Fund Manager
Norm Lamarche
Where are the green shoots?
Remember the green shoots? In the aftermath of the world’s largest financial calamities, in the early days, post the depths of despair period, green shoots were the most fashionable buzzword in business commentaries. They were the singular, proverbial blades of grass that represented growth, amongst the devastated, lifeless economic landscape facing investors worldwide. That landscape, a year ago, to use my backyard- lawn analogy, was void of any life, let alone growth. It was a landscape requiring substantial amounts of fertilizer, and investors had to dig deep in order to find any signs of life. And when they did, investors would cheer for a slight moment, until they stepped back into the barren landscape. These green shoots were positive economic earnings, confidence, or geopolitical news that investors could cling to in order to restore their faith in the capital markets. What we find interesting today, a year later, is a lack of this buzz word altogether. The reason, of course is that my backyard lawn, while in no way perfect (green and thriving) is in pretty good shape, relative to where we’ve come from. It is in fact, largely covered with grass.
The economic world continues to normalize. Economic growth outside of China, India, Brazil, has become stickier. Corporate earnings are reflecting not only top line sales increasing, but also the massive productivity increases that you would expect post downturn, as a result of the aggressive cost cutting a year ago. Confidence, more importantly, has turned.
While the financial system was layered in excessive and creative debt products, it was the lack of confidence that led to the precipitous decline into the abyss. Confidence has been rising with every “so called” green shoot. My backyard lawn is in no way perfect. In fact, there are still many segments in the yard that appear brown and lifeless, and will continue to require both time and fertilizer to repair, and those segments will require very astute, attentive landscape management. The good news is that my backyard is largely usable today.
For investors, the first quarter of 2010 will likely give us a taste of what’s to come. A year ago, investors would look to these green shoots as a reason to rally the market. It may very well be because of last year’s rally in 2009, but investors today are preoccupied with what can go wrong. Whether it’s talk and focus about Greece or the other PIGS (Portugal, Italy, Greece, Spain), or health care legislation or new legislation/taxations to fix and control the financial system, investors would run for the hills, only to find out later that the broader economic and earning news is not as frightening as what was feared.
The Western world’s economies are recovering, albeit at a slower pace than during normal recoveries, as a result of the excessive debt baggage they carry. However, this jobless recovery is driving earnings growth. The good news is that the BRIC emerging nations are providing a great offset to the developed world. As for labor, with economic growth and waning labor productivity (as labor gets stretched as business grows), employment will come, which will help to drive future consumption and likely a sustained recovery.
Employment will come, as the world will need to cut the grass.
Norm Lamarche - Q1 2010 Commentary
Date Published
Fund Manager
Where are the green shoots?
Remember the green shoots? In the aftermath of the world’s largest financial calamities, in the early days, post the depths of despair period, green shoots were the most fashionable buzzword in business commentaries. They were the singular, proverbial blades of grass that represented growth, amongst the devastated, lifeless economic landscape facing investors worldwide. That landscape, a year ago, to use my backyard- lawn analogy, was void of any life, let alone growth. It was a landscape requiring substantial amounts of fertilizer, and investors had to dig deep in order to find any signs of life. And when they did, investors would cheer for a slight moment, until they stepped back into the barren landscape. These green shoots were positive economic earnings, confidence, or geopolitical news that investors could cling to in order to restore their faith in the capital markets. What we find interesting today, a year later, is a lack of this buzz word altogether. The reason, of course is that my backyard lawn, while in no way perfect (green and thriving) is in pretty good shape, relative to where we’ve come from. It is in fact, largely covered with grass.
The economic world continues to normalize. Economic growth outside of China, India, Brazil, has become stickier. Corporate earnings are reflecting not only top line sales increasing, but also the massive productivity increases that you would expect post downturn, as a result of the aggressive cost cutting a year ago. Confidence, more importantly, has turned.
While the financial system was layered in excessive and creative debt products, it was the lack of confidence that led to the precipitous decline into the abyss. Confidence has been rising with every “so called” green shoot. My backyard lawn is in no way perfect. In fact, there are still many segments in the yard that appear brown and lifeless, and will continue to require both time and fertilizer to repair, and those segments will require very astute, attentive landscape management. The good news is that my backyard is largely usable today.
For investors, the first quarter of 2010 will likely give us a taste of what’s to come. A year ago, investors would look to these green shoots as a reason to rally the market. It may very well be because of last year’s rally in 2009, but investors today are preoccupied with what can go wrong. Whether it’s talk and focus about Greece or the other PIGS (Portugal, Italy, Greece, Spain), or health care legislation or new legislation/taxations to fix and control the financial system, investors would run for the hills, only to find out later that the broader economic and earning news is not as frightening as what was feared.
The Western world’s economies are recovering, albeit at a slower pace than during normal recoveries, as a result of the excessive debt baggage they carry. However, this jobless recovery is driving earnings growth. The good news is that the BRIC emerging nations are providing a great offset to the developed world. As for labor, with economic growth and waning labor productivity (as labor gets stretched as business grows), employment will come, which will help to drive future consumption and likely a sustained recovery.
Employment will come, as the world will need to cut the grass.