Rumblings about China

I don't remember where I first read it, but a few weeks ago somebody somewhere in the blogosphere pointed out how China keeps publishing numbers showing that their industrial output is rising, yet China's utilities show that electricity use has been falling dramatically. These two things would not usually move in opposite directions. It was soon after that we found that China's utilities abruptly stopped reporting output data on their power plant generation. Ah. Problem solved. No, wait...predictably the whole debacle then spread to nearly every economics blog on the Internet.

This of course includes Paul Krugman who in his version points out that GDP could therefore be overstated in China in a post entitled "What you don't know...".

The whole storm seems to have blown over, yet the ramifications of what is suggested are frightening and as of yet are unresolved. Who's ready for the double-dip recession?

Meredith Whitney on CNBC this morning.

Talking about Goldman and banking in general over the rest of the year. I was not at all expecting her take on Bank of America which sounded more bullish now than anything. It does sound like she's taking a shorter term (two quarter) view here, but still the bullish sentiment surprised me.

Robert Reich has some great posts on GM.

A bit of a delay here again, but back at the end of May, former labor secretary Robert Reich had a series of great posts on GM which expanded to the larger issue of the future of manufacturing in America. I really recommend that you give them a read.

A preview:
First and most broadly, it doesn't make sense for America to try to maintain or enlarge manufacturing as a portion of the economy. Even if the U.S. were to seal its borders and bar any manufactured goods from coming in from abroad--something I don't recommend--we'd still be losing manufacturing jobs. That's mainly because of technology.

You can find the posts on his blog:
Part 1
Part 2
Part 3

Meredith Whitney upgrades Goldman Sachs to "Buy"!

This is important news. Meredith Whitney is one of the few banking analysts I trust (really the only specialized banking analyst I trust). I agree strongly with her negative outlook on financials (specifically credit card firms), Citi, Bank of America, and the economy in general. She is making this bullish call because of - rather than in spite of - her negative outlook on the economy.

I've watched Goldman for a long time knowing that eventually I would want to be purchasing shares giving their outsized influence on government. I've been waiting for the prudent time to invest. I am still very bearish on the economy as a whole and on banks, but if Meredith is suggesting now is the time to take a stake in Goldman then I will strongly consider it. In all likelihood I will be purchasing a significant personal stake in Goldman Sachs this morning before earnings are released, while still maintaining my numerous short positions on home builders and regional banks.

Notes on Meridith's call are here.

Wall Street 2 is toying with my emotions.

I've been reading way too much on "Wall Street 2" over on Dealbreaker, and according to them Shia Lebouf (who?) is going to be the lead. The original "Wall Street" has been one of my favorite movies since I was about 11, so I take this sort of thing much too seriously. Given the market turmoil there is a lot of fodder for the movie so it could be a good one, but despite the involvement of Michael Douglas and Oliver Stone I fear the worst. Time will tell.

The home sales gap, and why I'm short the home builders.

CR had yet another post on the large (and increasing) gap in home sales activity. From what I can tell over the last quarter, folks read about rebounding sales in the subprime sector and rushed in to buy up home builder stocks for the coming rebound.

There are two problems I see with this. One is that a rebound in sales in subprime is not a rebound in sales in the market as a whole. The more expensive the grouping of homes you look at, the more dire the situation. Inventory levels are still very, very high. Once you get to homes selling above the conforming loan limit (the homes that would require a jumbo mortgage) the inventories get frightening. We're talking years and years of inventory. I've even seen this in my local market, which has been fairly resilient. The homes above $1 million are looking at 4-5 years of inventory.

The second problem is that these home sales you do see are only for existing homes. If I remember my stats correctly, nearly 50% of the homes being sold in California are distressed sales. There also appears to be a very large shadow inventory of homes people would like to sell but are not listing in this market. This tells you to things: one, prices will stay depressed for a long time, and any future rebound in sales will not be met with a rebound in prices (sales usually rebound long before prices). And two, there will be little to no demand for what the homebuilders make (brand new homes at the cost it takes to build a new home) for a very long time.

CR's post is about how the New York Times is recognizing the gap, but they are failling to realize how many of the existing sales are distressed sales.

Buffett lunch question is answered: $1.68 million.

So the recession resulted in lower bids this time around, but WEB still pulled in $1.68 million for a steak lunch (proceeds going to charity). If you could buy stock in Warren Buffett lunches and sit on them, you'd be doing alright. In my day they went for a few thousand bucks (in the years immediately preceding the eBay auctions).