Earnings Quality Is from Cost Cutting, Not Revenue Generation

Excerpts from Dr. Enzio von Pfeil's July 31, 2009, appearance on CNBC CNBC Worldwide Exchange:

1. US markets wrap for the week - what do you think about earnings quality?

• I am concerned that the earnings quality is of second line nature: it’s mainly about cost-cutting, not about revenue generation.
• This suggests that unemployment has to keep rising. Indeed, our Chinese doctor just visited L.A. and spoke of “tent cities” in her public parks. Tents are inhabited by those unable to pay their mortgages.
• This has to lead to social unrest in America.

2. What is your take on China, are you bullish/bearish? IPO fever hits town.

• Yes, and when IPO fever hits, so do the bears: supply starts exceeding demand.
• Indeed, the recent tumble off the back of tighter money supply news vindicates my view.

3. What will the recovery look like? Are markets priced in for a V-shaped or a long bitter road?

• L-shaped, at best. Rising unemployment has yet to hit that biggest chunk of GDP growth, private consumption.
• Currently, the only areas showing growth are government expenditure and inventories. But these are not healthy growth drivers.

4. What are your portfolio calls at this juncture?

• Cash is king.
• So are short-dated bonds.
• Also, high yielding consumer staples stocks are of interest.

Comments

[conceptwizard:]

Agree wholeheartedy. Earnings are a sham sales have not increased for the most part.

Jul 30 08:22 PM

[Toto-13:]

Great article

Aug 09 07:27 PM