A short lesson in the outlook for financial markets!
Posted on 04 September 2009 with no comments from readers
From MoneyWeek.com today:
Standard & Poor’s adds up all the earnings forecasts made by individual analysts for the companies in the S&P 500 index for the next 18 months or so. The latest results are stunning. Even although the US is suffering just about its worst recession since WWII, ‘bottom-up’ analysts are predicting an overall increase in earnings this year of nearly 10%. For 2010, a staggering 35% rise in profits has been pencilled in.
As David Rosenberg of Gluskin Sheff, who’s been a consistent voice of sanity amid all the euphoria, keeps pointing out, the statistics suggest that businesses are doing extremely badly. US company sales in the second quarter of 2009 were down 25% year-on-year, worse than the 15% first quarter fall. And it looks like we’ll see another 20%-odd fall for this quarter. “So the notion that earnings are improving is… well, not supported by the facts.”
Goldmans’ top US strategist, Davis Kostin, completely disagrees with his analyst colleagues. He reckons US capex spending will dive by 15% in 2010, on top of an expected 22% fall this year. That would add up to the biggest fall in corporate spending seen in the States for more than 25 years. He also expects research and development spending, another harbinger of future growth, to fall by 15% next year.
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Sept. 4 (Bloomberg) — Investors withdrew a net $4.95 billion from equity funds and added $5.06 billion to bond funds in the week to Sept. 2, amid concerns about the strength of a world recovery, EPFR Global said in a report.
“They struggled to make the connection between equity markets at 10 to 12 month highs and a global economy that has digested the bulk of the fiscal stimulus packages served up in recent months but continues to shed jobs,” wrote the EPFR, which tracks funds with $10 trillion worldwide. “Going into September they steered the cash they once again pulled out of Money Market Funds into fixed income rather than equity funds.”
Ed note: also explains the strength of gold recently.
By Edward Hadas, Breakingviews.com
Published: 6:55AM BST 03 Sep 2009
Government bond yields have fallen significantly in the last month or so: from 3.9pc to 3.4pc on 10-year paper in the US, 3.7pc to 3.2pc in the eurozone and 4pc to 3.6pc in the UK. That sort of decline sits uneasily with rising economic optimism.
Why? There are several stories doing the rounds.
One is the expectation of deflation or something like it. Japanese consumer prices are the same now as in 1993, when its financial bubble had fully burst. Even if future Western GDP growth proves stronger than it has been in Japan – an annual rate of 0.6pc from 1993 to before the latest recession – financial pressure could keep retail prices from rising. In that environment, a risk-free 3-4pc doesn’t sound too bad.
Another explanation is more mechanical. Thanks to the “nearly free money” programmes of central banks – including some purchases of government bonds – there may be more buying power in the markets than can be absorbed by a record supply of new government debt.
Then there is the dark future theory. Bond buyers might think other markets have misread the economic signs. What looks like a recovery could actually be an inventory correction that will be followed by another recession. Bonds are a safe haven.
Not sure that actually explains the strength of gold per se. A lot of ink has been spilled this week on various explanations, ranging from Hong Kong withdrawing gold from London to rumors of imminent bank failures.
What is clear is there are a number of banks heavily short, chatter on trading boards indicates they have been caught off-guard by the move over 960 and are looking for an imminent drop.
If that doesn’t materialize and the price moves over 1000, some of these short sellers could panic.