Boats Against the Current


A very interesting article in the WSJ Weekend showed "The Gang of Ten" generated 90% of the S&P earnings growth in 2012. (BAC, AIG, C, GS, WDC, JPM, AAPL, WFC, GE, IBM) Morgan Stanley's Adam Parker noted that operating earnings increased by only 1.3% through the 3rd quarter. (Most likely why he routinely appeared on TV predicting markedly lower equity prices)


Seven of the ten companies were on the receiving end of government bailout money. Six were financial companies whose earnings came off the abyss bottom. Companies are making nearly a dime of profit for every dollar of sales and corporate profits are at an all time high in GDP.

All of this means top line growth will be imperative to better equity prices in 2013. A more likely scenario is continued tepid growth and stagnant index levels. Growth - and more of - should be the topic. Lost in manufactured budgetary crisis and debt ceiling rants is the need for faster growth. The chasm between asset prices and economic momentum forged by aggressive monetary policy will narrow as efficacy declines. The nattering nabobs of negativism may have their day in the sun. For many, an economic setback will be vindication having missed what is now an advance of normal duration if sub-normal (Abby Normal?) heft.

The bottom line for us is this: Expect less and be pleased if things come out a tad better. As we  opined many times last year, the economy's biggest problem is its constant comparison to the last decade of the Credit Supercycle. There is no "New Normal", there is a persistent natural desire to return to days of budget surpluses, high employment, single malts and cigars that clouds our understanding of the present.

So we beat on, boats against the current, borne back ceaselessly into the past.

-The Great Gatsby by F Scott Fitzgerald

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