RE: the Autumn 2006 Pictet Report

I thought it seemed odd that it contained this statement: "After slowing in the spring when annualised q-o-q GDP growth eased to just 2.9%, the US economy appears to have expanded a little faster over the summer and autumn months."

The Pictet report was published 2 months ago on Sep 8!! How did they know the economy expanded a little faster over the autumn months? Plus, as we now know, 3Qtr GDP continued to slow...it did not accelerate.

I find a report like this to be of VERY limited use.

Re: Pictet Report

I also found the report to be a candy-coated piece of fluff with broad stroke observations and a very short-term perspective. Surely the uber-rich that keep the likes of Pictet in business expect more than what appears to be little more than a martini-soaked manuscript backed by government and other public domain sources. It was very informative to me in seeing one way in which the rich are parted from their money by being put to sleep with these "business as usual" messages from the managers of private money. These investors are the very people who should be heeding Bill's advice and getting a balanced view on what is happening in the world. Maybe then there would be more social equity in capital markets.

Not a whole lot of data in that Pictet report. You could sum it up as, "Move along. Nothing to see here. Carry on."

They may be right, they may be wrong. But one thing stuck in my craw. After a long discussion of why everything is going to be just fine, they add, "Whilst in the minority, we remain in the optimists' camp."

Priceless.

I'll admit there are plenty of bears out there, especially if you traverse the internet and focus on bearish sites. But in no way do they represent a majority view.

Look at this week's Barron's, for example. They polled over 100 money managers who invest hundred of millions (some even billions) each. Fully 64% of them said they were either bullish or very bullish. Only 16% said they were bearish. The rest were neutral. That's a 4-1 bull/bear majority. Minority view? I think not.

You might say: well, these folks are long-only managers so they are always bullish. And that's true, to a degree. But in the last 10 years, they are more bullish now than they have ever been. In the late '90s, the same poll registered 42%-43% bulls.

In addition, stock allocation is currently at 74%. That is nearly a 10-year high. And cash positions are at 6%, an absolute 10-year low.

So spare me the "contrary" thinking. Being bullish is in no way a minority view right now.

Of course, this is not a sell signal per se. But Mr. Pictet is herding with the bulls, even though he thinks he's being clever and "contrary." At some point, this will matter. But who knows when that will be.

ALOHA !!

I have noticed that many in the mainstream, whether CNBC or the Fed or Pictet, always under estimate inflation rates. Pictet indicates a peak in US CPI in 2005 at 3.4% and estimates lower rates in 2006 and 2007 ... Well, I do not buy that.

I cannot accept CPI numbers. I run a business here in Hawaii and I'll be damned if any government political instituion is going to cram "3.4% peak" rates down my throat when I know good and well my FedEx shipping rates alone have increased on average 16.6% annually over the past three years. FedEx accounts for 1/3 of my costs to do business ... Those are significant cost increases and everytime I look at my FedEx invoice there is one line item that year-after-year continually rises and that is "fuel surcharge" ...

I am sick of seeing these so called "experts" calling inflation "benign" or "modest" ... How can you account for an accurate view of economic conditions when you base your views on flawed statistics? Food and energy are too volatile so don't count them ... okay lets just not count "breathing" as a necessity of life! Weighting statistics is like engineering cars solely based on tires since it is the tires that gives the car the ability to "roll"! Lets leave out the engine and brakes ... If you're Fred Flintstone ... that concept works!

This Pictet does not take into account how dependant US consumers and therefore, the US economy is on imports to survive. Has he not seen the latest trade deficit numbers? When import costs rise that means domestic production falls and this country is more dependant on foreign production of goods and services than at any other time in history. Rising fuel costs only mean rising cost of living(surviving), which translates into rising household debt loads. It is the debt loads that will move the US dollar lower and these guys constantly undervalue a US dollar crisis. If your citizens depend on imports a constantly devalued dollar is catastrophic for consumers, which runs our GDP. Translation, what do the consumers run on? Debt ... Pictet picked that up ... Pictet picked a peck of purple peppers ...

He also makes light of debt levels, saying the glut in business savings will essentially save us because the businesses will spend now to shore up a crippled infrastructure running "flat out". He needs to analyze the cost to repair and/or replace current faulty infrastructure within the USA compared to what business and government have budgeted. With the Iraq War going I can tell you government does not have a lot of spare cash and typically business tries to push infrastructure costs onto local, state and federal governments(read taxpayers). Perhaps he needs to visit a local US contractors builders exchange then he would see that by far projects out to bid are mainly financed by US taxpayers who are, by the way, TAXED OUT! Bush tax cuts are a joke ... average taxation levels considering income and excise are at record high levels pushing 54%. The 2007FY Bush Budget calls for a 52% increase in taxes for individuals compared to only a 12% increase for businesses by 2010(three years away folks, so do the math, but it ain't a "cut"). Do these analysts who constantly tout "tax cuts" not read government budget reports? I know the US voters don't, but then again US voters are not paid $340 an hour to pump out financial reports to wealthy clients. He has to explain why even Bush estimates a 25 year period to just rebuild New Orleans, that one hurricane destroyed. He mentions not once the $549 billion price tag on our Middle East War adventure. You cannot throw all your funds into War and then pretend there's plenty left over for infrastructure. Wars are highly inflationary and highly expensive. Bush fired his first Treasury Secretary for disputing the Bush $1.78 billion Iraq War cost estimate. Thats currently a 309% cost overrun by the US government ... and Pictet trusts US government data? By the way since the US government admits to a $549billion price tag my guess is that is probably way low. I'd love to see the line items!

Pictet in essence is betting on the skill of the US Fed and the US government as well as US business to provide a soft landing based on unrealistic data points. Historically, I call that a "crap shoot" !! I do not trust anything coming out of our government least of all accurate data(political agendas run the show). That misplaced trust will be the downfall of US citizens and "wealthy" foreigners who plow their labor and savings into this American labyrinth of debt!

KAIMU:

There has been many important reports provided by Bill to digest and not much time left in 24hrs to post here, but took a time out after reading your words above .. this by far is your best.

ALOHA !!

I posted:
"Thats currently a 309% cost overrun by the US government ..."

Sorry I did a typo ... 309% would be a miracle in terms of US government cost overruns! This one is a 30,900% cost overrun ... YEAH BABY ... that's what you call a Haliburton wet dream!

C.Note ... thanks!