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Better than it looks?

page: 1

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posted on Apr, 29 2009 @ 09:31 PM

Here's a great article from the Economist.

I have been banging the table for some time now that the market is valuing stocks at a "trailing" PE of 20, which is expesinsive - so we'd better start to see some "E" very soon.

"IT WOULD be tempting to use America’s grim first-quarter GDP figures, released on Wednesday April 29th, to squelch talk of green shoots in the global economy. In fact, the figures contain flickers of hope, as well as one looming threat in the form of a massive slump in business investment.

The economy shrank at a 6.1% annual rate in the first quarter, the third quarterly decline. That outcome is worse than economists had expected and it brings the cumulative drop since mid 2007 to 3.3% (not annualised). That already exceeds the worst downturns of the post-war period in 1973-75 and 1981-82. There was a sharper decline in 1957 but it was mercifully brief.

The magnitude of the first quarter contraction was similar to that of the fourth quarter, but the composition was less discouraging. Nearly half of it was because of businesses slashing production in order to bring inventories in line with shrunken sales. The process, although perhaps not yet complete, is well advanced. Businesses may soon have production levels where they want them, assuming sales to customers do not fall further.

Another source of the shrinkage was a surprising reduction in national defence spending. Such outlays depend far more on the vagaries of Pentagon purchasing than the state of the business cycle and say very little about the strength of the underlying economy. More worrying was a drop in state and local spending, but that too may soften as federal dollars flow from the recently enacted $787 billion stimulus package."


More at the link - J


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