3 Reasons the Market Is Headed Upward [View article]
I like your Chinese stock picks but disagree with macro global thesis, believing the sovereign debt crisis is working around the periphery and moving towards the center of the advanced economies. France, Britain and the US are all vulnerable and last week Japan expressed doubts about its ability to continue with its debt burden which is largely financed internally.
Secondly, it is clear US economic growth is slowing with latest reading on the ECRI consistent with growth of around 1% which likely reflects the conclusion of the global inventory rebuild and the natural effects with winding down stimulus that cannot be continued indefinitely. Profits projected for 2010 may not materialize and those for subsequent years are certain to be revised lower.
The 2009 earnings recovery came from heavy cost-cutting and clever, but dangerous, financial engineering. The financial sector now accounts for 28% of U.S. corporate profits, more than ever before. From a different perspective, financials contributed 85% of the overall year-over year profit increase in 2009 and there are some analysts suggesting that financial reform along with writedowns could dramatically slow bank earnings in 2010.
"According to CreditSights, banks' earnings reports could be a bug heading for a windshield. CreditSights reports that Bank of America, JP Morgan and Wells Fargo may have to set aside an additional $30 billion to cover possible losses. CreditSights previous prediction of major write downs in 2007 proved right on the mark."
Beneath murky balance sheets, financial engineering and favorable accounting changes, one wonders how banks can report profits amidst such news:
- Foreclosure rates soared 51.1% year-over-year to 3.31%.
- There are 7.9 million on-current first-lien mortgage and REO properties.
- 1.1 million loans that were still current in January 2010 are now delinquent.
3 Reasons the Market Is Headed Upward [View article]
Secondly, it is clear US economic growth is slowing with latest reading on the ECRI consistent with growth of around 1% which likely reflects the conclusion of the global inventory rebuild and the natural effects with winding down stimulus that cannot be continued indefinitely. Profits projected for 2010 may not materialize and those for subsequent years are certain to be revised lower.
The 2009 earnings recovery came from heavy cost-cutting and clever, but dangerous, financial engineering. The financial sector now accounts for 28% of U.S. corporate profits, more than ever before. From a different perspective, financials contributed 85% of the overall year-over year profit increase in 2009 and there are some analysts suggesting that financial reform along with writedowns could dramatically slow bank earnings in 2010.
"According to CreditSights, banks' earnings reports could be a bug heading for a windshield. CreditSights reports that Bank of America, JP Morgan and Wells Fargo may have to set aside an additional $30 billion to cover possible losses. CreditSights previous prediction of major write downs in 2007 proved right on the mark."
Beneath murky balance sheets, financial engineering and favorable accounting changes, one wonders how banks can report profits amidst such news:
- Foreclosure rates soared 51.1% year-over-year to 3.31%.
- There are 7.9 million on-current first-lien mortgage and REO properties.
- 1.1 million loans that were still current in January 2010 are now delinquent.