financialsense.com / update vom 11.01.03; Auszüge (mL)

verfasst von Tobias, 14.01.2003, 21:50

-->Guten Abend,

hier einige Auszüge aus Jim Puplava's letztem update zum Thema: Financial Storm.

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Debt Service

The other profit killer is debt service. Companies have been able to refinance much of their debt over the past few years, but credit spreads have widened as a result of growing credit risks. Last year was another record year for bankruptcies. Half of the 10 largest corporate failures in history, as measured by assets, occurred last year. The list of failures included some of the top names in American business. The list included Kmart, Global Crossing, WorldCom, Adelphia Communications, Conseco, and UAL. Credit rating agencies expect more of the same this year. They predict that one in every 13 companies with non-investment grade debt will default this year. That is double the average of the last two decades. In the junk bond sector and especially in telecoms, one in five companies is expected to go under. In textiles and software, one out of every six companies is forecasted to go bust.(4) Analysts warn to look out for companies with debt payments coming due this year or companies that are burning through cash.

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Watching The Debt Levels

There is also the enormous debt burden on consumers and corporations that still overhangs on the economy and the markets. Companies will need to rebuild their balance sheets. Consumers are now in the process of rebuilding savings as job prospects look grim and debt levels crimp the monthly budget. State and municipal budgets are also in a crisis mode especially in California and New York. In California, the governor has just proposed a massive $8.3 billion tax increase. States will be raising taxes this year, which will trim more money from consumers take-home pay. States are raising everything from income taxes, property taxes, sales taxes and sin taxes to raising fees on services. Higher state tax burdens will offset many of the gains coming from the President’s proposed tax cuts.

Because of rising debt issues, increased state taxes and a continued weak job market, I believe we will see the consumer retrench even more this year. If that happens, what remains on the horizon to act as a stimulus for the economy this year? The mortgage, real estate, and consumption bubbles literally rescued the economy after 9-11. What takes their place? It has to be either government fiscal spending or business capital investment. As discussed earlier, I don’t see capital spending improving until business profitability is restored, balance sheets repaired and pricing power returns to the business marketplace. I just don’t see that happening this year. If profitability improves, it will come only from cost cutting, which from a macro sense, reduces economic growth. Higher profitability and prosperity aren’t consistent with general cost cutting.

Therefore, I believe that there is a high probability that this year could become the first time since the Great Depression that the stock market experiences four back-to back years of consecutive losses. There are simply too many unknowns out there with geopolitical risks and increasing credit default risks at the government, corporate and consumer levels.

Lastly, let us not forget that stocks aren’t cheap. The Dow still sells at 3.6 times book, the S&P 500 trades 4.3 times book value and the NASDAQ has no earnings. Pro forma P/E ratios are 23 for the Dow and over 30 for the S&P 500. So unless you are smoking weed, popping hallucinogens or are on some other mind-altering drug, there is no way that trailing earnings are going to go from $30.57 on the S&P 500 to $48 or $54 this year. That is unless you strip out all impairment charges, stock option expense, pension plan contributions, plant writedowns and other restructuring charges and expenses that reduce earnings.

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What I"See" Ahead in 2003

In summary, economic and financial risks are plentiful this year, but geopolitical risks are even greater. Never can I recall the advent and appearance of so many risks and uncertainties existing at the same time. The age of peace and stability is over. We are now entering an era of war and financial instability. The age of fiat currencies is ending.

Tobias

<ul> ~ Hier der ganze Text von Jim Puplava</ul>

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• financialsense.com / update vom 11.01.03; Auszüge (mL) - Tobias, 14.01.2003, 21:50