RESULTS FOR FIRST QUARTER 2016

Results For First Quarter 2016

 

As companies report earnings for the first quarter of 2016 there are unfortunately no positive surprises. We expected a weak quarter and we got it.

Weighed down by the energy slump and weak global growth this is the third straight quarter in the longest slide in declining earnings since 2008. Earnings overall were down a negative -5.5%.

Revenues at a negative -1.4% will have declined for five quarters in a row, exceeding even the four quarter slide in 2008 and 2009

Housing, which advanced at a rate of 14.8%, kept GDP from going negative .GDP advanced at a .5% seasonally adjusted rate which marks the economy’s worst performance in two years. Housing was almost too strong prompting some analysts to start worrying about another bubble in certain cities.

But consumer spending, which accounts for more than two thirds of economic output, has been descending for three consecutive quarters. Low gas prices and job gains (not wage gains) have not been enough to spur consumers to spend instead of save.

A real eye catcher is the fact that Apple reported its first quarterly revenue decline in 13 years.

 Another shocker is that a number of oil companies have ceased, for the first time in history, to explore for additional reserves. A 114% loss of revenue compared to the same quarter last year explains this move. At current prices it costs more to drill for a barrel of oil than it can be sold for.

Of course the oil industry has decade’s worth of reserves but legislation to curb climate destruction such as taxing carbon emissions could hasten a shift to cleaner energy.

Analysts from Bank of America, Goldman Sachs, and JP Morgan are all urging investors to rotate out of equities because they see a painful summer ahead.

Those of you in the CWP Covered Call program know that I “rotated” out of the Enhanced Dividend Program in late February. I moved your funds into the more conservative ETF program which is hedged by bonds, gold, cash, etc. in expectation of this pull back.

Jon Moeller, Chief Financial Officer for P &G said Tuesday;

“There are more flashpoints across the globe that at any time

in recent memory with political and economic instability impacting incomes and consumption in many large and important markets.”

For me, the most telling statistic is that business investment is a negative 5.9% for the quarter. This tells us businesses do not expect demand for their products to pick up for some time otherwise they would be investing in equipment, workers, factories, product development etc. If they won’t invest in themselves why should an investor?

This is all consistent with my general outlook that the world economy is going to be experiencing continuous contractions as the public and private sectors pay down the enormous debts they incurred to produce the “growth “ of the last 40 years.

The return of the S&P for 2015 was a negative 0.7%. Investors took a lot of risk to achieve that negative result. We bested that return by at least 2% in bonds while taking extremely low risk. Draw your own conclusions.

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