gdp (24)

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Are Corporate Profits Sustainable?

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This in followup to my post on Corporate share repurchase programs and my thought that they have increased of late in an effort to boost EPS. 

Please consider this view on Corproate profit sustainability from Califia Beach Pundit:

The fact that corporate profits have tended to track nominal GDP over time is not unusual, but the degree to which profits have outperformed nominal GDP in recent years is exceptional. I've argued for a long time that the market looks at the first chart above and sees a compelling case for corporate profits to revert to their long-term mean (just above 6% of nominal GDP). That would of course imply either a huge decline in profits in the next few years, or an extended period of flat profits, and that helps explain why the market is reluctant to embrace equities.

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U.S. Private Sector De-leveraging; Where Are We?

You know those moments.......when you were at a family function or out for a few cocktails with friends when someone brought up the topic of the economy or stock market.  Those conversations were fairly easy to side step  and ensure you'd still be on speaking terms tomorrow.  The last five years, however it's an entirely new ballgame and avoidance is not becoming any easier.  I think the basic problem for the general public (and many small investors) is that they expected a snap back in jobs in 2-3 years, as is normal after a recession.  The problem isn't the current administration.  The problem is that we didn't simply experience a recession.  We experienced a global financial crisis which is a horse of an entirely different color.  

You really can't blame them for not understanding the difference between the two.  Most haven't been alive long enough or have knowledge of economic history to realize the ramifications.  According to a White House Crisis and Recovery in the World Economy

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Lately I've heard a lot of people sounding off about the possibility of a double dip recession. Among the most cited statisitics is present GDP growth slowing compared to the end of last year. Yet I had not seen one ounce of empirical data on GDP growth coming out of the most recent recessions regardless whether it proved or disproved slowed growth as an indicator of a double dip recession. Below you will find a chart of the last three recessions including the most recent. The chart was taken from the St. Louis Federal Reserve website.

As you can see it is common for growth to slow, even signifcantly, after the accelerated growth from the bottom of the trough of a recession.

While I will not argue that there are headwinds hindering the economy. Housing still is in the dumps, China may be slowing, and the dreaded Euro-credit-crap could all sink the ship in a worst case scenario. However the slowed domestic GDP growth is in no way indicative of a double dip recession if the two prev

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Random market thoughts

While running a simple screen for Cheap Growth stocks, I had something unusual happen. There was not a single stock that met the criteria. That's right, zero, zilch, nada. The screen only had three criteria; a PEG ratio of .75 or lower, a debt to equity ratio of .8 or lower, and an expected growth rate of 25% for the next 5 years. Only two possible conclusions can be drawn from this. Conclusion A, growth stocks are way over valued at this time. Conlusion B, analyst estimates for earnings growth are still very bearish, too bearish in fact.

My past experience with this screen leads to me too conclusion B. I started using this screen six months prior to the beginning of the bear market. At that time, there was no shortage of cheap growers. In fact I had to add a market cap component to reduce the number of possible candidates. Since the screen depends heavily on analyst earnings estimates and considering the events that occurred half a year later, I would conclude that analysts were too

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