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Money Coach

September 2007 - Posts

  • Are Technology Stocks Recession Proof?

    The Wall Street Journal has an interesting article out this morning touting a new defensiveness among investors -- and what they plan on doing to protect their portfolios against a possible recession. "With the housing downturn, credit crunch, gloomy employment data and a parade of maudlin financial forecasts have been enough to send some investors scrambling for bubble gum and beer," says The Journal. "While economists jawbone about whether the U.S. will sink into recession, investors already are thinking of ways to prepare their stock portfolios for a downturn." The article states that, even if there isn't a full-blown recession -- usually defined as two consecutive quarters of negative economic growth -- many investors and strategists are bracing for a significant slowdown in growth. "It's going to feel a lot like recession," says David Kostin, global investment strategist at Goldman Sachs. The Journal also publishes an index of potential "recession-proof" sectors and companies. On that list, surprisingly (to me, anyway) is the information technology sector, with Microsoft listed as a "safe" recession-proof stock play. The article also includes the telecom sector, but I don't really have a beef with that. People won't turn in their cell phones over a few bad economic quarters. Listed as the best play in telecom is AT&T, which historically has performed well in tough economic times. But technology stocks? When the economy goes south, technology has historically been one of the hardest-hit sectors, with the possible exception of auto and travel industry stocks. Businesses pull back on their IT expenditures in recessionary times. Americans hold off on the purchase of a new computer. Big-ticket items tech items like computers, laser printers, and packaged software like Lotus Notes or Dreamweaver are considered luxuries that people can wait for - - something to be purchased when money is ample and credit a bit more relaxed. I'm not even sure we're going into a recession (technically defined as two straight quarters of negative economic growth, as measured by the Gross National Product (GDP) Index). The Federal Reserve has gone against it's inflation-fighting grain and lowered interest rates for the expressed purpose of keeping us out of a recession. That's a big factor. But even if we did go into a recession, technology stocks are one of the last "save havens" I'd want to seek refuge in. Better to wait for a sunnier day.
    Posted Sep 24 2007, 03:30 PM by moneycoach with no comments
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  • Money Guys See Retail Economy as Strong for Remainder of '07

    I get a headache trying to figure out the financial media these days. Last week, the business pages were full of gloom-and-doom stories about the bad economy and how the housing mess is greasing the skids for a recession this year. I thought that the banking industry had pretty much contained the sub-prime fallout and, even though a lot of lenders and borrowers would get whacked, the economy would hold together. But one negative jobs report, the one that came out last Friday from the U.S. Labor Department showing a cut in job growth, seems to have given financial journalists a bad case of the vapors. All weekend long I saw headlines on Bloomberg, CNN, and Real Clear with the word "recession" in the title. It's almost like they're hoping a recession will happen because so many members of the media hate President Bush. Any news that is bad for the President is good for them, the rest of the country be damned. So you'd think that the financial forecast for the rest of the year, given the grim sentiment from the mainstream media, would be a lousy one. If so, think again. According to a new study by BDO Seidman, LLP, a Chicago-based accounting and consulting organizations, chief financial officers (CFOs) at leading U.S. retailers -- the people who ought to have their fingers on the pulse of the nation's economic climate -- are predicting 5.6 percent retail store sales growth for 2007. That's way ahead the rate of inflation and also way ahead of the sales numbers we've seen so far in 2007. That sounds like good news to me. Of course, not everything is rosy. Close to half (47%) of the CFOs cited high fuels costs as the issue having the greatest impact on consumer confidence in the first half of 2007. However, looking forward to the balance of the year, there was less agreement among the CFOs on the main issue that will impact consumer confidence. High fuel costs (29%) and the weak housing market (25%) were cited by at least one-quarter of these executives, while interest rates (19%) and the sub-prime lending crisis (15%) were also mentioned by a number of CFOs. “When you consider that high fuel prices have been with us for some time now, the shift in concern towards issues such as interest rates and the sub-prime lending crisis seems to indicate a growing anxiety about a potential credit crunch for consumers,” said Al Ferrara, a partner in the Retail and Consumer Products Practice at BDO Seidman. “Given the existing concern with the weak housing market – remember many consumers borrow based on the value of their homes - and the recent volatility in the stock market, discretionary income may dry up and that could have a negative impact on the retail sector as we move into the critical holiday shopping season.” The study covered 140 chief financial officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country, with revenues of more than $100 million, including 23 percent of the top 100 based on annual sales revenue. The survey was conducted in August of 2007. Here are some of the more prominent themes culled from the study: -- Same Store Sales Lag Overall Growth. A slight majority of the retail CFOs (56%) reported an increase in sales revenue over 2006 during the first six months of this year. However, when considering only comparable store sales the percentage of retailers reporting an increase dropped to less than half (45%). Less than a fifth (18%) of the CFOs reported a decrease in revenues in the first half of the year, with 22 percent reporting a drop in comparable store sales. -- Rose Colored Glasses? Looking forward, a majority (71%) of the retailers anticipate total 2007 sales revenue to increase from 2006, with only 11 percent predicting a decrease. Overall, the CFOs estimated average revenue growth of 5.6 percent for 2007. -- Weak Housing Concern of Largest Retailers. Among the financial officers at the top 100 retailers, almost half (45%) pointed to the weak housing market as the primary issue to impact consumer confidence during the remainder of the year, which is more than double the percentage of mentions (21%) among the balance of the retailers surveyed. So yes, there are plenty of areas for concern as we move into the latter stages of 2007. The housing crisis isn't over, and credit is still tougher to get than it has been for both home borrowers and businesses. But, as the CFO study attests, there are plenty of points of optimism, as well. Ultimately, take what the mainstream media says with a big grain of salt.
    Posted Sep 10 2007, 10:45 AM by moneycoach with no comments
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