Tuesday, August 4, 2009

And so Swings the Pendulum

I am really glad that we, as human beings, seem ready and willing most of the time to take the optimistic point of view on things. That ‘half-full glass’. But sometimes it comes at the expense of a greater outcome.

It is true that we are ALL tired of hearing the relentless negative news on so many economic and market fronts, that a little good news is having a magnified effect. So much so that in the past two weeks our current positive economic and market outlook is swinging the pendulum too far the other way.

The street estimates for the 3rd quarter real GDP in the United States is now 'upped' to a +2.5 to 3.0% range. This from -5.4% in Q1 2009? But the bigger question is: has this been a one-time, manufactured GDP “push” at the expense of future performance as opposed to there being any real permanent change in the trend?

Car Sales Splurge: The U.S. "Cash for Clunkers" $1 billion program that ran out of money in barely more than a week and it looks like we will see another $2 billion added to this ‘spendthrift program’ – this is now being debated in the Senate.

Inventory withdrawal and replacement and Business spending no longer contracts.

Housing, for the first time in three years, does not contract and shows some healthy blips.

Companies low-balling earnings expectations. Of the S&P 500 index, 337 or 74% of the companies have reported and most have exceeded analyst expectations compared with 17% who have missed. If the quarter ends up this way, that 74% will be a record.

What about valuations? The S&P 500 is trading at 16.5x calendar year 2009 earnings estimates, not ‘cheap’ by historical standards.






Saverio Manzo

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