|September 16, 2009|
Can 20% carry us?
David Rosenberg, chief investment strategist at Gluskin Sheff, says that 80% of the global growth we have seen this year is from government stimulus money.
And while it might appear to be working – the market is up and some economies are growing – it's bad news long term. Growth cannot be sustained on a handout. That money will disappear at some point. And it will likely take any real growth with it.
And if his estimate is correct, it means the private sector is responsible for only 20% of the growth. That leaves a lot of slack once the stimulus runs out. And besides, says Rosenberg, "Governments do not create income or wealth."
Every dollar in stimulus today is another dollar added to your future tax liability.
The picture is the same across the globe…
There seems to be an idea that the jobs we lose here end up overseas in some dirty factory. But job losses are not only affecting Americans.
In India, over half the workers in the diamond industry have lost their jobs in the global recession. These aren't high-paying jobs, but it affects their local economies as much as job losses here affect ours.
So how does the global economy continue to grow once the stimulus money is gone?
"It's not clear that these economies can continue to move forward without stimulus," said Mark Zandi, chief economist for Moody's Economy.com. "And that's in part why stock markets across the globe are nervous."
But even if economies struggle after the stimulus money is gone, there will still be companies making substantial profits. These are companies that dominate global industries and do not rely on a single home economy. To learn more about these powerhouses, click here.
If you expected your kid to get an "F" in math class and he came home with a "D", would you celebrate? Of course not. It's only slightly better than outright failure.
But over and over again, the media and the investment world celebrate when companies "beat expectations", even when those companies post a substantial loss. Quite honestly, over the course of the recession the term has come to mean "not as shitty as expected".
And companies have not really been beating their earnings estimates…
Here's how it works. Let's assume that three months ago, analysts expected Acme Widget to post earnings of $1.00 per share. Then the number dropped to $0.95. Then it was revised again. And finally – right before earnings – analysts expect Acme to post $0.85 a share.
When the company announces earnings-per-share of $0.90, the media reports that they "beat expectations". And more often than not, the stock shoots up.
Horse dung! The company announced earnings $0.10 below where they were originally expected.
An honest report would go something like this:
"Acme Widget is struggling this quarter, and has no idea how much their earnings-per-share will be. They are hoping if the bar is set low enough, they can trip over it."
So how are companies really doing? Corporate revenues are down 25% year-over-year. That compares to negative 10% during the worst part of the 2001 - 2002 bear market.
The mainstream financial media isn't looking out for your best interests. CNBC (which is owned by GE) and the like are nothing more than cheerleaders in business suits. They answer to their corporate parents and their advertisers on Wall Street.
And last we heard, companies succeed by posting profits, not by clearing an arbitrary number set by investment analysts.
That's why we're taking a stand…
As much as we can help it, you won't be hearing "analyst expectations" in the pages of Investor's Daily Edge. If companies are doing well and posting growing profits, we'll let you know. And if sales and profits are falling, we'll point that out… no matter how poorly analysts "expected" them to perform.
And it won't stop there. We're making an effort to remove all clichés from our publications and marketing. We'll discuss positive news. But no more "green shoots." And we'll tell you about our winners. But no promises of "massive gains" or "huge profits."
The list will grow over time. And if you have any suggestions, we want to know. Any phrases or clichés you're sick and tired of hearing? Let us know: firstname.lastname@example.org
Speaking of our winners…
We are very proud of the results our in-house options expert, Ted Peroulakis, has achieved in the markets this year. Before we switched to the new format for IDE, Ted recommended 24 stocks in the pages of IDE. 22 of those positions have increased in value, and most by double digits.
But Ted's best ideas go to his subscribers. And subscribers of Options Power Trader have been making out very well. This week, we received several letters from subscribers, including this from TS:
In just the last two months, Ted has closed out five triple digit winners, including gains as high as 124%. If you're interested in learning more about Options Power Trader, and profiting whether the market goes up or down, click here.
And finally, a note from the mailbag…
"Bob Irish is correct regarding his advice to "go against the herd."
"People are making a mistake thinking that the downturn is over and that they can now reinvest. Too late!! The real money in this dead cat bounce has already been made. Now, the herd decides its time to invest again, totally ignoring the fact that the US economy is still shrinking (GDP) and the horrible deficits run up by an idiot Congress and two administrations. Inflation is here to stay, perhaps hyperinflation if Congress and the Administration continue to refuse to get a handle on things. And, lest we forget, the real estate markets. Translation – this is not a good time to put money into the stock market. But, people will put money in and get their collective clocks cleaned once again. An old saying from PT Barnum comes to mind…"
We're certainly not advising our readers to dive in at this point. But neither do we advise you to sell. The market is showing remarkable strength in the face of horrible fundamentals. But the market can remain irrational for a lot longer than common sense would dictate.
That is why our advice is to let your winners run. Tighten up your trailing stops and let the market tell you when it's time to get out. If you're buying now, use this opportunity to upgrade your portfolio to the highest quality names.
And don't fear the coming correction. Follow your stops to preserve capital. And be prepared to buy when values present themselves again.
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