Simple formula: US profit growth rate = (real GDP x 5) – 10. No “ka-ching” at 2% or less GDP growth.
Wednesday, June 27, 2012
Thursday, June 21, 2012
The risk of a downturn in the second half of this year is relatively low, the Conference Board said Thursday as it reported that its index of leading economic indicators rose 0.3% in May. "Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum," said Ken Goldstein, economist at the Conference Board.
Update: while leading economic indicators held up in May, first signs of June are UGLY.
Source: Conference Board
Wednesday, June 20, 2012
Over the past two months, the Fed's FOMC has:
- Reduced forecasts for growth in 2012, 2013, and 2014
- Increased expectations of unemployment in 2012, 2013, and 2014
- Reduced inflation expectations (from a level already below the 2% target) in 2012, 2013, and 2014
Source: Calculated Risk
Tuesday, June 19, 2012
How companies have spent their cash over the past 25 years. Interesting to note is that they spend on average, about 60% of their total spend on capital expenditures, 20% on M&A, and about 10% each on dividends and executed buybacks. The total amount of spend bounces around a bit but is a fairly consistent 20% of market capitalization. Note that buybacks exceeded dividends in 7 out of the past 10 years
- Share buybacks
- Capital expenditures
Monday, June 18, 2012
I've shown that valuation matters numerous times over the years when it comes to long-term equity returns (see here, here, and here for some of my favorite examples). The below post uses the same concept in that it compares valuation (i.e. yields) with forward returns, but in this version we compare the relative performance of equities vs. bonds.
While I refuse to state that returns will be anywhere near this 9.5%, by almost all measures stocks appear cheap on a relative basis to Treasury bonds. Unless earnings collapse back to a "normal" percent of the overall economic pie abruptly (definitely possible, but in my view not likely) or the economic pie contracts abruptly, stocks are going to outperform bonds over the next ten years.
Wednesday, June 13, 2012
U.S. retail sales declined in April and May, pulled down by a sharp drop in gas prices. But even after excluding volatile gas sales, consumers barely increased their spending.
The Commerce Department said Wednesday that retail sales dipped 0.2 percent in May. That followed a revised 0.2 percent decline April. The back-to-back declines were the first in two years.
The weakness reflected a 2.2 percent plunge in gasoline station sales. Still, excluding gas station sales, retail spending rose just 0.1 percent in May. And it dropped 0.1 percent in April. That left retail spending roughly flat outside of gas sales for the two months, a sign that slower job growth and paltry wage increases may be leading consumers to pull back on spending.
Monday, June 11, 2012
The NY Times details:
The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.
A hypothetical family richer than half the nation’s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss.
Families’ income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation.
Thursday, June 7, 2012
Tuesday, June 5, 2012
Monday, June 4, 2012
The authorities didn’t understand the nature of the euro crisis; they thought it is a fiscal problem while it is more of a banking problem and a problem of competitiveness.The result is that the issues have not been addressed and problems have only gotten worse.
The real economy of the eurozone is declining while Germany is still booming. This means that the divergence is getting wider. The political and social dynamics are also working toward disintegration. Public opinion as expressed in recent election results is increasingly opposed to austerity and this trend is likely to grow until the policy is reversed. So something has to give.Which can be easily seen in a variety of metrics, including unemployment which is shown in the below chart and is simply unbelievable. It shows the current unemployment rate of Spain (currently an unreal 24.3%) divided by Germany's (less than half 2005's level at 5.4%) going back to 2000. It was only 5 years ago that Spanish unemployment was actually lower than Germany's (though that employment coincided with a massive housing bubble in Spain funded by cheap German financing from excess German savings).