August 22, 2013

What keeps the US consumer going?

Consumer spending keeps rising, and shares of consumer-oriented companies have been rising in price more than the general market. Why?

In the bad years of 2008 to 2009, now receding from memory, consumer spending spiraled downward but then quickly recovered and sustained itself. Thus, it might be good to look at the role of US consumers in the expansion and generally in recessions.

August 20, 2013

Of corrections, retractions and pullbacks

The US market pulled back recently after a succession of all-time highs. What does this mean?

Let’s put it in perspective: The market’s biggest setbacks are generally associated with recessions or major fundamental shrinkages of economic growth. These market downturns have averaged almost 27% since World War II. But smaller market setbacks, or corrections, occur with great frequency over time. After all, with a nod to Ben Graham and Warren Buffett, the market is a device that is a cross between a weighing device and a voting machine, constantly changing, moving up and moving down. The market’s fluctuations are the sum of the current actions and moods of the active players buying and selling on any particular day. It is not a stable system.

August 13, 2013

The confluence of fundamentals and valuations: Are we at a fork in the road?

The second-quarter earnings season is coming to a close, and the results have not been spectacular. Earnings grew year over year but showed a slowing trend, and revenue growth (top line) was somewhat disappointing, yet the market moved up.

Markets often take good news too far. Conversely, they can take bad news and drive it into the ground. Right now, we think the market needs to see more solid strength ahead before it can make another major leap forward.

August 8, 2013

Jim’s take on second-quarter earnings for US companies

With earnings reporting season almost finished, here are my conclusions:
  1. Things are OK in corporate America, but I am disappointed that more revenue growth did not show up this quarter. I was looking for US-based S&P 500 companies to get more traction in sales, which would help them enormously after all their cost cutting. At this point in the season, year-over-year revenue growth is only 1.3%, not counting the banks. Encouragingly, the percentage of companies showing some revenue uptrend did increase.

August 6, 2013

US job growth slow for sure. What's next?

The July jobs report generally disappointed. From my point of view, the argument for buying into this cycle has rested on two big pillars: first, that there is no credit cycle in the private sector to create risk and distort pricing, and second, that lack of job growth could be made up for by wage gains accruing from a longer workweek for each US worker.