The Mike Gasior Blog

But I truthfully worry that some of my very good friends who read this blog, Twitter and my newsletter may harbor doubts about what I have to say in the things I report to you.

I’d love to say right now that “my job isn’t just to entertain you, but to educate you”, except that catch-phrase is reserved for a certain gasbag on CNBC whose show begins at 6:00 p.m. on weekdays.  Even worse, I find that certain gasbag is neither of the things he claims, since I don’t find him entertaining nor does he educate anyone.

Now more to the point, I wrote you all an extremely enlightening blog post this morning about how this current influx of earnings “winners” was nothing more than a boatload of nonsense.  As I mention in my subject line, I beg your forgiveness for my tedious nature, but I wanted you to see these statistics with your own eyes and make your own judgements about any “green shoots of recovery” and to see if you agree with the morons at Newsweek Magazine that “The Recession is Over”.

The information below was gleaned from the SEC’s website, and contains information filed by the companies on the list.  This list is the 30 companies of the Dow Jones Industrial Average (a who’s who of global business) and the data shown is a very crude display of their REVENUES over the past four quarters.  There is no opinion being shoved down your throat, nor will there be any embellishment on my part of the numbers.  I would just like YOU to take a look at the trajectory of the revenues being taken in by these massive corporations and consider for yourself whether things have begun to “recover”.

This “research” took me approxiamately 45 minutes and involved no thought process whatsoever.  I’d love to hear what you think of it though.

I suspect you will find that it’s a very sobering list.

AA ALCOA INC
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 4,147,000   4,672,000   7,234,000   7,620,000

AXP AMER EXPRESS INC
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 6,481,000   7,443,000   8,032,000   8,340,000

BA BOEING CO
PERIOD ENDING 30-Jun-09 31-Mar-09 31-Dec-08 30-Sep-08
Total Revenue 17,154,000   16,502,000   12,664,000   15,293,000

BAC BK OF AMERICA CP
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 45,417,000   31,188,000   32,212,000   29,291,000

CAT CATERPILLAR INC
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 9,225,000   12,923,000   12,981,000   13,624,000

CSCO Cisco Systems, Inc.
PERIOD ENDING 25-Apr-09 24-Jan-09 25-Oct-08 26-Jul-08
Total Revenue 8,162,000   9,089,000   10,331,000   10,364,000

CVX CHEVRON CORP
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 36,130,000   45,203,000   78,867,000   82,989,000

DD DU PONT E I DE NEM
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 7,270,000   6,070,000   7,620,000   9,376,000

DIS WALT DISNEY-DISNEY
PERIOD ENDING 27-Dec-08 27-Sep-08 28-Jun-08 29-Mar-08
Total Revenue 9,599,000   9,445,000   9,236,000   8,710,000

GE GEN ELECTRIC CO
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 38,411,000   46,213,000   47,138,000   46,891,000

HD HOME DEPOT INC
PERIOD ENDING 3-May-09 1-Feb-09 2-Nov-08 3-Aug-08
Total Revenue 16,175,000   14,607,000   17,784,000   20,990,000

HPQ HEWLETT PACKARD CO
PERIOD ENDING 30-Apr-09 31-Jan-09 31-Oct-08 31-Jul-08
Total Revenue 27,351,000   28,800,000   33,603,000   28,032,000

IBM INTERNATIONAL BUSINESS MACHINES
PERIOD ENDING 31-Dec-08 30-Sep-08 30-Jun-08 31-Mar-08
Total Revenue 27,007,000   25,301,000   26,820,000   24,502,000

INTC Intel Corporation
PERIOD ENDING 28-Mar-09 27-Dec-08 27-Sep-08 28-Jun-08
Total Revenue 7,145,000   8,226,000   10,217,000   9,470,000

JNJ JOHNSON AND JOHNS DC
PERIOD ENDING 29-Mar-09 28-Dec-08 28-Sep-08 29-Jun-08
Total Revenue 15,026,000   15,182,000   15,921,000   16,450,000

JPM JP MORGAN CHASE CO
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 29,584,000   32,910,000   25,832,000   25,882,000

KFT KRAFT FOODS INC
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 9,396,000   10,767,000   9,886,000   11,176,000
 
KO COCA COLA CO
PERIOD ENDING 3-Apr-09 31-Dec-08 26-Sep-08 27-Jun-08
Total Revenue 7,169,000   7,126,000   8,393,000   9,046,000

MCD MCDONALDS CP
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 5,077,400   5,565,000   6,267,300   6,075,300

MMM 3M COMPANY
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 5,089,000   5,509,000   6,558,000   6,739,000

MRK MERCK CO INC
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 5,385,200   6,032,400   5,944,000   6,051,800

MSFT Microsoft Corporation
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 13,648,000   16,629,000   15,061,000   15,837,000

PFE PFIZER INC
PERIOD ENDING 29-Mar-09 31-Dec-08 28-Sep-08 29-Jun-08
Total Revenue 10,867,000   12,346,000   11,973,000   12,129,000

PG PROCTER GAMBLE CO
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 18,417,000   19,924,000   22,026,000   21,266,000

T AT&T INC.
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 30,571,000   31,076,000   31,342,000   30,866,000

TRV THE TRAVELERS CO
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 5,735,000   5,805,000   6,145,000   6,295,000

UTX UNITED TECH
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 12,249,000   14,499,000   14,814,000   15,667,000

VZ VERIZON COMMUN
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 26,591,000   24,645,000   24,752,000   24,124,000

WMT WAL MART STORES
PERIOD ENDING 30-Apr-09 31-Jan-09 31-Oct-08 31-Jul-08
Total Revenue 94,242,000   109,116,000   98,530,000   102,658,000

XOM EXXON MOBIL
PERIOD ENDING 31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08
Total Revenue 64,028,000   84,696,000   137,737,000   138,072,000

Well, unless you haven’t been near a television, radio, newspaper or the Internet, I am confident you’ve gotten the good news that the recession clearly seem to be over at this point.  It was one news item after another that showed dramatic improvements in the economy culminating in a bottom of the housing market yesterday morning with the release of the latest Case-Shiller statistics.

I have sat most mornings recently and listened to the parade of 2nd quarter earnings results.  It seems most of the largest companies in the U.S. and the world have announced earnings that were well in excess of expectations and the Dow Jones Industrials has risen above 9,000 to the highest levels of the year.

Finally, I have seen no less than a dozen esteemed economists, employed by prestigious institutions announce in various forums that the economy will be showing positive growth in the 3rd and 4th quarters of 2009.

But let’s think a little more about all this “news” that we’ve heard and look at it through a somewhat different lens.  While I am indeed an economist by training and by nature, I am certainly not one of these Nobel-track Laureates who populate the television programming with their warm and fuzzy predictions of our economic outlook.  I tend to be more of a small town, curbstone economist who has tempered his beliefs by spending nearly 30 years, elbow deep in the bowels of the financial markets.  I’m a guy who still vividly remembers the advice his new boss gave him his first morning as a Wall Street employee.  “Mike, this is Wall Street.  Don’t believe anything you hear and only half of what you see because nearly none of it will be true.”  Fairly cynical words to share with the new guy before 8:00 a.m. on his first day on the job, but extremely practical advice in hindsight.  I can also recollect a college professors words to the class in the first accounting course I ever had to take.  “Earnings are an accounting opinion.”  Only 5 words, but very enlightening to yours truly.

With all this in mind, here is how Mike saw a lot of these announcements when looking through my lens.

First is the Case-Shiller announcement of yesterday about housing prices.  As the announcement was made I immediately heard multiple members of the media begin using the word “improvement”.  But was it?  The announcement was that Case-Shiller 10-city and 20-city composite indexes declined 16.8 percent, and 17.1 percent, respectively, for May, compared to the same month in 2008.  Clearly, that doesn’t sound that great.  But, if you compare that to April’s decreases of 18 percent and 18.1 percent, respectively, it wasn’t as bad.  Is that truthfully an “improvement” though?  Indeed, there was news that prices in 17 cities covered by Case-Shiller showed actual price increases for the first time in three years, but a one month event does not a trend make, especially when 30-year mortgage rates ticked down and May is one of the busiest months for home sales in any given year.

Now the earnings news has to be a positive, doesn’t it Mike?  Well, like many statistics, it depends how you look at them.  I will gladly admit that many of the announcements of earnings “exceeded expectations”.  But I am curious if any of my readers took even a second to examine for themselves how the companies did compared to the previous year?  Especially when it comes to revenues?  You see, revenues are difficult to massage with an assortment of accounting smoke and mirrors.  Revenues speak volumes about the outlook of any given company, or if taken in aggregate, the economy as a whole.

For example, Caterpillar was one of the wonderful announcements this current earning season.  But would you be impressed if I told you that their revenues have consistently declined EVERY single quarter for the past four quarters?  You can also count American Express, Alcoa, Home Depot, McDonalds, 3M and the vast majority of the Dow 30 components and S&P 500 members in that group of CONSISTENT revenue declines for four or more consecutive quarters.  Or consider that GE’s revenues for the most recent quarter were about $10 billion less than a year ago and Walmart’s were $8 billion less?  Now I ask you all a fundamental economic question without even knowing if you have any economics training:

–Can the economy actually be growing?

Since GDP (gross domestic product) is a measure of all goods and services produced by U.S. companies, HOW can the economy be growing if EVERY U.S. company is in a declining revenue situation?

Now I don’t have any Nobel Prizes, nor am I likely to be nominated for any either, but as my Texas friends would tell me “that dog don’t hunt”.

I’ll also make mention that none of the fancy pants economists you’re currently watching all over the TV right now….NONE of them predicted we were heading into this nightmare we currently find ourselves in.  Neither Chairman Bernanke nor the current Treasury Secretary.  You did hear it from me and a small group of other “Chicken Littles” as we were referred to back then when I told you this would all come crashing in.

So here is the story from how I see it.  The recession is NOT over, no matter what the cover of Newsweek Magazine might be announcing (and if we were still living in the era of outhouses, I would tell you what your Newsweek Magazine would be very useful for).

Housing is going to get weaker.  The economy is still shrinking for the foreseeable future.  The U.S. and other global stock markets will revisit the March lows and I actually think you might see the Dow make a visit to the 5,000 neighborhood sometime in the next 12 to 18 months.  Unemployment might reach 12% and make a push higher than that.  And watch out for China.  I think something is particularly troubling about their economy and their markets and that they may be the catalyst to send other markets around the world straight into the toilet.

I apologize for what appears to be an abundance of horrible news, but all those predictions are based on the facts as they stand right now.  When the facts actually do start swinging towards the positive, I promise I will be the first to announce them.  But always remember that hope isn’t an investment strategy.

The events taking place daily in Washington D.C and the recent run-up in the stock market has me in quite the mood for my appearance on “The Naked Short Club” radio program from London this evening.  I truthfully think this show is unlike anything else you might listen to regarding the financial markets and I encourage you to have a listen later today if you’re available.

The show is primarily folks from every corner of the hedge fund industry (plus me) and the discussion can ramble to any corner of finance, investing and beyond.  It is hosted by my good friend “Dr. Stu” and it can be a pretty interesting hour of radio.   Here is part of the email Stu sends out to friends to remind them to listen:

You are cordially invited (next Monday, April 27th)  to listen to the next edition of the N@ked Short Club between 21.00 and 22.00 hrs., London time on not-for profit radio station, Resonance FM: 1 hour of loose talk about hedge funds and the state of the world, heady music, poetry…nothing to do with anyone’s day job, no promotional agenda, no commercial intent… just a bit of light relief in these interesting times.

Dr. Stu will be on hand with a team of cognitive behavioural finance therapy experts to help callers to the Emergency Hedge Fund Helpline (1-800-DISTRESSED) to get in touch with their Inner Arbitrageur…and will be joined by several special industry guests.

You can hear it online at 4:00 p.m. Eastern  Daylight Time and 9:00 p.m. London Time at:

http://resonancefm.com/

See you later on the radio.

I’m sorry to post again on the blog so soon, but Treasury Secretary Geithner is about to testify to Congress that there needs to be more oversight and regulation regarding OTC derivatives.

What I wanted to remind you of is something I touched on yesterday, which is that credit default swaps (CDS) would have been illegal up until the year 2000.  Then, the Congress voted to specifically exempt CDS from prosecution in any state or local jurisdiction under existing “Bucket Shop” laws.  These “Bucket Shop” laws were passed back in 1908 after people gambling on the direction of the stock market contributed to crash of 1907.  These laws made it a felony to make bets on financial interests without the involvement of the actual tangible asset being available for delivery.

In the final vote on the final day the Senate voted unanimously to approve “The Commodity Futures Modernization Act”, which specifically voted to exempt CDS from being prosecutable under bucket shop laws.  Minor research on any of your parts will quickly show you that the marketplace for CDS immediately began exploding literally hours after this act was passed and signed by Bill Clinton.

So when you watch these gagbag politicians grandstanding, pounding their fists and lamenting “how did all this happen?”, please remind yourself about something.  It is extremely probable that EVERY single one of them voted for the law that allowed it to happen.

And then you can go vomit, which is precisely what I’ll be doing.

First let me apologize for my somewhat prolonged silence both here on my blog and on Twitter as well.  No real legitimate reasons other than a fairly busy business schedule followed by an early summer vacation.  But with that in mind, I thought I would take the time to expand on multiple conversations I’ve had with family and friends over the long holiday week as well as chats with strangers on airplanes and in bars.  It’s been my experience for basically the past 30 years, that when people know you’re a “money guy” they can’t help themselves from asking a litany of questions.  The one I’ve been getting a lot lately in various formats is basically this:

“Who is really to blame for this economic mess?”

Clearly, I get paid to speak and think about such topics, but I hadn’t really thought about how I would actually assess blame to ALL the people who shoulder some of the responsibility for this mess we’re in.  Plenty of folks made contributions, but I thought I’d take the time to actually rank them each.  Remember these are my own opinions and are debatable like anything else in life. 

Some Blame

Regulators – Although one wouldn’t expect me to go the lightest on this crew, the truth is that the SEC budget was routinely cut over the past decade and some of the other regulators had little teeth to do any true enforcement anyway.  But there is certainly blame to be laid here since it was the SEC itself who encouraged the brokers to take more risks and oversaw the disaster that was “self regulation”.

More Blame

George W. Bush – The truth is, most of the seeds that blossomed into this nightmare were planted well before Bush arrived in Washington, but he certainly didn’t do anything to fix the situation.  There was all the tax cutting, increased spending and massive deficits and debt, which put the country in an especially weakened position when the you-know-what hit the fan.  Not to mention that his Treasury Department announced in 2003 that any federally chartered bank could ignore predatory lending laws that were passed at a state level.  That obviously seems like a damn awful idea now.

Even More Blame

Bill Clinton and Congress – This is where the seeds were really planted.  Pushing Fannie Mae and Freddie Mac to make increasingly risky loans to homeowners while at the same time limiting the maximum loan amounts, which opened the door to all the crazy lenders who came out of the woodwork to fill that void.  Also, people don’t seem to know that the idea of a “Credit Default Swap” (CDS) would have been illegal until the year 2000 when the Congress passed (unanimously in the Senate I might add) to specifically exempt CDS from criminal prosecution, which they would have been subject to previously.  It makes me nauseous to watch these same moron politicians pounding their fists and asking how AIG could have happened.  Well, it happened because Bill Clinton’s White House pushed the Congress to pass the law that enabled it and the Senators passed it 100 to 0.

Serious Blame

Predatory Lenders and Clueless or Crooked Borrowers – The predatory lenders don’t need any time spent by me talking about, but blaming these poor homeowners seems cruel.  But you know what?  At some point in life we all are supposed to take some responsibility for ourselves and how someone making 40 grand ever thought they could afford a $500,000 house is too stupid for their own good and should be institutionalized.  Never mind the speculators who never intended to pay back a dime and just walked with whatever cash they could.

The Worst of the Worst

Alan Greenspan, Investment Banks and the Rating Agencies – Alan Greenspan had nothing but opportunity to shut the entire machine down at an almost personal level and did nothing.  In fact, the actions he DID take only made the ultimate outcome even worse by keeping rates too low too long.  Not to mention doing nothing about all the leverage or increasing oversight of mortgage lenders when things were getting crazy.  The investment banks should have known damn well the risk they were putting themselves and the markets at with the introduction of some of the products that made employees fantastically wealthy.  If the firms went in the toilet, well that was shareholder money since the bonus checks had already been cashed.   NONE of this would have happened in the era when Bear Stearns, Lehman Brothers, Goldman Sachs, Morgan Stanley, Salomon Brothers and others were partnerships instead of shareholder owned and it would have been the partner’s own money at risk.  I would have been run out on a rail had I suggested we offer CDS during a partner meeting.  Or perhaps thrown out the window.  And finally the rating agencies, which in my eyes are the worst of the bunch.  They are supposed to be impartial and trustworthy “canaries in the coal mine”, charged with keeping investors around the world safe from harm.  Well, they were neither impartial nor trustworthy and I struggle with how they are even still in business since they are either crooked or incompetent.  I would blame them more than everyone else involved.

So….that is my rant for the day.

My opinions of the economy and the markets have not changed one iota since I’ve last posted and I am still short the S&P in a very large way right now.  It is still my belief the Dow Jones Industrials will drop to AT LEAST the March lows (about 1,600 points from here) and oil will certainly get to the $40’s and perhaps we might see a $30 handle in there somewhere.  The economy is nothing less than a trainwreck and we are a very long way from any true bottom or green shoots.

Remember one simple thing and that is the stock market is currently trading at something like 125X trailing earnings.  The only way you can justify this level is if you think earnings will rebound to 2007 levels sometime soon, which I absolutely do not.

And one other thing too…NONE of what I say in this blog or anywhere else is investment advice and if you follow a word of it you should have your head examined (and also please lose my phone number).