Wednesday, January 24, 2007

Some observations

I'm on the road and meeting with people at big companies whose names you would recognize...

  • The liquidity in corporate america is very high and board members are feeling a lot of pressure to compete with private buyout results. The recent huge profits generated by private buyouts of fragments of Ford, Vivendi, and several other companies may finally spur managers to start spending some of their huge cash horde. This sort of action, with company spending from cash hordes, could replace some of the potential loss in market strength due to any lessening of debt action.
  • The housing market is continuing to get worse! The projections inside housing firms are amazingly bad. Many of them are even starting to mark down the accounting value of unbuilt land on the assumption they won't be able to profitably build houses anytime soon!!
  • The last few years we've seen stock declines in January as companies "talk down" projected results followed by better performance later in the year as companies beat those projections. Interesting possibilities and parallels for this year.
  • Economic growth rates outside the US are increasing while the US is slowing. That's unusual. Usually US slowdowns prompt slowdowns elsewhere. It could be that the US is decoupling somewhat from its role as the global economic engine, this would actually provide more resilience from financial slowdowns.
This is turning out to be an interesting trip. Some positive things are going on in corporate America. It could be that this year will be okay to "up" in the markets, in which case the Federal Reserve would have achieved a near perfect interest rate performance by preventing inflation without damping the economy.

So, not quite time to run for the hills yet. And if the debt market remains strong and companies start using some of those private equity tricks to extract value, stocks could go up a bit from here.

I'll keep you posted.

FW

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