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Wealth Matters: Forecasters Find the More Pessimistic View Is the Fashion

October 7, 2011 by Leave a Comment

But I’ll give them this: in terms of macroeconomic events, this has not been an easy year to predict, starting with the earthquake in Japan and the revolutions in the Middle East. There has also been the continuing failure of European politicians to come up with a workable solution to Greece’s debt problem and, in August, Standard Poor’s downgrade of the United States credit rating.

Perhaps not surprisingly, the group this time around was unwilling to venture a guess on that staple of all market predictions: where the Standard Poor’s 500-stock index will end the year. The best I could muster from anyone was “higher” than it is now.

The group has been consistently off the mark on economic growth, lowering their expectations each quarter. Predictions of 3 to 4 percent growth in January have given way to predictions this time of half that, or less.

So given the year so far, it is remarkable that many of this group’s predictions have held true, for good and bad. Here is an assessment of the group’s calls to date and some tepid predictions on what the last quarter will bring.

GOOD CALLS The good calls have been the conservative ones.

Bill Stone, the chief investment strategist at PNC Wealth Management, has championed dividend-paying stocks all year and continues to do so. What has changed is his reason for recommending them.

At the beginning of the year, Mr. Stone said he backed these stocks because he believed that money would move from bonds into stocks and that dividend-paying ones would benefit first. As other people turned against stocks over the summer, he said that companies paying a dividend had the cash reserves to continue to pay or increase them — evidence that they were well-run.

Now, like other strategists, Mr. Stone sees dividend-paying stocks as unique survivors and one of the few securities that offer income. The average dividend yield on the S.. P 500, 2.22 percent, is now higher than the 2.08 percent yield on 10-year Treasuries for the first time since the 1950s.

“We’re sticking with the call, but when it won’t work is when we get a strong snapback,” Mr. Stone said. “When the market decides it’s not so concerned about the double-dip recession, it will drive the other stocks higher more quickly.”

The other stock picker who has stuck to his recommendations with good results is Niall J. Gannon, director of wealth management at the Gannon Group at Morgan Stanley Smith Barney. His big call at the beginning of the year was on stocks of companies that derive a substantial proportion of their revenue from outside the United States. One of his favorites is Nike, which is up 3.78 percent this year.

He said these were the only companies that were insulated from country-specific economic shocks. People may be buying fewer bottles of Coca-Cola in Greece, but they may be buying more in Brazil.

Of course, being right is not always something to gloat about. Richard Madigan, chief investment officer for J. P. Morgan’s Global Access Portfolios, has been right about something he wishes he had gotten wrong: unemployment in the United States. He predicted it would stay between 9 and 10 percent all year. While he was briefly wrong when the unemployment rate dipped to 8.9 percent in March, he is right again, and he does not like the implications of being correct.

“For markets, it’s going to be a much more aggressive campaign cycle into next year,” he said. “The political rhetoric will distract markets. It’ll be noise with a lot of policy uncertainty.”

With this bleak outlook, he is encouraging clients to stop thinking in calendar years. Trying to make up for the losses of the last two months could land people in worse straits.

CHANGED CALLS If there is one area that did not turn out as this group imagined, it was debt.

Richard Cookson, chief investment officer at Citi Private Bank, was the most brutally honest member of the group. A week before our call, he issued a report to the firm’s clients conceding that he had gotten one of his calls on long-duration bonds wrong. He titled it “Gross Miscalculation.”

Now, instead of those government bonds, he is recommending investors shift to long-dated corporate bonds.

Article source: http://feeds.nytimes.com/click.phdo?i=e6752bef2038ca926502d9f6037d148c

Filed Under: Business News Tagged With: , ,

Durable Goods Orders Drop

July 27, 2011 by Leave a Comment

WASHINGTON — Orders for long-lasting manufactured goods fell in June and a gauge of business spending plans slipped, reports showed on Wednesday, supporting views that the economy would not emerge quickly from its current soft patch.

The Commerce Department said durable goods orders dropped 2.1 percent in June, weighed down by weak receipts for transportation equipment, after a 1.9 percent increase in May.

Excluding transportation, orders edged up 0.1 percent after gaining 0.7 percent in May. Economists had expected overall orders to rise 0.3 percent.

“It is indicative of the lingering effects of this soft patch that we’ve had here recently, where businesses remain very cautious with regard to building any kind of stocks in anticipation of increasing final sales,” said Mark D. Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

United States Treasury security prices pared earlier losses on the data, while the dollar extended losses against the yen.

Durable goods — from toasters to aircraft — are items that are meant to last three years or more, and they are seen as a leading indicator of manufacturing. Though orders tend to be volatile, the unexpected decline in June could add to fears of a slowdown in factory activity.

Manufacturing has been the bright spot in the economy, which has faltered since the start of the year.

Orders last month were pulled down by an 8.5 percent drop in orders for transportation equipment. That reflected a 28.9 percent plunge in aircraft orders.

Motor vehicle orders dropped 1.4 percent in June as manufacturers continued to deal with disruptions to production following the earthquake in Japan. Motor vehicle orders rose 0.3 percent in May.

Outside of transportation, orders for machinery fell 2.3 percent, while those for primary metals rose 1.0 percent. Capital goods orders fell 4.1 percent, while computers and electronic products edged up.

Nonmilitary capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.4 percent last month, and the May figure was revised upward, to 1.7 percent.

Economists had expected a 0.8 percent gain in June from a previously reported 1.6 percent increase in May.

Article source: http://feeds.nytimes.com/click.phdo?i=4e8dcd27e7e36bd0391184b5fc17540e

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A Weak Consumer Weighed on Growth in the First Quarter

May 27, 2011 by Leave a Comment

The economy grew at an annual 1.8 percent rate in the first three months of this year, the Commerce Department said on Thursday, unchanged from an earlier estimate and weaker than most forecasts.

A separate report from the Labor Department showed the number of Americans claiming unemployment benefits unexpectedly rose last week by 10,000, to 424,000.

Some of the slowdown in growth was linked to bad weather in early 2011 and an 11.7 percent decline in defense spending.

Economists were cautious about forecasting a rebound in the second quarter, citing the rise in jobless claims and a moderation in factory output, which has been hit by disruptions to supply chains after the March earthquake in Japan.

“The second-quarter rebound is likely to be muted,” said Nigel Gault, chief United States economist at IHS Global Insight in Lexington, Mass.

The economy expanded at a 3.1 percent rate in the October-December period. Economists had expected the first-quarter pace to be revised up to 2.1 percent.

The economy has expanded for seven straight quarters, but growth has been tepid by historical standards, leaving both the Obama administration and opposition Republicans scrambling for ideas to put it on a faster track.

Consumer spending, which accounts for more than two-thirds of the nation’s economic activity, expanded at a 2.2 percent rate in the first three months of this year, slower than the previously reported 2.7 percent.

After rising at a 4 percent clip in the fourth quarter, spending in the first quarter was slowed by high food and gasoline prices, which pushed inflation to its fastest pace in two and a half years.

The personal consumption expenditures price index rose at an unrevised 3.8 percent rate in the first quarter. That compared with the fourth quarter’s 1.7 percent increase. The core index, which is closely watched by the Federal Reserve, advanced at a 1.4 percent rate, the quickest rate since the fourth quarter of 2009.

Fed officials would like to see this measure close to 2 percent. The lower rate suggests that the central bank will be in no hurry to raise interest rates once it concludes its $600 billion, government bond-buying program in June, analysts said.

“This may put off the day where the Fed starts normalizing interest rates until even further down the road,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ in New York. “The Fed is going to want to see G.D.P. above 3 percent certainly before taking their foot off the gas.”

Although consumer spending pulled back in the first quarter, economists hope a recent drop in gas and food prices will ease the pressure on household budgets.

The soft consumer spending overshadowed a $52.2 billion increase in business inventories, which was well above the initially reported $43.8 billion rise.

But a decline in vehicle production so far in this quarter because of shortages of parts from Japan could cause a drawdown in inventories and weigh on growth in the April-June period.

Motor vehicle output added 1.28 percentage points to first-quarter G.D.P.

The G.D.P. report also showed after-tax corporate profit fell at a rate of 0.9 percent in the first-quarter after rising at a 3.3 percent pace in the fourth quarter.

The drop in profit, the first since the fourth quarter of 2008, likely reflected a slowdown in productivity growth as businesses stepped up hiring. Economists had expected corporate profit to grow at a 2.3 percent pace.

Article source: http://feeds.nytimes.com/click.phdo?i=2d3b8a334d595c01e06cc24e04a2289d

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German Business Confidence, While Still High, Slides a Bit

March 26, 2011 by Leave a Comment

The Ifo Business Climate Index, considered a reliable predictor of growth in the German economy, the largest in Europe, fell to 111.1 from 111.3, the first decline since May 2010. A reading above 100 indicates that the majority of the 7,000 businesses surveyed rate their current situation and expectations for the future as positive.

“On the whole, firms in Germany remain very confident,” Hans-Werner Sinn, president of the Ifo Institute for Economic Research at the University of Munich, said in the report. “The business-cycle traffic lights still signal ‘green.’ ”

The index was higher than expected and, along with data showing an increase in lending to European business, was not likely to dissuade the European Central Bank from raising the benchmark interest rate next month in a bid to pre-empt inflation.

However, analysts at Barclays Capital noted that the Ifo index showed a decline in expectations for the future even as businesses remained pleased with the current situation. That could be a sign that businesses were worried about the effect of turmoil in the Middle East and North Africa on energy prices, as well as what effect the aftermath of the earthquake in Japan could have on supplies of Japanese-made products like auto parts. About half of the responses to the survey came after the earthquake.

“The marked decline in the expectation balance provides a first warning signal that business sentiment might be more strongly affected in the coming months if these adverse developments were sustained for much longer,” Barclays analysts said in a note.

The emergency at the Fukushima nuclear power plants could also add to nervousness among German exporters.

“The Ifo business climate is clearly in boom territory,” Jörg Krämer, the Commerzbank chief economist, said in a note. But he added, “The risks for the forecast are higher than usual. Should the situation in Fukushima escalate, against expectation, and put Tokyo at risk, this would then also affect Western economies.”

If businesses turn pessimistic, they may be less willing to invest in expansion and to hire more workers. Their reluctance would then cause overall growth in Germany to slow, a problem for all of Europe. Germany has been towing the rest of the Continent through economic turbulence caused by debt problems in Greece, Portugal and Ireland.

In a separate report Friday, the European Central Bank said that lending to business, not including banks and other financial institutions, rose 0.6 percent in February from a year earlier. That is a modest increase and indicates that inflationary pressures in Europe are low, analysts said.

Still, most analysts expect the E.C.B. to raise its benchmark interest rate to 1.25 percent from a record low of 1 percent when the bank’s governing council meets April 7.

“We think the E.C.B. will take comfort from today’s Ifo release,” Jens Sondergaard, an analyst at Nomura, said in a note. “An E.C.B. rate hike in April is likely.”


Article source: http://www.nytimes.com/2011/03/26/business/global/26euecon.html?partner=rss&emc=rss

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