Emerging markets

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Mon 5 Oct 2009

In praise of emerging markets

Posted by Prieur du Plessis under Emerging markets, Guest Bloggers
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This post is a guest contribution by John Derrick, Director of Research at US Global Investors.

We believe global growth is the most powerful investment theme now and for the foreseeable future. You can see this playing out as countries like China, India and Brazil grow in economic stature. As we saw in Pittsburgh last week, the G-7 is being supplanted by the more inclusive G-20 when it comes to global economic decision-making.

Emerging market stocks were hit especially hard during the financial crisis but have been among the best performers during the rebound. We are currently in the midst of a synchronized global recovery, and with aggressive government stimulus, strong balance sheets and an ever-growing share of global GDP, emerging markets are likely to outperform the developed markets due to strong domestic consumption and forward-looking infrastructure investments.

The chart below from Goldman Sachs on consumer spending illustrates that point.

031009a

Goldman estimates that consumer spending in China will increase by about 10 percent in 2010, while India and Brazil will be in the 4 percent to 6 percent range. At the same time, negative growth is expected in Spain, Britain and Italy, and the forecast for the United States is flat. Industrial production in emerging markets has recovered to roughly where it was when the recession began; in developed markets, IP is still down nearly 20 percent.

This second chart, also from Goldman Sachs, compares the operating margins in developed and emerging markets for the companies in Europe’s Dow Jones Stoxx 600 Index. The analysis going back to the early 1990s found that the emerging-market operations of these companies have consistently yielded higher margins, and oftentimes the spreads have been significant.

031009b

US Global Investors recently hosted a global outlook webcast that featured Dr. Marc Faber, the well-known investor based in Hong Kong. In the course of that webcast, Dr. Faber addressed the developed-versus-emerging issue:

If you look at the next 10 to 20 years in the West, I don’t see how the lifestyle of the average person will improve meaningfully. On the other hand, if you look at a country like Vietnam, they have a GDP per capita annually of $800 which may go to $3,000 over the next 15-20 years.

The same is true for China and India. You suddenly have a middle class of 230 million people in India who will be buying cars like the $2,500 Nano and other goods.

Once a family moves from the bicycle to the motorcycle, it’s an improvement in their standard of living. But when you move to the car and drive your children to school in your car, it’s a huge increase in your standard of living and your social class.

Global growth has been a tremendous benefit for commodities, with the key driver being strong demand from China. And as we pointed out in a recent webcast focused on China, that use of commodities is less to fuel export growth and more to satisfy domestic demand as income levels rise. Increasing demand for commodities and the corresponding rise in prices has positive knock-on effects for much of the developing world.

The increasing importance of emerging countries in the world order also argues for their currencies to strengthen relative to the dollar. International stock markets outperformed the US market during the 1970s and much of the 1980s, with much of that outperformance relating to relative currency strength.

A continuation of the dollar’s decline in the face of slow growth and yawning budget deficits - nearly $11 trillion between 2009 and 2019, according to White House estimates - would provide a significant tailwind for globally-minded investors.

Source: John Derrick, US Global Investors - Investor Alert, October 2, 2009.

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Sun 30 Dec 2007

Words from the wise for the week that was (Dec 24 – 30, 2007)

Posted by Prieur du Plessis under Bonds, Business, China, Commodities, Currencies, Economy, Emerging markets, Equities, Finance, Gold, Housing, Investment, Markets, Money, Oil, Stocks, US dollar, Wall Street
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This week’s edition of “Words from the Wise” is briefer than most as I must answer the call of family to spend a last few days with them before putting shoulder to the 2008 wheel.

My kids have asked me to help them fly a kite, but the wind seems to be a bit too gusty to achieve this with much success. This makes me wonder how stock markets are going live through the various tailwinds and headwinds that will invariably come to blow during 2008.

In the words of market veteran Richard Russell, author of the Dow Theory Letters: “This market cannot make up its mind. The bullish case is strong, the bearish case is strong, and a lot of very big money is very divide on the outlook for the stock market. Thus - we have a very nervous, high volatility market with the Dow jumping over 100 points (up or down) every other day. It’s enough to give an honest man the ‘willies’.”

And in the spirit of the holiday period, David Galland of Casey Research observed: “… we have the US stock market, which, despite the energetic efforts of government on many levels, is stumbling along like a blind drunk after a long and well-lubricated holiday season party. One minute, Mr. Market has a big happy smile on his face, but the next he’s flat on his face. Struggling to his feet, he is barely able to whisper an ebullient toast before tripping over his own shoes and falling back to the ground.”

I will be watching the market carefully as 2007 fades out and the New Year comes in. The market action during the few days of December and January often provides hints regarding the rest of the year. For example, if the so-called “Santa Claus Rally”, which has one more trading day remaining in 2007 and two more in 2008, does not materialize, it typically is a harbinger of a sizeable correction or bear market in the coming year.

The “January Barometer”, stating that as the S&P 500 Index goes in January so goes the year, will also be watched with more than a cursory glance. 

Furthermore, the best years for stock market gains have been years ending in 5, with the second best years being those ending in 8. Since 1891 there have been only two years ending in 8 that were negative, namely 1948 when the Dow was down 2.1% and 1978 when the index declined by 3.2%.

Here’s wishing you a wonderful New Year. May it be truly joyful and exceptionally rewarding on all fronts.

Before highlighting some thought-provoking news items and quotes from market commentators, let’s briefly review the market’s ups and downs on the basis of economic statistics and a performance chart.

Economy
The assassination of Benazir Bhutto, Pakistan’s former prime minister and opposition leader, weighed heavily on markets during the past week, raising the possibility of instability in a volatile region.

An international crisis could not have appeared at a worse time with the global financial system appearing to be an unpredictable black hole. Also, further evidence of worsening economic conditions came in the form of new home sale tumbling by 9% in November to the slowest pace in 12 years and durable goods orders rising a disappointing 0.1% in November. More reassuring data on US mid-west manufacturing activity were largely brushed aside.

All this was piled on top of mounting concerns about more banking write-downs, rising inflation and a deteriorating outlook for economic growth. 
 

Date

Time (ET)

Statistic

For

Actual

Briefing Forecast

Market Expects

Prior

Dec 26

10:30 AM

 Crude Inventories 12/21

-

NA

NA

-7586K

Dec 27

8:30 AM

 Durable Orders Nov

0.1%

4.0%

2.2%

-0.4%

Dec 27

8:30 AM

 Initial Claims 12/22

349K

345K

340K

348K

Dec 27

10:00 AM

 Consumer Confidence Dec

88.6

87.5

87.0

87.8

Dec 27

10:30 AM

 Crude Inventories 12/21

-3299K

NA

NA

-7586K

Dec 28

9:45 AM

 Chicago PMI Dec

56.6

52.5

52.0

52.9

Dec 28

10:00 AM

 Existing Home Sales Nov

-

NA

NA

4.97M

Dec 28

10:00 AM

 New Home Sales Nov

647K

700K

715K

711K

Source: Yahoo Finance, December 28, 2007.

The next week’s economic highlights, courtesy of Northern Trust, include the following: 

•

Existing Home Sales (Dec 31) - Sales of existing single-family homes are down 31.0% from their peak in September 2005. The consensus is for a steady reading in November. Consensus: 4.97 million.
•

ISM Manufacturing Survey (Jan. 2) - The Manufacturing ISM survey for December is predicted to fall to 50.3 form 50.8 in November. Indexes tracking new orders, production and employment should be market movers. The employment index fell to 47.8 in November. Consensus: 50.3 from 50.8.
•

Employment Situation (Jan. 4) - Payroll employment in December is predicted to have risen 40,000 after a gain of 94 000 in November. The gradual upward trend of initial jobless claims suggests that hiring was probably slow in December. The unemployment rate should have risen to 4.8% in December following three monthly readings of 4.7%. Consensus: Payrolls +65 000 vs. +94 000 in November; unemployment rate - 4.8%.
•

Other reports - Construction Spending (Jan. 2), ISM Non-Manufacturing Survey, and Factory Orders (Jan. 3).

Markets
The performance chart obtained from the Wall Street Journal Online indicates how different global markets fared during the past week. 

whats-hot-and-not.jpg

Source: Wall Street Journal Online, December 30, 2007.

US stock market indexes declined modestly during the past week on the back of increasing economic woes and worries about the situation in Pakistan. The worst casualties were REIT stocks (-2.1%), small caps (-1.8% in the case of the Russell 2000 Index) and financials (-1.2%). Energy (+1.4%), however, brought investors some joy.

The MSCI World Index recorded a gain of 1.1% for the week as a result of the strong performance of emerging markets (+2.6%), and also a small positive contribution from the Japanese Nikkei 225 Average (+0.3%).

On the currency front, the US dollar had its worst week in a year as the poor economic statistics increased expectations of more interest rate cuts, resulting in the US Dollar Index declining by 2.0%. Similarly, sterling hit its lowest level in one-and-a-half years against a basket of currencies after a report of slower growth in house prices raised expectations of interest rate cuts early in 2008. On the positive side, the euro, the Swiss Franc and Chinese renminbi increased strongly.

As far as money markets were concerned, the three-month dollar Libor rate eased to its lowest level since February 2006 and the three-month euro rate was set at its lowest level since November 22. Government bond yields declined during the course of the week, benefitting from more safe-haven buying.

The oil price came within sight of its all-time high after US fuel inventories fell more than expected and in reaction to tension in Pakistan and northern Iraq. Gold, fulfilling its role as a safe-haven investment in times of political uncertainty and a hedge against inflation, jumped by 3.4%. Silver (+2.8%) was in hot pursuit, but platinum (+0.3%) lagged somewhat after having hit a record on Thursday.

Although agricultural and base metal commodities experienced some profit-taking, the Dow Jones-AIG Commodity Index still managed a 1% gain for the week.

Now for a few news items and some words (and graphs) from the investment wise that will hopefully assist to make sense of financial markets’ shenanigans during the shortened week ahead.

John Carney (Dealbreaker): Why Bhutto’s assassination is very bad news
“The reason it’s terrible news is that Bhutto was actually a source of stability for the country. She was a reasonable and relatively US-friendly alternative to Musharraf. With her out of the picture, it’s unclear what direction the opposition to Musharraf will take. But what is clear is that the opposition will most likely strengthen and act with a greater sense of urgency. The world is slightly more dangerous this afternoon than it was when we went to bed last night.”

foto-van-bhutto.jpg

Sources: John Carney, Dealbreaker, December 27, 2007 (text); and Bloomberg, December 27, 2007 (photo).

ABC News: US checking al Qaeda claim of killing Bhutto
“While al Qaeda is considered by the US to be a likely suspect in the assassination of former Pakistani Prime Minister Banazir Bhutto, US intelligence officials say they cannot confirm an initial claim of responsibility for the attack, supposedly from an al Qaeda leader in Afghanistan.   

“An obscure Italian Web site said Mustafa Abu al-Yazid, al Qaeda’s commander in Afghanistan, told its reporter in a phone call, ‘We terminated the most precious American asset which vowed to defeat [the] mujahedeen.’ It said the decision to assassinate Bhutto was made by al Qaeda’s No. 2 leader, Ayman al Zawahri in October. Before joining Osama bin Laden in Afghanistan, Zawahri was imprisoned in Egypt for his role in the assassination of then-Egyptian President Anwar Sadat.

“Bhutto had been outspoken in her opposition to al Qaeda and had criticized the government of President Pervez Musharraf for failing to take strong action against the Islamic terrorists. ‘She openly threatened al Qaeda, and she had American support,’ said ABC News consultant Richard Clarke, the former White House counterterrorism adviser. ‘If al Qaeda could try to kill Musharraf twice, it could easily do this,’ he said.”

Source: Brian Ross, Richard Esposito and R. Schwartz, ABC News, December 27, 2007.

Times Online: Main Bhutto suspects are warlords and security forces
“The main suspects in the assassination are the foreign and Pakistani Islamist militants who saw Ms Bhutto as a Westernized heretic and an American stooge, and had repeatedly threatened to kill her.

“But fingers will also be pointed at the Inter-Services Intelligence agency, (ISI) which has had close ties to the Islamists since the 1970s and has been used by successive Pakistani leaders to suppress political opposition. Ms Bhutto narrowly escaped an assassination attempt in October, when a suicide bomber struck at a rally in Karachi to welcome her back from exile.

“Ms Bhutto said after the attack that she had received a letter, signed by someone claiming to be a friend of al-Qaeda and Osama bin Laden, threatening to slaughter her like a goat. But she also accused Pakistani authorities of not providing her with sufficient security, and hinted that they may have been complicit in the Karachi attack.”

Source: Jeremy Page, Times Online, December 28, 2008.

(more…)

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Fri 28 Dec 2007

Investment recommendations for troubled times

Posted by Prieur du Plessis under Business, Commodities, Currencies, Economy, Emerging markets, Equities, Finance, Gold, Investment, Markets, Money, Oil, Stocks, Sub-prime, US dollar, Wall Street
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I read a great many reports from investment strategists and other market gurus, but a firm favorite always remains Donald Coxe, Global Portfolio Strategist of BMO Financial Group. I largely share Donald’s investment recommendations as published in the December edition of Basic Points, entitled “Double, Double, Greed and Trouble, CDOs and Housing Bubble”, and have therefore thought it appropriate to republish these eloquently written paragraphs below.

1.

Remain heavily underweight banks, particularly investment banks that have displayed monumental stupidity. Do not assume that a change at the top will automatically convert them into temples of wisdom (unless it is accompanied by demands for the departing to repay bonuses based on bets that turned out disastrously). Better to assume that, like subprime-based DOs, there are layers of rot that can make the entire product dangerous to your financial health.

2.

Remain overweight Emerging Markets, emphasizing those that are oil, gas, and/or food exporters.

3.

Soaring food costs threaten stability for some Third World economies. We have been ardently endorsing India since we returned from our leave of absence a year ago. We are now more cautious, because a weak monsoon could be politically and economically destabilizing at a time of $4 corn and $10 wheat.

4.

Remain heavily overweight gold - both stocks and the ETF. Gold is almost as good a protection against banking problems as SKF - the UltraShort Financials ETF - a security which may not be a suitable investment in some portfolios.

5.

We continue to believe that the Agricultural stocks are the pre-eminent investment class of our time. Farm incomes are rising rapidly and, in the US, farms and farm land are the real estate assets that are rising in value and are virtually immune to foreclosures. That means the leading Ag companies have great pricing power and minimal credit problems. We now hear suggestions that because food inflation has finally made it to the cover of The Economist, it is time to start moving toward the exits. Not so: We think that fine cover story could be the atonement - At Last! - for the magazine’s famous 1999 cover: $5 Oil.

6.

Remain overweight oil and gas producers, including the Alberta oil sands producing companies. As disappointed as we are with the new royalty schemes in that province, Alberta certainly remains more attractive than Nigeria or Angola - and much more attractive than Russia, Kazakhstan or Venezuela.

7.

We think it is time to begin accumulating the refiners that are equipped to handle heavy high-sulfur crude. The collapse of the crack spread has savaged refiners’ earnings, but that will eventually rebound. The Saudis have virtually turned out the Light, and less and less of the oil that the Gulf states will be lifting will be of the most desirable grades.

8.

Retain the base metal stocks that have long-life unhedged reserves in secure areas. Even if there is a global recession caused by global collapses of subprime paper and LBO loans, it will not be deep enough to drive base metal prices back to 2004 levels - but would be worrisome enough to push further mine development even farther into the future.

9.

When borrowing, borrow where possible in dollars. When investing, invest where possible in other currencies.

10.

Stagflation is a bad backdrop for bonds - and for non-commodity stocks. The central bankers could have headed it off had Wall Street behaved with a modicum of morality, but the Fed and its brethren are forced into sustained reflation because of the global solvency crisis. Corporate earnings for most sectors will not meet current optimistic Street forecasts, and rising inflation will reduce the market’s P/E.

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Sun 23 Dec 2007

Words from the wise for the week that was (Dec 17 – 23, 2007)

Posted by Prieur du Plessis under Bonds, Business, Commodities, Currencies, Economy, Emerging markets, Equities, Finance, Gold, Housing, Investment, Markets, Money, Oil, Stocks, Sub-prime, US dollar, Wall Street
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The commentary for this week’s edition of “Words from the Wise” is somewhat abbreviated as I am trying to finish the report a bit earlier in order to join my family at our beach house at Gordon’s Bay (40 minutes from Cape Town) for a few days over the Christmas period.

I will nevertheless still be following the markets closely as the next few days could see interesting movements. It has been observed by the Stock Trader’s Almanac that “beginning just before or right after the market’s Christmas closing, we normally experience a brief, yet respectable, rally from the last five trading days of the year through the first two of the New Year.” The S&P 500 Index has averaged a 1.5% increase during this seven-day period since 1969 and it is referred to as the “Santa Claus Rally”. However, it is also pointed out by the Stock Trader’s Almanac that “when this reliable seasonality has failed to materialize, it has often been a harbinger of a sizable correction or a bear market in the coming year.” Hence the saying: “If Santa Claus should fail to call; bears may come to Broad & Wall.”

As we approach the end of an eventful 2007 it is appropriate to thank each of my subscribers and readers for your friendship and support in making Investment Postcards such a fulfilling experience. The New Year will bring a new-look blog with a host of exciting features, but more about that in early 2008.

This is also a time for treasuring friends, especially those that are far away. One such friend and business partner is John Mauldin, author of the hugely popular Thoughts from the Frontline weekly e-newsletter. John is also one of five nominees for Motley Fool’s Investor of the Year - along with the likes of Warren Buffett and Carl Icahn. Don’t let the name fool you - this is a serious award. If you have enjoyed and benefited from John’s tireless effort researching and writing his newsletter and books over the years, please consider voting for him by clicking here.

Here’s wishing you a great festive season full of fun, laughter and joy, and a wonderful 2008. (In the spirit of the festive season, click here for a good laugh to see what happens when an investment manager gets “elfed”.)

Before highlighting some of the thought-provoking quotes from market commentators, let’s briefly review the market’s actions on the basis of economic statistics and a performance chart.

Economy
The prevailing mood remained cautious despite massive injections of liquidity into money markets by the world’s central banks. Leading the pack was the European Central Bank (ECB), adding an unprecedented €501 billion of liquidity in its two-week operation.

Markets took some comfort from reports that Temasek, Singapore’s state investor, might buy a $5 billion stake in Merrill Lynch. This would be the fourth time in a month that a US financial institution had raised capital from a sovereign wealth fund.

WEEK’S ECONOMIC REPORTS  

Date Time (ET) Statistic For Actual Briefing Forecast Market Expects
Dec 17 8:30 AM Current Account Q3 -$178.5B - -$183.0B
Dec 17 8:30 AM NY Empire State Index Dec 10.3 20.0 21.0
Dec 17 9:00 AM Net Foreign Purchases Oct $114.0B - -
Dec 18 8:30 AM Housing Starts Nov - 1170K 1175K
Dec 18 8:30 AM Building Permits Nov - 1180K 1150K
Dec 19 10:30 AM Crude Inventories 12/14 -7586K NA NA
Dec 20 8:30 AM GDP-Final Q3 4.9% 4.9% 4.9%
Dec 20 8:30 AM Chain Deflator-Final Q3 1.0% 0.9% 0.9%
Dec 20 8:30 AM Initial Claims 12/15 346K 335K 335K
Dec 20 10:00 AM Leading Indicators Nov -0.4% -0.4% -0.3%
Dec 20 12:00 PM Philadelphia Fed Dec -5.7 7.0 6.0
Dec 21 8:30 AM Personal Income Nov 0.4% 0.5% 0.5%
Dec 21 8:30 AM Personal Spending Nov 1.1% 0.6% 0.7%
Dec 21 8:30 AM Core PCE Inflation Nov 0.2% 0.2% 0.2%
Dec 21 10:00 AM Mich Sentiment-Rev. Dec 75.5 74.5 74.5

Source: Yahoo Finance, December 21, 2007.

The next two weeks’ economic highlights, courtesy of Northern Trust, include the following: 

•

Durable Goods Orders (Dec. 27) – Durable goods orders are predicted to have risen (+0.9%) after the three consecutive monthly drops. In particular, orders of aircraft may have risen after a reduction in October. A likely decline in bookings of defense items is included in the forecast. Consensus: +3.0% vs. -0.2% in October.

•

New Home Sales (Dec 28) – The consensus forecast is for a small drop in sales of new homes to 720 000 from 728 000 in November. Sales of new single-family homes are down 47.6% from their peak in July 2005. On a year-to-year basis sales of new single family homes were down nearly 23.0% in October. Consensus: 720 000 vs. 728 000 in October.

•

Existing Home Sales (Dec 31) – Sales of existing single-family homes are down 31.0% from their peak in September 2005. The consensus is for a steady reading in November. Consensus: 4.97 million.

•

ISM Manufacturing Survey (Jan. 2) – The Manufacturing ISM survey for December is predicted to fall to 50.3 form 50.8 in November. Indexes tracking new orders, production and employment should be market movers. The employment index fell to 47.8 in November. Consensus: 50.3 from 50.8.

•

Employment Situation (Jan. 4) – Payroll employment in December is predicted to have risen 40,000 after a gain of 94 000 in November. The gradual upward trend of initial jobless claims suggests that hiring was probably slow in December. The unemployment rate should have risen to 4.8% in December following three monthly readings of 4.7%. Consensus: Payrolls +65 000 vs. +94 000 in November; unemployment rate – 4.8%.

•

Other reports – Consumer Confidence Index (Dec. 27), Chicago Purchasing Managers’ Index (Dec. 28), Construction Spending (Jan. 2), ISM Non-Manufacturing Survey, and Factory Orders (Jan. 3).

Markets
The performance chart obtained from the Wall Street Journal Online indicates how different global markets fared during the past week. 

clipboard1a.jpg

Source: Wall Street Journal Online, December 23, 2007.

Christmas Eve is still around the corner, but US stock markets were already in a festive mood towards the close of last week. Despite lingering worries about the US economy and the financial sector, stocks managed to finish a volatile week on a strong note. Small caps (+4.2% in the case of the Russell 2000 Index) charged ahead to pay heed to the so-called “January Effect” of small caps outperforming large caps from the middle of December through the end of January.

Despite the rally on Friday, European and Japanese stocks finished down on the week, whereas emerging markets were also taking a breather.

Central bank action eased money market pressures somewhat, resulting in lower one-month dollar, euro and sterling Libor rates. Despite kicking up a bit on Friday, government bond yields declined during the course of the week, benefitting from more safe-haven buying.

On the currency front, the US dollar was fairly stable against the euro, but recorded a four-month high against the British pound (on the back of expectations of further UK interest rate cuts) and a six-week high against the Japanese yen (as new carry trade positions were opened).

Commodities experienced an excellent week with gains on all fronts. Agricultural commodities surged on the back of tight supplies and strong demand from emerging countries. Solid demand from Asia also resulted in metals making headway, with copper (+4.8%) recovering from a nine-month low. Crude oil (+1.9%) and precious metals (gold +2.3%, platinum +3.7% and silver +3.6%) also performed strongly. The price of gold bullion looks set to record its first ever month-end close above $800.    

Now for some words (and graphs) from the investment wise that will hopefully assist to make sense of financial markets during and beyond the Christmas period, but firstly a cartoon.

 clipboard01.jpg

Source: Jim Sinclair’s MineSet, December 16, 2007.

Eoin Treacy (Fullermoney): Sectoral performance for 2007
“Over the last year, the worst performing sectors have been Homebuilding (-60.69%) Thrifts & Mortgages (52.45%) Real Estate Management (-37.11%), Department Stores (-34.99%), Motorcycle Manufacturers i.e. Harley Davidson (51%) and Regional Banks (-31.2%) This is no secret and real estate related worries have dominated media coverage over the last year.

“However what is less well known is that of the S&P 500’s 147 sector indices, 85 are positive or unchanged for the year. Of these, 7 are up in excess of 50% year-to-date. These were Fertilizer & Agricultural Chemicals (+94.42%), Construction & Engineering (94.24%), Education Services (+84.89%), Coal and Con Fuel (+76.61%) Diversified Metals (71.97%), Internet Retail (64.89%) and Healthcare Services (51.21%. A number of these indices are consolidating their gains and need to sustain moves to new high ground to reaffirm their overall uptrends.

“In the coming year, we can probably expect banks to bottom out and they should perform better than they did this year. So I would be surprised to see them at the bottom of this list a year from now. However with the increase in interest in agriculture, the continued need for infrastructural improvements, not only in the USA, but globally, and the continued secular bull market in all commodities; it is difficult to imagine that the leaders for this year will not be in the upper quartile of performers again next year.”

Source: Eoin Treacy, Fullermoney, December 19, 2007.

Dick Green (Briefing.com): Earnings slowdown dissected

“There is a definite slowdown in aggregate earnings growth. The financial sector is the cause. Other sectors have yet to see a broad slowdown in earnings growth.

“The table below shows the trend in quarterly year-over-year operating earnings growth for the S&P 500 companies in aggregate for 2006 and estimates for the fourth quarter of this year and the first quarter of next year.

clipboard02.jpg

“There is a clear slowdown in profit growth starting in late 2006 and continuing into 2007. Then, of course, profits dropped sharply in the third quarter of this year, and another decline is expected for the fourth quarter. This is why the stock market has hit so much turbulence lately.

“The impact of the financial sector is huge. The drop in third quarter profits is entirely due to the financial sector. Excluding financials, profits were up 10.2% over the third quarter of 2007. The central issue in this debate is that which preoccupies the market - whether the problems in the financial sector (and the associated problems in the housing sector) will lead to a recession. If not, then investors will ultimately find good value among non-financial stocks that have maintained earnings growth.”

Source: Dick Green, Briefing.com, December 17, 2007.

Moody’s Economy.com: Survey of business confidence for world
“Global business sentiment is very weak and fragile. This is particularly true in the US where confidence slumped last week to its lowest level in the five years of this survey, and where it is now consistent with a contracting economy.  Expectations regarding the outlook through mid-2008 are particularly bleak, and responses regarding sales strength, inventory investment, and office space are also soft. Confidence is stronger outside the US, but it has notably weakened across the globe during the past month. While pricing pressures have risen with oil prices near $100 per barrel, they remain notably muted compared to the pressures that prevailed during previous oil price spurts.”

Source: Moody’s Economy.com, December 17, 2007.

(more…)

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