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Friday, December 5, 2008

Business environment still deteriorating and its getting boring

The last couple of days have been quiet here at theskew. It's not that I'm not reading all about how bad business is. I am. I'm just not writing about it because its starting to feel awfully redundant. Do I add value in telling you AMD blew up again? That Intel numbers are coming down because AMD blew up? I don't know. It doesn't seem like its particularly helpful. Should I rant about the fact that congress shouldn't but will give the auto companies money because if they don't the economy will dead stop? That's on every editorial page in America.

Business isn't getting better. If holiday promotions, aggressive as they are, are failing to move product in better volumes, I fear the March quarter will be an unmitigated disaster – and I think that's what companies are telling you when they lower revenue guidance 25% for the December quarter and layoff 10-20% of their workforce. Things are going to get worse.

Despite the extreme volatility in the market this year, the business cycle we are in is extremely long. The credit-based expansion began in earnest during the Reagan administration with the advent of voodoo economics and has expanded for over two decades. It is unrealistic to expect a reversion to the mean to happen in a few short months. Bubbles are excessive speculative forces that reshape the landscape – when they pop they leave craters behind. It is very possible the economy will remain depressed for years to come. The stock market may well be in the 4th inning of a multi-year correction.

The Fed managed to break mortgage rates with their recently announced plans to buy mortgages. Refinance requests went through the roof. Unfortunately they also started to explore the idea of doing federally funded home loans at below market rates, which is likely to freeze the market again. Federal efforts to manipulate the market only complicate investor's ability to calculate true market valuations. It's hard to know what the true baseline is when they keep trying to prop up the baseline.

See, that's why I'm not writing much. Nothing has changed. Valuations appear reasonable if you assume business will resume normal trends. They probably won't. We're a consumer driven economy, which means we've been buying replacements for things we already have for years. Without disposable income and credit, its like our economy is geared wrong and it will take a long time for the excess capacity to dissipate.



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