Alan Abelson’s weekly column in Barron’s is one of my regular must reads. While many people complain he is a curmudgeonly perma-bear, I find him to be an astute observer of all things Wall Street.
If you think he is too negative, well then, just think of him as a thought provoking counter-balance to the still — post analyst settlement — excessively Bullish bias of the Street.
Further, if your leanings in either direction cannot stand up to some healthy criticism, than those beliefs are either weakly held or poorly formed — or both.
All that said, Abelson has 3 things going for him:
1) An extensive rolodex of Wall Street commentators, all of whom answer his calls, and freely share their perspectives;
2) A long institutional memory of who has a history of offering reliable advice — his column is as notable for those he didn’t quote during the 2000 run up as those he did; (My decade on the Street makes me a relative newbie; I hope to have him recognize my work by 2025).
3) A good eye for plucking some of the savvier and more relevant comments of the week and using them to further his arguments.
I believe it is a mistake to ignore him.
All that said, let’s look at what he offers this week:
"SPEAKING OF PICTURES that aren’t very pretty, as we just were, take a gander at the two charts that adorn these scribblings. They’re both lifted from Stephanie Pomboy’s latest MacroMavens commentary and, frankly, they’re more than a little ominous. For what they show is how dependent this quixotic economic recovery has been on IOUs.
The remorseless decline in wages as a percentage of personal income has reached an historic low of 62% (the chart to your left). Meanwhile, consumer spending as a percentage of wages continues to spiral upward (the chart to your right). In the past three years, Stephanie reckons, shop-happy consumers, cheerfully determined to live beyond their means, leaned a lot more heavily on borrowings ($675 billion of non-mortgage debt) than paychecks ($530 billion) to cover the $1.3 trillion increase in their spending.
Great while it lasts, but even the best of sprees — and it hurts to be the bearer of sad news — can’t go on forever. And this one looks like its time is almost up. Higher interest rates, obscene gasoline prices and the rising cost of just about everything are starting to sap consumers’ confidence, to say nothing of their capacity to consume. Retail sales this month, Stephanie takes somber note, have been the weakest since the last recession.
Over on the other side of the fence that separates presumed investment sophisticates from us poor civilians, risk-consciousness is suddenly the in thing. The spread in yields between junk and Treasury paper — a handy gauge of how venturesome or apprehensive the folks who speculate in bonds are — has begun to widen, and the flow of corporate bond issues is contracting sharply. Which Stephanie proclaims as clear proof of the dearth of liquidity in the corporate bond market.
Making things infinitely more disturbing is that the companies in the crosshairs, as she puts it, are the very creators of credit — the likes of GM, Ford, Fannie Mae — along with the facilitators (nice euphemism, Steph) of credit — AIG, Ambac, MBIA, to name only a few.
That the demon debt is finally exacting its due from consumer and corporate borrower leads her to the melancholy but unsurprising conclusion that "the great credit boom is now drawing to a close." And here we were so hoping Mr. Greenspan could take his leave smiling."
That dovetails nicely with our perspective of fading stimulus and slowing GDP. It also makes my concerns about 2006 all the more vivid.
Of course, this will end badly — every cycle does. (How is it that investors have yet to figure that out?) The questions are when, and by how much?
I still have til December to fret about 2006. For know, let’s watch and see how the March 29 Bear call plays out.
UPDATE: May 2, 2005 7:47am
I am grateful to report that I will not be waiting til 2025 for AA to pluck me from relative obscurity. That happened this past weekend:
I am humbled . . .
Will Wonders Never Cease?
Barron’s, Monday, April 25, 2005
Up and Down Wall Street