of the economy "grew" by 3.5% in the third ... quarter that the economy is recovering. The end of the economic downturn also marked the end of the recession that began in the fourth quarter of 2007. It attributed much of this growth in uptake in auto sales. To read the full government report, go to www.bea.gov .

The index of leading economic indicators, which has been positive for seven months, also suggests that the economy is in recovery.

Therefore, it is true? Are we on a growth path now sustainable? "This latest version of government on the economy means the worst is behind us? "The Index of Leading Economic Indicators we say the same thing?

Well, let's look at the reports and see where the growth came. Maybe that will give us some answers.

For starters, growth rate in the 3rd quarter has since been revised downward to 2.8%. And the following schedule shows the contribution to growth from the various sources in our economy.

The contributions to growth were:

I appreciate this data table is a little busy, but it is important to understand the true nature of what some call a recovery. He noted the major contribution to economic growth in the third quarter was restocking inventory. In my opinion, that will shelve growth is not empty. It is simply the reverse of the inventory reduction that we saw massive and aggressive in the fourth quarter of 2008.

So, if we take out the stocking, the growth rate slips to 1.9%. We will also remove defense spending and health care, which are not growth factors. After all, support our troops to Iraq, Afghanistan and around the world should not be considered economic growth. And more health for an aging population should not be considered new growth.

If we eliminate the defense and health care, growth has been reduced up only 1.1%. But leading to growth that is left is the sale of vehicles. Now let's look a little deeper into this topic.

Month months car sales are very volatile and seasonal. Thus, while the idiot was "Cash for Clunkers" government giveaway that some program kick started sales in the third quarter, two other factors are more significant. pent-up demand has been growing and the money for Clunkers was just the catalyst.

pent-up demand is the increase in the average age of cars on the road, now more than 9 years of age. In addition, interest rates auto loan are about half what they were in early 2007. The average car now has over 100,000 miles on it and the interest rates on car loans new low. underwriting standards, 10% down payment, have not changed in recent years and average prices have not changed much and are just under $ 30,000.

Most of us are accustomed to see the total number of vehicles owned, shown in the chart below. But remember, many of the cars we buy are imported and do not add to U.S. economic growth. This table gives a comprehensive view of consumer purchases of automobiles to Over the last decade.

As you can see, car sales were stable for a long time about 16 million a year. As car buyers went on strike last fall, car sales fell below 10 million per year sales level not seen since the eighties.

But the pent-up demand from the aging fleet of vehicles and low rates of borrowing will increase the demand for cars from current levels.

There is another factor that we provide information about car sales in the future. Currently there are 1.2 vehicles per licensed driver. This means that only 83% of the cars we buy are needed for transport. The remaining 17% are discretionary and are purchased to support our lifestyles. So, anytime we on the spot and should decrease, as recessions, we can easily cut on cars purchased.

Obviously, that's what we saw last fall and during the first half of 2009. We can delay the purchase of cars, and have. The elimination of the discretionary demand, car sales will stabilize at about 13 million a year.

Now let's look at car sales affecting our economic growth. The following table shows the file sold each month that were manufactured in the United States.

Source: U.S. Department of Commerce

The areas shaded pink the table are the periods of recession. As you can see car sales have been on a steady decline over the past ten year, recession or not. We saw a dramatic fall earlier this year, and sales have partially recovered in the third quarter. However, this recovery is actually very much part of longer term pattern is not unique to this recession.

The result of pent-up demand and low borrowing costs by car sales will be higher than the low level of monthly sales this year. I hope that car sales will resume its long-standing pattern of seasonality and volatility.

Now, back to our "growth" story. As we have seen, the only significant contributor to growth was 3 rd quarter auto sales. Many analysts attribute this to the government stimulus program. This makes no sense.

Aging, high mileage vehicles, and low interest rates are more durable and powerful influences on sales of cars than any government can be a gift. Offsetting these two positive elements is negative discretionary decisions Car purchase of 17% of total demand. Car shopping can be delayed or even canceled ... at least for a while.

Trade imbalance = Oil

And before we all get too excited about this runaway growth we need to remind ourselves of the negative influence on trade growth of 0.8% less. This is mainly due to our oil imports. More growth will make this trade deficit worse as we import more oil to make room for increased economic activity.

The Congressional Research Service, the investigative arm of Congress recently published a report on the hydrocarbon reserves of the United States showing U.S. to hold the world's largest reserves of fossil fuels, more even Russia. The report is entitled "U.S. Fossil Fuel Resources: Terminology, reporting and summary" and was released October 28, 2009. Go to www.opencrs.com to download this report.

We have the largest endowment of fossil fuels of any country and we are importing huge amounts of oil. This is the result of bad policy and political and environmental pressures. Unfortunately, not exploiting our own resources and reduce our economic growth puts pressure the continuing decline in the dollar.

Leading Economic Indicators

Conference Board Index of Leading Indicators Economic has been saying since April that the economy is in recovery. The index has been positive every month since then. But let's take a closer look about the components of this index. The major contributors to positive performance has been the performance of suppliers (restocking shelves) and actions and bond markets. As I said before putting things back on the empty shelves should not be considered as sustainable growth.

Equity markets and bonds have widened higher. The bag is 62% from its low in March. corporate bond prices have risen and, above all the high yield market up 56% as low in March. These price increases have come without the benefit of higher revenues, which extends to the nosebleed valuations levels.

Other components, such as consumer expectations (low and so long), jobless claims (bad, but the stabilization), average workweek (stable at least 45 years) and building permits (which increased from a low base and remains low unsustainable) tell a very different story. Therefore, I think the index of leading indicators economic is leading us astray, for the sole indicator of growth is an unjustified increase in prices of capital market.

Some "The growth "story, huh? prudent investors should be extremely careful in this environment.

What about next quarter?

I think it's important to see this highly touted "growth" story of the economic results of the third quarter as a unique event.

After all, in which this quarter and next quarter's growth is coming ... more war? More bands and ducks? More cars do not really need? I do not think so.

A long-term sustainable economic growth comes from new business formations that provide goods and services demanded by consumers. These companies hire more workers and expand because its products are sold at a profit. The drive for self-interest of each of us to ensure that this happens .... A Unless our government prevents and frustrates the growth of this natural phenomenon and the high taxes and costly regulations.

And that's where we are. No employer in their right mind is going to start a business today. The obstacles to success and growth are too large, so that the business too risky. The prospects for strong and sustained economic growth is not good until the government removes these obstacles.

What are the possibilities of our Socialist radical Muslim president and a mind as Congress understand the real sources of growth? The measures taken by this administration and Congress to date ensure economic recovery limited and of short duration. The economy significantly underperformed its potential.

What Recession?

Now that we have determined that there is very little growth in the number of growth in the 3rd quarter and the outlook growth in coming quarters is not good, let's take a look at the recession and see how bad it is.

Was there a recession? Absolutely. But we have to look a bit more to seek their ideas about gravity, dispersion, and duration. Just accept the revelation of the government that the real GDP fell for two consecutive quarters is not very useful for investors.

We must understand the parts of the economy is sound and safe, and of those parts extended and vulnerable. In fact, I find it useful to think of the recent economic developments in the economy-2.

Two economies

Is there a recession or two economies? I think the latest economic developments that are best explained not considered a monolithic economy that rises or falls in concert and unity, but rather to consider 2 economies that operate somewhat independently of each other.

An economy is stable and healthy and another is wrong, sick and had no existing business in the first place. But they are interrelated ... so the good or bad performance of one can appear in the performance of the other.

The first relates to the provision of goods and services everyone needs, including housing, food, clothing and other necessities normal American families. This includes education, entertainment and lifestyles. You see, this economy is vital, important, healthy and functioning.

The second economy is the one that should never have existed in the first place. It is an economy based on the liars and losers buy homes they were not home. This economy is sick and eventually die and cease to exist.

Looking at the endless stream of economic data in the context of two economies give us information on investment opportunities and dangers.

The Real Economy

The main numbers are often on unemployment. And it is true, unemployment is already above 10% and shows little sign of abating. Underemployment is 18%. It seems that there is much political pressure to do something about The high and rising unemployment and the government certainly will try. But as always, will be too late and follow the wrong actions. The recent Employment Summit is a Joke giant.

The following table compares the total payroll employment (not unemployment) with a total income and personal consumption expenditures. Payroll employment includes most part of us. It does not include self-employed and farm workers.

Normally, unemployment is the figure commonly reported, but a number of confusion. Contains the unemployed to report every week, but not those who do not report, or whose benefits have expired, or those who have stopped looking for jobs. There are millions of these people and number of unemployment, completely ignored. It seems more important to examine how many of us are busy and how it has changed. That's why the use of employment rather unemployment.

Payroll employment (blue line) has decreased dramatically since late 2007. Nearly 8 million people have lost their jobs work in the last two years. Both economies have been affected. For example, 1.6 million construction workers have been dismissed because of any construction work. But the real economy also lost jobs. Manufacturing employment fell by 2.1 million people. This reflects the trend long-term than in the U.S. manufacturing and cuts related acute panic stop in the supply chain last fall.

Roster employment is behaving as it has in past recessions. In the recession of 2001-2002, employment declined and declined after the recession had finished. We expect the same of this recession ... a continuing decline in employment.

The graph also shows personal income (green line) and personal consumption expenditures (red line). Although employment has fallen from a cliff, both income and personal consumption has not changed. In the pre-recession income and consumption continued to increase employment fell.

Revenue fell slightly and personal consumption has not declined at all during this recession. compensation average has increased. The same happened in the last recession. Leveled off income and personal consumption continued to rise.

There are several parts of the income personal. It includes compensation of employees, most of the income from investments, and government revenues in the form of transfer payments. Examples government payments are social security, welfare and Medicare payments.

No recession in personal consumption. 70% of personal consumption is services and this sector has increased each quarter. In fact, service charges have never declined in any quarter, recession or not.

The following table compares the total revenues that has not fallen into recession compensation to employees. In fact, you will notice an extension t of the two lines in particular since 2005. wage income is important since it is the main driver of total revenue. And is the source of the payments the government through taxes.

Given the huge number of unemployed would expect wage income to decline, and it has, but not significantly. Indeed, revenue per employee has increased in this recession.

Employment service is virtually the same. The decline in employment in the sector has been offset by rising employment and the use of federal health workers.

Health and government Federal workers are asking "What recession?"

Source: Bank of St. Louis Federal Reserve

Although income levels have remained essentially flat during this recession, the point of concern in this chart is the wage income is decline. If the wage income continues to decline, our economic system "recall" is to be of short duration.

Let's look some anecdotal indicators to examine the recession from a different perspective that the indicators only of the government. We will see in entertainment, charitable donations, living expenses, and others to get a better understanding of this "recession."

'S American Pets

Consider America's love affair with our pets. According to the National Survey of pet owners, 62% of U.S. households have a pet. The property has increased over time, over 56% of households, when the first survey was taken in 1988.

The following program illustrates the total cost of pet ownership during the decade.

The annual cost of pets

(Billion $)

As you can see, our pampering Pet increased both in the last two recessions. Both the property and the amount has been expanded. New products, such as hospice care and airline carries more than pets are just two examples of how to pamper our pets, not recession.

Our pets are asking "What recession?"

Garbage

Then we will consider our production of garbage. In particular, the amount of food produced by households in the U.S. waste and restaurants.

U.S. Food Waste

Source: Environmental Protection Agency

Tonnage produced was reduced slightly in the last recession in 2001, but increased again the following year. Despite this decrease of 2%, the percentage of food waste to the total solid waste increased to 11.4%. In 2008, a year recession, both the amount and the percentage increased. America produced a record 32 million tons of food scraps in the deepest recession since the early seventies.

The refuse haulers are asking: "What Recession?"

College Football

Let's ask the fans of U.S. college football. We will check your response to this recession staring National College Athletic Association Football Division I attendance records for the past six years. This does not include all college attendance football game, but Division I is the high level competition in the wider college football and has the following. The following schedule shows the annual attendance records including the 119 schools in Division I.

Source: National College Athletic Association.

As you can see, attendance increases every year, recession or not. In the deepest recession since at least mid-70s, the college football attendance continues to rise.

College football fans American are asking: "What recession?"

New Business

As we all know, small businesses are a vital and significant factor for our economy and overall employment. There are about 6 million U.S. businesses that employee people. The difference between small and large firms is the number of employees. Large companies are defined as those with 500 or more employees. Only there are 18,000 large businesses in the United States. Small businesses, those with fewer than 500 employees, 64% or 14.5 million of the 22.5 million new jobs added to the economy from 1993 to 2008. third of these new jobs came from a new business.

The following table shows the total of new companies started against the number of companies closed, and the relationship starts to closures. About one percent of new companies join each year to the 6 million existing businesses. The failure rate of new business within the first five years of existence has always been high, around 80%. The following table does not track that, it only shows the number of businesses open and closed each year, its longevity.

As you can see, the closures amounted to about 85% of new business formation from 2004 to 2007. But the relationship soared to 95% in 2008, which clearly reflects the difficult business climate.

Business Formations and failures

Source: Small Business Administration

the formation of new businesses is a key element in employment and economic growth. While starting new have remained basically unchanged, the failures have increased dramatically. The recession is just one reason. Federal regulation is another. Here is the cost of federal regulation on business each year.

Annual Cost of Federal Regulations

(Cost per employee)

Source: Small Business Administration

As you can see, the economy of the best engine of growth, small businesses, has the highest regulatory burden. Federal regulatory costs for small businesses are 45% higher than the costs for large enterprises. This tends to discourage economic growth strong and small business failures more likely. High taxes and regulations to punish ensure economic growth in coming quarters will be warm and vulnerable.

Charitable Giving

You would expect charitable giving to decline when times are tough. And he has fallen in 2008, but not significantly. Curiously, contributions to churches and national and international charities actually went up. The decrease was based on "human service organizations and education.

The following schedule describes the charitable donations during this recession, showing the source, which is the main individuals, and recipients, who are mainly churches.

Charitable Giving

Source: Giving USA 2008 Report

Most donors are saying "We do not care if there is a recession." And many churches and organizations charity are saying, "Thank God for the generosity of the American people, even in difficult times.

Cuts

Everything goes up? Not, of course not. Discretionary spending has been reduced. We are buying fewer cars, as we have discussed, and our summer holidays are less expensive and extravagant. We have reduced eating out, particularly in exclusive restaurants. The days of business lunches ice sculpture $ 50,000 more than ... at least for now. And no one will miss, except the ice sculptor.

For the most part, families go through life as they always have. But fifteen million unemployed will have any impact on us all. You and I may have a job, but a relative, friend or someone we know that is probably outside of work.

Recession cause unemployment and economic difficulties. But we must remember recessions are a natural and necessary part of the business cycle. That's why we call it a cycle ... has up and down phases. Economic cycles are healthy. The above cycle goes too far. At its peak, which stimulates the marginal investments do not. These failures cause economic disruption, including unemployment, but also pave the way for the next cycle to begin.

Solomon, the wisest man who ever lived, tells us that there will always be cycles and will exist as long as the earth exists. So instead of trying to banish, as governments desperately try to do, so we include in our investment planning, as a normal and recurring.

False economy

This is an economy that should never have existed in the first place. Could not exist without the liars and losers. I'm talking about millions of homes we build houses that were not. Liars, losers purchased at prices higher and higher, all facilitated by government requirements for banks to make loans to unworthy borrowers and unconditional. This was the triumph of hope over experience and was inevitably going to end badly. Liars are not worthy of the loans and the losers can not afford.

The bubble realtor who took the time led to the way the chart below shows.

Source: U.S. Census Bureau

The line Blue shows the steady increase in total housing units in the United States. The sharp fall in the year 2002 is only a change in the way the Census Bureau tracks this information and not an actual decline.

From 2002 to 2008 the United States added to its inventory of homes. In 2002, our housing inventory was 117 million housing, in 2008 our housing inventory was 130 million homes. At the end of the 3rd quarter of 2009 we had 130,302,000 units. This includes housing invaluable. The number of households has stagnated over the past 6 years at about $ 110 million. The current number is 111,612,000.

About one million new households are formed each year. And they need housing. A good rule of thumb is that America needs to build new houses equality training new homes each year.

The number of dwellings and the number of households should monitor together. In the past, these two lines (blue and red lines) were very close together. In 2002, the blue line and red line began to diverge. From 2002 to 2008 we have built 13 million homes that do not need that were not occupied. That's a bubble!

The graph also shows the average house price in green (right scale), which began to rise sharply emerging from the recession 2001-2002.

As home prices rose, they built more houses. The difference between the houses and families are empty houses, continues to grow, even as they build more houses.

This enhancement pattern of higher prices and more empty houses there are getting worse, creating a massive housing bubble. This of course was allowed all the idiots in Washington that he wanted every voter is a homeowner, even if it is temporary and reckless.

The music stopped when real estate prices could rise further and began to fall in mid-2007. After a delay, starts a new home began declining from the unsustainable rate of 2.2 million per year.

As you can see in the chart below, starts increased quickly after the recession 2001-202, despite no increase in households. And now, new housing construction have plummeted to well below level of new household formations. As the excess inventory is absorbed, new housing starts will resume a more normal and sustainable level of around 1 million a year.

Source: U.S. Census Bureau

Let's add another dimension to this picture I'm sorry; financing. If All these houses were built with 100% of capital would not have been built. The reason for its construction was due to 100% or near 100% financing was available to worthy borrowers. Congress passed laws requiring banks to lend to the liars and losers. This created a recipe for evil that built biggest bubble market forces would have allowed.

The following table shows the total debt outstanding of all U.S. households (Line blue). This is mainly mortgage debt, but also includes $ 2.5 billion in consumer debt such as car loans and credit cards. Also I have included two of the sources of funding for mortgage financing became much worse housing bubble than was necessary.

The first source was mortgage pools (red line), organized by hundreds of smaller mortgage originators and sold to investors by Wall Street firms. The second was government pools supported agency, like Freddie Mac and Fannie Mae (green line).

Source: Federal Reserve

After rising rapidly since 2002 to 2008, the total household debt has stabilized and is beginning to decline. mortgage pools have declined dramatically. Essentially, no new pools have been formed and existing pools are being paid off or out of office. The sad part is that the government-sponsored loans have continued to increase. All apparently includes a housing bubble, except the government.

construction of houses financed by loans did not need that could not pay million people employed. Many are now unemployed.

The following table shows the employment levels of both the construction and financial services industries. As expected, the construction industry is more volatile than in the bank. Even so, both industries have dumped millions of employees over the past two years.

Source: Bank of St. Louis Federal Reserve

One million six hundred thousand workers in the construction and close to 500,000 workers financial services have been fired since the recession began.

According to the American Bankers Association, 14.1% of houses were in default or foreclosure status. This is its highest since the American Bankers Association. has been collecting data in 1972. This amounts to little more than 4 million homes.

As the largest mortgage lenders, banks are suffering huge write-downs and losses. Until far this year, 129 banks bankrupt and were closed by the FDIC. This compares with 26 bank failures in 2008 and only three in 2007.

Unfortunately, the real economy and many normal and prudent banks and borrowers caught up in this housing bubble. Rising house prices hit any family who moved for business or professional reasons. They had to pay more and borrow more for your new home. And the bursting bubble has left them with less capital than when they bought the house. In effect, they are trapped, at least for the next few years, households with loans greater than the value of the house.

Loans Limited

Banks have become much more conservative in their loans from the housing crisis and the freezing of credit markets. The following table shows Where are investing now. It is certainly not in the business and consumer loans.

As you can see, business loans (called C & I loans) have been reduced by $ 250 million last year. And consumer loans have declined slightly. The eyes are open deposits banks hold excess with the Federal Reserve Bank.

All banks are required to maintain a minimum amount of reserves held on deposit with the Federal Reserve. The minimum is shown in green line of 2000 to October 2008. Much of the $ 700 billion in rescue money from the government that came to support the large drop redeposited banks was immediately passed to the Federal Reserve. As you can see, the excess reserves expanded from near zero to U.S. $ 1 billion in the last year.

Conclusion

The lower availability of bank credit, declining employment, declining home prices, bank failures, foreclosures, and new housing starts are very low in all the clear evidence of this false economy is disappearing.

The false economy is not very large in relation to our national economic engine, yet is causing much pain. Unfortunately, this is how ... bubbles finally pain and loss.

Ok, so let's add this:

Most of our economy is strong, functioning and healthy.

"The outlook is for slow growth until the risk / return in better balance

"The housing bubble deflates and the false economy is disappearing

Portfolio Strategy

My analysis is that there was no recession much of our economy, and it certainly was not recovered.

The forecast is for us to sputter along, drawn by overregulation, confiscatory taxation, and the slow abandonment of the economic principles that made us the most powerful economy on earth.

In this environment it is essential to adhere strictly to our high-income investment disciplines and sustainable. We will continue to avoid investments related to the economy false, as residential housing and finance.

You live long and prosper

Mike Williams, CFA

COLLEGE FOOTBALL SCOREBOARD WEEK 1- PART 1

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