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Jim Kelleher

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  • Real Assets, Part II: Commodities And Super-Cycles [View article]
    Thanks everyone, this is for Jargon1:
    in summer 2012 the entire nation was in drought. This year, "eastern" midwest got relief but "western" midwest got parched through early summer. Now, in time for the wheat crop comes the Colorado rains; while flooding gets media attention, ag benefits are meaningful. National Weather Service for Witchita, Kansas, headlined, "Heavy Rains Deal Fatal Blow to Drought" on 8/16/13. WEAT at $16.10 is below 20-day SMA at $16.50, 50-day at $16.80, and 200-day at $19. I am not anticpating a break in the down trend.
    Sep 13, 2013. 01:45 PM | Likes Like |Link to Comment
  • Far From Spectacular 2Q13 Earnings Not Dampening Stock Enthusiasm [View article]
    Thanks for all comments and thank you AllStreets for your thoughtful question. Let me answer it in two parts:
    part one) detailed explanation for acceleration in growth in the US economy in the second half of 2013:
    while month-over-month data is noisy, annual rate of change in many data points highly encouraging. Core retail spending (ex autos and building-related) strong through mid-year. Autos running at 16 mm SAAR; home sales at 6-year highs; home prices up 12% y/y. According to BEA in 2Q GDP report, Consumer spending on durable goods rebounded sharply (up 6.5%) in 2Q13. Also in 2Q13 GDP report, BEA reports non-residential fixed investment (proxy for cap spending) up 4.6%.
    part two) detailed explanation for earnings growth in 2H13. Besides economic growth cited, main reason is easy comps. In 2Q12, consumers and businesses moved to sidelines ahead of election, tax hikes, and sequester; particularly in 4Q. So in 2012, 50% of full-year EPS was derived in in 1H12 and 50% in 2H12. In 2009-11, only 43% of EPS was derived in 1H. For 2013, we look for 52% of annual EPS to be derived in 2H. That yields 8% y/y growth in 3Q and 12%-ish growth in 4Q13 against very easy comp.
    Aug 6, 2013. 09:46 AM | Likes Like |Link to Comment
  • Emerging Markets Beset By China Softness, Currency Gyrations [View article]
    Thanks for all comments. Crozz and Pankaj123 observe that the article is backward-looking; fair enough - past performance is no guarantee of future results.
    However, the market is not made by the smartest or most foward-thinking people; it is made by the highest number of investors thinking the same thing. Investing is driven more by adaptive expectations (acting based on the past) than by rational expectations (investing based on what would be the best outcome).
    I would also argue that the path forward is often influenced by what's immediately behind us. These past events:
    * dollar strength (from shrinking deficits, rising tax income, and pending QE taper) depresses commodity prices and hurts resource-sensitive emerging economies;
    * emerging economies further hurt by China's re-set and end of commodity super-cycle.
    these past events have caused investors to exit emerging market stocks and ETFs. Given that dollar strengh should carry at least across year-end, and that badly-burned emerging-market investors will not be quick to re-enter, displaced investment dollars are seeking a home. Additionally, given the rout in the bond market, particularly bond funds; and given that asset managers cannot sit idle in cash and lag competition when one large attractive asset class is outperforming, we expect these displaced funds to continue going into US large cap equity. And we think this theme has some legs.
    Jul 19, 2013. 09:47 AM | 1 Like Like |Link to Comment
  • S&P Earnings: Decoupled From GDP Growth And Linked To The Stock Trend [View article]
    thanks for all comments, even from the "agenda" gang.

    you make an excellent point. I cited 2.64% "real" GDP, which comes from our archive, but lets dig deeper. In nominal terms, US GDP in 1980 was $2.77 trillion; GDP in 2012 was $15 trillion. Using my HP12c, I caluculate nominal GDP CAGR of 5.09%. But I also looked at historical rate of inflation, which from 1980-2012 was a huge 3.58%! Backing out inflation from nominal GDP would suggest real GDP growing at just 1.51% on an annual basis. In my article, I used the 2.64% rate, which is in the Argus database, because those numbers are genuine and less "back of the envelope" than the just-described process.
    Let me respond to another sound objection from Tom Armistead: isn't it unfair to use "real" GDP and compare with "nominal" EPS growth? Maybe. But the point is, that is how the market values assets. "Real" EPS growth does not enter the investment decision calculation. Even if we do what the market doesn't do and adjust nominal EPS down to real terms, real EPS growth still runs at a signifncant premium to real GDP growth.
    Jul 11, 2013. 10:18 AM | 1 Like Like |Link to Comment
  • Earnings, Economy, Valuations And Rates All Favor Stocks Over Bonds [View article]
    Thanks for everyone's comments. Per Gregor Mac's and Croupier86's observations, next week I'll discuss S&P sectors, domestic indexes, and foreign bourses.
    Jun 13, 2013. 02:09 PM | Likes Like |Link to Comment