This will discuss the week's news and what it means for an investor.
Vanguard
Gradual improvements in the labor market helped lift the Federal Reserve's outlook for economic recovery, though construction remains a drag. Food and energy prices jumped, with core inflation still modest. But investors were perhaps more distracted by declines in stock prices during the week in the wake of Japan's earthquake-tsunami-nuclear woes. For the week ended March 18, the S&P 500 Index fell 1.9% to 1,279 (for a year-to-date total return—including price change plus dividends—of about 2.2%). The yield of the 10-year U.S. Treasury note fell 12 basis points to 3.28% (for a year-to-date decrease of 2 basis points).
March Madness
This week the news media was working overtime on topics including: Japan, Libya, US budget, Wisconsin law, nuclear meltdown, radiation poisoning, tsunami, earthquake, etc. As the news was reported the markets would try to figure out what it meant and would go up and down. The EPA did not help us by reporting that radiation was on the airplanes leaving Japan which added to the hysteria, they forgot to add the part that it was an insignificant amount.
What got lost in all of the news was the Federal Reserve stating that the economy continues to improve. I visited a supplier this week that makes electrical conductor for different industries who is hiring and training people to handle their growing business. Everything that I see continues to suggest that our economy continues to improve.
Last week I state that I believe that the events in Japan are devastating on a human level and good from an economic level in the longer term. I continue to believe this and I view that the decline in the stock market has created a buying opportunity.
Facts - Human Body
• The skeleton of an average 160-pound individual weighs 29 lbs.
• Skin is the body’s largest organ.
• The average adult has between 40 and 50 billion fat cells.
• The average digestive tract of an adult is 30 feet long.
• The thighbone is the strongest bone in the body. (Ounce for ounce, it has a greater pressure tolerance and bearing strength than a rod of equal size in cast steel.)
• The tongue is the strongest muscle in the body.
• The average human eyelash lives about 150 days.
• The average human heart beats about 100,000 times every 24 hours. (In a 72-year lifetime, the heart beats more than 2.5 billion times.)
• The average human liver is more than five times the weight of the human heart.
* There are 22 bones in the adult human skull.
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
Sunday, March 20, 2011
Sunday, July 18, 2010
Earnings, Bond Yields, and the Economy
I have returned from vacation in Omaha, it was a wonderful trip and it was great reconnecting with family and friends. I did finish the 5 mile long Bear Run to the top of Grandfather Mountain on Thursday night July 8th at the time of 1:00:52, the altitude was hard for this old flat-lander. Earning season has started so this newsletter will discusss corporate earnings, bond yields, and what it tells us about the economy. First will be a weekly recap from Vanguard.
Vanguard Weekly Recap: Signs point to a very gradual recovery
The Federal Open Market Committee (FOMC) released the minutes from its June meeting this week, which stated that many committee members have downgraded their expectations on economic growth and believe that inflation remains a distant threat. Other economic reports released this week are strong indicators that the FOMC's thoughts are right on target. For the week ending July 16, the S&P 500 Index fell 1.2% to 1,064.88 (for a year-to-date total return—including price change plus dividends—of about -3.5%). The yield of the 10-year U.S. Treasury note fell 11 basis points to 2.96% (for a year-to-date decrease of 89 basis points).
Corporate Earnings
After the first week of corporate earnings reporting, revenue have increased 9% while earnings have increased by 28% during the recent quarter. It was projected that revenues would increase 8% and earnings would increase about 28% so it is in-line to slightly better than anticipated. With this good news the stock market ralied during the week and theb crumbled on Friday after Bank of America and Citigroup reported results. Corporate earnings are having a V shape recovery a positive indicator.
I read the Bank of America earnings summary and did not find the reason for the 9% decline except that executives are not very happy with the new Financial Regulation bill. On the positive side, earnings were above anticipated and amount of reserve to cover bad loans and credit issues went from about $13 billion to about $9 Billion. On the negative side, revenue growth for the future was below expectation partly because this new legislative bill was going to impact revenue from derivatives. As one analyst put it, the strong buy recommendation was maintained but the 12 month price target was reduced from $26 to $22/share.
Derivates will the topic of next week's newsletter.
Bond Yields
The treasury yield curve maintains its shape with short term rates very low and long term rates at levels last seen in the 1960's. This is a normal shape for an economy that is flat to growing. The long term rates have been dropping suggesting that growth is not as strong as expected.
The Economy
Corporate earnings and bond yields suggests that the economy is firmly entrenched in the consolidated stage. In an average business cycle the economy would be growing more at this point. This means that this business cycle will be longer than average. It does not suggest a double dip anything, if you want a double dip, get an ice cream cone.
Another way to measure the economy on a macro level is to track income tax receipts. The Federal Income Tax Receipt was about $2.1 Trillion in May and now is $2.2 Trillion as shown at the website USDebtClock.org. This is another example of a recovering but not growing economy as this value was about $3 Trillion before the latest recession.
What Does This Mean For An Investor
First, this means that this is a great buying opportunity for a long term investor and keep buying on a regular basis. Second, it means that interest rates are going nowhere anytime soon keeping mortgage rates and savings account rate low. Third, it means that stocks are in a trading range for now between the recent high and low and a trading strategy should be considered. Fourth, the Wall Street spin machines will be working to keep investors buying and selling to keep trading volumes, and future bonuses, high.
Vanguard Weekly Recap: Signs point to a very gradual recovery
The Federal Open Market Committee (FOMC) released the minutes from its June meeting this week, which stated that many committee members have downgraded their expectations on economic growth and believe that inflation remains a distant threat. Other economic reports released this week are strong indicators that the FOMC's thoughts are right on target. For the week ending July 16, the S&P 500 Index fell 1.2% to 1,064.88 (for a year-to-date total return—including price change plus dividends—of about -3.5%). The yield of the 10-year U.S. Treasury note fell 11 basis points to 2.96% (for a year-to-date decrease of 89 basis points).
Corporate Earnings
After the first week of corporate earnings reporting, revenue have increased 9% while earnings have increased by 28% during the recent quarter. It was projected that revenues would increase 8% and earnings would increase about 28% so it is in-line to slightly better than anticipated. With this good news the stock market ralied during the week and theb crumbled on Friday after Bank of America and Citigroup reported results. Corporate earnings are having a V shape recovery a positive indicator.
I read the Bank of America earnings summary and did not find the reason for the 9% decline except that executives are not very happy with the new Financial Regulation bill. On the positive side, earnings were above anticipated and amount of reserve to cover bad loans and credit issues went from about $13 billion to about $9 Billion. On the negative side, revenue growth for the future was below expectation partly because this new legislative bill was going to impact revenue from derivatives. As one analyst put it, the strong buy recommendation was maintained but the 12 month price target was reduced from $26 to $22/share.
Derivates will the topic of next week's newsletter.
Bond Yields
The treasury yield curve maintains its shape with short term rates very low and long term rates at levels last seen in the 1960's. This is a normal shape for an economy that is flat to growing. The long term rates have been dropping suggesting that growth is not as strong as expected.
The Economy
Corporate earnings and bond yields suggests that the economy is firmly entrenched in the consolidated stage. In an average business cycle the economy would be growing more at this point. This means that this business cycle will be longer than average. It does not suggest a double dip anything, if you want a double dip, get an ice cream cone.
Another way to measure the economy on a macro level is to track income tax receipts. The Federal Income Tax Receipt was about $2.1 Trillion in May and now is $2.2 Trillion as shown at the website USDebtClock.org. This is another example of a recovering but not growing economy as this value was about $3 Trillion before the latest recession.
What Does This Mean For An Investor
First, this means that this is a great buying opportunity for a long term investor and keep buying on a regular basis. Second, it means that interest rates are going nowhere anytime soon keeping mortgage rates and savings account rate low. Third, it means that stocks are in a trading range for now between the recent high and low and a trading strategy should be considered. Fourth, the Wall Street spin machines will be working to keep investors buying and selling to keep trading volumes, and future bonuses, high.
Sunday, November 22, 2009
Global Economy
About 2 weeks ago, I was an instructor teaching a class on coaxial cable at the International Wire and Cable Symposium in Charlotte, NC. During the symposium top executives from 5 companies, including CommScope, gave their input on the state of their business, the US economy, and the global economy.
The underlying view from the 4 companies that are predominantly US businesses was that the USA and Europe are at half time. While 2009 was not as bad as anticipated it is believed that 2010 will have revenue flat to down slightly with a recovery in 2011.
The company with a global view, CommScope, painted a different picture with overall growth being in the high single digits for 2010. While 2009 was a year to be efficient, 2010 and beyond offer a period for growth. Global wireless demand is growing rapidly with 4.3 billion people using a wireless device and that Africa has more cell phone users than the USA. Africa is a high growth area for Wireless communication with the current focus being a voice call and in the future capability will be added like internet access. WWEE continues in developing countries.
Their overall message was that the US and Europe are flat for 1 more year while globally, especially in developing countries, the stimulus efforts were more effective and things are growing. An organization called the OECD provides information on the global economy. This week, they increased their forecast economic growth projection for 2010 from 0.7% to 1.6% and project a growth of about 3% in 2011. A 3% growth rate would be a relatively normal number.
For the US economy it appears to be a mixed bag. The index of leading economic indicators showed a 0.3% increase for October such that in a 1 year period this index has grown by about 4%. In fact the last time this happened was in 1982 before the stock market made a huge run. While this gives a very positive picture other indicators like the index for coincident and lagging indicators are down about 5% year over year.
It appears that the US economy has some parts that are starting to move. It also appears that given the number of shoppers at stores that this Christmas season will probably top expectations as people feel better about the future.
Commodity prices that have increased during 2009 also indicate that the global economy is growing. These prices will maintain current levels as a foundation and will most likely continue to rise because of higher demand.
What is the bottom line? Owning a mutual fund that invests in developing countries is a good thing to do. The US economy is recovering so relax about the future.
The underlying view from the 4 companies that are predominantly US businesses was that the USA and Europe are at half time. While 2009 was not as bad as anticipated it is believed that 2010 will have revenue flat to down slightly with a recovery in 2011.
The company with a global view, CommScope, painted a different picture with overall growth being in the high single digits for 2010. While 2009 was a year to be efficient, 2010 and beyond offer a period for growth. Global wireless demand is growing rapidly with 4.3 billion people using a wireless device and that Africa has more cell phone users than the USA. Africa is a high growth area for Wireless communication with the current focus being a voice call and in the future capability will be added like internet access. WWEE continues in developing countries.
Their overall message was that the US and Europe are flat for 1 more year while globally, especially in developing countries, the stimulus efforts were more effective and things are growing. An organization called the OECD provides information on the global economy. This week, they increased their forecast economic growth projection for 2010 from 0.7% to 1.6% and project a growth of about 3% in 2011. A 3% growth rate would be a relatively normal number.
For the US economy it appears to be a mixed bag. The index of leading economic indicators showed a 0.3% increase for October such that in a 1 year period this index has grown by about 4%. In fact the last time this happened was in 1982 before the stock market made a huge run. While this gives a very positive picture other indicators like the index for coincident and lagging indicators are down about 5% year over year.
It appears that the US economy has some parts that are starting to move. It also appears that given the number of shoppers at stores that this Christmas season will probably top expectations as people feel better about the future.
Commodity prices that have increased during 2009 also indicate that the global economy is growing. These prices will maintain current levels as a foundation and will most likely continue to rise because of higher demand.
What is the bottom line? Owning a mutual fund that invests in developing countries is a good thing to do. The US economy is recovering so relax about the future.
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