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I don’t like to always be bullish. Then people think my glasses are “rose-colored” or that I’m an “idiot, hedge-fund tool who is part of the Wall Street clan manipulating the market upward.”
But most of the economic and market data we’ve seen in the past month have been bullish and encouraging.
Here are a few facts:
a.) The companies in the S&P 500 have been blowing away earnings. Here’s a summary. About 75% of companies have beaten analyst expectations. This wasn’t the case in the months preceding the financial crisis, where most companies were underperforming expectations. Additionally, the one quarter ahead forward P/E of the S&P 500 is at 12, near a 20 year low. Companies like PCLN, AAPL, INTC, EXPE, and others completely blew away analyst expectations.
b.) The bad news seems to be that unemployment is just dismal. But here are a couple of things to keep in mind. Check out this graphic: “jobless recovery”. The phrase “jobless recovery” occurs in news reports after every single recession since 1970. Its not unusual for job growth to be slow after a downturn. Also, the Pragmatic Capitalist offers some perspective on the high unemployment rate by comparing our recovery with prior recessions. But, we have some good (great) datapoints: the average workweek for non-government jobs increased last month, as did hourly pay. Multiplying hourly pay by hours worked shows that incomes are up 6.2% over a year ago. The average work week for nongovernment jobs is now at pre-recession levels. Any further increase in productivity will find its way into growth in employment. In fact, civilian employment (nongovernment) has increased at a rate of 200,000 jobs per month. Everyone needs to relax about employment.
c.) People were disappointed that Q2 GDP growth was “just” 2.4%. Forgetting for a second the fact that growth is better than non-growth (I would hardly call 2.4% growth a “double-dip recession”), lets not forget that Q1 GDP growth was revised from 2.7% growth to 3.7% growth. The GDP “slowdown” if you can call it that, was the result of a huge increase in spending on imports. In other words, we’re buying stuff from other countries. Lots of it. People are spending money again. Is that weakness? Not so sure. Private spending (consumer + business investment) is now back at all-time highs in fact. Business investment, for instance, is at $11.604 trillion last quarter. Its prior peak was in Q2 2008, at $11.602 trillion. Say what you want about the economy: personal spending is up, business spending is up, incomes are up, and all the leading indicators that suggest future employment are up. And people are more confident with the stock market going up.
d.) One of the drags on the market in recent months was the fear that China was in a slowdown. It’s true. The government put the brakes on the economy. Instead of growing 11% its now growing 9%. About 50 million people are year are being added to the middle class. Car growth per year has gone from 1 million auto purchases in 1992 to 13 million last year. Two weeks ago I pointed out a car-parts company, CXDC, which supplies plastic parts to the auto industry. The company was trading for just nine times earnings and four times this years EBITDA. It is the largest domestic supplier of plastics to the auto industry in China. Last night it blew past earnings. I own the stock and think it could double from here even with the gap up this morning. Other China stocks benefiting from the surge in the middle class include NTES, SINA, and a little known 300 million revenues supplier of jewelry in China called Kingold (KGJI.ob). I own all of these stocks.
The economy may not be growing as fast as people like, but it’s growing and stocks are cheap relative to that growth.
(Disclosure: I’m long NTES, SINA, CXDC, KGJI but positions can change at any time).
James Altucher is a managing partner of Formula Capital, an alternative asset management firm, and an author on investment strategies. Unlike Dow Jones reporters, he may have positions in the stocks he writes about.
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We still crave CHEAP ENERGY NOT CHEAP STOCKS NOW.. we are fast running out of cheap energy that the rich can only afford them… We the downtrodden workstiffs will find ourselves paying for green energy all by ourselves while the rich invest money elsewhere.. The rich is not dumb!!
Oil stocks is still not cheap! They has to come down more … Remember the OIL GLUT of the 1980s? You were probably a toddler back then… Oil prices were as low as $7 at the same time Reaganomics was launched. Big Oil increased aging oil reserves through enhanced oil recoveries and molybdenum prices were artifically fixed so cheap in order to support manufacture of millioins of drill pipes needed to do lengthy horiziontal drillings. Recently, molybedenum prices zoomed to $40,000 a ton up from $5,000 a ton . Big OIl abandoned horizontal drilling and switch to thermally enhanced oil recoveries which is more hazardous to the earth formations through steam pressures and cracking layers of crusts. We are still desperately stretching the life of our aging oil reserves at great costs to our subterrean environment not to mention off shore drillings and oil spill threats. Despite all that, we still refuse to conserve more energy as well as investing in green energy because they are not profitable for our risk takings. Our favorite stocks will stop making profits thanks to suddenly rising energy prices because of our long standing inactions on energy plannings. Even our energy conservation efforts is not making any signiificiant dents on our consumpitons because we are still so clueless about how much more we still need to conserve like more carpooling, elimination of central air conditioning/heat systems for our Mcmansions.. ETC ETC You saying stocks is cheap, HAHAHAHAHAHAHAHHAHAHAHAHAAHHAHAHAHAHAHAHAAH’!!~!!!
Didn’t you think stocks were expensive and natural gas was cheap this time last year, before stocks skyrocketed and nat gas plummeted.
You think stocks are cheap now, just hang around, It is gona be really bad
No your glasses are not rose colored.. Yours is kaledioscoped. You are as confused as you can be all on your own. Demographics is messing things up as moer people are getting older. Energy issues also play another part. Cash hoarders , too. We are disinvesting in wrong places for wrong reasons. America is ruddlerless. We are chasing stock flavor of the day. Yesterday it was Apple and today it is Priceline. tomorrow it will be Crocs. We are not doing anything about our energy crisis at all. We are assuming that we will keep running into energy price spikes every few years, which is not sustainable. We had already seen what high energy prices had done to our economy, government and the damn Fed Reserve!!
Financial Adviser covers important issues affecting financial advisers, brokers, wealth managers and their clients. Featuring lead editors Brian Cronk and Kevin Noblet and the reporting team of Dow Jones Adviser, along with contributions from leading industry voices, Financial Adviser provides insight into issues including taxes and estates, philanthropy, investing, practice management and financial planning. Write to us at wealthmanagerinquiries@dowjones.com. For more information on Dow Jones products for financial advisers, go to http://solutions.dowjones.com/wmblog.
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