Q&A with Mario Gabelli: The Strong Will Get Stronger

Tuesday, September 8th, 2009

An upshot of the financial crisis could be that investors go back to basics. In the case of equities, the means “plain old stock-picking” as Mario Gabelli of Gabelli Asset Management describes it. The paragraphs below are an excerpt of a recent interview Hedgeweek had with Gabelli.

GFM: Will the US be the first country to lead the way out of the crisis? How do you assess the administration’s actions up to now?

MG: Economic stimulus is co-ordinated, global and powerful. The US economy represents 24 per cent of nominal world GDP, and is about 60 per cent greater than the faster-growing China, Russia, India, and Brazil combined. However, we have our challenges. Within the US, the consumer is about 70 per cent of our economy and has been in a recession for the past year and a half. About nine per cent of Americans are now unemployed, and consumer spending remains hamstrung by rising unemployment, reduced wealth and the decline in stock market and housing prices, but also by the limited availability of credit.

An unintended consequence of the stimulation is likely to be inflation. We think the stimulus will work and that stocks are a good place to be. Both fiscal and monetary policy will work on a global basis, with speed bumps along the way. President Obama inherited a very difficult situation. Under the new administration we have had significant government intervention in the markets, which will be reduced as conditions in the economy improve.

GFM: What are you telling your clients? Have you changed anything in your investment strategy?

MG: The US economy should improve in 2010, helped by an uptick in auto spending and improvement in housing and the ongoing stimulus. There is upside operating leverage in corporate earnings, partly due to cost cutting. The secular themes are the US deleveraging and transferring its wealth to China. We expect more strategically-driven deal activity, as companies buy other companies to enhance growth. Our emphasis, as always, is on POSP - plain old stock-picking.

Click here for the full interview

Source: Hedgeweek, August 28, 2009.

Tags: China Russia, Consumer Spending, Corporate Earnings, Economic Stimulus, Emerging Markets, Fiscal And Monetary Policy, Gabelli Asset Management, Gfm, Global Basis, Government Intervention, India, Investment Strategy, Mario Gabelli, New Administration, Operating Leverage, Secular Themes, Speed Bumps, Stock Market, Unintended Consequence, Upshot, Uptick, World Gdp
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Rebecca Wilder: Waiting on the Sidelines (June 5 – 12)

Monday, June 15th, 2009

This post is a guest contribution by Rebecca Wilder*, author of the of the News N Economics blog.

This week’s economic reports show a global economy hanging in the balance: signs of stabilization present, but the lagged economic reports still show no decided turning points. Exports are crashing - China and Canada, who depend on exports to fuel economic growth, are seeing export income fall at an increasing annual pace. Canada’s housing market is suffering, but it’s decline is not even comparable to its southern neighbor. Unemployment rates surge as resource utilization falls precipitously, and taking prices down to negative territory. However, the recent uptick in oil - uptick! more like a rocket-powered boost - will relieve the drag on headline prices.

Exports continue to disappoint in China, Canada and the US. Foreign demand for economic growth is out for the count. From the WSJ:

“Although recent economic data offer increasing evidence of a recovering Chinese economy, the external environment remains weak, spelling ever more dependence on domestic demand for growth,” Morgan Stanley economists said in a note after the data were issued Friday, predicting Beijing won’t shift its monetary policy stance in the near term”.

Canada’s housing market is taking a serious tumble. However, one cannot compare this housing market recessionary response to the meltdown in the U.S. The Canada Housing and Mortgage Corporation, a bottom may be forming:

Housing starts are expected to improve throughout 2009 and over the next several years to gradually become more closely aligned to demographic demand, which is currently estimated at about 175,000 units per year.

And reality rears its ugly head as unemployment rates surge in the US, Canada, and Australia.

Inflation is (almost) negative across the board - Germany posts 0.0% annual inflation in May.

The weak global economy will keep inflation low, but the surge in oil - already over 15% since the May average - will relieve the drag on headline inflation!

Industrial production may have found its bottom in the UK, but not in Germany! Germany, the Eurozone’s biggest economy, helped to push the Eurozone’s industrial production down 21.6% in April.

Overall, signs of a bottom are certainly forming; however, we wait for a turning point to show up in most of the lagged reports (1-3 months).

Source: Rebecca Wilder, News N Economics, June 12, 2009.

* Rebecca Wilder is an economist in the financial industry. She was previously an assistant professor and holds a doctorate in economics.

Tags: Canada, Chinese Economy, Drag On, Economic Data, Economic Reports, Export Income, External Environment, Global Economy, Hanging In The Balance, Housing Market, Housing Starts, Monetary Policy Stance, Morgan Stanley, Mortgage Corporation, Negative Territory, oil, Resource Utilization, Southern Neighbor, Ugly Head, Unemployment Rates, Uptick, Wsj
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NFP = 18,000

Friday, January 4th, 2008

Barry Ritholtz’s blog The Big Picture featured this story today, Non-Farm Payroll (jobs) grew by a stunningly disappointing 18,000, which further reinforces the likelyhood the Fed will cut, probably by at least 50bps at the next FOMC meeting, on the back of this recessionary news.  
 
Mr. Ritholtz’s highly acclaimed blog is by far one of the best on the web.

Wow, that’s a pretty ugly chart above.

Here are the details, via BLS:

“The unemployment rate rose to 5.0 percent in December, while nonfarm payroll employment was essentially unchanged (+18,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today.

Job growth in several service-providing industries, including professional and technical services, health care, and food services, was largely offset by job losses in construction and manufacturing. Average hourly earnings rose by 7 cents, or 0.4 percent.”

So, December NF Payrolls rose much less than expected, up a marginal 18,000 — or as BLS described it, largely unchanged – versus a consensus of 70,000. This was the lowest reading since August 2003. Construction job losses are now finding their way into the data, regardless of the aforementioned Birth Death adjustment.

Unemployment rate rose to 5.0%, the highest in 26 months. As we have noted repeatedly in past months, to keep up with population growth requires ~150k new jobs to be created each month. Given the number of months we have seen below that level, an uptick in unemployment was inevitable.

The spin coming from the usual sources will be that this poor showing was the result of the August credit crunch, and is therefore likely to be a temporary phenomena.

I disagree. 

These same folks will point to the increasing odds of a 50 bps cut at the January meeting. Those futures have risen to 44% from 36% yesterday. Unfortunately, the Fed finds itself somewhat hamstrung by elevated inflation, $100 Oil and $850 Gold as signs proof of inflation.

~~~

Coming on top of the slowing Housing market, weak income levels, ISM manufacturing index, and auto sales, this is further evidence to the building thesis that a recession is increasingly likely.Sources:Employment Situation Summary   
BLS, DECEMBER 2007
http://www.bls.gov/news.release/empsit.nr0.htm 

   BLS, DECEMBER 2007http://www.bls.gov/news.release/empsit.nr0.htm    BLS, DECEMBER 2007http://www.bls.gov/news.release/empsit.nr0.htm  

Fed’s Inflation Fears Might Trump
Calls for Another Big Rate Cut Monetary-Policy Makers
Appear to Have Less Room To Maneuver Than in Past
GREG IP
WSJ, January 4, 2008; Page A3
http://online.wsj.com/article/SB119940394997266181.html

Tags: Average Hourly Earnings, Barry Ritholtz, Birth Death, Blog, Bureau Of Labor, Bureau Of Labor Statistics, Chart, Construction Job, Credit, Credit Crunch, Credit Market, Desc, Earnings, Economy, Fed, Food Services, Gold, Housin, Housing Market, inflation, Likelyhood, New Jobs, Next Fomc Meeting, Nfp 18, oil, Payroll Employment, Population Growth, Recession, REW, risk, Services Health, The Big Picture, Thesis, U S Department, U S Department Of Labor, Unemployment Rate, Uptick
Posted in Credit Markets, Gold, Markets, Oil and Gas | No Comments »