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It appears that very few CEOs in the United States will meet the deadline for signing off on financial statements, largely because of the difficulty of collating much information on short notice from world-wide subsidiaries and the sudden overburdening of U.S. accounting firms. Some believe that more important than this initiative is the impact on the stock market of before and after hours trading from which the individual investor is barred. It is pointed out, however, that with markets open around the world, the prohibition becomes meaningless. Jacques Clément’s Analysis:S.E.C. AUGUST 14th DEADLINE:The S.E.C.’s request to the CEOs and CFOs of the nine hundred and forty-seven largest U.S. corporations of signing their financial statements under oath could have significant impact on financial markets next week, given that only twenty-five of them have responded so far, with one week to go and given the comments of General Electric’s CEO that “one hundred companies will see it impossible to sign, given among other things, their pension funds’ assumptions and other impediments.” The Dow-Jones has given back two hundred and eighty points of the last seven days of July’s one thousand point recovery, in the face of continuing corporate scandals, the Middle East conflict, the financial crisis in Latin America, the significant slowing pace of the U.S. recovery and the talk about invading Iraq. The market will remain fragile and volatile in the coming weeks, given the uncertainties about the U.S. economic outlook, the loss of wealth (three trillion dollars since mid-May), the very tight credit conditions for the corporate sector and the still expensive state of the stock market. THE U.S. ECONOMY:With 1.1% growth in the second quarter, GDP and negative final sales, there are signs of renewed weakness in the June-July housing sector, manufacturing data, services reaching a six month low, exports, wholesale and employment. Only six thousand new jobs were created in July. Consumer sentiment has eroded substantially and is at its lowest since the mid ‘90s. Leading indicators were flat in June and the trade deficit reached a near record of almost thirty-eight billion, with 6.5% rise in imports in the last two months published.Business investments remain sluggish. Many analysts and strategists expect the effect of the erosion of wealth will lead the U.S. economy into another recession, but Jacques would give it no more than a forty percent chance at the moment, given continuing strength in personal income and assumption of likely strength of retail sales for July, record auto sales (annual rate 17.9 million, volume +10%), increased net government spending, the lean manufacturing inventory with early signs of rebuilding and the degree of monetary stimulation already in place. He expects the Federal Reserve to leave their overnight rate unchanged at 1¾% when they meet August 13 but they are likely to announce “an easing bias.” Low inflation coupled with low energy prices, will remain very positive for the economy but growth will have to be revised down to approximately 2% in the second half with potentially one negative quarter, starting with the second quarter. Federal Reserve should be easing by ¼% at each of the three meetings starting in September, for an overnight rate of 1% by yhear end. CANADIAN ECONOMY:Looking at the flat May GDP number, negative retail sales, declines in auto sales and wholesale, in shipments of autos -7.5%, in manufacturing investments and production (autos, down 9%), inventory liquidation, sluggish business fixed investments and the 2% decline in exports are indications that the economy is showing signs of fatigue. Housing starts and non-residential construction declined in June, with the third consecutive quarterly business decline. Business confidence is at its lowest level in five years (minus thirteen points in June-July) and the Ivey Purchasing Managers’ Survey were flat in June. The Bank of Canada is likely to stay neutral at its September 4 meeting, with the overnight rate at 2¾%. With the weaker U.S. economic outlook, exports to the U.S. will decelerate, capital investments will remain weak, consumption and the service sector will decelerate, but the residential sector will recover, thanks to a renewed decline in mortgage rates. Second quarter GDP is likely to be at 3% to 3½% annual rate and the second half of the year at a 2% to 3% pace .QUOTES OF THE EVENING:
clink for a QTVR of & A Big Night
Notes by Herb Bercovitz • & Edited by Diana Thébaud Nicholson
2002, Aug 7th. Notes for #1066
Monday, Aug. 5, 2002 Last week, a report on the nation's gross domestic product showed the economy nearing virtual stagnation in the second quarter, growing just 1.1 percent. That was followed by weaker-than-expected results in a survey of manufacturing activity, when the Institute for Supply Management said its index of business activity slipped to 50.5 percent in July from a 56.2 percent in June. Analysts had been expecting a reading of 55.0. Then on Friday, the Labor Department added more bad news when it reported that U.S. businesses increased their payrolls by only 6,000 positions in July, considerably less than the 50,000 to 80,000 jobs Wall Street analysts had been projecting. From the beginning of 1926 through 1999, the stock market had an annualized return of 11.3 percent, according to Ibbotson Associates of Chicago, using the Standard & Poor's 500 since 1957 and the S.& P. 90 before that. By checking the standard deviation, the most widely used statistical measure of that variability, we know the market's historical returns fell within a surprisingly large range — from minus 8.7 percent to positive 31.3 percent — in about two-thirds of those 74 years. (To come up with that range, add or subtract the standard deviation, 20 percent, from the 11.3 percent mean.) The market losses in 2000 and 2001 were just slightly below that range, so they should not have been shocking. stocks have failed to keep pace with 90-day Treasury bills over the last five years. How about 10-year holding periods? The numbers are hardly more reassuring: Stocks have failed to outperform T-bills 20.4 percent of the time. In fact, the only way to be more than 90 percent confident that buying and holding stocks will outperform T-bills is to hold on for nearly 20 years. But now, with the market in a third year of losses, some investors are going to the other extreme, doubting whether the market can ever go up. This explains why buy-and-hold is now so out of favor. Neither extreme is helpful. As recent experience illustrates, buy-and-hold strategies are not for the faint of heart. If two and a half years of losses are enough to make you retreat, you don't have what it takes David N. Thank You All please also sign the book Great
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