I'm willing to stand behind these predictions but, as I said last week, I'm not going to get roped into the prognostication game at a time when the market is VERY uncertain.
As I write this (5 a.m., Jan 2 '07) the dollar is being savaged in European trading as the U.S. economy looks weak enough to have bond traders betting on the Fed easing again. I suppose we can blame our old pal housing, but the perceived weakness in our semiconductor industry is, to me, a much darker cloud on our economy.
The transports also make me very nervous as I don't see how they can almost uniformly be forecasting a slowdown without taking other sectors down with them. Is it possible that housing supplies accounted for that much of the transports gains of the past few years? Possibly. I have yet to see a proper study of just what it is these guys aren't shipping.
Certainly Amazon.com Inc. (AMZN) is busy enough shipping things and eBay Inc. (EBAY) is no slouch either. FedEx Corp. (FDX) had pretty solid numbers but they don't handle normal packages as much as United Parcel Service (UPS), who are more of a bellwether for the industry.
I think a 10% increase in gift cards is responsible for much of retail (and transports) worries as people are catching on to the convenience of gift cards, both for the sender and the recipient. I really hated the idea of giving someone icky "cash" as a gift but, now that I've gotten a bunch myself, I realize they are actually nice to get -- way nicer than yet another thing that beeps and flashes -- which is what everyone seems to think I want for a gift for some reason (must be my childlike sense of wonder!).
With $25B worth of gift cards purchased this season, if we assume $50 per average gift, that's 500M items that didn't get shipped for sure. Even if we assume just 25% of those would have gotten shipped for say, $15 each, that's $1.8B less shipping revenues, close to 15% of UPS's quarter. It's also $25B worth of shopping that is pushed into Q1 from Q4, so it will be interesting to see how that plays out.
Wal-Mart Stores Inc. (WMT) had a better December than expected but I think gift cards hurt them the most as it costs me the same $100 to give you a Disney Store or Nordstrom's gift card as it does to give you a Wal-Mart gift card, but I feel like a much bigger spender giving you a card from a more expensive store...
Speaking of gifts -- companies gave each other $1.76 trillion last year (when that second decimal place is $60 Billion, you use it!) in the form of mergers and acquisitions. If this blistering pace continues it's another huge source of fuel for the markets, but that means we're looking for over $150B worth of deals each month -- and who the heck is still undervalued?
As a recommender of corporate purchases I see a very big tech year ahead, as there is a lot of pent-up demand for new computers that has been on hold for 2 years as we wait, and wait, and wait for Vista. We will continue to wait for Service Pack 2 to make real purchases, but the IT guys will have at it as soon as we can get them in, and we should get the green light to start buying by the end of this quarter.
Of course, we hope Microsoft Corp. (MSFT) does better with Vista than they have with Zune -- here's a picture that's worth 1,000 words, a Zune display stand at a Costco in Seattle (MSFT's home field) being used to display what everybody really wants -- iPods!
Thanks to Trader Mike for bringing this one to my attention -- it really does say it all!
The WSJ says we're in pretty good shape in the year ahead. I must say that Europe's housing slump seems to be quickly getting behind them, and if we can maintain a 2.5% growth rate on our $13T economy, that's a very respectable $325B of additional revenues for our U.S. corporations this year -- the trick will be figuring out who gets what!
The chart indicates that growth will be better than consensus -- because even the mighty WSJ can mislead you sometimes! Notice first that NO ONE predicts a decline -- that's good. But there are 5 out of 50 economists that are more than 50% off the median to the downside while there are none that far to the upside.
So the figure you are getting from the Journal, 2.3%, give equal weight to the 7 economists who predict 1.5% (half of 2006) growth or lower as they do the 35 economists whose predictions are within 20% of the consensus. This is flawed logic! Also in this digital age I would think I could mouse over each of those squares and get the actual prediction and be able to find out who said it and what their record is -- but then again, I do like to dig!
Props to the Journal for at least having it somewhere. My digging reveals that our biggest bears are:
- Ian Shepherdson of High Frequency Economics (no idea): 0%
- Susan Sterne of Economic Analysis (???): .8%
- Robert McGee of U.S. Trust Company: 1%
- Paul Ashworth of Capital Economics: 1%
- Peter Hooper and Joeseph LaVorgn of Deutsche Bank: 1.1%
In the bull camp we have:
- Brian S. Wesbury of First Trust Advisors: 3.4%
- Stephen Gallagher of Societe Generale: 3.2%
- John Ryding of Bear Stearns: 3.2%
- Kathleen Camilli of Camilli Economics: 3.1%
- Gene Huang of FedEx: 3%
Frankly, if FedEx says 3% then it's 3% -- they have a lot more riding on being right than the academics do.
After Q1 blew predictions out of the water last year with a 5.6% gain in GDP, expectations were raised a little high for the rest of the year and Q2 (2.6%) and Q3 (2%) were both "disappointments," but I'm looking at this economy outside of housing and accounting for the $700M a day we spend on foreign oil and I'm thinking we are in much better potential shape than these economists think.
This country spends $1.4B every single day on oil -- that's $400M a day more than it would be if oil hits $40 again. Imagine the catalyst of putting just half of that ($50 oil) back into consumer's pockets so that it can be spent in more productive parts of the economy! While I think the markets will do well regardless, I think that an easing of oil prices would do more to bring the global economy to new levels than any amount of Fed tinkering ever could.
Since we already know that $70 oil doesn't really hurt us and that $50 oil will help us tremendously, I maintain a sunny outlook for 2007, and I maintain my Dow 15,000 (18 month) outlook, but I would be much more comfortable if we had a healthy correction first -- otherwise it will be a real wall of worry that we will have to climb in 2007.
Hoping you have a happy and healthy 2007!
Read all of Phil Davis's articles on Seeking Alpha