Yellowstone Partners Blog

Wells Capital Economist Jim Paulsen has been making some interesting comments about where he sees potential for GDP growth in coming years: the U.S. trade balance.

In its simplest terms, his thoughts are that the United States’ binge on cheap imports over the last few years has fueled the growth of a middle class in much of the emerging world, which will now be anxious to consume U.S. exports. Exports rising relative to imports will improve GDP growth to offset a slowdown in consumer spending.

That’s in line with what another savvy economist, Don Hayes, has been saying for years now: “The technology revolution produces a massive new flat world which ignites a spread of democracy which unleashes a huge sponge of new consumption which launches the greatest economic boom in the history of the world…”

With so much negative news out there, this is a scenario that is more fun to ponder.

Here is a link to an article in Barron’s about Jim Paulsen’s recent remarks.

Article

Having seen a number of positive macroeconomic developments recently, including very positive TED Spread readings, stability in auto and existing home sales, and waining in weekly initial jobless claims, we have been paying particular attention to corporate earnings as we’ve begun the third quarter of 2009. We’re looking for fundamental confirmation that the economy and corporate profits in general are in an uptrend. What we’ve seen is that, on a general level, thus far the reports have come in strongly positive.

Of the 30 companies in the Dow Jones Industrial Index, the seven who have reported have all reported better than expected earnings. Because sucessful stock selection lies in finding unrecognized value, positive earnings surprises are key to a good market environment.

The chart below details the 3rd Quarter of 2009 earnings reports from companies in the S&P 500 Index. While it is extremely clear that companies are not seeing the kind of growth we had grown accustomed to, the number of companies reporting positive earnings surprises illustrates that at least on a corporate earnings basis, things are better than anticipated.

In our quarterly newsletter we noted that investors would likely return to the core investment philosophy of earnings analysis. The past few days have been marked by exactly that. With government action on the sidelines and corporate action on the field, its nice to finally see the bulls putting up some points.

July 20, 2009

The New York Times created a marvelous interactive chart which tracks the economy and leading economic indicators through the business cycle since 1970.

Not only is it interesting to see the interaction between the two over the past 40 years, but it’s also encouraging to see that the Organization for Economic Cooperation and Development’s leading indicators are showing a sharp turn for the better in recent months, hopefully presaging an aggressive recovery.

Click here to access the interactive chart.