January was a very telling month for the health of the United States economy and its consumer, which in terms of economic growth is the cornerstone to the economy. Retail chains across the country have recently reported their worst monthly sales results in almost five years. We have learned that a number of major chains are preparing for a slow down as they plan to close hundreds of stores and cut thousands of jobs. It has been reported that since December, major chains have announced plans to close at least 900 locations. The International Council of Shopping Centers has predicted that 5,770 retail locations will close this year. This represents a 25% increase over 2007, and the highest increase since 2004.
Wal-Mart Stores Inc. is a perfect example of a retail chain showing distinct signs of slowing. Wal-Mart has reported that same-store sales rose only 0.5% in January compared to a year earlier. This is far below its expectation of a solid 2% gain. In the fiscal year ended February 1st Wal-Mart US same-store sales rose just 1.4%. This is the lowest increase in nearly 30 years, since they began releasing this information to the public. Being the world's largest retailer, Wal-Mart can clearly represent the fading consumer sentiment within the marketplace. We will be watching their sales very closely as the United States teeters on the brink of a full blown recession. As these figures strike fear into the hearts of many investors, it only strengthens our belief that this is an opportune moment to buy stocks which have excellent growth and demand potential in their respective sectors.In recent years North American investors have enjoyed substantial returns from outsourced foreign markets. Stocks outside of the United States have outperformed the Dow Jones Industrial Average time and again and have done so for the fifth year in a row. According to a Morgan Stanley Capital International Index report, emerging markets increased almost 37% last year.
Investors hoping to scurry under that same shelter of foreign markets and continued global expansion have been sorely disappointed this year. In 2008, all markets have been singing the same song and it's not a happy one.. yet. There is a strong consensus that the economic turmoil originating in the United States is spreading across the globe. Let's have a look at the global indices and see how they compare to the Dow Jones Industrial Average which is down just over 7.8% this year.
- The U.K. FTSE 100 is down 11.3% on the year. (Last year gained 3.8%)
- China's Shanghai Composite Index is down 12.6% on the year. (Last year gained 96.7%)
- India's Sensex Index is down 13.6% on the year. (Last year gained 47.1%)
- Japan's Nikkei Stock Average Index is down 13.7% on the year. (Last year lost 11.1%)
- Hong Kong's Hang Seng Index is down 15.6% on the year. (Last year gained 39.3%)
- France's CAC 40 Index is down 15.9% on the year. (Last year gained 1.3%)
- Germany's DAX Index is down 16.5% on the year. (Last year rose 22.3%)
It is quite clear that there is no sector or market, either foreign or domestic to hide in at the moment. With that stated, we believe the best investors in the world are positioning themselves for the turnaround of the economy.
It is very difficult to pick market bottoms, even when using history as a guide. Using the S&P 500 as a benchmark, let's have a look at the numbers.
Many financial companies and homebuilders within this index have hit rock bottom prices in the last four months. The stock market and index has not taken as bad of a beating. The S&P 500 is down about 14.8% since its October peak. Since World War II, on average, the index dropped 26% from its peak during a recession time period. So if we are in or headed for a recession, the S&P 500 would have to drop another 200 points or just over 10% more. Pinnacle Digest believes we are in a mid-cycle slowdown and that the markets will not be spiraling downward for much longer.Mr. Warren Buffett has a unique view on the US economy which we all need to take into consideration.
Mr. Buffett at this moment is a 'Huge Bull' on the U.S. economy. He recently stated that, "I am a huge bull on the American economy." Friday morning a member of our team here at Pinnacle Digest came across an interview Warren Buffett participated in this week with the National Post of Canada, on a recent trip to Toronto. When asked about the US economy Buffett explained that, compared to 1982 when short-term interest rates were 21% "this is not a tough period." Buffett went on to state that, "We do not have an unavailability of credit to people who've got reasonable credit demands, and its not expensive. We're not in a credit crunch for those who have sound deals." When asked how bad things could get, he did confess he had no idea, but stated, "It could be pretty bad but we always come out of it."
With so many opinions, figures and negative signs spewing from the economy and government officials, the market is fluctuating greatly at the moment. Investors are in an environment of uncertainty and doubt but we believe that within the next few months they will witness the best buying opportunities of the decade.
PinnacleDigest.com