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Many US economy bulls were pointing to the strength in railroads this spring as summer as a sign that the US economy was just fine, thank you very much. We took the opposing view, saying most of the strength was simply shipping stuff overseas to foreign customers and suppliers. In April 2008 we wrote
I contend people are mistaking the boom in rails due to international growth (hauling out our farm products, coal, fertilizers, and the like) for a "sign that the US economy is going to rebound any minute now". The rails benefit from the wealth effect being created overseas by governments and people - wanting our resources. But hopeful bulls, straining for any signs of strength to offset all the weakness, point to the strength in transports as a reason for glee.
We were correct, and the problem now is even the foreign customers and suppliers are slowing down. So companies such as CSX (CSX) are getting hit. We mentioned yesterday everyone would watch Intel (INTC) but we were more interested in what CSX had to say. I am not that interested in what they are doing as a business in terms of offsetting the economy, but what they have to say about the economy itself. Remember, we now have 2 domestic industries in depression - housing and autos. The stock is down near 13% today but hard to read too much into that since everything is down... again.
- Freight railroad operator CSX. Corp. said Wednesday it expects volume to continue to slip next year, but executives predicted that higher prices and productivity will be able to offset the shortfall.
- In a conference call, CSX's Executive Vice President of Sales and Marketing Clarence Gooden said the weakening automotive and housing markets should continue to impact the railroad in 2009, in addition to "some weakness" in the industrial sector next year. (industrial weakness is a new theme we have not seen them say in the past)
- And although strength in export coal, phosphates, fertilizer, ethanol and agricultural shipments should continue, he said, volumes could fall by about 2 or 3 percent compared with this year. (you know what they say - 2-3% volume drops in commodities = 70% drop in stock prices. Ok they don't really say that, but that's what is happening)
- One of the biggest volume losses for the railroad continues to be automobiles, Chief Financial Office Oscar Munoz said, as production and demand wane in that sector. CSX said its auto volumes dropped 23 percent in the third quarter, while total volume fell 2 percent.
- Other factors likely to drag on the final quarter of the year are a slowing international business and lingering impacts from Hurricanes Ike and Gustav, which slowed chemical shipments across the Gulf Coast region.
- Retail sales fell off a cliff in September, plunging by the largest amount in three years as worried consumers shunned the malls and auto showrooms in the midst of the country's financial meltdown.
- The Commerce Department reported Wednesday retail sales decreased 1.2 percent last month, nearly double the 0.7 percent drop that had been expected. Even excluding auto sales, retail sales showed widespread weakness, falling by 0.6 percent or double the decline outside of autos that had been expected.
- Sales at department stores fell by 1.5 percent following an even bigger 1.6 percent drop in July. Sales at furniture stores fell by 2.3 percent. Sales at appliance stores slid 1.5 percent.
- Retail sales have now fallen for three consecutive months, the first time that has occurred on government records that go back to 1992.
4 comments:
Does WFC really need our tax money? Why give WFC any of the money from the bailout? Did you go short when S&P 500 sliced 960?
They wanted everyone to get a slice so it would not mark the bad banks - i.e. if everyone takes a slice then there is no stigma
i waited for 952 today to go short but I'm frankly just tired of this market. I cannot invest at all. It is useless.
Being relatively new to investing, at what point do estimates get slashed and prices drop enough where you'd just buy and hold because things are so low that you don't want to deal with the day-day price movements? It seems earnings reality is setting in, and with a 5% miss and lowered guidance resulting in 30% price drops, what else can go wrong. Just wondering why I'm stressing instead of picking good stuff after an earnings miss resulting in a PE 2 and walking away from this until next year.
lol
this is unprecedented stuff
even in 2002 the most damage was taken by companies with no earnings or no prospects
now companies with fine prospects are going for 2,3,4,5 PE ratios
if you have a 5 year time frame you should buy now and forget about it
as a fund manager everyone is focused on the day to day, and analyzing you and saying "this guy lost his touch" or "what is this idiot doing" if you bought and just sat - because while it might work out in 4 years, if it doesnt work out in 1 year you will lose all your assets - they will flee to the "hot name" in the industry and then you will be stuck selling stocks you like at whatever the market price is that day and then you will exaggerate your losses.
So the investors drive the market - investors chase after the hottest fund - if you don't have a stable base of people who would trust your long term judgement - you will get toasted in that "logic". Who cares if you are right in 4 years if you are not right in 1 year. It is as simple as that. I read in an article earlier this year that 60% of mutual fund trading is due to redemptions - meaning they are forced out of positions due to investors pulling out money. So your question posed as a hypothetical or as an individual investor is answered 1 way. In the real world with people panicking and/or chasing whatever is hot, it's a different answer. I know nothing is hot now but many funds lose a lot of assets after just 1 bad year.
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