Earlier this week, the principals of Memphis-based IronHorse Capital Management sent out their third quarter letter to shareholders.
It’s not pretty. The IronHorse folks think the economy is in a dangerous phase at the moment.
“Daily volatility in 2011, while harrowing, is running about half the level observed in 2008 and is now roughly in between the levels observed in 2007 and 2009, the bookends of the 2008 phase of the secular bear market that’s been in place for a decade,” they wrote. “In other words, as bad as things have seemed since the dog days of summer, we may not even be to the crazy part.
“The ride can get bumpier. This type of market action has often been a precursor to bigger events … Events take a long time to develop. The backdrop becomes more and more confusing as policy makers and market participants propose and rush solutions out the door each week. We outlined our position on global markets and economies in the last letter, namely that this follow‐on phase of this crisis resembled the ’37‐’38 follow‐on phase during the depression years. In short, we view this as a potentially dangerous economic and market environment.”
Meanwhile, right on cue the Federal Reserve has released its so-called Beige Book, which depicts economic conditions in Fed districts around the country.
The Fed survey shows conditions improving in every Fed district – except the St. Louis district, which encompasses Memphis.
From the Beige Book:
“The economy of the Eighth District has slowed since our previous report. Manufacturing activity has declined, while reports of activity in the services sector have continued to be mixed. Retail sales in September and October declined slightly over year-earlier levels, and auto sales increased over the same period. Residential real estate market activity has continued to decline, while commercial real estate market conditions have been mixed. Overall lending at a sample of large District banks was unchanged during the three-month period ending in October.”