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t's been exactly a year since the government kicked a smoldering financial crisis into a roaring blaze by letting Lehman Brothers (LEHMQ, news, msgs) collapse. Observers this week are memorializing the mistake, but investors need to look forward -- and what they should see is that the government's later reaction to its error may have actually laid the groundwork for the greatest bull market of the decade.
What are the 30 companies of the Dow?
What are the 30 companies of the Dow?
For while it seems unlikely and irrational in the context of all the lousy economic news you see right now, stocks are well on their way to recovering from the Lehman jolt and ambling with all deliberate speed toward all-time highs. And they don't really care if you believe it or not.
Dow 14,000? Maybe not next week. But in three years? Not a problem.
The signs are abundant, if you know where to look: in the corporate credit markets, in employment trends, in consumer credit trends, in government statements and in corporate revenue trends. You don't need to be a statistician or an insider to see them, but you do need to keep an open mind to see why the 30 goliaths of the Dow Jones Industrial Average ($INDU), companies such as Caterpillar (CAT, news, msgs), Intel (INTC, news, msgs), Bank of America (BAC, news, msgs) and Boeing (BA, news, msgs), could see their stocks rise 15% a year for three years.
Here's what I'm seeing just in the news of the past three weeks and what I think needs to happen next.
Good news, but big money's still bearish
First, sentiment -- a big determinant of what an investor is willing to pay for a company's earnings power -- is still really lousy. Forget all the yadda, yadda, yadda about the number of bullish private investors hitting the highest level in bovine history. Those mom-and-pop surveys are useless because the respondents have little money at stake. The fact is that the majority of the world's largest hedge funds are still bearish and believe stocks are set for a big fall. And if those guys are as wrong now as they were in being bullish last year, as I believe they are, then when they capitulate in the face of a steadily rising market you will witness one of the largest short squeezes in history. Trust me on this: Big money does not mean smart money.
Here's how I know they're negative: Goldman Sachs Group (GS, news, msgs) hosted a dinner Wednesday at the swanky restaurant Aquavit in New York for the heads of 15 large hedge funds to exchange ideas on strategy. I was told by a source that all but one declared stocks very overvalued after their recent 50% sprint. And the key reason expressed was that corporate revenue trends were weak and would undermine the surprising earnings gains reported in the second quarter due to head-count reductions.
Markman on video: Still too many market skeptics
Someone should buy those guys subscriptions to The Wall Street Journal, because company after company these days is announcing upside to its revenue and earnings forecast. Intel and Dell (DELL, news, msgs) shocked pessimists last week. And on the same day as the Aquavit meeting, Texas Instruments (TXN, news, msgs) raised its third-quarter earnings outlook to as much as 41 cents per share on revenue of as much as $2.87 billion, versus its previous forecasts of 39 cents and $2.5 billion. Then on Thursday, ASML (ASML, news, msgs), a big Dutch semiconductor equipment maker, lifted its sales forecast for the third and fourth quarters by more than 50 million euros because its second-half outlook for consumer goods has shot higher. "Expectations are turning positive," said a spokesman.
This is a big contrast to the news that started the ball rolling downhill for technology and the stock market nine years ago. On Sept. 22, 2000, Intel shocked investors by warning that its third-quarter revenue would fail to meet expectations because of weaker demand for its chips in Europe. Shares fell 20% the next day from their perch at an all-time high near $70; tech stocks have not been the same since. After falling for nine years on bad news that shriveled its price-to-earnings multiple, why can't Intel now rise for nine years as its price-to-earnings multiple expands on good news?
Continued: Biggest economies unanimous on stimulus
Biggest economies unanimous on stimulus
Second, let me direct you to the most important development on the global policy stage in recent months: a meeting last weekend in London of the finance ministers and central bankers of the 20 largest economies in the world. In statements to the media afterward, the G-20 policymakers said they remain united in their commitment to the application of fiscal stimuli, loan guarantees and low interest rates until business is back to normal.
That's the kind of seemingly boring news most investors fly right past. But pay attention: This was a historic moment.
The bill for governments' efforts to rebuild the global financial system so far is nearly $10 trillion, and yet none is backing away or even wavering. In past decades, all of these countries have fought like cats and dogs for the right to pursue their own independent approaches. It's very unusual to have the United Kingdom, France, Germany, Japan, China, Russia and the United States on the same page.
Anatole Kaletsky of The Times of London, the dean of European financial columnists, marveled that every G-20 government and bank has fully participated in the conversion from fatalism ("It's not our fault; blame Wall Street") to proactive, Keynesian-style demand management. Even though the effort was hatched by advisers to President Barack Obama and British Prime Minister Gordon Brown in private meetings, no rival leaders have expressed any interest in reversing the stimulus policies before a self-sustaining global recovery is clearly established.Reading between the lines of the G-20 statements, it's clear that bankers will not raise rates for at least another year and possibly not until well into 2011. Even the ones with the most hawkish reputations, such as Jean-Claude Trichet, the European Central Bank's president, expressed commitment to this ultraexpansionary monetary policy to allow fiscal policy to work.
Stock markets around the world rose on the news Monday, but the deeper meaning was not grasped by most investors: A regime of near-zero interest rates in the developed world won't be a short-term blip but instead will persist until the job of righting the global economy is complete.
Low rates combined with loan guarantees and continued government spending are just what the doctor ordered. Deployed prudently over time, they should usher in the sort of business confidence that will lead to a strong expansion of credit to consumers and companies, increases in factory lines, growth in employment and the repair of family and corporate balance sheets.
Right now, 65% of companies are still in the process of cutting jobs, according to industry data. The U.S. adult male unemployment rate has expanded to 10%, as male-centric jobs in construction and manufacturing are slashed while sectors traditionally dominated by women, including education and health care, remain less affected. Manufacturing employment, which is stabilizing, is at its lowest level since April 1941.
As bad as that sounds, there's a silver lining. Whenever anything becomes the worst ever, it's never far from reversing and moving higher. And with jobs that usually happens explosively, not slowly, as companies figure out that they've cut too many positions in a panic. ISI Group analysts expect payroll employment to reverse its path of losses and turn positive as soon as next April.
The loose money will certainly create dangerous asset-price bubbles down the road, but that is something to worry about another day. For now, governments are ensuring companies have the credit they need to get people back to work so they can rev up the ol' borrowing-and-spending machine again. If it works, we could have a real boom on our hands.
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My heart goes out to all of those people who have lost work. But the good news is that people are very adaptable. I lost a job in the 1982 recession as a 20-something, so I know how it feels: terrible. But I also know that Americans always find ways to prove the pessimists wrong.
People leave dead-end jobs in middle management and create businesses at which they thrive; they then hire more people, and pretty soon you have a robust recovery. It will happen. Microsoft (MSFT, news, msgs) was formed in 1975 after what was then the worst post-World War II recession. Dell was founded in 1984, just as the country was emerging from the early 1980s recession. Amazon.com (AMZN, news, msgs) was founded in 1994, the worst recession year of the 1990s. (Microsoft is the publisher of MSN Money.)
A new openness in the credit markets
Lastly, and perhaps most importantly, I want you to pay attention to all the merger proposals that have been announced lately. They have pushed up the target companies' prices, as well as those of their peers. Buyout premiums are just another way stocks rise.
These are not all cash deals; there is a lot of debt involved. This could not have happened a year ago, because the credit markets were shut down in the wake of the Lehman Brothers collapse. With confidence in the recovery rising, the spigots for debt issuance have been thrown wide open.
Bond issuance this month, which normally starts off slowly and picks up steam, started with a bang Tuesday and Wednesday with back-to-back days of $10 billion in new debt. According to credit analyst Brian Reynolds of boutique investment bank WJB Capital, companies are able to issue more bonds than they expected and pay much less than they expected, so they are ending up with excess capital.
Markman on video: Still too many market skeptics
And what do you think they are doing with that money besides proposing buyouts? They are going back to their old tricks of buying back stock, which is a tricky way of boosting earnings per share without actually selling more stuff. Combine buyouts with buybacks and new hiring, and once again you have the recipe for an extraordinary boom in asset prices.
Forecasting 15% annual growth for three years from a very low level for 30 of America's finest companies is not much of a stretch. If you want just five, Procter & Gamble (PG, news, msgs), Intel, United Technologies (UTX, news, msgs), Travelers (TRV, news, msgs), Bank of America and Cisco Systems (CSCO, news, msgs) are all beaten down and should do well in the coming environment.
The fine print
Aquavit is a great place for Scandinavian food if you're in the mood. . . . Learn all about the Dow Jones Industrial Average here. . . . I'm sad to report that Tom Thong, whom I described in my column about the recession in April, was shot to death last week, allegedly by his son; police say the younger man was suffering from a drug-related hallucination. Here's a Seattle P-I story on the killing. . . . T |
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狗仔卡
发表于 2009-9-16 07:09 PM
提升卡
置顶卡
沉默卡
喧嚣卡
变色卡
发表于 2009-9-16 07:14 PM
