Mid-term blues it was the economy, stupid – MoneyWeek

Housepricesaren’trisinganymore,though,andnorismortgageequitywithdrawal。

Themedianpriceofanewsinglefamilyhomefellmorethan9%inthe12monthstotheendofSeptemberthisyear。

Worse,justasinBritain,manymortgagestakenoutonshort-termfixedratesafewyearsagoarebeingresetathigherlevels。

Suddenly,thefactthattheaveragesalarynolongerreallyfinancestheaveragelifestylehasbecomehorriblycleartotheaverageAmerican。

Nowondertheyfeelalingeringsenseofdissatisfactionmostofthetime。

Theheadlinesmaytelluspeoplevotedagainstthewar,buthadthehousingbustheldoffforafewmoremonthswouldtheDemocratshavehadquitesomuchtocelebrateabout?

Wherehasthemoneygone?

Still,theUSeconomyhashadagreatrunoverthepastfewyears,soifthemoneyhasn’tflowedintothepocketsofthegeneralpopulationintheformoftheirwages,wherehasitgone?

Theshortanswerisintothehandsofthealreadyrich,andinparticularAmerica’sshockinglyoverpaidchiefexecutives。

ThemedianremunerationoftheexecutivesrunningAmerica’sbiggestcompanieswasmorethan$18min2005,withalargenumbertakinghome$100m-plus。

Hollywoodstudiobossesaside,IwonderhowmanyofthemvotedDemocrat。

Themoneyhasalsoturnedupasrecordcorporateprofits(whichmakessense—thelessyoupaythemajorityofyourworkersthebetteryourprofitsaregoingtobe)。

Third-quarterearningsfromtheSP500companieslookliketheyaregoingtobeupmorethan18%fromlastyear,aperformancethatisevenmoreimpressivewhenyounotetheyhavebeengrowingatdouble-digitratesfor18straightquarters。

America’sworkerswouldprobablyliketothinkthat,withprofitslookingsoverygood,theymightsoonseesomemoreoftheirnation’swealthheadingtheirway。

Buttheoddsofthemgettingtheirwishesgrantedinanybigwayarelow。

Notonlyaretheranksofshamelesschiefexecutivesunlikelytobesympathetic,butprofitgrowthisalsounlikelytostaystrongforverymuchlongeranyway。

However,thereisalreadyevidencetheeconomyisslowing(HSBCexpectstoseegrowthoflessthan2%nextyear)andacloselookattheearningsfiguresshowstheverygoodnumbersarenotspreadacrosstheboard—insteadtheyareskewedbytheparticularlygoodperformanceofthefinancialandenergysectors。

HowareUSequitiesperforming?

Thefiguresalsoshow,asDavidRosenbergofMerrillLynchpointsout,thattheyhavebeenflatteredbysharebuybacksandcomparisonswiththethirdquarterof2005,whenearningsweredepressedinthewakeofhurricaneKatrina。

Theconsensusnowisthatbynextyear’ssecondquarterearningsgrowthwillhavefallento6%-7%。

Thebullswilltellyouthatthisdoesn’tmuchmatter。

USequitiesaresocheap,theysay,thattheymorethanreflecttheoddsofanykindofslowdownoverthenextfewyears。

ItistruethattheUSmarketisnotexpensive—despitethefactthattheindexeshavemadebackmostofthelossesoftheearly1990s,theystilltradeonanaverageprice/earningsratioofonly15times。

Butthatisn’tcheapeither,andifearningsstopgrowingitisgoingtolooklesscheap。

Thesameistruehere,wheretheFTSE100isnowtradingatafive-yearhigh。

Ikeepthinkingaboutputtingnewmoneyintothemarketsnowthesummerisover,butIlookattherecessionaryrisksintheUS,atthelikelihoodofpoorcorporate-profitgrowth,andatrisinginflationandinterestratesonbothsidesoftheAtlantic。

ThenIlookatthefactthatIcanget5。

25%inarisk-freesavingsaccountandIjustcan’tbringmyselftoinvestinsharesinanyrealvolume。

I’mnotaloneinthis。

Ihostedaroundtablelastweekandfoundmostoftheparticipants(mainlyfundmanagers)tobequitebullishintheirgeneraloutlook。

ButwhenIaskedthemtotellmepreciselywheretheywouldinvestatthemoment,theirlackofconvictionsuddenlyshowed—no-onecouldgenuinelysaythattherewasonemarketthey’ddefinitelybuyoveranother,onesectortheyfeltnoinvestorshouldbewithout,orevenpointtojustonemust-havestock。

OftenafteraroundtablewithagroupofclevermanagersIleaveitchingtoreorganisemyownportfolio。

IleftthatonewonderingifIshouldmovesomeofmysavingsoutofFirstDirectandintooneofthenewIcesave。

comaccountsjusttoaddabitofdiversification。

FirstpublishedinTheSundayTimes12/11/06

NakedTextNakedText