Wells Fargo, Goldman Strategists Agree With Me

There is a newer gentleman over at Realmoney.com named Tim Melvin who I enjoy reading because he brings a view outside of NYC. Most financial sites, writers, investors are so NYC centric that they are relatively clueless about what goes on outside that island. So they have a skewed view of things. Now, living in a 1 state depression I probably have a skewed view of things from the opposite extreme but I think in some ways we are a canary in the coal mine. (although we are an extreme example due to the auto industry)

Today, Tim wrote a good little blurb which coincides with thoughts I've been proposing for a long time. (profits way too high for 2008, writedowns starting to become old hat and people are numb to it, everyone in NYC focused on the banks and credit issue and not realizing there is a whole recession coming behind the scenes that they don't price in, etc) What interested me was that "logical people" in 2 of the best firms (Goldman and Wells Fargo) are also singing the same tune. I continue to wonder out loud how much this massive liquidity infusion by the Federal Reserve, which is inflating every asset on the Earth is propping up stock prices. Remember, this monetary spigot is not a fine tool, but a blunt instrument - every asset with finite supply (wheat, copper, stocks, anything) must go up when more paper money is chasing it. Hence I do believe the market is being supported to some degree by this spigot - I just wonder if its 5%, 10%, 15% or 20%. But I can see continued frustration by those of us using any logic as we watch this market levitate, detached from reality :) But again, Wall Street is not Main Street and if enough liquidity is thrown into the system, ALL assets must go up no matter what the "logic" is - in fact this was one of my '13 Outlier 2008 Predictions'

Markets make a dramatic rally off these lows as all the worlds banks coordinate to flood massive infusions into the system (all this money needs to go somewhere)

Anyhow here is what Tim wrote today:

Let's Not Get Carried Away

As all of Wall Street stands around holding hands and singing kum-by-yah today, exulting in the notion that we only had a paltry few billion of asset write downs and credit losses today, I found in the news two reports from leading brokerage firms yesterday that give pause for thought. In the first, Daniel Kostin of Goldman Sachs said that he expects the market to fall as much as 155 in the near term. He thinks the S&P could fall as low as 1160 as investors reduce their earnings expectations. He points out that although earnings estimates for the first quarter each and every week of the year, lowering the guesstimates by 17%, the full year expectations remain unchanged. Most analysts just took the first quarter reduction and added to the fourth. He sees substantial estimate reductions in the weeks and months ahead weighing heavily on stock prices.

Scott Anderson at Wells Fargo is a tad blunter in his statement. He calls the bullish view of many on Wall Street" borderline delusional" he said that equity markets are not pricing in the economic downturn and agrees that the earnings estimates for the second half of the year are way too high. He pointed out in his brief that The International Monetary Fund had cuts its 2008 global growth forecast 3 times in the last 5 months and was predicting total losses form the credit crisis of $945 billion, far more than Wall Street forecasts.

Today's economic reports tend to give credence to the view. Home starts were down another 11+% to the lowest level in 17 years. Inflation was tame, as long as you don't eat or use any form of energy to drive or heat your home. Clothing prices fell, primarily because no one is buying any. They spent all their money on gas and food.

The separation of Wall Street and Main Street will not continue much longer in my opinion. Eventually the spending habits of those of us outside Manhattan will cause earnings to fall taking stock prices with them. At least two analysts are seeing the picture.