Will they or won't they...hike in July, September...some time this year.
I don't think so. There is no reason to hike. Inflation is low. Growth is subdued. Other countries are cutting their interest rates. Why should the Fed raise rates. The only reason would be if the markets really take off.
Showing posts with label unemployment. Show all posts
Showing posts with label unemployment. Show all posts
Thursday, June 11, 2015
Friday, February 26, 2010
Strategas make some good points
In a piece entitled, "Bar bets for restless financial professionals," Jason Trennert offers several constructive observations.
I think he quite rightly points out that peak earnings this cycle are unlikely to surpass peak earnings from the prior cycle ($91.47). That, despite the fact that we have had a 600% rally in EPS from the pit (GAAP EPS fell 92% top to bottom in the financial crisis), and 2011 estimates are already above the prior peak at $96 EPS (bottom-up estimates are always greater than top down estimates...top down estimates pitch S&P 500 EPS at about $81). The reason is simple and reasonable (but does require buying into a reversion to the mean assumption). "At the peak, Financials accounted for almost 2/3rds of S&P earnings...it is difficult to see another industry that could make up the difference over the next few years." If you believe that we were in an earnings bubble brought on by an oversized Financial sector that also helped leverage Industrial earnings, then it is hard to believe, given the reversal of that trend, that we will be quickly surpassing those bloated earnings. [the only industries with sufficient size and operating leverage to do so would be Energy and Materials combined in a cyclical climax - which would likely weigh upon other sectors). The takeaway from this observation and the concomitant current expectation is that the market is likely to be disappointed.
A second point he makes is that he thinks it unlikely the US savings rate will eclipse 8% this decade. The main reason posited is a "subpar expansion and structurally high unemployment." An unemployed, tapped out consumer makes for someone just trying to hang on, rather than someone with the breathing room to squirrel away savings. And to support his contention, he points to the savings experience during the recession. He is also implicitly disavowing the potential for the current crisis to bring on "a true culture of austerity."
I think he quite rightly points out that peak earnings this cycle are unlikely to surpass peak earnings from the prior cycle ($91.47). That, despite the fact that we have had a 600% rally in EPS from the pit (GAAP EPS fell 92% top to bottom in the financial crisis), and 2011 estimates are already above the prior peak at $96 EPS (bottom-up estimates are always greater than top down estimates...top down estimates pitch S&P 500 EPS at about $81). The reason is simple and reasonable (but does require buying into a reversion to the mean assumption). "At the peak, Financials accounted for almost 2/3rds of S&P earnings...it is difficult to see another industry that could make up the difference over the next few years." If you believe that we were in an earnings bubble brought on by an oversized Financial sector that also helped leverage Industrial earnings, then it is hard to believe, given the reversal of that trend, that we will be quickly surpassing those bloated earnings. [the only industries with sufficient size and operating leverage to do so would be Energy and Materials combined in a cyclical climax - which would likely weigh upon other sectors). The takeaway from this observation and the concomitant current expectation is that the market is likely to be disappointed.
A second point he makes is that he thinks it unlikely the US savings rate will eclipse 8% this decade. The main reason posited is a "subpar expansion and structurally high unemployment." An unemployed, tapped out consumer makes for someone just trying to hang on, rather than someone with the breathing room to squirrel away savings. And to support his contention, he points to the savings experience during the recession. He is also implicitly disavowing the potential for the current crisis to bring on "a true culture of austerity."
Monday, May 11, 2009
Talk About Muddle Through
John Mauldin was an early and vocal proponent of a "muddle through" economy.
He made a point in his recent newsletter regarding unemployment which I haven't heard spoken about too much and which I think is true - with important implications. He said,
"But we are permanently destroying jobs in this recession, all up and down the food chain and in numerous industries. There will be fewer cars made, for a long time. Less demand for financial service jobs. Housing construction will be a long time recovering, well into 2011 or 2012."
Not only do I think he is right, ie. that there are numerous industries in the US that have been significantly changed, but it also brings up the question of where will the new jobs will come from? What industries/sectors will lead us out of recession? What will be the positive catalysts? (govt spending!). If our last recovery was characterized as a jobless recovery, what is going to make this one different? The most startling revelation is that it implies a longer and deeper recession than what the consensus is currently factoring.
He made a point in his recent newsletter regarding unemployment which I haven't heard spoken about too much and which I think is true - with important implications. He said,
"But we are permanently destroying jobs in this recession, all up and down the food chain and in numerous industries. There will be fewer cars made, for a long time. Less demand for financial service jobs. Housing construction will be a long time recovering, well into 2011 or 2012."
Not only do I think he is right, ie. that there are numerous industries in the US that have been significantly changed, but it also brings up the question of where will the new jobs will come from? What industries/sectors will lead us out of recession? What will be the positive catalysts? (govt spending!). If our last recovery was characterized as a jobless recovery, what is going to make this one different? The most startling revelation is that it implies a longer and deeper recession than what the consensus is currently factoring.
Subscribe to:
Posts (Atom)