Interesting tidbits 3/21

I ran across a few interesting things lately.  This is an interesting article with a number of interesting charts and commentary.  Fund Managers Are Alarmingly Bullish!

 Check out this chart of CAT sales.

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The last time CAT retail sales dropped this much the global economy was crashing along with stock markets.  This would seem to confirm the evidence in the industrial metals that the global economy is slowing again and may be slowing dramatically.

This next chart involves Americans spending on eating out.

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Restaurant sales took a noticeable downturn in the second quarter last year.  Overall sales went negative in Q4.  Apparently the weakness has continued in Jan. and Feb.  Here is a quote from the article.

Restaurants are reeling from their worst three months since 2010, as American diners spooked by higher payroll taxes cut back on eating out.
Sales at casual-dining establishments fell 5.4 percent last month, after declining 0.6 percent in January and 1.6 percent in December, according to the Knapp-Track Index of monthly restaurant sales. This was the first three months of consecutive declines in almost three years, with consumers caught in a “very emotional moment,” said Malcolm Knapp, a New York-based consultant who created the index and has monitored the industry since 1970.

Some of this drop could be weather related.  The unusually warm winter last year left people with more spending money because of lower heating bills and better weather to go out in. However, there is persistent weakness in the sales data that started in Q2 2012.  There may be more to it then just weather.  Eating out is one of the first things people cut back on when money gets tight.  Although this data does not tell us we are in a recession, it clearly tells us that people are cutting back in a serious fashion for the first time since the last recession ended.

Here is a very long term chart of corporate profits vs GDP.

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The last two peaks in the market came quite a while after profits had turned down.  They have turned down some now, but have not dropped by any large amount yet.  History shows the drop can be pretty fast though.  This secular bear market has played out very different then the one in the 1970s.  In that case profits stayed well below where they were in the mid 60s when that bear started.  Profits made new highs twice since this secular bear started.  I would guess that was caused by the increase in global trade.  Profits as a percent of GDP are at a level only seen in the early 1950s.  That was early in a new secular bull market.  Many people think that is the case today.  I don't think so.  Lets look at the P/E chart again.

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The red line marks the P/E from the early 1950s.  We are clearly not anywhere near the same valuation level.
When looking at these two charts it is clear that long term buying ops happen when profit margins are very low or stocks are very cheap.  Neither is the case today.

Bob