Well, already it looks like the Browns are going to be in a world of hurt this season. After Brady Quinn had a dismal showing during the first half of their rout by the Ravens this week, my wife joined me outside to help cut down and prepare our gardens for the approaching winter. As we chopped, piled and moved the garden waste to our backwoods brush pile, we heard Anderson enter the second half of the game from our outdoor speakers ( Nasdaq 5000consumption)and proceed to throw three interceptions in relatively quick order.
Browns fans, like my wife, are undoubtedly wondering what’s going on and are probably already thinking what prospects might look like for the draft this spring. The only redeeming thought is that the Steelers aren’t fairing much better at 1-2, even though the records are hardly worth comparing.
As for the market? All hope is not lost. Yes, we have pulled back a tad, but six months hence as I sit on my porch watching the draft, I suspect that the action in the markets and economy will look far better than this year’s Browns season.
Why am I so bullish? Three reasons.
First I believe that earnings will be substantially higher in the coming two quarters as gains on the cost front are matched by improvements in revenue and the dramatic, dual natured impact that might have on profit margins. If we are correct, employment levels, while not outstanding, should improve measurably. Profits generated in this dual natured manner should lead companies to start hiring again. We are already seeing improvements on the temporary hire front today, as manufacturing production ramps up to offset abnormally low inventory levels.
So, the second reason to be bullish is on the economics front. Another way to frame this debate is took look at it from the bear’s perspective. Bears repeatedly state their case on the notion that employment looks so bad. But, if this measure does begin to improve over the next six months for reasons that I outlined above, the thesis behind the bear case may very well go into hibernation. Six months hence, we suspect that the view from the macro lens may be far less cloudy!!
Finally, there remains Fed policy. It would be very unusual for the Fed to raise rates and take back stimulus in the face of high or rising unemployment. Nearly unprecedented, in fact, from my understanding of history. But, if my scenario pans out, the Fed may be, six months out, ready to pull back at least marginally so. The greater the confidence in the employment outlook, the more confident the Fed may be in taking back what they so quickly provided. Bears, no doubt, may double down on their bets with Fed policy as their new stake in the ground. I would only point out, however, that the Fed’s moves often lead their economic impact by twelve to eighteen months. (It took that long for their stimulus to point us in the right direction finally last March.) A change in official policy stance could in fact be viewed favorably, as a sign of “official” economic stability. Twelve or eighteen months hence on my porch? I’m willing to wait and see what the weather will bring. (Right now it’s raining.)
As a final note, sentiment measures of both investors and chief financial officers continues to be guarded and cautious. I don’t view this negatively at all. It means both investors and corporate officers alike will more likely base their investments decisions from the realm of prudence rather than the go-go invest in anything now mentality that accompanied Nasdaq 5000, housing 2004, and private equity extravaganza 2007. Prudent planning 101 is the philosophy that drives a market in recovery and allows bull markets to climb the wall of worry.
So, while my wife and the legions of Browns fans across the country may already be throwing in the towel on this year’s season, I believe the excitement may just keep rolling for the economy and stock market at large.
Six months out, there may be a tear in my beer for the Browns, but a little bubbly in my glass for the economy. (For the record, I still prefer beer – especially Cleveland’s Great Lakes Dortmunder Gold.) Blackberry out, from my porch, in the here and now.
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