The Tale of Two Cities

What are the two cities? The news of woe – a possible second dip in the economy – and the expected good corporate earnings reports. The media has been replete with negative news about the economy for the last two months. We stopped counting how many articles we had read about the coming “double dip recession”. These news items were part of the reason for the stock market correction in May and June. As to good corporate earnings – we have recently had meaningful conversations with numerous fund managers and continue to see a consistent theme. The information gleaned from these fund managers is that business is not as bad as the media is portraying it to be. In fact, many said that profits and earnings should be very good. In other words, what the media is saying and what is happening within the companies themselves are completely different. The tale of business is now surfacing with the first few companies (State Street Bank, Intel, Alcoa, etc.) releasing earnings well above estimates over the past week. This in turn is why the stock market is up over 6% so far in July.

Survey Results

We want to thank all our clients who responded to our survey earlier this month. The disparity between the news reports and what we are hearing from fund managers is why we wanted to see how the current business conditions are compared to March of 2009 and to two months ago. We wanted to see which “tale” is true. Whenever you sample a cross section of different industries, you do get a wide range of results. What is most important however, is what the majority of people are telling us. The survey results confirmed the good “tale” with no indication that we are falling into another recession (and definitely not like the one we just came through). Business is still reasonably better than it was back in March of 2009 and roughly about the same as it was two months ago. This indicated to us that the economy is not nearly as bad as the media is portraying it to be. This information, along with what we heard at a recent Morningstar conference, gives us more confidence that the downward move in the market in May and June was a simple correction and not the start of another recession.

Request: We know that our survey is just a snapshot that can change at anytime. If you do see a noticeable shift in your company’s business, either positive or negative, please let us know. These early signs can be very beneficial to us, and, in turn, your portfolio. Please email Jim at jgore@thorinvestment.com with any noticeable changes.

Sincerely,

Your THOR Team