This week Intel, JP Morgan, CSX and UPS all reported earnings in excess of analysts’ expectations, and this is in addition to the last week’s good news when various retailers (i.e., Macy’s, GAP, Target) reported sales gains.
The real positive is that companies across various industries – technology, finance, transportation and consumer services are seeing a rebound. A broad based rebound is exactly what this economy needs, and the stock market is responding quite positively to the news.
In addition, I particularly liked reading that a representative with CSX (a railroad company) stated that the company sees “gradual and steady growth” in the economy, and UPS noting that it cited strong growth in overseas shipments. There must be economic activity taking place: otherwise, there would be no need for shipping.
As Zach Pandl, an economist with Nomura Securities, noted “consumers are coming out of their shells despite a very weak labor market. They have “emerged from the financial crisis with fewer scars than we had feared.” Mr. Pandl’s comments are supported by news that Clorox, Kimberly Clark and Colgate (three large, multinational, consumer products companies) are all increasing their annual U.S. advertising spending
Adding to this positive news was the Federal Reserve reporting in its survey of regional economic activity that business was getting better in most areas of the country. The report offered a brighter assessment of the economy than the previous survey in early March. However, Fed Chairman Ben Bernanke did not want too much celebrating regarding the U.S. economy exiting the recession. He noted in his testimony before Congress this week that lawmakers and the White House need to get a plan in place that reduces the U.S.’s record high deficits, and I am in full agreement with him on this.
Even though I continue hear about small businesses struggling, people out of work and losing their homes to foreclosure, it appears that the stock market is on an upward trend. Unfortunately, the positive news regarding the economic rebound being reported on Wall Street is not shared by many on Main Street.
An ever increasing demand overseas
It seems that not a week goes by that I don’t read an article about China’s continued global economic expansion and appetite for natural resources. The following are just a few examples:
China is the second largest buyer of gold in the world, and last year its demand for gold (i.e., jewelry and investment) exceeded what its mines produced. Chinese consumers are also taking a shining to diamonds. In the first quarter of this year, China surpassed the U.S. in purchases of polished diamonds from Antwerp Belgium (a traditional diamond capital). Obviously, you don’t buy jewelry if you feel uncomfortable about your financial future.
In 2009 China became Brazil’s largest trading partner which is a position the U.S. held for more than 50 years.
GM expects annual auto sales in China to top over 3 million by 2015. Separately, Starbucks reported China became its largest market outside the U.S. with over 1,000 stores. Starbucks is carefully planning its China growth, even though the coffee store chain has only scratched the surface.
An article in yesterday’s Wall Street Journal reported that growth was taking place all across Asia (i.e., China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand). I could list numerous other facts about India, Brazil, Russia, and other developing markets. Bottom line, I believe the economic betterment of consumers overseas, especially in developing markets, will increase demand for food, oil, metals and other natural resources in the years to come. As such, natural resource stocks (i.e., oil, natural gas, mining and timber companies) are positioned well for this growth trend.
Along these lines, it was interesting to hear from Intel this week that it saw demand improving in all regions of the world. Overseas growth is not just about oil and precious metals (as previously noted above); it includes computers, TVs, cars, other consumer items and industrial machinery. Overseas growth from consumer demand can be a huge contributor to a more vibrant and stable U.S. economy going forward.
Quotes
“You draw nothing out of the bank of life except what you deposit in it.”
Author Unknown
“Reputation is the bubble which bursts when a man tries to blow it up for himself.”
Emma Carleton, author
“Promises might get you friends, but it is performance that keeps them.”
Owen Feltham, author
“The only thing more painful than learning from experience is not learning from experience.”
Archibald Macleish, poet and writer
Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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