Exporting Jobs, Reshaping the US Economy, And Less Money To Buy Things

Far too many families that once benefited from middle class jobs in industry are now dependent on cobbling together a series of part time jobs in the service sector. The bottom line is that a lot of Americans are just making enough to get by until the next pay check and even be taking out paycheck loans to survive. Walmart warns of a weak outlook because it is pouring more and more money into keeping its market share while accepting a lower and lower profit margin. What Mother never told you about stock investing is that there may be periods in which cash in king, stocks slide steadily downward, and you have to pay the bank to keep your money on deposit. Think of Japan over the last two decades and how increasingly efficient industries had to keep dropping prices to maintain market share and not go bankrupt. This is the business version of treading water and not one of swimming the English Channel. As Walmart warns of a weak outlook long term stock investors may do well to repeat their fundamental analysis of each stock in their portfolio with an eye toward viability in a deflationary world. Luckily many US corporations are sitting on lots of cash which is a great margin of safety when the values of commodities, purchased goods, and wages are falling. It is a bad then when what the economy needs is an increase in the number of jobs at home.

How Bad Is It For Walmart?

Walmart reported an increase of profits from $1.18 a share to $1.24 a share to a total profit of $4.07 Billion. Unfortunately analysts had expect $1.25 a share

Wall Street had expected Wal-Mart to earn profit of $1.25 a share and $118.1 billion in revenue. Instead, the discount giant said net income rose 13% to $4.07 billion, or $1.24 a share, from $4.02 billion, or $1.18 a share. Same store sales fell slightly. Walmart is investing in new facilities and spending money on other strategies to make money and they are treading water. This would have flattened the stock price in normal times. However, the company is predicting two percent growth for the year after an expectation of up to six percent. Sound investment advice right now will be to keep an eye on the economy to see if a recovery boosts sales at retailers like Walmart. If your analysis implies that deflation is on the horizon it may be wise to keep a larger portion of your portfolio as cash, short term securities like 3 month Treasuries, or very short term certificates of deposit.

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Investing in China, or Not

Investing in China, or not, has often been a hot topic. But it may well be time to sell Asian stocks and not just Chinese stocks if speculation about the size of China’s debt is true. The issue is one of hiding debt or reclassifying debt so that it shows up on a different balance sheet. Investing in debt and growth fits China as the nation has become an industrial powerhouse and borrowed along the way. China’s growth has attracted a lot of foreign investment. However, fundamental analysis of investment prospects is difficult when large amounts of debt are hidden from the public eye and that of the accountant. Today it appears that the Chinese leadership is trying to put the brakes on growth and effectively deal with debt issues. Whether you choose to sell Asian stocks will depend upon whether or not you believe they will be successful in the short term.

How Bad a Problem and How Long to Recovery?

If the Chinese economy goes to heck in a hand basket, how long will it take to recover? A useful comparison is Japan. In the 1980’s it appeared as though Japan was set to take over the entire world. Then its own debt issues came to the fore, back room handshake deals that no one had been aware of. It has taken twenty years and now, finally, the new leadership has found ways to devalue the Yen and stimulate Japanese growth. Nevertheless, Japan and China do a great deal of trade and if China goes down it will hurt Japan as well. When you choose to sell Asian stocks you might want to include stocks in the recently recovered Japanese market as well.

Investment in Asia

The prospect of being in huge and growing market has encouraged many to buy Asian stocks, especially Chinese stocks. But it has always been wise to beware of investing in a nation with big transparency issues. Additionally, China is getting older. The country has had and enforced a one couple one child rule for decades. This policy has slowed growth in the world’s most populous nation to where India recently passed China as the nation with the most people. The traditional means of supporting the old in China is gone with its large families. Although the Chinese are big savers the government has no retirement programs and no health insurance programs for the elderly. Old age costs will come out of savings. The high savings rate in China will not come to the government’s rescue in a time of high national debt. It will go to caring for the elderly. Those interested in stock investing in China today will need to look carefully at tax rates and social needs as they affect business growth in the nation, as well as the possible burst of a real estate bubble and decreased demand for exports and higher wages drive manufacturers elsewhere. Our take on things is that it is probably time to sell Asian stocks and adopt a wait and see attitude. As always before you buy or sell Asian stocks do your own fundamental analysis !

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