We’ve been relatively quiet on the blog front over the last week. The good news is that we received funding for a new foundation account and have been busy picking our spots and getting it invested. (It’s a great time to buy, incidentally, if you can afford a long term perspective.) The bad news is that the last of the earnings reports have come out this week and the tone for this batch of companies regarding the outlook has been far poorer than those companies that reported just three weeks ago. The key difference, we believe, is that the companies that reported this week were able to consider just how bad October was in forming their guidance for next quarter and the full year.
While earnings estimates have come down for many companies substantially, investors in stocks should once again consider not simply the fundamental environment but what may already be baked into stock valuations. On this front, the news is a bit better on the whole in that in spite of rising unemployment levels, most of the companies that actually reported earnings have seen their stock prices move up on that same day. For instance, Qualcomm reported today, reducing earnings guidance for next year by 20-25%, but the stock is responding with a 9% upside move.
The election also captured everyone’s attention this week. Frankly, we believe that having it done and over will be a positive for the markets in that we should finally hear less about how bad things are and more about what the new administration will do about it. In the long run, we continue to believe less government is always better, but like it or not, with all of the bailouts, we’ve already become more socialist as a nation than we were only a few months ago. We doubt that the Obama administration will increase taxes in this environment in spite of what was promised, but they may resort to greater fiscal stimulus measures as an alternative. Regardless of what may be, investors and business owners may be motivated to pull income into 2008 by incenting revenues, deferring expenses, or paying special dividends given the possibility of higher taxes in 2009.
On the whole, we are preferring companies with greater domestic than international sales exposure under the theory that the U.S. was the first to enter this downturn and may similarly be the first to exit it. Things are tough out there. The current recession is painful and I’ve met more than my fair share of folks who have recently been laid off or are fearful that they may soon be. If you have a job, consider yourself blessed, but even if you don’t, please know that you are still blessed. As hard as it is to not have work, I also know that it can be a time of tremendous personal growth. Things will likely look alot different when we emerge from this mess, but emerge, we will. History is in the making.
Have a great weekend.
