3 Bullish Signs in a Sea of Negativity

There’s a lot to be pessimistic about with all the downside risks in the macroeconomy.  Europe is teetering on the edge, the fiscal cliff is all anyone can talk about and even China is showing some signs of a hard landing.  But things could also be a lot worse than they are.  While I primarily like to focus on the risks that can trip investors up, I also like to maintain a measured optimism.

That said, here are three things that aren’t worth being negative about (at present):

Gasoline prices are falling.   Gasoline prices can be an enormous tax on the consumer and while gas prices are up substantially over the last 4 years, prices are up just modestly in the last year.  More importantly, they’re down almost 20% from their highs earlier this year.

The job market is still expanding.   Few things are more damaging to the economy than layoffs.  And while the labor market isn’t exactly strong it’s definitely not contracting.  In fact, the year over year gains in employment aren’t much worse than the 03-07 recovery.

Corporate profits are at an all-time high.  Although the consumer remains fragile US corporations are actually quite strong.  This is clear from the state of corporate profits, which are at an all-time high.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. How would the following affect your “measured optimism” around corporate profits?

    http://www.zerohedge.com/news/2012-11-27/14-sp-500-earnings-one-time-write-vaporware

    I tend to fall in your camp that corp profits are indeed still pretty strong, and I do understand the ‘consider the source’ component associated with the above link.

    Nonetheless, if you just objectively look at the data presented there, the point is fairly compelling that real/true profits (as opposed to ex-bad stuff) are definitely not growing very fast in FY 2012.

  2. I’m all for measured optimism, and the directional change in gas prices is a plus, but you’re measuring a fall from nearly all-time highs so not sure that it feels all that good to the average consumer.

  3. Yes, definitely not growing fast. I discussed the likely risk to corporate profits earlier this year. And I think the risk is to the downside at present.

  4. Let me put it this way re optimism I would not be on the short side of this market right now with your money nevermind mine. The very lopsided nature of the market at this time leaves the pessimists extremely vunerable to any good surprises and there will be a few because people are going to consistently underestimate the rate at which the housing market comes back and with it employment. I’ve well over 30 years of property experience and I’ve seen this before although this may be even more extreme. Blackrock I believe thought they ahd a two year window to buy equity for their fund.My money says’ they’ll be lucky to get two quarters more before they are competing with Joe Public for the property.Watch and learn.

  5. It seems like a chicken and egg question. Which drives which, housing or the jobs/economy? If the overall economy and job market get stronger, then housing will strengthen. If housing strengthens, the overall economy will improve. A big but here is that in the US, housing is now a much smaller percent of the overall economy than it used to be 15 or 20 yrs ago. Other exogenous factors could cause housing and the economy to go back toward anemic growth. Things like higher payroll taxes and cuts in gov’t spending.

  6. The Elephant in the room here is O’cradle to grave care.

    The ramifications of the 2000+ page health care regulations coming to fruition next year is mind boggling. IMO; This will be the largest relocation of resources since WW2. think about it. Well over a Half Million Doctors plus The millions of health care workers and all other folks in the industry confused by all the new laws, not to mention the ridiculous parts that say sales of Gold ect have to be reported, any new labor helpof small dollar amounts.. This could virtually paralyze the economy.. Could be a baby black swan IMO..

  7. Chinese stock market says otherwise. Surprised Cullen has not spoken about it in a post – he had a lot of posts in 2010-2011 discussing China s a leading indicator for the U.S. but has not mentioned Shanghai at multi year lows and its implications.

  8. The world is still acting as if all the massive amount of debt everywhere (including in China) will be swept under the rug if one stops talking about it.

    Investors like to focus on growth alone, but economic growth has to be contrasted with debts growth. If the former is fueled by the latter, then it cannot be sustainable, period.

  9. 3/4 of all new employment in the past 5 months, have come from governmental units…

    OMG!! In August, I speculated that to my wifey…