Why bother investing for the long-term, eh?
Honey, I over-cooked the Earth.
(Source: The Economist)
According to the Federal Reserve’s Beige Book, the US economy is still growing but the pace has definitely eased up:
The Beige Book is published two weeks before policy makers meet on interest rates.
The survey underscored the Fed’s view that the recovery, while still moving forward, is progressing at a slower pace than earlier in the year. Fed Chairman Ben S. Bernanke said July 21 “the economic outlook remains unusually uncertain.”
U.S. gross domestic product growth slowed to 2.5 percent in the second quarter, versus 2.7 percent in the previous three months, according to the median estimate in a Bloomberg survey before the government reports the figure on July 30.
Orders for durable goods declined 1 percent last month, after a revised 0.8 percent slide in May, a Commerce Department report showed today. The median forecast in a Bloomberg survey was for a 1 percent increase.
Pretty much every recovery ever includes a moderating phase after the initial bounceback, but this one has come sooner than many had hoped for.
But with inflation still so low, I see now reason to panic – interest rates aren’t going anywhere, and the rest of the world is still growing, too.
(Source: Business Week)
Well, they would wouldn’t they? The way companies have cut back on staff to return to profitability has surprised hordes of US pundits. They should read some Karl Marx:
Profits at a price
Profits may be above recessionary levels, but sales turnover isn’t. What companies have done is squeezed more out of their remaining workers, by increasing hours worked and overtime, as well as by using technology and other methods to boost productivity.
It’s why US productivity has been seeing record gains. Firms will only begin hiring as a last resort – even in hyper-flexible US economy – when they fear they are losing sales and/or market share by being understaffed.
(Source: Business Insider)
Bouncy Englishmen's castles
I must admit that living in London, I tend to forget the house price crash isn’t quite over in the rest of the country. Prices have been coming back everywhere though:
House prices in England and Wales are now at similar levels to those seen in the summer of 2006, according to the Land Registry.
However, property values crept up by just 0.1% from May to June, taking the average cost of a house to £166,072.
Prices were 8.4% higher than a year ago – the eighth consecutive month that there has been a year-on-year rise.
(Source: BBC)
Better or worse than expected? Almost impossible to judge when the sums are so large, which might be why the shares are currently unmoved today, despite BP’s huge charge and the sending of its CEO Tony Hayward to Siberia. Analysts are surely dazed and confused.
The reason for the loss is of course a huge charge for the Gulf spill:
BP announced today that it has taken a pre-tax charge of $32.2 billion for the Gulf of Mexico oil spill, including the $20 billion escrow compensation fund previously announced.
The company will also tell analysts later today that it plans to sell assets for up to $30 billion over the next 18 months, primarily in the upstream business, and selected on the basis that they are worth more to other companies than to BP. This portfolio high grading will leave the company with a smaller but higher quality Exploration & Production business.
Meanwhile BP continues to access new business opportunities, with new agreements in Azerbaijan, Egypt, China and Indonesia announced since the end of the first quarter.
The company said it was taking a prudent approach to managing the balance sheet and its financial liquidity, in order to ensure that BP has the flexibility to meet all of its future financial obligations. As a result it plans to reduce its net debt level down to a range of $10-$15 billion within the next 18 months, compared to net debt of $23 billion at the end of June. Group capital spending for 2010 and 2011 will be about $18 billion a year, in line with previous forecasts.
(Read more: BBC)
If you’re going to fall on your sword, it’s best if it’s gilt-edged.
Just ask departing BP boss Tony Hayward, who is in line for the sort of payout that would have most of us running into the nearest fencing shop to get the job done ASAP.
According to Robert Peston:
Tony Hayward will be able to draw a pension of around £600,000 a year from the moment he leaves the company on October 1, I have learned.
This is his contractual entitlement under the company’s pension scheme. The rules of the scheme say that those who joined it before April 6 2006 can take the pension at any point from age 50: Mr Hayward is 53.
However the pension entitlement is bound to be hugely controversial.
Mr Hayward’s pension pot had a transfer value on 31 December 2009 of £10.8m, and he had accrued a pension of £584,000 a year. The pension pot will be worth more than that by the time of his departure.
I happen to think that BP has done a reasonable job in the wake of the disaster, as I wrote when I prematurely considered BP shares good value at 435p. With the leak sealed, they’re finally inching back towards that. (Thanks Tony, for sparing my blushes!)
What’s more, I think Hayward’s main crime was to be British. They think he has a posh lar-dee-dah voice in the US, whereas to a British ear he just sounds like a geology lecturer from Warwick University.
True, he’s committed a few PR gaffs, but on a stage this big, who wouldn’t? And what do we care about – the problem being fixed or a clumsy word along the way?
Nevertheless I find it hard to stomach that any retiring employee should find themselves with a £600,000 a year pension. I have a convoluted theory for why it might not be quite as poor an outcome as it appears, but there still seems something morally suspect about it.
If it’s an entrepreneur who built his or her own business, that feels different.
Am I suffering from muddled thinking?
(Source: Peston/BBC)
How do you read this graph?
Spikey stuff.
According to Business Insider:
The state of U.S. household net worth is dismal, as this chart (via The Big Picture) shows, with the country falling back to levels last seen in the late 1980s and early 1990s.
This collapse happened once prior, after the deflation of the dot com bubble. But now, as a result of the housing bubble collapsing, household net worth has fallen even lower.
The rebound after the dot com collapse was dramatic. The rise from 2009 lows has been less pronounced, with it clearly slowing in 2010.
We are only back to levels first reached in the early 1990s.
But remember, this is net worth as a relative measure – it’s versus disposable income. One might imagine this would be a constant, as indeed it seems to have been for decades.
To me it’s the Dotcom boom and the follow-up US property bubble that look wrong. Today’s reading looks like a return to the mean.
America did just fine from 1958 to the late 1990s. I’m sure it will do well again.
(Source: Business Insider)
While I am pretty bullish and think the banking system is now fundamentally sound – a combination that makes people drop their forks in open-mouthed amazement at a certain kind of dinner party – even I’ll admit the EU banking stress tests weren’t exactly testing the banks against Armageddon:
An important caveat is that the chance of another extreme lurch downwards in GDP so quickly after the last is negligible.
In fact, perhaps it could only be brought about by a banking panic inspired by a too-severe stress test! (They’re nothing if not realists in Brussels).
Besides, the main point of the stress tests was to flush data out of the banks and into the market. Now you – or your team of back office quants – can run your own stress test and reach your own conclusions.
(Source: Business Insider)
Here’s a chart some gold bugs produced that shows how gold and US equities have performed over the arbitrary period selected (1968 to 2010):
According to the bugs, the fact that over this period gold rose twice shows it’s a sound and valuable asset class:
The folks at MF Mine Fund argue that Altucher cherry picked a period that coincided with the peak of the previous boom, and as such they’ve put together this chart, breaking the time since 1968 down to three periods. As you can see, only in the middle one do equities out perform. The norm over the last 40+ years is for gold to outperform.
Altogether now: Hmmm.
(Source: Business Insider)
Apologies for the lack of posting recently. I am still shaking off my grim back complaint, combined with busyness with work, combined with the inevitable six-months blues of writing regularly for a blog that nobody reads yet (apart from your good self and a few dozen others, of course!)
While Stock TIckle waxes and wanes the economy keeps on recovering. And what will be hard to remember in years to come is just how against the prevailing ‘wisdom’ this expansion has been.
I’m not saying it will necessarily go on for years, but I can tell you it will go on longer than 90% of commentators predicted – because it already has – and also that it wasn’t rocket science to expect a bounceback with interest rates at barely-there percent, and hundreds of billions pumped into the economy via QE and other special measures.
This week we’ve seen:
- The UK economy growing by 1.1% in the second quarter – twice as fast as economists forecast.
- Flash PMIs from the Eurozone showing manufacturing and services both growing far faster than expected.
- German Business Confidence surge to highest level since July 2007, as measured by the IFO institute.
- Great earnings results from the likes of Caterpillar, Apple, Intel and Microsoft.
When I wrote that Britain is booming on Monevator early in 2010, I took a flyer, pretty much against consensus.
Now annualised UK GDP growth is running at over 4%, I am wondering why more people don’t read Stock Tickle, which has been noting this positive data for months!
Sure, there remain headwinds. I don’t expect many surprises from the European bank stress tests this afternoon. But US unemployment really does need to peak soon or the fear is going to become a self-fulfilling prophecy. In the UK, fiscal austerity will take something off future growth, although what remains to be seen.
We’ve also the unfinished business of a housing crash here, too.
For what it’s worth, the Q2 2010 GDP number seems like such a result, it’s hard not to believe there’s some degree of distortion in the data. But even if it is subsequently revised down, it will be to more like 0.8%, not to the pathetically weak 0.2% or what have you that most commentators and UK investors seem to be expecting.
Going forward, I think the global recovery will continue to hold. For now the motto must be thank goodness for Asia and the BRICS, but eventually the major developed economies should pick up the ropes, too.
The ongoing fear factor means we remain vulnerable to big shocks, while ongoing bank deleveraging means growth will regardless be slower than it might have been a decade ago. But I’m betting there will be growth.
Like everyone, I’m just offering an opinion. But UK GDP did just come in at 1.1%…
I’ll be wrong about this eventually – I’m wrong all the time, like everyone – but at least it will be my opinion, not just the same opinion everyone else is offering, seemingly copied from each other!
