Hi Jay:
Thanks for your thoughtful comments.
The scenario that I have been advocating here on BB&R since late last year is now unfolding quite rapidly, so perhaps this would be a good time for me to summarize my point of view.
1) The dot com and telecomm mania led to a wicked bust (surprise) in the technology sector of the US economy which resulted in huge losses for those non-asset allocators who were fully invested in high tech.
2) This bust was part cause of, part coincident with, a severe cyclical downturn in the manufacturing sector.
3) While perhaps 1) and 2) should have led to a severe recession, they didn't, for the following reason. THE BABY BOOM GENERATION, NOW APPROACHING THE PEAK OF ITS SPENDING POWER, IS SUCH AN OVERWHELMING ECONOMIC FORCE IN THE US AND (to a lesser extent) IN EUROPE THAT THE SHOULD-HAVE-BEEN SEVERE RECESSION NEVER HAPPENED (unless of course you work in telecomm or high tech).
4) Because of 3), the service and construction sectors, a very major part of the total economy, have not missed a beat.
5) While tech. is only beginning to show the first glimmers of recovery, manufacturing is now well on its way back.
6) The sharp recession in manufacturing has been the cause of a steep jump in productivity as manufacturers continue to find ways to do more with less (people).
7) 6) plus the China/India factor will keep a lid on inflation for the foreseeable future.
8) Which will mean - surprise - interest rates will stay low for the foreseeable future, returning us to the best possible environment for equities - high growth, high productivity, low interest rates - in short order.
9) Corporate earnings, starting now, will surprise to the upside, because of: kitchen sink write-offs; increases in demand; improved operating leverage resulting from lower fixed costs.
10) The high P/Es that the doomsters have been wailing about will drop precipitously as earnings improve sharply.
11) 1) through 10) will become conventional wisdom by the end of this year.
12) Investors will focus on forward P/Es and decide that US equities are cheap.
13) Gold's fifteen minutes of fame will be over by 4Q, 2002.
The evidence for this scenario is everywhere, if you know what to look for. Here's an example from a typical mid-size widget business:
siliconinvestor.com
Worthington Posts Jump in Earnings
Jun 19 9:27am ET
COLUMBUS, Ohio (Reuters) - Metals processor Worthington Industries Inc. on Wednesday said quarterly earnings rose 85 percent from a year ago, on improved demand for processed steel and propane cylinders.
The company, which is based in Columbus, Ohio, said it earned $26.8 million, or 31 cents a share, during the fourth quarter, ended May 31. That compared with earnings of $14.4 million, or 17 cents a share, in the year-earlier quarter. Revenue rose to $519.3 million from $465.8 million (demand increase).
The results topped Wall Street estimates of 21 cents for the quarter, according to earnings tracker Thomson First Call.
"This quarter's results were especially encouraging," said Chief Executive and Chairman John McConnell. "Operating income was up significantly (operating leverage) in all three of our primary business segments."
For all of fiscal 2002, Worthington posted net earnings of $6.5 million, or 8 cents per share, compared with $35.6 million, or 42 cents per diluted share, in fiscal 2001.
Full-year net results included the pretax impact of a $64.6 million plant consolidation charge and a $21.2 million reserve for the impairment of assets (last year's kitchen sink write-offs), both announced earlier in the year.
Excluding charges, earnings for fiscal 2002 were $61.0 million compared with $39.7 million for fiscal 2001, an increase of 54 percent (in other words, if you have enough brains to know what you're reading, fiscal 2003 earnings, which will not include 2002's write-offs and will be compared to fiscal 2002 results which did include write-offs, will be a f*cking barn-burner).
Worthington shares closed at $14.77 in Tuesday trading on the New York Stock Exchange and have traded in a 52-week range of $16.30 and $9.90. |
