"Establishment Survey: Nonfarm payrolls fell 467,000 in May after an upwardly
revised 322,000 decline in May. The April and May revisions of payroll employment
led to a net increase of 8,000 jobs. The headline number includes a loss 49,000
government jobs related to the 2010 Census.
"The path of economic recovery is not a straight line; ups and downs in hiring
are part and parcel of the expected trajectory of employment. Stepping back
in time, payroll employment showed a firm trend only in 1993 (+2.1 million
jobs) although the 1990-1991 recession ended in March 1991. Payroll jobs declined
in 1991 (-1.106 million) and rose only 338,000 in 1992, reflecting tepid quarterly
gains. After the 2001 recession, hiring gathered momentum only in the fourth
quarter of 2003.
"Therefore, it is important to note that payroll growth occurs well after
a recession has ended. At the present time, the recession has not ended yet
and it follows that it is premature to see significant gains in employment
in the near term. In fact, it is noteworthy that on a quarterly average basis,
payroll employment fell 1.551 million in the second quarter compared with a
loss of 2.065 million jobs in the first quarter of 2009."
"A record 30 of the country's 50 states are expected to have to borrow up
to $17 billion by next year, said Rick McHugh of the National Employment Law
Project, a nonpartisan advocacy group.
"'We are setting the stage for big pressures for states to restrict eligibility
and benefit levels,' McHugh said. 'Those type of restrictive actions undercut
the (Depression-era program's) economic and social stability purposes.'
"The state-run unemployment insurance programs are normally financed with
payroll taxes paid by employers on each worker. But the funds' tax revenues
are falling at the same time as benefit demands are rising.
"Nine million Americans are receiving jobless benefits, triple the number
who got checks at the beginning of the year. Experts predict the number of
recipients will peak sometime this summer as long-term unemployed run out of
benefits, which were recently extended and last for 59 weeks in most cases."
"The outlook about the job market turned pessimistic with a larger percentage
of respondents indicating that it is hard to find jobs in June versus May (44.8
versus 43.9 in May) and a fewer percentage of respondents noting that jobs
are plentiful (4.5 versus 5.8 in May)."
"Personal spending rose 0.3% in May, as households saved most of a 1.4% boost
to income from government social payments and tax cuts (the saving rate rose
to almost 7%). The ability of the equity market to advance hinges importantly
on consumer spending. A modest upturn in spending would provide investors with
greater confidence that the economy will not lapse back into recession in 2010.
"It is always difficult to see how consumers will boost spending when payrolls
are shrinking, especially given the tremendous loss of wealth. However, in
a typical recovery consumers become more upbeat on the outlook and spending
edges higher. This generates increased income and sets off an inventory restocking
phase, which then feeds back into stronger consumer confidence and spending.
With a lag, payrolls begin to expand again.
"The chart compares the current recession with the average of past cycles,
each aligned with the end of the recession. One difference this time is that
real disposable growth income has accelerated before the upturn in consumer
spending. The contraction in wages and salaries has been more than offset by
lower taxes and government transfer payments. This year's tax cut has a greater
chance of being spent than the one-off rebate checks mailed out last year.
The jump in income provides some leeway to increase spending without resorting
to credit cards.
"Bottom line: there are good odds that the equity market will benefit in the
coming months from better news from the consumer sector."
Source: Charlie Rose ,
June 29, 2009.
Bespoke: Equities - a wild ride so far
"And while the S&P 500 is up as a whole, only three of the index's ten
major sectors are positive in 2009. Technology has been the big winner so far
with a gain of 24.08%. Materials is up the second most at 12.28%, and Consumer
Discretionary ranks third at 7.52%. And even though sectors like Industrials
and Financials have been going up for months now, both are still down for the
year. The Industrials sector is down the most at -7.68%, while Financials are
down 4.76%.
"While the year started off horribly for the market, it is heading into July
in a nice uptrend even though it has been floundering for a few weeks now.
While some investors are getting frustrated with the market's inability to
break to new highs, they easily forget how bad things were just a few months
ago. Up 1.78% in '09 with everything that has happened - we'll take it!
Source: Bespoke ,
June 30, 2009.
TimesOnline: Ten top investment tips from Mark Mobius
"Here Dr Mobius draws on his years of experience to offer ten investment tips
to Money Central readers.
1. Keep an eye on value
2. Don't follow the herd
3. Be patient
4. Dripfeed your money into the market
5. Examine your own situation and your appetite for risk
6. Diversify your portfolio
7. Don't listen to your friends or neighbours when it comes to making investment
decisions
8. Don't believe everything you read in newspapers, because things tend to
be exaggerated
9. Go into emerging markets because that is where the growth is
10. Look at countries where populations are relatively young
Source: TimesOnline ,
June 30, 2009.
Gareth Williams (ING): Peak seen in profit warnings
"'As the first half of the year draws to a close, the tally of profit warnings
so far in 2009 stands at 65,' he says.
"'This is less than half of the 142 total recorded in the second half of 2008
and is also lower than the comparable first half figures
for both 2007 and 2008.'
"But the improvement needs to be placed in the context of a number of companies
abandoning profit guidance altogether, as well as greatly reduced expectations.
"'Twelve-month forward earnings forecasts have been cut by around 40% over
the last year.'
"Even so, current warnings trends point to a shorter downturn than in 2001-03,
he says.
"At the rate implied by the first half, the number of warnings in the whole
of 2009 looks set to come in at 138, 35% lower than in 2008 and back to pre-crisis
levels.
"Mr Williams says an analysis of warnings by size reveals that mid-cap stocks
are still suffering, in contrast to an improving picture for large and small
caps. "'We would attribute this to a greater degree of domestic cyclicality
within mid-caps.'
"Profit warnings are addictive, he says. 'Nearly half of the large-cap stocks
warning this year warned last year too.'"
Source: Gareth Williams, ING (via Financial
Times ), June 29, 2009.
Bespoke: Q2 EPS growth expectations are ugly, but getting less ugly
Source: Bespoke ,
June 29, 2009.
Financial Times: Record fundraising buoys banks' earnings
"With two days to go before the end of the quarter and a fortnight before
banks begin reporting results, executives said the strong performance in trading
and underwriting in the first quarter was exceeded in the three months to June.
"The completion of the US government's stress tests set off a flurry of activity
on Wall Street, with financial institutions reaping large fees for helping
rivals raise equity to plug capital shortfalls and repay federal aid.
"Banks and other financial groups raised $89 billion in equity via 92 deals
in the second quarter, the highest number of deals on record and the highest
dollar volume for a year.
"US groups' second-quarter equity issuance of $259 billion was more than three
times the $71.3 billion raised in the first quarter, according to Dealogic.
"A rebound in high-yield bond activity and unusually high margins in fixed
income trading also contributed to what one Wall Street executive called a
'perfect storm for investment banking businesses'.
"The boom in securities' markets has benefited banks such as Goldman Sachs
and Morgan Stanley, whose business models had been called into question at
the turmoil's height due to fears over their ability to fund themselves without
retail deposits."
Source: Francesco Guerrera, Saskia Scholtes and Michael MacKenzie, Financial
Times , June 28, 2009.
Bespoke: Percentage of stocks above 50-day moving averages
Source: Bespoke ,
July 2, 2009.
Richard Russell (Dow Theory Letters): Stock market forming head-and-shoulders
"Remember, and this is crucial, the Obama government is doing everything it
can to create asset inflation. If the Dow breaks down here, I think the market
will be saying that the government has failed and deflation is the winner.
I've said that Bernanke will stay on the inflation path until the bonds say
they must stop their spending. Wait, it may be the Dow that will say, 'You've
failed, and the forces of deflation are stronger than the government's attempt
to inflate'.
"The primary trend of the market remains bearish. The primary trend is more
powerful than the Fed and the Treasury and Congress and the president taken
together."
Source: Richard Russell, Dow Theory
Letters , June 30, 2009.
Richard Russell (Dow Theory Letters): Lowry's statistics behaving bearishly
"Let's look at the actual Lowry's figures:
March 9 - Buying Power Index at 96.
Source: Richard Russell, Dow Theory
Letters , June 29, 2009.
David Fuller (Fullermoney): Equities - probable bumps in the road
"First among the probable bumps is a an extension of the reactions to date,
which have affected all important stock markets recently except for China.
This is likely to be triggered by Wall Street and / or China - by far the two
most important markets in terms of global investor sentiment.
"In some respects, the next reaction or correction by China could be the most
important trigger, even though the USA's stock market capitalisation is still
much larger. The difference is narrowing and China is the ascendant power.
Global investors have poured money into China and other leading emerging markets
in recent months - wisely in my view, but these remain high-beta markets.
"The higher China moves in the short term, and it is currently accelerating,
the sharper the reaction is likely to be. I think we are close to the commencement
of a medium-term correction. Some may wish to sell in anticipation of this
move or on the first downward dynamic shown on the Shanghai Composite Index.
Certainly that would be preferable to selling after a reaction or correction.
"I personally will hold on to my long-term investment positions in China,
provided the mild acceleration to date does not become extreme, because I think
it most unlikely that China will end a bull trend in one sustained, reaction-free
advance. I would regard either a ranging reaction or a sharper correction as
buying opportunity.
"Meanwhile, the Wall Street leash effect, which was positive from early March
into early May, and no worse than neutral subsequently, is in danger of turning
negative once again. This would be signalled by a break beneath the current
narrow range, the first evidence of which would be a close beneath 885 for
the S&P 500 Index.
"Of course there are many other stock markets of interest to all of us but
these are the two which really count in terms of leash effect, thus my focus
on them. A reaction by China combined with a downward break by the S&P
would have an immediate bearish effect on global stock market sentiment. Moreover,
Wall Street would quickly become the bigger concern because whereas China leads
in terms of bullish expectations, the US's economic problems remain shocking.
"Technically, while the Shanghai Composite Index confirmed its bull market
status months ago, the S&P 500 Index has yet to complete a base formation.
Until it does by sustaining a break above 1,000, many investors will understandably
remain nervous.
"The other big bump in the road to recovery is the price of crude oil. This
has probably commenced at least a reaction. However a sustained move above
$75 will introduce a headwind, increasing in strength with each additional
dollar to the upside. It will happen and almost certainly before we have evidence
of a synchronised global economic recovery, which I suspect will be modest
in terms of OECD countries.
"Other bumps will include the next rise in long-dated government bond yields.
Currently these are in retreat and therefore not a near-term concern. Also,
the next decline in the USD, should it gather pace, would weigh on sentiment.
"Last but certainly not least in terms of the medium to longer-term outlook
for stock markets will be monetary policy. Monetary policy tightening will
eventually kill off the current bull market, such as it is. This is not a near-term
risk for the US market or that of any other OECD country. My guess is that
monetary tightening will eventually be led by China, as we saw in the last
bull market cycle. When that occurs, and I expect it to be a leading indicator,
we should plan our exit strategies."
Source: David Fuller, Fullermoney ,
July 2, 2009.
Bloomberg: Emerging markets outlook is "optimistic", Faber says
"'We are living through major changes in the world,' said Faber, the publisher
of the Gloom, Boom and Doom report. Emerging markets such as China are becoming
more significant to the global economy, and 'I don't think this will be reversed',
he said today at an Asian Investor magazine forum in Seoul.
"The MSCI Emerging Markets Index has jumped 35% since the end of March, headed
for a record quarter after inflows from investors surged and stimulus plans
from China to Brazil bolstered confidence. That compares with a 21% increase
in the developed-market MSCI World Index.
"'I agree that emerging markets' fundamentals are improving, as some leading
indicators show,' said Christian Jin, a global-equity fund manager at HI Asset
Management Co. in Seoul, which oversees the equivalent of $7.6 billion in assets.
'The developed nations are still saddled with the problems in their financial
sectors and housing markets caused by subprime.'
"No developed markets rank among this year's 10 best performers out of 89
global indexes, according to data compiled by Bloomberg. Peru and China have
led gains."
Source: Kyung Bok Cho, Bloomberg ,
June 30, 2009.
Bloomberg: Mobius says Russian stocks to "pick up nicely"
"The Russian Micex Index's 13% decline this month is 'just a correction' and
prospects for the market 'remain good', Mobius said at a meeting with investors
and the media during a visit to the Warsaw Stock Exchange today.
"'A new bull market has already started,' said Mobius, who helps oversee about
$24 billion of emerging-market assets as executive chairman of Templeton. 'The
overall trend on commodities is upward.'
"Russia's Micex has rallied 91% since a four-year low on October 24, as investors
returned after oil more than doubled and the nation's currency, the ruble,
recovered from a 19% slide against the dollar last year.
"Mobius expects oil prices to continue rising because of demand from China
and India, and as investors use commodities to hedge against a weakening dollar.
"'The reason why we've been so bullish on commodities is of course this demand-supply
issue and also because commodities are denominated in dollars,' Mobius said."
Source: Pawel Kozlowski, Bloomberg ,
June 29, 2009.
MoneyNews: Rogers - dollar on shaky ground
"He expects to sell US dollars soon and remains enamored with commodities.
"'I have no shorts for one of the first times in my life,' Rogers told Reuters
TV. 'On the other hand I don't see much to buy.'
"The massive fiscal and monetary stimulus around the globe, and the debt burdens
it will create, means trouble ahead for most major currencies, he said.
"Rogers likes the Canadian dollar, one of the 'soundest' currencies, whose
fate is closely tied to commodities.
"'I've got out of my pounds. I will be getting out of my (US) dollars soon,'
Rogers said.
"Commodities are his real favorite.
"'I'd rather be a farmer than a stockbroker for the next couple of years,'
he said. 'No one you went to school with became a farmer ... so we have a shortage
of farmers.'
"Rogers also still favors Asia over competing economies."
"Asked if he still sees the economy in 'shambles', Buffett said, 'I'm afraid
that's true.'"
Source: Dan Weil, MoneyNews ,
June 30, 2009.
Reuters: China requests reserve currency debate at G8
"One G8 source who was involved in the negotiations said China made the request
during preparatory talks about a joint statement to be issued on the second
day of the summit in L'Aquila by the G8 plus the G5 (Brazil, India, China,
Mexico and South Africa) and also Egypt.
"This forum, the so-called 'G14', meets on July 9 to discuss the financial
crisis, trade and climate change and for the first time a G8 summit will also
produce a joint G14 statement.
"A European source with knowledge of preparations for the summit also said
China had raised the subject of a reserve currency debate and that it might
be mentioned during the meeting, though the source added: 'Any country at the
meeting can raise issues they see fit.'
"The debate centres on proposals by some emerging powers that an alternative
should be found to the US dollar as the global reserve currency, to reflect
the shifting balance of power in the globalised economy.
"China's central bank governor said in March the world should consider using
the International Monetary Fund's Special Drawing Rights (SDRs) as a super-sovereign
currency. The SDR is an international reserve asset allocated to IMF members
and its exchange rate is determined by a basket of dollars, euros, sterling
and yen."
Source: Reuters ,
July 1, 2009.
Richard Russell (Dow Theory Letters): Gold is getting interesting
"Does gold have the strength to attack the 1004 resistance level again? That's
what we're going to find out in this fateful month of July. The red arrow points
to the juncture where the 10-week MA bullishly crossed above the 40-week MA."
Source: Richard Russell, Dow Theory
Letters , July 2, 2009.
Bespoke: Baltic Dry Index stuck in a holding pattern
Source: Bespoke ,
June 30, 2009.
Financial Times: Japan past worst of slump, says minister
"The comments by Mr Yosano, who is also minister for economic and fiscal policy,
came just before a quarterly Bank of Japan survey showed that business confidence
had risen for the first time in two and a half years.
"In an interview with the FT, Mr Yosano cited industries such as automaking,
steel and electrical machinery as leading the rebound after an 'unthinkably
bad' first quarter of 2009.
"'Previously, economic conditions were akin to diving head-first off the Eiffel
Tower, but since April indicators for all sectors have shown gradual improvement,'
the finance minister said.
"He said the government was likely to announce an economic growth forecast
of 0.5% or 0.6% for the year from April 2010, compared with an expected 3%
decline for the current fiscal year.
"'This year will be a year Japan must endure. But I'm convinced that next
year there will be positive growth,' he said.
"Optimism about Japan's prospects has been fuelled in recent weeks by rising
industrial output and the end of an export rout, with further cheer offered
on Tuesday by the news that household spending in May was up 0.3% year-on-year.
"However, economists said spending had been supported by the short-term effect
of the government's Y2,000 billion ($20.8 billion) cash handout. Data released
on Tuesday showed unemployment rising to a half-decade high of 5.2%.
"Mr Yosano warned that the recovery could still be hit by 'many kinds' of
possible negative factors, citing in particular uncertainty about whether the
US and Europe had truly resolved the problems in their financial sectors."
Source: Mure Dickie, Financial
Times , June 30, 2009.
James Pressler (Northern Trust): Japan - is the worst truly over?
"The Tankan survey focuses on manufacturers, thus providing an excellent look
into the export sector. Not surprisingly, the headline index has hit all-time
lows of late, but the Q2 reading rose just a touch - to -48 from -58 in Q1
and from +5 in Q2 2008. Not a huge gain in itself, but compared with the economy's
trajectory of late, any good news is appreciated.
"More importantly perhaps, this rise between Q1 and Q2 signals a brief respite
for the manufacturing sector and for the economy in general, even though the
figure came in below the consensus forecast of -43. It appears that this slight
recovery had something to do with companies replenishing some of their inventories
last quarter, perhaps related to fiscal stimulus measures implemented in the
new fiscal year that started in April, and perhaps spurred by some of the talk
about 'the worst is over for the global economy' and 'green shoots of recovery.'
"Whatever the reason, analysts are now forecasting that Japan's Q2 GDP on
a quarter-on-quarter basis grew by 0.4%. And as surprising as that may sound,
we generally agree with the consensus. A reading of -48 still suggests a manufacturing
sector truly in dire straits, but viewed in isolation the difference between
quarters is still +10, and that difference tracks quite nicely with the quarterly
change in GDP.
"Looking past this brief burst of growth, however, we are definitely not as
bullish as Japanese manufacturers. The Tankan's forecast index suggests that
in Q3, business conditions will rise another 20+ points, furthering the gains
already witnessed last quarter, and we just do not see it. Last quarter, economies
across the globe felt the rush of huge fiscal stimulus packages being initiated
and dramatic monetary easing, and they showed up in plenty of indicators. However,
most of the effects were sharp, one-off jolts rather than the resumption of
economic activity, and of late analysts are recognizing that the burst of fiscal
energy is being replaced with a sobering recognition that even if the worst
is over, any type of self-sustaining recovery is still a long way away."
Source: James Pressler, Northern Trust
- Daily Global Commentary , July 1, 2009.
Financial Times: UK economy shrinks most in 50 years
"The figures showed a 2.4% quarter-on-quarter fall in gross domestic product
for the first three months of 2009 - much sharper than the 1.9% initially calculated.
"Not since the time of Harold Macmillan have we 'had it so bad'. It was the
worst quarterly performance since the second quarter of 1958. The 4.9% drop
compared with a year earlier was the largest since records began in 1948.
"Macmillan told Britain in 1957 it had 'never had it so good'. The economy
nosedived the next year. But the 2.7% fall in output in the second quarter
of 1958 was a blip between two periods of rapid growth.
"This year's disastrous start underscores the depth of the current recession,
following three consecutive quarters of shrinking output. Come the election,
Gordon Brown, the prime minister, will struggle to paint as rosy a picture
as Mr Macmillan did.
"Even if the economy recovers in the second quarter to its normal 2.5% annual
growth rate, something economists think is highly unlikely, it is likely to
take until 2011 before output returns to its pre-recession levels.
"More worrying for the Treasury was the sharp downward revision in the cash
value of the economy, since this will depress tax revenues and add to government
borrowing. Nominal GDP fell 3% in the first quarter, even faster than inflation-adjusted
output, because prices had fallen, said the Office for National Statistics.
"'You've never had it so bad' seems the most apt summary of the state of the
UK economy in the first quarter,' said Ross Walker, economist at RBS. 'Although
to some extent this is 'old news', it does serve to emphasise the size of the
hole out of which the UK must climb.'
"Since the end of March, there have been signs the economy is stabilising.
Manufacturing output grew in March and April, while survey data suggest the
economy has returned to growth.
"The National Institute for Economic and Social Research, a respected forecaster,
said it thought the economy began to grow again in April."
Source: Daniel Pimlott, Financial
Times , June 30, 2009.
Nationwide: UK house prices - a significant improvement
"Following five consecutive quarter-on-quarter declines, house prices in Greater
London rose by a seasonally adjusted 4.8% in the second quarter of 2009. This
increase pushed the annual rate of change up from -18.2% in the first three
months of the year to -10.2% in the second quarter.
"Although the fall in employment and incomes in the City of London remains
a headwind for the capital's property market, the substantial fall in the value
of the pound against major currencies does appear to have attracted some significant
interest from foreign buyers, especially in prime locations. A limited supply
of good quality homes also appears to have underpinned prices over the spring
months."
Source: Nationwide ,
June 30, 2009.
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Dr Prieur du Plessisinvestmentpostcards.com
With 25 years' experience in investment research and portfolio management,
Dr Prieur du Plessis is one of the most experienced and well-known investment
professionals in South Africa. More than 1 000 of his articles on investment-related
topics have been published in various regular newspaper, journal and Internet
columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB
(B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and
DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group
of companies, which he founded in 1995. Previously he was general manager:
portfolio management at Sanlam, responsible for the management of investment
portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund
industry and has achieved a number of firsts under Prieur's leadership. These
include the authoritative Plexus Survey, a quarterly analysis of the consistency
of the performance of unit trust management companies, the Plexus Offshore
Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner
of John Mauldin , American author of
the most widely distributed investment newsletter in the world, and also has
an exclusive licensing agreement with California-based Research
Affiliates for managing and distributing its enhanced Fundamental Index™ methodology
in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for
corporate leadership, business acumen and entrepreneurial flair. He was also
profiled in the book South Africa's Leading Managers (2006). Plexus received
the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included
in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter
Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities
include long-distance running, motor cycling and reading. He belongs to the
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