- The real estate bust is a boom for USA firms seeking land and facilities. Rapid real estate inflation in Asia only makes American space costs that much more attractive.
- Borrowing costs in the USA have never been lower and with banks beginning to lend the cost of financing plant & equipment has never been more affordable.
- The exceptionally low cost of natural gas as a fuel source gives American firms a huge advantage over energy intensive production overseas. New technology for efficient co-generation means that natural gas is also a fuel for lost cost onsite electricity. And, excess electric production can be sold back to the grid.
- USA is safe! The ability to secure intellectual property, such as patents, designs, formulas, processes and methods, etc., is made easier on USA soil. Plus law enforcement and the legal system is on "our side!" Spies aren't as available and can't hide out as easily either.
- Labor has done a 180 in the USA. Thanks to 9% unemployment, workers and unions have come to realize job security is better when they work with their employers to make better products and compete internationally.
- American technology can help American manufacturers. In conjunction with labor, technology is helping USA firms to have one of the most productive workforces on the planet.
- Government gets it - American manufacturing means American jobs - and that means votes! Bring the jobs home is the mantra of both parties. Government, at every level, can do more to get out of the way and help manufacturers, but at least they see the connection between regulation and jobs.
- The "Made in the USA" brand is a positive marketing advantage. Consumers are more inclined to "buy America" to "support America" than in recent memory. Chrysler tapped into this spirit in their 2012 Superbowl half-time ad!
- Foreign firms that want to grab a share of the giant USA market see putting production in the USA as a critical part of their strategy. USA firms save on shipping costs and time to market when they bring production home. Both reduce the risk of currency fluctuation by keeping the supply chain in the USA.
- As the manufacturing jobs come home the boost it gives to the economy feeds on itself!
Thursday, February 9, 2012
Advantage USA
Moving forward, as the economic recovery picks up steam, one of the bright spots is American Manufacturing. For too long the trend has been for USA firms to move production offshore to Asia. The tide is turning, and American Manufacturing has a number of advantages:
Monday, January 23, 2012
Timing is Everything
Timing is everything when it comes to the Euro Crisis. It's terribly obvious that the situation must come to head and that a big change in fiscal policy will be required to address the debt problems in Europe, not to mention the USA. The problem is that very few Europeans are willing to accept what this means to their lifestyle and the sacrifices they must face together.
At the same time, if the Europeans were to take the extreme measures they need to in order to get their annual deficits down to a reasonable level, it is fair to say the drag to their economy would send tax revenues into a free fall thereby countering in large measure their budget cuts effects on the deficit. Without the means for fiscal stimulus, the Euro is dammed if they do and dammed if they don't. The situation would appear hopeless. But maybe not!
Europe does not operate in a vacuum, they operate in a world economy. The answer to Europe's extraordinary strains and dire need for growth could come from the emerging nations, especially China and India. They could supply the lift to the world GDP that would pull Europe through. The key is the timing. Can those growth regions put their foot on the pedal to increase their domestic demand soon enough and fast enough to satisfy investors that all hope is not lost for Europe.
After some 15 major meetings of Europe's leaders it's painfully obvious that they can not lift themselves out of their mess on their own. A coordinated world effort is required. I'm not talking about the world "bailing out" Europe by paying their debts or loaning them more money!! That's not a solution and the proverbial can has been kicked to the end of the road. Countries that have the means to encourage growth have to work together to do so and to open their markets. Supply from Europe and the USA will help keep a lid on inflation in the growth regions as their domestic economies grow. And, seeing demand from Asia, Africa, South America, the Middle East, etc., will help Europe and the USA to take the fiscal austerity steps we need to in order to get our budgets under control with less concern about triggering a deep global recession.
I believe this kind of coordination is the answer. The question is the timing! Can we time our efforts in a coordinated way, or must there be a crisis and much less orderly series of events and process? That's anyone's guess. Get it right - make a fortune. Get it wrong - take a beating! Therein you have the uncertainty facing investors around the world!!
At the same time, if the Europeans were to take the extreme measures they need to in order to get their annual deficits down to a reasonable level, it is fair to say the drag to their economy would send tax revenues into a free fall thereby countering in large measure their budget cuts effects on the deficit. Without the means for fiscal stimulus, the Euro is dammed if they do and dammed if they don't. The situation would appear hopeless. But maybe not!
Europe does not operate in a vacuum, they operate in a world economy. The answer to Europe's extraordinary strains and dire need for growth could come from the emerging nations, especially China and India. They could supply the lift to the world GDP that would pull Europe through. The key is the timing. Can those growth regions put their foot on the pedal to increase their domestic demand soon enough and fast enough to satisfy investors that all hope is not lost for Europe.
After some 15 major meetings of Europe's leaders it's painfully obvious that they can not lift themselves out of their mess on their own. A coordinated world effort is required. I'm not talking about the world "bailing out" Europe by paying their debts or loaning them more money!! That's not a solution and the proverbial can has been kicked to the end of the road. Countries that have the means to encourage growth have to work together to do so and to open their markets. Supply from Europe and the USA will help keep a lid on inflation in the growth regions as their domestic economies grow. And, seeing demand from Asia, Africa, South America, the Middle East, etc., will help Europe and the USA to take the fiscal austerity steps we need to in order to get our budgets under control with less concern about triggering a deep global recession.
I believe this kind of coordination is the answer. The question is the timing! Can we time our efforts in a coordinated way, or must there be a crisis and much less orderly series of events and process? That's anyone's guess. Get it right - make a fortune. Get it wrong - take a beating! Therein you have the uncertainty facing investors around the world!!
Thursday, January 19, 2012
Am I A Fireman Yet
Dear Reader:
The following story came my way in an email from a client of in the fire fighter field. One of those "pass it on" chain letters that you wonder about sometimes. Have a tissue ready ... Bob
AM I A
FIREMAN YET?
In Phoenix , Arizona , a 26 year-old mother stared down at her 6 year-old son, who was dying of terminal leukemia.
In Phoenix , Arizona , a 26 year-old mother stared down at her 6 year-old son, who was dying of terminal leukemia.
Although her heart was filled with sadness,
She also had a strong feeling of determination.
Like any parent, she wanted her son to grow up &
Fulfill all his dreams. Now, that was no longer possible..
The
leukemia would see to that. But she still wanted her son's dream to come
true.
She
took her son' s hand and asked, 'Billy, did you ever think about what you wanted
to be once you grew up? Did you ever dream and wish what you would do with your
life?'
Mommy, 'I always wanted to be a fireman when I grew up.'
Mom smiled back and said, 'Let's see if we can make your wish come true.'
Later
that day she went to her local fire Department in Phoenix , Arizona , where she
met Fireman Bob, who had a heart as big as Phoenix !
She
explained her son's final wish and asked if it might be possible to give her 6
year-old son a ride around the block on a fire engine.
Fireman Bob said, 'Look, we can do better than that. If you'll have your son ready at seven o'clock Wednesday morning, we'll make him an honorary Fireman for the whole day. He can come down to the fire station, eat with us, go out on all the fire calls, the whole nine yards!
And if
you'll give us his sizes, we'll get a real fire uniform for him, with a real
fire hat - not a toy -- one-with the emblem of the Phoenix Fire Department on
it, a yellow slicker like we wear and rubber boots.'
'They're
all manufactured right here in Phoenix , so we can get them fast.'
Three days later Fireman Bob picked up Billy, dressed him in his uniform and escorted him from his hospital bed to the waiting hook and ladder truck.
Three days later Fireman Bob picked up Billy, dressed him in his uniform and escorted him from his hospital bed to the waiting hook and ladder truck.
Billy got to sit on the back of the truck and help steer it back to the fire station. He was in heaven.
There
were three fire calls in Phoenix that day and Billy got to go out on all three
calls.
He rode
in the different fire engines, the Paramedic's' van,
And even the fire chief's car.
And even the fire chief's car.
He was also videotaped for the
Local news program.
Having his dream come true,
With all the love and attention that was lavished upon him, so deeply touched Billy, that he lived three months longer than any doctor thought possible.
One night all of his vital signs began to drop dramatically and the head nurse, who believed in the hospice concept - that no one should die alone - began to call the family members to the hospital.
Then she
remembered the day Billy had spent as a Fireman, so she called the Fire Chief
and
Asked if it would be possible to send a fireman in uniform to the hospital to be with Billy as he made his transition.
The chief replied, 'We can do better than that. We'll be there in five minutes. Will you please do me a favor?
When you hear the sirens screaming and see the lights flashing, will you announce over the PA system that there is not a fire?'
'It's the department coming to see one of its finest members one more time. And will you open the window to his room?'
About five minutes later a hook and ladder truck arrived at the hospital and extended its ladder up to Billy's third floor open window--------
16 fire-fighters climbed up the ladder into Billy's room.
With his
mother's permission, they hugged him and held him and told him how much they
LOVED him.
With his dying breath, Billy looked up at the fire chief and said,
'Chief, am I really a fireman now?'
With his dying breath, Billy looked up at the fire chief and said,
'Chief, am I really a fireman now?'
'Billy, you are, and the Head Chief, Jesus, is holding your hand,' the chief said.
With those words, Billy smiled and said, 'I know, He's been holding my hand all day, and
The angels have been singing.'
He closed his eyes one last time.
My instructions were to send this to at least four people that I wanted God to bless and I picked you.
Please pass this to at least four people you want to be blessed.
True Story
Love to all....
Love to all....
Tuesday, January 10, 2012
Rating Agencies May Deliver for Chancellor Merkel
Euro sovereigns have been borrowing and spending to excess but the party can't go on forever. Could the rating agencies spoil the party? I muse on this question ...
Back in November 2011the new IMF Managing Director Christine Lagarde said the world economy is in a “dangerous phase,” and US Treasury Secretary Geithner said that Europe needs to "move more quickly and with more force behind it.” Since then little has been accomplished in 14 European Union meetings and the credit crisis has only deepened.
On January 5th Bloomberg Financial reported that the European Central Bank made an unprecedented cash injection to ease borrowing costs for Italy, Spain and Belgium, compensating for the lack of a solution to the debt crisis and the risk of recession. (I question whether the word recession is strong enough. I think they fear worse.) European leaders have failed to come up with what German Chancellor Angela Merkel described as a “big-bang” solution to the crisis, so the ECB did the only thing in could do to prevent Europe's mounting crisis from imploding. But the ECB did not solve the problem, they only postponed the inevitable a little while longer.
While there is no physical limit to how much money the ECB, or the Federal Reserve, can print, eventually market forces will come to bear and to draw a line on what the world's financial markets will accept. The trillion dollar question is where and when is that line.
We may get a preview or foreshadowing sooner than latter. Standard & Poor’s said Dec. 15 that it was reviewing the credit ratings of 15 euro nations for a possible downgrade, including AAA rated Germany and France, citing “systemic stress in the euro zone.”. It is more than conceivable that they will indicate what everyone already knows which is that there is no visible or sensible way that many of the Euro countries can pay back the debt they have been rapidly accumulating and that if the ECB where to stop printing money and buying their bonds they would have to default. A meaningful move down by the rating agencies would ostensibly be saying that the countries are insolvent.
One might say, "so what?" since for all practical purposes they have been insolvent and anyone with any sense already knows it. But the difference here is that the rating agencies have the power to make it official! A damaging multiple notch reduction would make it virtually impossible for those countries to sell their bonds, making the ECB, assuming the US Federal Reserve stands down, the only way for them to fund their governments and largely their economies. Thus worsening the reality of the crisis, and setting up the real likelihood of a ratings death spiral as rating agencies do another series of rating reductions until many Euro counties are lowered to junk status, significantly devaluing the Euro currency in the process, and drawing France and Germany fully into the mess. At that point, if not sooner, the whole party is over for the Euro. Or is it?
One might think that forcing write-downs of the debt (haircuts) on bondholders is the answer, but it isn't. By definition that has to constitute default and trigger insurance claims. That just deepens the crisis. There will not not be a credible solution in sight until Chancellor Merkel gets what she wants and the world needs to see, which is serious fiscal austerity by virtually every insolvent Euro country. Countries like Italy, Spain, and Belgium will have to cut beyond the point of discomfort. Beyond the point that their unions will stand for. Beyond the point of hurting their national pride. They will have to cut into the bone! They will have to chop off limbs! I'm talking the sale of national treasures! Things and institutions that were once considered sacred will be on the block for cuts or sale until these countries can prove to the world that they can sustain their government's funding requirements without depending permanently on the ECB.
This is not to say that the ECB's job is done. Oh no! But instead of buying these nation's debt they will be funding their liquidation as well as finding creative mechanisms for funding growth. Who's to say the ECB can't concoct some indirect way to fund the purchase of equities in new offerings for start-up or growing businesses or why couldn't they buy a priceless piece of artwork owned by a government and put it back on display in the same location where it is presently located? Radical times call for radical actions! And I except the Federal Reserve to be as creative as any body at finding ways to stir the phoenix from the ashes.
All countries may not go along with the draconian steps that I am describing. Those that refuse will for all intents & purposes be kissing their Euros goodbye. What will be left is the "haves & the have nots." Those that have have euros and those that have defaulted on their obligations and opted to revert back to their original currency. Who's the better? There's too many variables for me to form a prediction at this time.
But eventually, the counties that take the necessary austerity actions, voluntarily or by market force, will get to a point where they can fund themselves. And provided their populations and civilization can handle the turmoil of so much change and sacrifice they will reach a new equilibrium. (The so called new "new normal" that Pimco co-chair El-Erian declared will have to wait a bit.) Signs of new life taking hold will be evidenced in the same way the death of the old was announced -- we'll know we've survived when the ratings agencies collectively raise the ratings back up.
It must be very daunting and scary for those agency committees today! Imagine, knowing your actions can literally trigger events that will reshape the world today, but NOT knowing where it will all lead. (If there is one thing that truly does scare me is how such a deep crisis as I am describing has a way of bringing out the worst, along with best, in people.)
Efforts to reach an orderly resolution between bold holders and Greece authorities seem dire. The only thing keeping bond holders from calling in their insurance claims is the contagion effect on their other holdings, which also threaten both national and bank solvency, and the Union itself.
It seems to me the only hopeful course is an unprecedented and synchronized combination of massive fiscal austerity actions by insolvent Euro nations, enormous monetary stimulus from the ECB, and aggressive pro-growth policies in Europe, the USA, and emerging nations around the world.
Back in 2009 when America was in the throws of its own financial crisis, Federal Reserve Chairman Ben Bernanke made the point that the biggest concern he had was whether or not America had the "political will" to deal with the challenge. When it comes to the Euro crisis, Chancellor Merkel has proven that she has great political will, but she can't do it alone, and I seriously question whether her German and Euro colleagues have the political will to brake the pattern of this Euro crisis BEFORE it brakes them and us?! And, the ratings agencies are saying the time to do so has nearly run out!!
Back in November 2011the new IMF Managing Director Christine Lagarde said the world economy is in a “dangerous phase,” and US Treasury Secretary Geithner said that Europe needs to "move more quickly and with more force behind it.” Since then little has been accomplished in 14 European Union meetings and the credit crisis has only deepened.
On January 5th Bloomberg Financial reported that the European Central Bank made an unprecedented cash injection to ease borrowing costs for Italy, Spain and Belgium, compensating for the lack of a solution to the debt crisis and the risk of recession. (I question whether the word recession is strong enough. I think they fear worse.) European leaders have failed to come up with what German Chancellor Angela Merkel described as a “big-bang” solution to the crisis, so the ECB did the only thing in could do to prevent Europe's mounting crisis from imploding. But the ECB did not solve the problem, they only postponed the inevitable a little while longer.
While there is no physical limit to how much money the ECB, or the Federal Reserve, can print, eventually market forces will come to bear and to draw a line on what the world's financial markets will accept. The trillion dollar question is where and when is that line.
We may get a preview or foreshadowing sooner than latter. Standard & Poor’s said Dec. 15 that it was reviewing the credit ratings of 15 euro nations for a possible downgrade, including AAA rated Germany and France, citing “systemic stress in the euro zone.”. It is more than conceivable that they will indicate what everyone already knows which is that there is no visible or sensible way that many of the Euro countries can pay back the debt they have been rapidly accumulating and that if the ECB where to stop printing money and buying their bonds they would have to default. A meaningful move down by the rating agencies would ostensibly be saying that the countries are insolvent.
One might say, "so what?" since for all practical purposes they have been insolvent and anyone with any sense already knows it. But the difference here is that the rating agencies have the power to make it official! A damaging multiple notch reduction would make it virtually impossible for those countries to sell their bonds, making the ECB, assuming the US Federal Reserve stands down, the only way for them to fund their governments and largely their economies. Thus worsening the reality of the crisis, and setting up the real likelihood of a ratings death spiral as rating agencies do another series of rating reductions until many Euro counties are lowered to junk status, significantly devaluing the Euro currency in the process, and drawing France and Germany fully into the mess. At that point, if not sooner, the whole party is over for the Euro. Or is it?
One might think that forcing write-downs of the debt (haircuts) on bondholders is the answer, but it isn't. By definition that has to constitute default and trigger insurance claims. That just deepens the crisis. There will not not be a credible solution in sight until Chancellor Merkel gets what she wants and the world needs to see, which is serious fiscal austerity by virtually every insolvent Euro country. Countries like Italy, Spain, and Belgium will have to cut beyond the point of discomfort. Beyond the point that their unions will stand for. Beyond the point of hurting their national pride. They will have to cut into the bone! They will have to chop off limbs! I'm talking the sale of national treasures! Things and institutions that were once considered sacred will be on the block for cuts or sale until these countries can prove to the world that they can sustain their government's funding requirements without depending permanently on the ECB.
This is not to say that the ECB's job is done. Oh no! But instead of buying these nation's debt they will be funding their liquidation as well as finding creative mechanisms for funding growth. Who's to say the ECB can't concoct some indirect way to fund the purchase of equities in new offerings for start-up or growing businesses or why couldn't they buy a priceless piece of artwork owned by a government and put it back on display in the same location where it is presently located? Radical times call for radical actions! And I except the Federal Reserve to be as creative as any body at finding ways to stir the phoenix from the ashes.
All countries may not go along with the draconian steps that I am describing. Those that refuse will for all intents & purposes be kissing their Euros goodbye. What will be left is the "haves & the have nots." Those that have have euros and those that have defaulted on their obligations and opted to revert back to their original currency. Who's the better? There's too many variables for me to form a prediction at this time.
But eventually, the counties that take the necessary austerity actions, voluntarily or by market force, will get to a point where they can fund themselves. And provided their populations and civilization can handle the turmoil of so much change and sacrifice they will reach a new equilibrium. (The so called new "new normal" that Pimco co-chair El-Erian declared will have to wait a bit.) Signs of new life taking hold will be evidenced in the same way the death of the old was announced -- we'll know we've survived when the ratings agencies collectively raise the ratings back up.
It must be very daunting and scary for those agency committees today! Imagine, knowing your actions can literally trigger events that will reshape the world today, but NOT knowing where it will all lead. (If there is one thing that truly does scare me is how such a deep crisis as I am describing has a way of bringing out the worst, along with best, in people.)
Efforts to reach an orderly resolution between bold holders and Greece authorities seem dire. The only thing keeping bond holders from calling in their insurance claims is the contagion effect on their other holdings, which also threaten both national and bank solvency, and the Union itself.
It seems to me the only hopeful course is an unprecedented and synchronized combination of massive fiscal austerity actions by insolvent Euro nations, enormous monetary stimulus from the ECB, and aggressive pro-growth policies in Europe, the USA, and emerging nations around the world.
Back in 2009 when America was in the throws of its own financial crisis, Federal Reserve Chairman Ben Bernanke made the point that the biggest concern he had was whether or not America had the "political will" to deal with the challenge. When it comes to the Euro crisis, Chancellor Merkel has proven that she has great political will, but she can't do it alone, and I seriously question whether her German and Euro colleagues have the political will to brake the pattern of this Euro crisis BEFORE it brakes them and us?! And, the ratings agencies are saying the time to do so has nearly run out!!
Wednesday, January 4, 2012
10 Reasons Why I Am Bullish on Stocks
A few weeks ago I moved into a more bullish position with my stocks. I share my reasons why for the interest of other investors.
10 reasons why I am bullish about the stock market. I realize that they are not your traditional points that stock analyst write about, and that I can't provide you with research to back them up, but I think you can appreciate them. Here you go in no particular order:
1. The flip side of weak housing is the best housing affordability index in decades. Heck, there are millions of home owners who aren't paying anything to live in their home because they've defaulted on their mortgages and haven't been evicted yet. If housing consumes a smaller percentage of the consumers' income they have more to spend or invest on other things.
2. Accelerated depreciation on capital investments/purchases is going to kick in three ways: 1) stimulating purchases, 2) those investments impact on business productivity and profitability, 3) as the full expense is written off in 2011 and 2012 the write-off is used up meaning the effects on EBITA are going to be more pronounced in 2013, thus compounding reported profit estimates for 2013 and adding to forward PE estimates.
3. Coming off years of low interest rates and presently more favorable debt markets for commercial lending has provided a large window for business to restructure debt at lower carrying costs. Many firms have used their cash to retire debt and/or to buy back their stock. All these moves translate into hirer EPS, and greater valuation.
4. The attitude of organized labor has shifted from combative to parterning. In addition, years of high unemployment has given the vast majority of workers a much better appreciation for their employers and higher motivation to help their firm to succeed. This win-win mentality is under estimated in terms of prodctivity, innovation, and competitiveness, especially against our European competitors! Furthermore, unemployment fuels entrepreneurship both as a catalyst and as an "agent of capitalism."
5. While the economy has been lackluster to say the least since 2008, the last five years have yielded many advances in science and technology. Developments in virtually every area of science and technology are maturing into practical use and will be applied to great value in the coming years in business, medicine, transportation, communication, defense, logistics, waste management, energy, space and sea exploration, etc. America's strong trade relations with countries like ours that excel in R & D, such as Israel and Singapore will serve us well too. Together we will have better and more innovative solutions for the world's needs and problems. The "next big thing" may not be one thing, rather I think it will be many big things!
6. Energy is coming home and so are the dollars. America is fed up with OPEC and our dependency on energy suppliers from the Middle-East. As we source more of our energy in North America we keep the energy revenues in North America too. The direct and indirect impact on the USA GDP and trade balance will be enormous!
7. Mobile computing, combined with, social networking, the cloud, and e-commerce are going to have a profound effect on everything!! All one has to do is look around to see how the smartphone and tablet have become an extension of human beings. Look around at a restaurant or in a mall and you will see them in everyone's hands! Couples and groups of friends can be sitting with one another while texting or tweeting or posting or checking something at the same time. The speed at which an idea can travel and become a transaction is unlike anything our world has ever known! As information and currency flows more easily and rapidly the velocity and multiplier of money will contribute to our GDP on a grand scale.
Furthermore, because America does "the Internet" so well we have a competitive advantage worldwide in a trend that is freeing up people, nations, and their wallets around the world. I like the idea of the "human network." Plus, a first cousin to e-commerce is shipping, and here again the USA excels in "logistics."
8. Emerging nations have developing economic classes. China, India, countries in South America, and in Africa are all joining the modern world with massive modern needs. The demands they have for transportation, telecommunications, waste management, water and food supply, consumer products and distribution, medicine, and much more is staggering! When you compound growth in these massive countries over years like we have seen and will continue to see you reach levels that will make huge contributions to world GDP and as a result our economy and the profits of USA businesses. You don't even have to be a direct supplier to benefit.
9. Nations and politicians in America and Europe realize that their fiscal spending spree is over and that Debt to GDP ratios have to be brought down. Government leaders (an oxymoron today) would rather increase the denominator (GDP) than just lower the numerator (debt). With their fiscal options limited and the need for higher employment posing a threat of social unrest, let alone to their political future, they know they have to turn to business with pro growth policies. The politicians are starting to realize that the best thing they can do to stimulate growth is to do nothing. In other words, the more government gets out of the way the better. Less regulation, faster approvals, fewer agencies, and lower taxes & fees are as stimulative as anything! Since "getting out of the way" is also less expensive for government it is a win-win for the taxpayer and business. At the same time, central banks are doing their part with extremely accommodative practices! (E.g. Low interest rates, monetary purchases of debt, easy access, etc.)
While the Federal Reserve has been surprised thus far at the lack of traction they have gotten in translating their aggressive monetary policies into economic growth I believe that is about to take a big turn. And I think we could all be surprised at how fast the turn is. I can't help but wonder if the Federal Reserve is thinking the same way with their recent announcement about broadcasting rate changes more frequently in order to give them a means to respond in a more timely way without creating any sense of panic.
10. Last but not least, the pendulum of doubt and despair has a wide swing coming back the other way. The mood in the country and with investors is going on a long arch towards renewed optimism. Couple this the trillions of dollars in bank reserves and more trillions on business balance sheets and we can expect to see a giant wave of consumption and investment when the mood is right, and it is about to be right.
In conclusion, as these ten factors kick in they are self-reinforcing and the business cycle will gain more momentum. When this happens future EPS estimates will be raised upward. When this happens the current 12x multiplier that the market is priced with will be corrected by the market to be closer to the 14x historical average for the market. But, since estimates are being taken higher you have a double reason for a boost to stock prices. That is why I am bullish! If you read all this, thank you! I hope you liked it. Bob Ritter
10 reasons why I am bullish about the stock market. I realize that they are not your traditional points that stock analyst write about, and that I can't provide you with research to back them up, but I think you can appreciate them. Here you go in no particular order:
1. The flip side of weak housing is the best housing affordability index in decades. Heck, there are millions of home owners who aren't paying anything to live in their home because they've defaulted on their mortgages and haven't been evicted yet. If housing consumes a smaller percentage of the consumers' income they have more to spend or invest on other things.
2. Accelerated depreciation on capital investments/purchases is going to kick in three ways: 1) stimulating purchases, 2) those investments impact on business productivity and profitability, 3) as the full expense is written off in 2011 and 2012 the write-off is used up meaning the effects on EBITA are going to be more pronounced in 2013, thus compounding reported profit estimates for 2013 and adding to forward PE estimates.
3. Coming off years of low interest rates and presently more favorable debt markets for commercial lending has provided a large window for business to restructure debt at lower carrying costs. Many firms have used their cash to retire debt and/or to buy back their stock. All these moves translate into hirer EPS, and greater valuation.
4. The attitude of organized labor has shifted from combative to parterning. In addition, years of high unemployment has given the vast majority of workers a much better appreciation for their employers and higher motivation to help their firm to succeed. This win-win mentality is under estimated in terms of prodctivity, innovation, and competitiveness, especially against our European competitors! Furthermore, unemployment fuels entrepreneurship both as a catalyst and as an "agent of capitalism."
5. While the economy has been lackluster to say the least since 2008, the last five years have yielded many advances in science and technology. Developments in virtually every area of science and technology are maturing into practical use and will be applied to great value in the coming years in business, medicine, transportation, communication, defense, logistics, waste management, energy, space and sea exploration, etc. America's strong trade relations with countries like ours that excel in R & D, such as Israel and Singapore will serve us well too. Together we will have better and more innovative solutions for the world's needs and problems. The "next big thing" may not be one thing, rather I think it will be many big things!
6. Energy is coming home and so are the dollars. America is fed up with OPEC and our dependency on energy suppliers from the Middle-East. As we source more of our energy in North America we keep the energy revenues in North America too. The direct and indirect impact on the USA GDP and trade balance will be enormous!
7. Mobile computing, combined with, social networking, the cloud, and e-commerce are going to have a profound effect on everything!! All one has to do is look around to see how the smartphone and tablet have become an extension of human beings. Look around at a restaurant or in a mall and you will see them in everyone's hands! Couples and groups of friends can be sitting with one another while texting or tweeting or posting or checking something at the same time. The speed at which an idea can travel and become a transaction is unlike anything our world has ever known! As information and currency flows more easily and rapidly the velocity and multiplier of money will contribute to our GDP on a grand scale.
Furthermore, because America does "the Internet" so well we have a competitive advantage worldwide in a trend that is freeing up people, nations, and their wallets around the world. I like the idea of the "human network." Plus, a first cousin to e-commerce is shipping, and here again the USA excels in "logistics."
8. Emerging nations have developing economic classes. China, India, countries in South America, and in Africa are all joining the modern world with massive modern needs. The demands they have for transportation, telecommunications, waste management, water and food supply, consumer products and distribution, medicine, and much more is staggering! When you compound growth in these massive countries over years like we have seen and will continue to see you reach levels that will make huge contributions to world GDP and as a result our economy and the profits of USA businesses. You don't even have to be a direct supplier to benefit.
9. Nations and politicians in America and Europe realize that their fiscal spending spree is over and that Debt to GDP ratios have to be brought down. Government leaders (an oxymoron today) would rather increase the denominator (GDP) than just lower the numerator (debt). With their fiscal options limited and the need for higher employment posing a threat of social unrest, let alone to their political future, they know they have to turn to business with pro growth policies. The politicians are starting to realize that the best thing they can do to stimulate growth is to do nothing. In other words, the more government gets out of the way the better. Less regulation, faster approvals, fewer agencies, and lower taxes & fees are as stimulative as anything! Since "getting out of the way" is also less expensive for government it is a win-win for the taxpayer and business. At the same time, central banks are doing their part with extremely accommodative practices! (E.g. Low interest rates, monetary purchases of debt, easy access, etc.)
While the Federal Reserve has been surprised thus far at the lack of traction they have gotten in translating their aggressive monetary policies into economic growth I believe that is about to take a big turn. And I think we could all be surprised at how fast the turn is. I can't help but wonder if the Federal Reserve is thinking the same way with their recent announcement about broadcasting rate changes more frequently in order to give them a means to respond in a more timely way without creating any sense of panic.
10. Last but not least, the pendulum of doubt and despair has a wide swing coming back the other way. The mood in the country and with investors is going on a long arch towards renewed optimism. Couple this the trillions of dollars in bank reserves and more trillions on business balance sheets and we can expect to see a giant wave of consumption and investment when the mood is right, and it is about to be right.
In conclusion, as these ten factors kick in they are self-reinforcing and the business cycle will gain more momentum. When this happens future EPS estimates will be raised upward. When this happens the current 12x multiplier that the market is priced with will be corrected by the market to be closer to the 14x historical average for the market. But, since estimates are being taken higher you have a double reason for a boost to stock prices. That is why I am bullish! If you read all this, thank you! I hope you liked it. Bob Ritter