Free Annual Reports
Has Chicken Little Lost His Clout?
Non-farm payrolls declined by 80,000 in March according to the Employment Situation report released on Friday, April 4. This is the third consecutive decline. At present, the first quarter of 2008 has shed 232,000 jobs from the economy. Sounds like bad news doesn't it? Well, it is.
Mainstream media took a huge cue from the report and "recession" was the word of the day Friday and all weekend too. However, the market didn't sell off on Friday, and at last glance, it was gaining ground on Monday. If the mainstream media has finally caught on, odds are the trend is starting to turn.
Second Quarter Recovery?
It's no secret that the U.S. economy is in trouble. Gross domestic product growth declined to 0.6% in the fourth quarter 2007. For the full year, GDP clocked in at 2.2%, the lowest growth rate since 2002. Here's the rub: Most economists believe GDP growth of 2.0-2.5% for advanced economies is healthy. For 2008, the International Monetary Fund (IMF) expects U.S. GDP to clock in at 1.5%, though it could be lower. (To read about the underlying theories behind GDP and the health of the economy, see The Importance Of Inflation And GDP.)
It still sounds bad, but the economy could begin to recover in the second quarter of 2008, partially boosted by strong exports from the devalued dollar.
The Real Subprime World
What's more, the dollar could actually turn up, as the European Central Bank (ECB) attempts to slow the euro, which is trading at highs. Present economic weakness isn't just a U.S. issue, it's a global problem. And within the Euro Zone growth is slowing. In fact, the IMF expects GDP to come in at 1.6%, right about where the U.S. is expected to land.
But the euro is trading at all time highs and Euro Zone inflation is scaring the pants off the ECB. A stronger dollar would be a huge benefit to the Euro Zone right now. The ECB doesn't want to lower rates during the meeting on Wednesday, because if it does, inflation could become even more of a problem. But if you think we're in trouble, the ECB is worse. Growth is slowing, even while the euro is at highs. And, subprime issues could begin to surface in Euro Zone countries in the second and third quarter. It won't be as big as the U.S. debacle, but even a whiff could hit the Euro Zone hard.
Subprime is like MTV's show "The Real World". It just keeps moving locations, and the longer it runs, the more belligerent it seems. In late April and May we will probably get to see "Real Subprime World - London". The British version will likely be followed up with "Real Subprime World - Europe" this summer. (For further information, read How Will The Subprime Mess Impact You?)
Even if the dollar does begin to rebound, it would take a while before any gains would slow U.S. exports. The dollar has almost been cut in half since hitting a high against the euro in November of 2001.
What it Means to Wall Street
Any trader worth his salt knows Wall Street has a real problem being "in the moment." In reality, Wall Street prefers to be six to nine months in the future. And that's exactly why Friday's non-farm payrolls report failed to smoke the market. Savvy traders were already anticipating the news, which really could have been the "hump". Things could get slightly worse, especially with the sky-high oil wild card, but investors also need to remember that the 13-year uptrend in the Dow Jones Industrial Average is still intact, despite the market dip in 2008.
Comeback Kids
Right now, investors may want to start looking for some of the "comeback kids" within the Dow Jones Industrial Average. American Express (NYSE:AXP), for example, got the "beat-down" in the first quarter, that is for sure. The stock is presently trading at $46, way off the high of $65.73 in the summer of 2007. I'm going to go out on a huge limb and say, "American Express isn't going out of business anytime soon". I know, it's a gutsy thing to say, but hey, I'm a gutsy kind of guy.
Seriously though, American Express is a great company that's always going to make money. Why wouldn't you want to own the stock of a company with $31 billion in revenue and $15 billion in cash, especially when you can get it at a 30% discount from the high last year? (To learn to spot a winner, see The Essentials Of Cash Flow.)
Other comeback kids in the Dow Jones Industrial Average investors may want to look at include: AIG International (NYSE:AIG), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), 3M (NYSE:MMM) and Proctor & Gamble (NYSE:PG).
Bottom Line
Investors with common sense are already buying stocks, knowing that even if the market dips a little lower, the third and fourth quarters of 2008 could really spell "Payday". Short-sighted investors, on the other hand, are undoubtedly whining about the recession at hand. Really though, it is an opportunity.
All of the companies mentioned above are rock solid, yet they've been pulled down with the rest of the market. Investors may not get a chance to buy them this cheap again.
For further reading, check out Battered Stocks That Bounce Back.
Mainstream media took a huge cue from the report and "recession" was the word of the day Friday and all weekend too. However, the market didn't sell off on Friday, and at last glance, it was gaining ground on Monday. If the mainstream media has finally caught on, odds are the trend is starting to turn.
Second Quarter Recovery?
It's no secret that the U.S. economy is in trouble. Gross domestic product growth declined to 0.6% in the fourth quarter 2007. For the full year, GDP clocked in at 2.2%, the lowest growth rate since 2002. Here's the rub: Most economists believe GDP growth of 2.0-2.5% for advanced economies is healthy. For 2008, the International Monetary Fund (IMF) expects U.S. GDP to clock in at 1.5%, though it could be lower. (To read about the underlying theories behind GDP and the health of the economy, see The Importance Of Inflation And GDP.)
It still sounds bad, but the economy could begin to recover in the second quarter of 2008, partially boosted by strong exports from the devalued dollar.
The Real Subprime World
What's more, the dollar could actually turn up, as the European Central Bank (ECB) attempts to slow the euro, which is trading at highs. Present economic weakness isn't just a U.S. issue, it's a global problem. And within the Euro Zone growth is slowing. In fact, the IMF expects GDP to come in at 1.6%, right about where the U.S. is expected to land.
But the euro is trading at all time highs and Euro Zone inflation is scaring the pants off the ECB. A stronger dollar would be a huge benefit to the Euro Zone right now. The ECB doesn't want to lower rates during the meeting on Wednesday, because if it does, inflation could become even more of a problem. But if you think we're in trouble, the ECB is worse. Growth is slowing, even while the euro is at highs. And, subprime issues could begin to surface in Euro Zone countries in the second and third quarter. It won't be as big as the U.S. debacle, but even a whiff could hit the Euro Zone hard.
Subprime is like MTV's show "The Real World". It just keeps moving locations, and the longer it runs, the more belligerent it seems. In late April and May we will probably get to see "Real Subprime World - London". The British version will likely be followed up with "Real Subprime World - Europe" this summer. (For further information, read How Will The Subprime Mess Impact You?)
What it Means to Wall Street
Any trader worth his salt knows Wall Street has a real problem being "in the moment." In reality, Wall Street prefers to be six to nine months in the future. And that's exactly why Friday's non-farm payrolls report failed to smoke the market. Savvy traders were already anticipating the news, which really could have been the "hump". Things could get slightly worse, especially with the sky-high oil wild card, but investors also need to remember that the 13-year uptrend in the Dow Jones Industrial Average is still intact, despite the market dip in 2008.
Comeback Kids
Right now, investors may want to start looking for some of the "comeback kids" within the Dow Jones Industrial Average. American Express (NYSE:AXP), for example, got the "beat-down" in the first quarter, that is for sure. The stock is presently trading at $46, way off the high of $65.73 in the summer of 2007. I'm going to go out on a huge limb and say, "American Express isn't going out of business anytime soon". I know, it's a gutsy thing to say, but hey, I'm a gutsy kind of guy.
Seriously though, American Express is a great company that's always going to make money. Why wouldn't you want to own the stock of a company with $31 billion in revenue and $15 billion in cash, especially when you can get it at a 30% discount from the high last year? (To learn to spot a winner, see The Essentials Of Cash Flow.)
Other comeback kids in the Dow Jones Industrial Average investors may want to look at include: AIG International (NYSE:AIG), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), 3M (NYSE:MMM) and Proctor & Gamble (NYSE:PG).
Bottom Line
Investors with common sense are already buying stocks, knowing that even if the market dips a little lower, the third and fourth quarters of 2008 could really spell "Payday". Short-sighted investors, on the other hand, are undoubtedly whining about the recession at hand. Really though, it is an opportunity.
All of the companies mentioned above are rock solid, yet they've been pulled down with the rest of the market. Investors may not get a chance to buy them this cheap again.
For further reading, check out Battered Stocks That Bounce Back.
by
Mark Whistler
Mark Whistler is the author of the book "Trading Pairs", published by John Wiley & Sons in 2004, and he is one of two creators of PairsTrader.com. Mark's new book, "Trade With Passion and Purpose: Spiritual, Psychological and Philosophical Keys to Becoming a Top Trader" is available at Amazon.com. Mark's trading specialty is statistical arbitrage, although he writes and conducts research for the Oxford Club and Mt. Vernon Options Club. Some of his other writing credentials include The Motley Fool, Active Trader Magazine, BullMarket.com, OptionInvestor.com and Working-Money online.
Free Annual Reports
