Ignore The Hair-Brained Media: Four Tips To Combat The Limp Economy
Thursday, July 16, 2009
by Marc Lichtenfeld, Senior Analyst, Smart Profits Report
Want to see an example of lazy, misleading journalism?
Look no further than some financial media outlets, who promptly heralded the end of the recession after some good earnings reports from the likes of Goldman Sachs (NYSE: GS) and Intel (Nasdaq: INTC).
But Goldman investors should thank the men and women at the company’s trading desks for their profits, as the bulk of the company’s gains came from trading, not underwriting. A meaningful increase in debt and equity underwriting would have signaled some health in the markets.
Intel also blew its earnings estimates away, but the firm’s profits were still 75% lower than the same period a year ago and revenue was 15% below last year.
So beware of the knee-jerk financial media at the moment. Keep in mind that companies and analysts are issuing very conservative earnings estimates these days. Nobody wants to miss their number and see the stock get beaten up even worse than it has been already.
Despite some companies beating artificially low estimates, the economy is not on strong footing yet.
The “Cabbie Indicator”
I’ve traveled quite a bit over the past few weeks - and used the opportunity to talk to as many people as I can about the economy.
And one of my favorite non-scientific measures of the economy - the “Cabbie Indicator” - shows no signs of a rebound.
Whenever I travel across the country, I try to talk to cab drivers about their business and what they’re seeing in the area. Cabbies not only talk to a lot of people, but they’re generally on the pulse of their local economies, too. For example, I knew we were in trouble in 1999 when a New York City cab driver freely offered his advice on tech stocks!
Today, it’s a different story. Drivers from Tulsa to San Francisco, and from West Palm Beach to St. Louis have all told me the same thing: Business stinks and it’s not getting any better.
Road To Nowhere
Several mentioned that their business is down 50% or more. And a few even told me they drive a cab because they can’t find any other work. Those who don’t own their own taxi sometimes don’t make enough during the day to pay for the gas and the daily fee they incur to use the cab.
Cab drivers aren’t the only ones struggling. The stories I hear from friends and former colleagues in a wide range of industries are just as harrowing. Among them…
- A public relations executive currently out of work, with no prospects on the horizon.
- An experienced freelance television news producer whose business is down 70%. He said the Michael Jackson coverage blew everyone’s budgets and they won’t have money until next quarter.
- A cooking school owner who had to leave the state for two months to take a job.
- A Hollywood scriptwriter who is about to lose his main client.
- A spa owner whose business has completely dried up.
This ugly trend is symptomatic of the country in general. The official U.S. unemployment rate is 9.5% - with the Fed projecting it to top 10% this year.
But when you include those that have given up looking for work and part-time employees who want a full-time job, the number is over 20% in states like Oregon, Michigan and California. Several other states are also approaching the 20% figure.
About the only person I know who is enjoying prosperity at the moment is a friend who is a bankruptcy attorney. He’s working six-and-a-half days a week (and feels guilty for taking off Sunday mornings!)
Things are tough (thanks for the news flash, Cronkite). So what should you do about it?
Four Tips To Combat The Wilting Economy
Rather than just absorbing the negative news, there are proactive steps you can take immediately to combat the feeble economy…
- Set Aside Emergency Cash: Make sure you have six months worth of emergency cash that is liquid and accessible. Put it in a savings account where you can easily get to it if you need to. Yield is not as important as liquidity.
- Build Cash Reserves: Everything from cars to houses has plummeted in value - and prices are likely to get even cheaper over the next six months. When you find that dream home, you want to be ready to pounce, so try to keep a stash of cash reserves on hand for big-ticket items.
- Keep An Investment Watchlist: If you’ve got potential stock purchases in mind, be sure to keep a list of them on your radar. Stocks are also likely to get cheaper before the end of the year. I’ve said this for a while now, but once the market corrects some more, we may be looking at the investment opportunity of a lifetime, so you’ll want to ensure that your capital is ready for action when the time comes. Look for great ideas now.
- Get Stock Advice: If you need a hand generating investment ideas and tips on where to invest your money in this tough climate, get some professional advice and let the experts do the work for you. And it would be remiss of me not to point you towards the Xcelerated Profits Report. I’m just about to release my latest recession-resistant recommendation that is already trading at a low valuation.
Wherever you get your ideas from, start tracking those stocks and the companies’ performances. Remember, you want to buy when things are at their worst. Don’t wait for the upturn in business because by then you’ll have likely missed a large percentage of the move.
It’s stressful watching the ebb and flow of the market and economy. But merely reacting to it helplessly will exacerbate it. So get proactive and take these steps. Not only will you be preparing to profit handsomely when things do turn around, taking action will help you psychologically, as you’ll gain some control over your future.
Hoping your longs go up and your shorts go down.
Marc Lichtenfeld
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5 Responses to “Ignore The Hair-Brained Media: Four Tips To Combat The Limp Economy”
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Good piece, but that’s HARE-brained, not HAIR-brained. A hare is a rabbit.
My shorts have dropped and with Obama and this Congress in charge I am getting ready to bend over in this economy.
What do you think of Nouriel Roubini saying today, Jul 16th 2009, that recovery will come later this year???
“U.S. Stocks Rise as Roubini Predicts Recession to End This Year ”
“The freefall of the economy has stopped,” Roubini said at a Chilean investors’ conference in New York. “There is light at the end of the tunnel. And the light at the end of the tunnel for once is not the one of an incoming train.”
Carl — you’re right about hair instead of hare. I’m throwing my editor under the bus here. It was his headline. I never even saw it.
Luis — I think Roubini is more interested in keeping his name in the headlines these days.
Great article. Thanks for posting!