Billionaire investor Sam Zell: The Environment Is Tough, Confidence Is Low. Dow Should Be at 9,000. Market Is ‘Artificial’ as US Nears Recession
CNBC: A compounding lack of confidence in the future has kept American companies from investing in their businesses and is leading the country back into recession, real estate mogul Sam Zell told CNBC.
Sam ZellThe CEO of Equity Group Investments, which holds multiple publicly traded companies primarily in the real estate space, said a lack of leadership in Washington is keeping the $2 trillion or so of cash on company balance sheets on the sidelines.
That’s happening even as the Federal Reserve continues pumping liquidity, which Zell said is being used only to prop up the stock market.
“Nobody wants to make commitments beyond tomorrow,” Zell said during a”Squawk Box” interview. “One of these (recession) triggers is when enterprise projects start getting delayed. We’re heading for a recession and that’s exactly what you’re looking at now. You’re looking at capital expenditures across the board being deferred for a reason: There’s no confidence.”
“Based on the fiscal cliff and all of the headwinds, the stock market should be at 9,000 and not 14,000,” Zell said.
Nevertheless, a combination of Fed stimulus and widespread business uncertainty has investors chasing a limited number of stocks, thus sending the Dow higher than where it should be.
“We are beginning to see the excess flow of capital; we’re seeing too much capital chasing too few opportunities,” Zell noted. “We’re creating artificial numbers.”
Wall Street banks’ equities-trading units aren’t getting much relief from the strongest stock rally since 2009, as sinking volume and already thin margins threaten to make their annual performance the worst in six years.
Third-quarter equities-trading revenue probably fell 14 percent from the same period in 2011, the fifth straight drop of more than 8 percent, according to estimates by Kian Abouhossein, a JPMorgan Chase & Co. analyst. Full-year revenue at the five largest U.S. investment banks may be the lowest since 2006, UBS AG’s Brennan Hawken wrote in a Sept. 19 note to clients.
Equities trading, which generated $40 billion for the nine largest global investment banks last year, has been an attractive business because capital requirements aren’t as strict as those threatening fixed-income returns. Lower volumes have damped that optimism as investors remain skeptical about the global economy, which may lead to job cuts.
The market is sinking after being up earlier in the day.
Jonathan Krinsky, technical analyst at Miller, Tabak sees an ominous pattern emerging for the bulls.
In an email, he writes:
So far pretty uninspiring action for the senior indices. NYSE Composite volume is tracking at about yesterday’s pace, breadth is about flat, and all the senior indices are in the red. What is likely most frustrating to the Bulls, however, is the way in which the market has responded to higher prices. That is, up openings have attracted selling, as opposed to more buyers. Since the September 14th high, the SPY has had 12 trading days. On 9 of those days, the SPY has recorded its high for the day prior to 2:00. Today would be 10 out of 13. Further, today would mark the 9th day where the close is lower than the open.
The focus on fundamentals is about to begin.
For the last three months, investors have been ignoring the weak economic backdrop and plowing money into stocks because of the cheap money swirling from central banks around the world. Investors are searching for yield in an environment of rock bottom rates.
But judgment day is coming.
The fourth quarter has begun and the third-quarter earnings will start to flow, giving us a window on just how anemic the last three months have been in the real economy.
Big institutions and other deep pools of capital, such as pension funds, have been playing catch up, chasing stocks even in the face of anemic economic growth, stubbornly high unemployment, and a mess in Europe that has yet to be resolved.
Earnings for the third quarter are seen contracting — S&P Capital IQ is expecting a negative showing for third-quarter numbers, with profits down 1.9 percent. It would be the weakest earnings picture since the second quarter of 2009, smack dab in the middle of the recession.
Mark Hulbert: Get ready for a roller-coaster ride: October has historically been most volatile of the year
Fasten your seatbelts, investors, and get ready for a wild ride.
I say this not because I think the stock market will necessarily decline for the month, though it could. But the judgment of history is that, regardless of how stocks behave in October, the path the market takes between now and Halloween is likely to be a particularly volatile one.
What happened on Monday of this week, the first day of October, was a good illustration. Mid-session, when the Dow Jones Industrial Average DJIA -0.24% was sporting an impressive triple-digit gain, we would otherwise have expected the CBOE’s Volatility Index VIX -3.74% to be down for the day. Far from that being the case, however, the VIX at the time was some 2% higher — and closed nearly 4% higher for the session.
If you want to get a good indication of the health of the economy, just look at your local restaurants.
Packed restaurants are a sure sign of a bustling, vibrant economy. It’s hard to be bearish when you can’t get a table on a Wednesday evening.
Empty restaurants – like those with more staff than guests – show the opposite condition.
All summer long, the restaurants in my neighborhood have been jam-packed. We’d often have to wait an hour or more just to get a table for four at my local sushi restaurant on a Thursday night. And if you didn’t make reservations for a Friday or Saturday night, forget about it. You were going to be eating at home that evening.
After what I saw this past weekend, though, I can say things have suddenly changed…