Global Crisis Blog

Ragged Recovery – Where’s Waldo?  by Shlomo Maital

  

 

Where’s Waldo (Recovery?)

A wonderful book titled  Where’s Waldo? challenges us to find Waldo in a hugely detailed graphic.  Today we play Where’s Waldo? with the American economy.  Where is the recovery?  Where is the opportunity?  The answer is:  It is there, but takes a powerful electronic microscope to spot it.

   The reason stems from the title of our new book Global Risk/Global Opportunity:  In every global crisis and downturn, there are opportunities; this requires managers and investors, first, to think in terms of finding opportunities, and second, to know where to find them.

    Here are the latest data for fourth quarter 2010 revenues per share, for key American economy sectors, showing the per cent change relative to the same quarter in 2009.  These data are from Howard Silverblatt’s blog in Bloomberg Business Week (Jan. 12). 

   Consumer discretionary   0.53 %

      Consumer staples              5.46

   Energy                                22.88

   Financials                     –    10.94

   Health Care                          6.5

   Industrials                            9.8

   IT                                         11.97

   Materials                             3.66

   Telecom                              1.64

   Utilities                            16.65        

  S&P 500 Av.                       5.96

    Some sectors are still doing terribly (financials), having failed to find replacements for the immensely profitable nostrum trading now very limited.  Consumer spending has not really recovered, but staples (the basics) are doing great, because consumers are spending mainly on ‘necessities’.  Energy, utilities, both are doing very well.  IT is doing well, I think mainly because companies desperately seek productivity tools.  Telecom is flat.  Health care is up, because, well, health gets high priority and has endemic cost inflation.     But my main Where’s Waldo? point is this: The standard deviation of  earnings per share growth is 9.33 per cent !   Look only at the simple average,  6.8 per cent,  or the S&P 500 average,  5.96 per cent, and miss the opportunities.

    So where are the opportunities?  In times of uncertainty and pessimism, what will people buy, where will they allocate spending to things they perceive as essential? How can you position your product as essential? How can you rebrand it with a value-for-money proposition?  Never believe the economists’ tales about a one-size-fits-all economy.  No single phrase describing the economy (“weak recovery”) ever fits any single industry.  Dig deeper, find the real story about each industry, and remember that there is exceptionally high variance in the year-to-year percent change in earnings per share, especially during transition periods.